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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to
Commission File Number 001-33843
_______________________________________________
Synacor, Inc.
(Exact name of registrant as specified in its charter)
Delaware

16-1542712
(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)
40 La Riviere Drive, Suite 300
Buffalo, New York

14202
(Address of principal executive offices)

(Zip Code)
(716) 853-1362
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)

(Name of each exchange on which registered)
Common Stock, $0.01 par value

The NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act:
None.
(Title of Class)
_______________________________________________
 
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 x
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  x
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  x  No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 x  No o
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer.” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer

o
Accelerated filer
o
Non-accelerated filer

x   (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No  x
    



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The aggregate market value of shares of common stock held by non-affiliates as of June 29, 2012, the last business day of the registrant's most recently completed second fiscal quarter, computed by reference to the closing sale price of $13.70 per share on The NASDAQ Global Market on June 29, 2012, was approximately $222,146,843. For purposes of this disclosure, shares of common stock held by persons who held more than 10% of the outstanding shares of common stock at such time and shares held by executive officers and directors of the registrant have been excluded because such persons may be deemed to be affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes.

As of March 21,2013, there were 27,296,894 shares of the registrant's common stock issued and outstanding. All share and per share amounts in this Annual Report on Form 10-K reflect the 1-for-2 reverse stock split of the registrant's common stock which took effect immediately prior to the effectiveness of the registration statement for the registrant's initial public offering.
_______________________________________________  
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive Proxy Statement to be used in connection with the registrant’s 2013 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K to the extent stated. That Proxy Statement will be filed within 120 days of registrant’s fiscal year ended December 31, 2012 .



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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements that reflect our current views with respect to future events or our future financial performance, are based on information currently available to us, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements containing the words “believes,” “can,” “expects,” “anticipates,” “estimates,” “intends,” “objective,” “plans,” “possibly,” “potential,” “predicts,” “targets,” “likely,” “may,” “might,” “would,” “should,” “could,” and similar expressions or phrases (including the negative of such expressions or phrases). We intend all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements in the sections of this Annual Report on Form 10-K titled "Trends Affecting Our Business" and "Key Initiatives" as well as statements about:
our expected future financial performance;
our expectations regarding our operating expenses;
our strategies and business plan;
our ability to maintain or broaden relationships with existing customers and develop relationships with new customers;
our success in anticipating market needs or developing new or enhanced services and products to meet those needs;
our expectations regarding market acceptance of our services and products;
our ability to recruit and retain qualified technical and other key personnel;
our competitive position in our industry, as well as innovations by our competitors;
our success in managing growth;
our plans to expand into international markets, including our recently announced joint venture in the People's Republic of China;
our success in identifying and managing potential acquisitions;
our capacity to protect our confidential information and intellectual property rights;
our need to obtain additional funding and our ability to obtain funding in the future on acceptable terms; and
anticipated trends and challenges in our business and the markets in which we operate.
Any forward-looking statements contained in this Annual Report on Form 10-K are based upon our historical performance and our current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. All forward-looking statements involve risks, assumptions and uncertainties. Given these risks, assumptions and uncertainties, you should not place undue reliance on any forward-looking statements. The occurrence of the events described, and the achievement of the expected results, depend on many factors, some or all of which are not predictable or within our control.
Actual results may differ materially from expected results. See “Risk Factors” and elsewhere in this Annual Report on Form 10-K for a more complete discussion of these risks, assumptions and uncertainties and for other risks, assumptions and uncertainties. These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements.
Other unknown or unpredictable factors also could harm our results. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report on Form 10-K might not occur, and we therefore qualify all of our forward-looking statements by these cautionary statements. Any forward-looking statement made by us in this Annual Report on Form 10-K speaks only as of the date on which it is made. Except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I
ITEM 1.
BUSINESS
Our Business
Synacor, Inc. (“we,” “Synacor” or the “Company”) is a leading provider of startpages, TV Everywhere solutions, Identity Management (IDM) and various cloud-based services across multiple devices for cable, satellite, telecom and consumer electronics companies. We are also a leading provider of authentication and aggregation solutions for delivery of online content. Our technology allows our customers to package a wide array of online content and cloud-based services with their high-speed Internet, communications, television and other offerings. Our customers offer our services under their own brands on Internet-enabled devices such as PCs, tablets, smartphones and connected TVs.
Our technology provides single sign-on capability, enabling consumers to seamlessly sign in and consume packaged online content and services from numerous programmers and content providers. These services include, but are not limited to, e-mail, security, online games, music and authentication of TV Everywhere, a technology enabling consumers with applicable rights to access on-demand television online via multiple devices including PCs, tablets, smartphones and connected TVs. We offer consumers access to these services on demand through a user-friendly, customer-branded online solution and, increasingly, across multiple devices. We enable our customers to sell a menu of content and services to their consumers either on a pay-per-view basis or as a new service tier added to their existing subscription relationship.
Our technology offers our customers a comprehensive solution by providing consumers access to a broad range of online products and services. Following initial integration with our technology, our customers gain access to a wide range of programmers and content and service providers with whom we have licensing and distribution agreements. In addition, we may integrate into our technology content and services that form part of our customers’ existing offerings. Our flexible architecture integrates with our customers’ billing and subscriber management systems, as well as with third-party content and services.
Our customers direct consumers to their branded websites, referred to as our startpages, which comprise the consumer-facing components of our technology, where consumers have access to the online content and services available to them at their respective subscription levels. This enhanced Internet experience helps connect us and our customers to their large and engaged consumer base. We monetize the online traffic generated by these consumers through search and display advertising. We also charge fees for value added services delivered through our startpages. Search queries, advertising impressions and use of our services have historically grown as we have added new customers and as our existing customers continue to further adopt our service offerings. Our business model creates deep customer relationships: as we monetize our customers’ online traffic, we share a portion of this revenue with our customers, resulting in a mutually beneficial partnership.
Recent Developments
On March 11, 2013, we entered into a Joint Venture Agreement, or JV Agreement, with Maxit Technology Incorporated, a company incorporated under the laws of the British Virgin Islands, or Maxit, and Synacor China, Ltd., a company incorporated under the laws of the Cayman Islands, or the JV Company, pursuant to which Synacor and Maxit will each initially own 50% of the JV Company. Subject to the completion of customary regulatory requirements, the JV Company will, through a wholly foreign-owned subsidiary, or WFOE, in the People's Republic of China, or the PRC, supply authentication and aggregation solutions for the delivery of online content and services to customers in the PRC.
Our Strategy
We intend to:
add new customers, and expand on our offerings with current customers, to increase our consumer reach;
continue to expand our offerings of, and invest in, cloud-based services such as e-mail and TV Everywhere and increase the number of customers using our TV Everywhere authentication technology;
enhance our direct advertising sales effort to increase the CPMs derived from advertising;
extend the availability of our existing and new products and services to additional devices including tablets and smartphones;
expand our presence into international markets; and
invest in and acquire new technologies and products.

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Services and Products
We provide a proprietary technology solution that enables our customers to drive consumer engagement and generate new revenue streams through an array of online content and services such as video, search, advertising and value added services. Our customers use our technology to develop personalized startpages that serve as their consumers’ respective online hubs for communication services, entertainment offerings and support services.
Our startpages enable our customers to combine entertainment, such as television shows, multi-player games and streaming music based on a subscriber’s access rights and preferences with communications offerings such as voicemail, e-mail, and third party messaging services like Yahoo Mail, Google Gmail, MSN Hotmail, Facebook, and Twitter. Our technology further allows our customers to deliver appropriate account tools, support, bill pay services and sell promotions to their consumers, all without leaving the applicable customer’s startpage.
We generate revenue from consumer traffic on our startpages through search and display advertising revenue, which we collect from our search partner, Google, our advertising network providers and directly from advertisers. We typically share a portion of this search and display advertising revenue with our customers. We also generate recurring revenues in the form of subscriber-based fees for the use of our technology, value added services and paid content, which we collect from our customers.
Our Startpages
The key features of our startpages include the following:
Startpage Design and Development . Using our technology, we create, design and develop branded startpages for our customers. Our startpages are designed to be the initial online destination for our customers’ consumers and typically aggregate a broad array of resources, including free-to-subscriber content and service offerings, value added services, applications, or apps, online content and search, all in one location.
Unified Registration and Login (Single Sign-On) . Our technology gives subscribers access to all of the value added services and paid content, including subscription television programming they have the right to consume, using a single user ID and password, which are typically the same credentials that they use for e-mail. Single sign-on for subscribers is accomplished by integrating with both our customers and our content and value added service partners. Because our single sign-on technology was built to accommodate many authentication mechanisms, we are able to integrate with a wide range of partners. We also allow subscribers to sign on utilizing credentials from social media services such as Facebook, Twitter and Google+.
Billing Integration . Our technology allows our customers to integrate billing for value added services and paid content purchases with other services and products provided to their subscribers, including television and telephony service. A customer may collect transaction fees via credit card or on the subscriber’s service provider bill, and it may bill transactions each time they occur or on a monthly basis using monthly summary totals. Our technology also enables online bill review, providing subscribers with access to a detailed transaction account.
Personalization . Our technology enables the consumer to personalize his or her online experience through customization and localization. Consumers may add, delete, move, and otherwise customize the content displayed on our startpages, such as by setting preferred television stations in our TV-at-a-glance module. Localization allows consumers to set a startpage to a “favorite” zip code to gain access to radio stations, weather, movies, and events, all in the local area. Among other things, our technology allows consumers to comment on online articles and to create shortcuts to their favorite content using an online “personal assistant” on the personalized startpage. Consumers are able to manage access to services and products available to each member of the household, define a budget limit for purchases for each member of the household and set the payment method (service provider bill vs. credit card) for access to paid offerings.
Video Delivery Capability . Our video delivery capability includes two primary components: a video player and a video discovery and delivery system. The video player contains video controls such as play, pause, fast forward and rewind and full-screen viewing and can be configured to play within or on top of a page. Our video discovery and delivery system is database-driven, supports multiple video hosting methods and enables transcoding from a number of video formats to formats that are playable on a variety of devices. The system contains a number of access control mechanisms, including the ability to restrict access based on IP address, location, consumer type or household management settings. The system also permits consumers to search videos and browse by channel, genre or content type.

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Content Management System . Our proprietary content management system enables our customers and us to create dynamic, customizable online experiences containing content from various sources. Content is distributed via web services in an architecture that is easily portable to multiple devices and platforms. Our system is comprised of administrative interfaces, a scalable content storage system and a system to distribute content to our startpages. The interface is easy to use and displays a preview of page or component designs prior to approval and publishing. Our system can also automatically publish content from outside sources or assign publishing rights, by site section, to outside vendors.
Household Management . Our household management system puts parents in control of the content their children are allowed to purchase or consume through our startpages. Among other things, this system allows the head of household to specify the range of products their “child accounts” may access and utilize and to establish preset spending limits for content purchases such as music.
Toolbar . We offer our customers the ability to create branded toolbars that can be personalized by their consumers. The toolbar can be updated automatically as new features become available and may be configured with search, weather, television and movie listings as well as value added services and paid content packages, enabling consumers to access their favorite features of our technology even when they leave our startpages. The toolbars can also integrate internal services such as instant messaging, customer support and e-mail.
Television Listings . Our technology provides television listings and corresponding television channels, which enables consumers to search and browse local television programming.
Search and Display Advertising
We use search and display advertising to generate revenue from consumer online traffic generated on our startpages.
Search Advertising. We have a revenue-sharing relationship with Google, pursuant to which we include a Google-branded search tool on our startpages. When a consumer makes a search query using this tool, we deliver it to Google, and Google returns search results that include advertiser-sponsored links to us, which we pass on to the consumer. If the consumer clicks on a sponsored link, Google receives payment from the sponsor of that link and shares a portion of that payment with us, which we in turn share with the applicable customer. We receive a monthly payment from Google within 30 days following the end of the month in which the revenue from the Google search advertising was earned; in turn we make revenue-share payments to our customers, subject to varying payment terms requiring payment from 30 days to 45 days following either the end of the month or quarter in which the revenue share was generated.
Display Advertising. We generate advertising revenue when consumers view or click on a text, graphic or video advertisement that is delivered on a Synacor-operated startpage. We sell some of our advertising inventory directly to advertisers using our team of direct advertising sales employees and independent advertising sales representatives. Our advertisers pay us a fee when a subscriber views or clicks the advertisement we place on their behalf on our startpages. We sell the rest of our advertising inventory through arrangements we have entered into with several advertising networks, including DoubleClick (a division of Google) and advertising.com (a division of AOL), among others. Advertisers pay these networks a fee to place their advertisements on various websites. When the networks place an advertisement on one of our startpages, the network will pay us a portion of that fee. We typically share a portion of the payments from advertisers or advertising networks with the applicable customer. We have varying payment terms from advertisers and advertising networks ranging from 30 days to 65 days following the end of the month in which the revenue from the advertiser was earned; in turn we make revenue-share payments to our customers, subject to varying payment terms requiring payment from 30 days to 45 days following either the end of the month or quarter in which the revenue share was generated.
As we hire additional advertising salespeople and retain additional independent advertising sales representatives, we will target more advertisers directly as opposed to through advertising networks to fill our advertising inventory, which we expect will result in higher cost-per-thousand impressions (referred to as cost per mille, or CPMs) and, consequently, higher revenue.
Subscriber-Based Services
Using our proprietary technology, we provide our customers a flexible solution, enabling them to deliver a wide range of online content and value added services from multiple sources in a single, customizable online location. Our customers use our technology to provide their subscribers with access to free-to-subscriber content and service offerings, including television programming, news, sports, entertainment and weather, as well as paid content and other value added services, all from one location and with one login. Our technology employs a scalable and flexible architecture that allows us, and our customers, to

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add or change features and applications regularly, enabling subscribers to access them across a wide range of Internet-enabled devices, such as PCs, tablets, smartphones and connected TVs.
We offer both free-to-subscriber content and service offerings and paid content and value added services, which are paid for by our customers or their subscribers, individually or in bundled packages. The packages are accessed via our single sign-on capability according to access rules established by our customers and the content or service providers. These are available on our startpages as well as the websites of the content and service providers. The following are illustrative examples of some of these packages, which we allow our customers to modify if they desire:
E-mail and Calendar . We provide e-mail and calendar solutions to our customers using a suite of messaging products provided by a third party. We integrate these products into our technology to deliver e-mail and family calendars to subscribers via their startpages. The system enables us to highlight customer-related and community events on subscribers’ calendars and insert advertising into e-mail interfaces. Additionally, we have developed voicemail and VOIP functionality for e-mail that allows subscribers to access voicemail from their e-mail.
Security . Our security offering typically includes anti-virus, firewall and intrusion detection, pop-up blocker, parental controls and automatic updates all powered by security suites, such as F-Secure.
TV Everywhere . Our technology enables subscribers to watch free television online or utilize our authentication functionality to authorize them to watch premium television online, on-demand using an approved Internet-connected device. We have developed a combined television/video solution with an information architecture that improves usability and serves as a destination point for all platforms, including linear, video on demand, or VOD, and other online content.
Variety Package . Our variety package combines content from several Internet subscription and entertainment products into a single package. These packages may include any combination of games (such as Shockwave Unlimited), greeting card services (such as American Greetings), weather services (such as weather.com), educational elements (such as Nick Jr. Boost or Clever Island) and sports elements (such as MLB.com, NASCAR.com Raceview, NHL Premium Videos or Fox Sports Video).
Sports Plus Package . The sports plus package combines access to multiple sports-related content providers that could otherwise require separate subscriptions into a single package. The package includes access to MLB.com, NASCAR.com Trackpass, NHL.com and Fox Sports.
Portable and Non-Portable Music . Our music offering includes download-to-own, download-to-rent, and streaming music from our content providers’ libraries. Non-portable subscriptions allow subscribers to play music on their PCs, while portable subscriptions allow the subscribers to listen to music on a mobile device. Our music services are provided through contractual relationships with MediaNet and Rdio, Inc.
Games and GamesSomnia . Our games offering includes a partnership with Zynga whereby we make game currency available to consumers through bundled packages, thus allowing easy access to Zynga games through our startpages. Our GamesSomnia package includes subscriptions to popular online gaming services and gaming-related news sources, which may include offerings from Atari Classic Games, LEGO PC Games, Yummy Arcade, Shockwave Unlimited and IGN Prime.
Learning Edge . Our Learning Edge package combines a number of educational products that appeal to families with young children, which may include offerings from Nick Jr. Boost, Boston Test Prep, Clever Island, Hoopah and IKnowThat.com.
We invoice our customers on a monthly basis with varying payment terms ranging from 30 days to 45 days following the end of the month in which the revenue was earned. Our content provider payment terms range from prepayment to 30 days or 45 days following the end of the month in which the content was provided.
Technology and Operations
Technology Architecture
Our technology has been designed and built to support reliability and scalability. To route traffic through our network in the most efficient manner, we use load-balancing products, which spread work among multiple servers, and link controllers, which monitor availability and performance of multiple connections. Our technology is fault tolerant and scalable through the addition of more servers as usage grows.

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Data Center Facilities
We currently operate and maintain five data centers in regionally diverse locations and have a network operations center which is staffed 24 hours a day, seven days a week. Our four primary data centers are located in shared facilities in Atlanta, Georgia; Lewis Center, Ohio; Denver, Colorado and Amsterdam, The Netherlands. We also maintain a secondary data center in a shared facility in Buffalo, New York. All systems are fully monitored for reporting continuity and fault isolation. The Atlanta, Lewis Center, Buffalo, Denver and Amsterdam data centers are each in a physically secure facility using monitoring, environmental alarms, closed circuit television and redundant power sources. Our network operations center is located in a secure facility.
Customers
Our customers principally consist of high-speed Internet service providers, such as Charter Communications Inc., or Charter, and CenturyLink, Inc., or CenturyLink, as well as consumer electronics manufacturers, such as Toshiba America Information Systems, Inc., or Toshiba. Our customer contracts typically have an initial term of two to three years from the deployment of our startpages and frequently provide for one or more automatic renewal terms of one to two years each. Our customer contracts typically contain service level agreements which call for specific system “up times” and 24 hours per day, seven days per week support. As of December 31, 2012, we had agreements with over 45 customers.
Content and Service Providers
We license the content which we provide to our customers, including free and paid content offerings and value added services, from numerous third-party content and service providers. Our content and service partners provide a variety of content, including news and information, entertainment, sports, music, video, games, shopping, travel, autos, careers and finance. To obtain this content, we enter into a variety of licensing arrangements with our content providers. These arrangements are typically one to three years in duration with payment terms that may be based on traffic, advertising revenue share, number of subscribers, flat fee payments over time, or some combination thereof. We use licensed content to populate our startpages, as well as to provide value added services and paid content that subscribers may purchase for additional fees. As of December 31, 2012, we had arrangements with over 50 content providers such as MLB Advanced Media, L.P., or MLB Advanced Media, CNN, The Associated Press, FOX News Network, LLC, NASCAR, Tribune Media Services, Inc. and Bankrate.
Sales and Marketing
Our sales and marketing efforts focus on five primary areas: customer acquisitions, client services, account management, marketing and advertising sales. Our customer acquisition team consists of direct sales personnel who call upon prospective customers, typically large and mid-sized high-speed Internet service providers and consumer electronics manufacturers. A significant amount of time and effort is devoted to researching and analyzing the requirements and objectives of each prospective customer. Each bid is specifically customized for the prospective customer, and often requires many months of interaction and negotiation before an agreement is reached.
Once an agreement is reached, our client services team, working closely with the customer acquisitions team, assumes responsibility for managing the customer relationship during the time of the initial deployment and integration period, which is usually three to six months. During this period, the customer’s technology is assessed and, if required, modifications are proposed to make it compatible with our technology. The client services team is responsible for the quality of the client deployment, customer relationship management during the time of deployment and integration and project management associated with upgrades and enhancements.
After deployment, our account management team takes over management of the customer relationship, analyzing the ways in which a customer could further benefit from increased use of our products and services. The account management team is responsible for ongoing customer relationship management, upgrades and enhancements to the available products and services, as well as tracking the financial elements and performance of the customer relationship.
Our marketing team works closely with our account management team to deliver marketing programs that support our customers’ sales efforts as well as their consumers’ interaction with these products and services. We assist our customers in developing marketing materials, advertising and cross-channel commercials that can be accessed by consumers through different media outlets, including the Internet, print, television, and radio. We also assist our customers in training their customer service representatives to introduce and sell value added services and our paid content offerings to new and existing customers.

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Our advertising sales team sells display advertising inventory directly to advertisers, frequently through the advertising agencies representing those advertisers. These advertisers may be small companies with the advertising locally or regionally focused on the startpage of one customer, or large companies with nationwide advertising on the startpages of many customers. We have a team of direct advertising sales employees and independent advertising sales representatives focused on this effort and will continue to develop this team and attempt to grow the amount of display advertising revenue generated with our customers. As of December 31, 2012, we had arrangements with over 50 advertising partners such as DoubleClick, Casale Media, Admeld, Univeral McCann and Comcast Spotlight.
Government Regulation
We generally are not regulated other than under international, federal, state and local laws applicable to the Internet or e-commerce or to businesses in general. Some regulatory authorities have enacted or proposed specific laws and regulations governing the Internet and online entertainment. These laws and regulations cover issues such as taxation, pricing, content, distribution, quality and delivery of services and products, electronic contracts, intellectual property rights, user privacy and information security.
Federal laws regarding the Internet that could have an impact on our business include the following: the Digital Millennium Copyright Act of 1998, which is intended to reduce the liability of online service providers of third-party content, including content that may infringe copyrights or rights of others; the Children’s Online Privacy Protection Act, which imposes additional restrictions on the ability of online services to collect user information from minors; and the Protection of Children from Sexual Predators Act, which requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances.
Laws and regulations regarding user privacy and information security impact our business because we collect and use personal information through our technology. We use this information to deliver more relevant content and services and provide consumers with a personalized online experience. We share this information on an aggregate basis with our customers and content providers and, subject to confidentiality agreements, to prospective customers and content providers. Laws such as the CAN-SPAM Act of 2003 or other user privacy or security laws could restrict our and our customers’ ability to market products to their consumers, create uncertainty in Internet usage and reduce the demand for our services and products or require us to redesign our startpages.
Intellectual Property
We believe that the protection of our intellectual property is critical to our success. We rely on copyright and service mark enforcement, contractual restrictions and trade secret laws to protect our proprietary rights. We have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with certain parties with whom we conduct business in order to limit access to and disclosure of our proprietary information. Our registered service mark in the United States is Synacor ® .
We endeavor to protect our internally developed systems and maintain our trademarks and service marks. We generally control access to and use of our proprietary software and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers and partners, and our software is protected by United States and international copyright laws.
In addition to legal protections, we believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements and reliable product support and services are essential to establishing and maintaining a technology leadership position.
Competition
The market for Internet-based services and products in which we operate is highly competitive and involves rapidly-changing technologies and customer and consumer requirements, as well as evolving industry standards and frequent product introductions. While we believe that our technology offers considerable value and flexibility to our customers by helping them to extend their consumer relationships to a wide variety of Internet-based services, we face competition at three levels:
When one of our prospective or existing customers considers another supplier, including one of our partners, for elements of the services or products which we provide.
When consumers choose to rely on other vendors for similar products and services.
When content and service providers prefer to establish direct relationships with one or more of our customers.

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Our technology competes primarily with high-speed Internet service providers that have internal information technology staff capable of developing similar solutions in-house. In addition, we compete with companies such as Facebook, Inc., Yahoo! Inc., or Yahoo!, Google, AOL LLC, or AOL, Hulu, Netflix, Amazon, and MSN, a division of Microsoft Corporation, or Microsoft, which have destination websites of their own or are capable of delivering content and service offerings similar to ours.
We also compete with providers of paid content and services over the Internet, especially companies with the capability of bundling paid content and value added services in much the same manner that we do. These companies include ESPN3, F-Secure Corporation or F-Secure, Exent Technologies Ltd. or Exent, Zynga Inc., MLB Advanced Media, Symantec Corporation, McAfee, Inc., Activision Blizzard, Inc. and Electronic Arts Inc. In some cases we have performed software integrations with these companies on behalf of our customers or, as in the case of Zynga and F-Secure, we have partnered with them in order to offer their services more broadly to all our customers.
We believe the principal competitive factors in our markets include a company’s ability to:
reinforce the brand of the high-speed Internet service provider;
produce products that are flexible and easy to use;
offer competitive fees for startpage development and operation;
generate additional revenue for high-speed Internet service providers;
enable high-speed Internet service providers to be involved in designing the “look and feel” of their online presence;
offer services and products that meet the changing needs of high-speed Internet service providers and their subscribers, including emerging technologies and standards;
provide high-quality product support to assist the customer’s service representatives; and
aggregate content to deliver more compelling bundled packages of paid content.
We believe that we distinguish ourselves from potential competitors in three principal ways. First, we provide a white-label solution that, unlike the co-branded approach of most of our competitors, creates a consumer experience that reinforces our customers’ and partners’ brands. Second, we give customers control over the sign-on process and billing function for a wide range of Internet services and content by integrating with their internal systems (where applicable) thereby allowing our customers to “own the consumer.” Finally, our solution is flexible, meaning that we allow each customer to fashion startpages that are specifically tailored to their desired “look and feel.”
Employees
As of December 31, 2012, we had 315 employees in the United States, 12 in Canada and 1 employee in the United Kingdom. None of our employees is represented by a labor union, and we consider current employee relations to be good.
Corporate Information
Synacor's predecessor company was originally formed as a New York corporation, and in November 2002, Synacor re-incorporated under the laws of the State of Delaware. Our headquarters are located at 40 LaRiviere Drive, Buffalo, New York 14202, and our telephone number is (716) 853-1362.
We have determined that we have a single reporting segment. A summary of our financial information by geographic location is found in Note 6, “ Information About Segment and Geographic Areas ,” in the Notes to Consolidated Financial Statements. Our international operations and sales subject us to a variety of risks; see Item 1A, “Risk Factors,” for further discussion.
Available Information
Our Internet website address is  http://www.synacor.com . We provide free access to various reports that we file with or furnish to the Securities and Exchange Commission, or SEC, through our website, as soon as reasonably practicable after they have been filed or furnished. These reports include, but are not limited to, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports. Our SEC reports can be accessed through the investor relations section of our website, or through  http://www.sec.gov . Information on our website does not constitute part

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of this Annual Report on Form 10-K or any other report we file or furnish with the SEC. Stockholders may request copies of these documents from:
Synacor, Inc.
Investor Relations Department
40 La Riviere Dr.
Suite 300
Buffalo, New York 14202
ITEM 1A.
RISK FACTORS
Our business and financial results are subject to numerous risks and uncertainties, including those described below, which could adversely and materially affect our business, financial condition or results of operations. You should carefully consider these risks and uncertainties, including the following risk factors and all other information contained in this Annual Report on Form 10-K, together with any other documents we file with the SEC. Risks and uncertainties not currently known to us or that we currently deem to be immaterial may in the future materially and adversely affect our business, financial condition and results of operations.
Risks Related to Our Business
Our search advertising partner, Google, accounts for a significant portion of our revenue, and any loss of, or diminution in, our business relationship with Google would materially and adversely affect our financial performance.
We rely on traffic on our startpages to generate search and display advertising revenue, a substantial portion of which is derived from text-based links to advertisers’ websites as a result of Internet searches. We have a revenue-sharing relationship with Google under which we include a Google-branded search tool on our startpages. When a consumer makes a search request using this tool, we deliver it to Google, and Google returns search results to us that include advertiser-sponsored links. If the consumer clicks on a sponsored link, Google receives payment from the sponsor of that link and shares a portion of that payment with us. We then typically share a portion of that payment with the applicable customer. Our Google-related search advertising revenue attributable to our customers, which consists of the portion of the payment from the sponsor that Google shares with us, accounted for approximately 49% , 57% , and 56% of our revenue in 2010 , 2011 , and 2012 , or $32.6 million , $51.5 million , and $68.5 million , respectively. Our agreement with Google expires in February 2014 unless we and Google mutually elect to renew it. Additionally, Google may terminate our agreement if we experience a change in control or enter into an agreement providing for a change in control or if we do not maintain certain search and display advertising revenue levels. If advertisers were to discontinue their advertising via Internet searches, if Google’s revenue from search-based advertising were to decrease, if Google’s share of the search revenue were to be increased or if our agreement with Google were to be terminated for any reason or renewed on less favorable terms, our business, financial condition and results of operations would be materially and adversely affected. Moreover, consumers’ increased use of search tools other than the Google-branded search tool we provide would have similar effects.
A loss of any significant customer could negatively affect our financial performance.
We derive a substantial portion of our revenue from a small number of customers. For example, revenue attributable to two customers, Charter and CenturyLink (including our revenue attributable to Qwest Communications International, Inc., or Qwest, which merged with CenturyLink in April 2011), together accounted for approximately 60% of our revenue for the year ended December 31, 2010, or $39.8 million. Revenue attributable to each of these customers accounted for 20% or more of our revenue in 2010. Revenue attributable to Charter, CenturyLink (including our revenue attributable to Qwest) and Toshiba together accounted for approximately 62% of our revenue for the year ended December 31, 2011, or $56.9 million, with revenue attributable to one of these customers accounting for 20% or more in such period and revenue attributable to each of the other two customers accounting for more than 10% in such period. Revenue attributable to Charter, CenturyLink (including revenue attributable to Qwest), Toshiba and Verizon Corporate Services Group, Inc., or Verizon, together accounted for approximately 73% of our revenue for the year ended December 31, 2012, or $88.4 million, with revenue attributable to one of these customers accounting for 20% or more in such period and revenue attributable to each of the other three customers accounting for more than 10% in such period. Revenue attributable to these customers includes the subscriber-based revenue earned directly from them, as well as the search and display advertising revenue earned through our relationships with our advertising partners, such as Google, based on traffic generated from our startpages.
Our contracts with our customers generally have an initial term of approximately two to three years from the launch of their startpages and frequently provide for one or more automatic renewal terms of one to two years each. If any one of these key contracts is not renewed or is otherwise terminated, or if revenue from these significant customers declines because of

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competitive or other reasons, our revenue would decline and our ability to achieve or sustain profitability would be impaired. In addition to the loss of subscriber-based revenue, including startpage and paid content sales, we would also lose significant revenue from the related search and display advertising services that we provide. In addition to the decline of revenue, we may have to impair our long-lived assets, to the extent that such assets are used exclusively to support these customers, which would adversely impact our results of operations and financial position.
We have a history of significant net losses and may not be profitable in future periods.
We have incurred significant losses in each year of operation other than 2009, 2011, and 2012, including a net loss of $5.8 million in 2008 and a net loss of $3.6 million in 2010. Our net income in 2009, 2011, and 2012 was $0.3 million, $9.9 million, and $3.8 million, respectively. We expect that our expenses will increase in future periods as we implement initiatives designed to grow our business including, among other things, the development and marketing of new services and products, licensing of content, expansion of our infrastructure, international expansion and general and administrative expenses associated with being a public company. If our revenue does not sufficiently increase to offset these expected increases in operating expenses, we may incur significant losses and may not be profitable. Our revenue growth in recent periods may not be indicative of our future performance. In fact, in future periods, our revenue could decline. Accordingly, we may not be able to maintain profitability in the future. Any failure to maintain profitability may materially and adversely affect our business, financial condition and results of operations.
Many individuals are using devices other than personal computers and software applications other than Internet browsers to access the Internet. If users of these devices and software applications do not widely adopt the applications and other solutions we develop for them, our business could be adversely affected.
The number of people who access the Internet through devices other than PCs, including tablets, smartphones and connected TVs, has increased dramatically in the past few years and is projected to continue to increase. Similarly, individuals are increasingly accessing the Internet through apps other than Internet browsers, such as those available for download through Apple Inc.’s App Store and the Android Market. If consumers increasingly access the Internet on devices other than PCs, and if we are unable to successfully implement monetization strategies for such devices, our financial results could be negatively affected. While we are developing solutions to these alternative means of accessing the Internet, including through our acquisition of mobile device software and technology from Carbyn, Inc., or Carbyn, in January 2012, we do not currently offer our customers and their subscribers a wide variety of apps and other non-browser solutions. Additionally, as new devices and new apps are continually being released, it is difficult to predict the problems we may encounter in developing new versions of our apps and other solutions for use on these alternative devices and apps, and we may need to devote significant resources to the creation, support and maintenance of such apps and solutions. If users of these devices and apps do not widely adopt the apps and other solutions we develop, our business, financial condition and results of operations could be adversely affected.
Consumer tastes continually change and are unpredictable, and our sales may decline if we fail to enhance our service and content offerings to achieve continued subscriber acceptance.
Our business depends on aggregating and providing services and content that our customers will place on our startpages, including television programming, news, entertainment, sports and other content that their subscribers find engaging, and value added services and paid content that their subscribers will buy. Accordingly, we must continue to invest significant resources in licensing efforts, research and development and marketing to enhance our service and content offerings, and we must make decisions about these matters well in advance of product releases to implement them in a timely manner. Our success depends, in part, on unpredictable and volatile factors beyond our control, including consumer preferences, competing content providers and websites and the availability of other news, entertainment, sports and other services and content. While we work with our customers to have their consumers' homepages set to our startpages upon the installation of our customer's services or the sale of our customer's product, a consumer may easily change that setting, which would likely decrease the use of our startpages. Similarly, consumers that change their device's operating system or Internet browser may no longer have our startpage set as their default homepage, and unless they change it back to our startpage, their usage of our startpages would likely decline and our results of operations could be negatively impacted. Consumers that acquire new consumer electronics devices will no longer have our startpage initially set as their default homepage, and unless they change the default to our startpage, their usage of our startpages would likely decline and our results of operations could be negatively impacted.

If our services are not responsive to the requirements of our customers or the preferences of their consumers, or the services are not brought to market in a timely and effective manner, our business, financial condition and results of operations would be harmed. Even if our services and content are successfully introduced and initially adopted, a subsequent shift in the preferences of our customers or their consumers could cause a decline in the popularity of our services and content that could materially reduce our revenue and harm our business, financial condition and results of operations.

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Our sales growth will be adversely affected if we are unable to expand the breadth of our services and products or to introduce new services and products on a timely basis.
To retain our existing customers, attract new customers and increase revenue, we must continue to develop and introduce new services and products on a timely basis and continue to develop additional features to our existing product base. If our existing and prospective customers do not perceive that we will deliver our services and products on schedule, and if they do not perceive our services and products to be of sufficient value and quality, we may lose the confidence of our existing customers and fail to increase sales to these existing customers, and we may not be able to attract new customers, each of which would adversely affect our operating results.
Our sales cycles and the contracting process with new customers are long and unpredictable and may require us to incur expenses before executing a customer agreement, which makes it difficult to project when, if at all, we will obtain new customers and when we will generate additional revenue and cash flows from those customers.
We market our services and products directly to high-speed Internet service providers and consumer electronics manufacturers. New customer relationships typically take time to obtain and finalize. Due to operating procedures in many organizations, a significant time period may pass between selection of our services and products by key decision-makers and the signing of a contract. The length of time between the initial customer sales call and the realization of significant sales is difficult to predict and can range from several months to several years. As a result, it is difficult to predict when we will obtain new customers and when we will begin to generate revenue and cash flows from these potential new customers.
As part of our sales cycle, we may incur significant expenses in the form of compensation and related expenses and equipment acquisition before executing a definitive agreement with a prospective customer so that we may be ready to launch shortly following execution of a definitive agreement. If conditions in the marketplace generally or with a specific prospective customer change negatively, it is possible that no definitive agreement will be executed, and we will be unable to recover any expenses incurred before a definitive agreement is executed, which would in turn have an adverse effect on our business, financial condition and results of operations.
Most of our customers are high-speed Internet service providers, and consolidation within the cable and telecommunications industries could adversely affect our business, financial condition and results of operations.
Our revenue from high-speed Internet service providers, including our search and display advertising revenue generated by online consumer traffic on our startpages, accounted for more than 95% of our revenue in 2010, 86% in 2011 and 80% in 2012. The cable and telecommunications industries have experienced consolidation over the past several years, and we expect that this trend will continue. As a result of consolidation, some of our customers may be acquired by companies with which we do not have existing relationships and which may have relationships with one of our competitors or may have the in-house capacity to perform the services we provide. As a result, such acquisitions could cause us to lose customers and the associated subscriber-based and search and display advertising revenue. Under our agreements with some of our customers, including Charter, Verizon and CenturyLink, they have the right to terminate the agreement if we are acquired by one of their competitors.
Consolidation may also require us to renegotiate our agreements with our customers as a result of enhanced customer leverage. We may not be able to offset the effects of any such renegotiations, and we may not be able to attract new customers to counter any revenue declines resulting from the loss of customers or their subscribers.
As technology continues to evolve, the use of our products by our current and prospective consumer electronics manufacturer customers may decrease and our business could be adversely affected.
The consumer electronics industry is subject to rapid change, and our contract with Toshiba is not exclusive. As consumer electronics manufacturers continue to develop new technologies and introduce new models and devices, there can be no assurance that we will be able to develop solutions that will persuade consumer electronics manufacturers that are our customers at such time to utilize our technology for those new devices. If our current and prospective consumer electronics manufacturer customers elect not to integrate our solutions into their new products, our business, financial condition and results of operations could be adversely affected.
We invest in features and functionality designed to increase consumer engagement with our startpages; however, these investments may not lead to increased revenue.
Our future growth and profitability will depend in large part on the effectiveness and efficiency of our efforts to provide a compelling consumer experience that increases consumer engagement with our startpages. We have made and will continue to make substantial investments in features and functionality for our technology that are designed to drive consumer

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engagement. Not all of these activities directly generate revenue, and we cannot assure you that we will reap sufficient rewards from these investments to make them worthwhile. If the expenses that we incur in connection with these activities do not result in increased consumer engagement that in turn results in revenue increases that exceed these expenses, our business, financial condition and results of operations will be adversely affected.
Our services and products may become less competitive or even obsolete if we fail to respond to technological developments.
Our future success will depend, in part, on our ability to modify or enhance our services and products to meet customer and consumer needs, to add functionality and to address technological advancements that would improve their performance. For example, if our services and products do not adapt to the increasing video usage on the Internet or to take into account evolving developments in social networking, then they could begin to appear obsolete. Similarly, if we fail to develop new ways to deliver content and services through apps other than traditional Internet browsers, consumers could seek alternative means of accessing content and services.
To remain competitive, we will need to develop new services and products and adapt our existing ones to address these and other evolving technologies and standards. However, we may be unsuccessful in identifying new opportunities or in developing or marketing new services and products in a timely or cost-effective manner. In addition, our product innovations may not achieve the market penetration or price levels necessary for profitability. If we are unable to develop enhancements to, and new features for, our existing services and products or if we are unable to develop new services and products that keep pace with rapid technological developments or changing industry standards, our services and products may become obsolete, less marketable and less competitive, and our business will be harmed.
We depend on third parties for content that is critical to our business, and our business could suffer if we do not continue to obtain high-quality content at a reasonable cost.
We license the content that we aggregate on our startpages from numerous third-party content providers, and our future success is highly dependent upon our ability to maintain and enter into new relationships with these and other content providers. In the future, some of our content providers may not give us access to high-quality content, may fail to adapt to changes in consumer tastes or may increase the royalties, fees or percentages that they charge us for their content, any of which could have a material negative effect on our operating results. Our rights to the content that we offer to our customers and their consumers are not exclusive, and the content providers could license their content to our competitors. Our content providers could even grant our competitors exclusive licenses. In addition, our customers are not prohibited from entering into content deals directly with our content providers. Any failure to enter into or maintain satisfactory arrangements with content providers would adversely affect our ability to provide a variety of attractive services and products to our customers. Our reputation and operating results could suffer as a result, and it may be more difficult for us to develop new relationships with potential customers. Our costs as a percentage of revenue may also increase due to price competition.
Our revenue and operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.
As a result of the rapidly changing nature of the markets in which we compete, our quarterly and annual revenue and operating results are likely to fluctuate from period to period. These fluctuations may be caused by a number of factors, many of which are beyond our control, including but not limited to the various factors set forth in this "Risk Factors" section, as well as:
any failure to maintain strong relationships and favorable revenue-sharing arrangements with our search and display advertising partners, in particular Google, including a reduction in the quantity or pricing of sponsored links that consumers click on or a reduction in the pricing of display advertisements by advertisers;
any failure of significant customers to renew their agreements with us;
our ability to attract new customers;
our ability to increase sales of value added services and paid content to existing subscribers;
the timing and success of new service and product introductions by us, our customers or our competitors;
variations in the demand for our services and products and the implementation cycles of our services and products by our customers;
changes to Internet browser technology that renders our startpages less competitive;

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changes in our pricing policies or those of our competitors;
changes in the prices our customers charge for value added services and paid content;
service outages, other technical difficulties or security breaches;
limitations relating to the capacity of our networks, systems and processes;
our failure to accurately estimate or control costs, including costs related to the initial launch of new customers;
maintaining appropriate staffing levels and capabilities relative to projected growth;
the timing of costs related to the development or acquisition of technologies, services or businesses to support our existing customers and potential growth opportunities; and
general economic, industry and market conditions and those conditions specific to Internet usage and online businesses.
For these reasons and because the market for our services and products is relatively new and rapidly changing, it is difficult to predict our future financial results.
Expansion into international markets, which is an important part of our strategy, but where we have limited experience, will subject us to risks associated with international operations.
We plan to expand our product offerings internationally, particularly in Asia, Latin America and Europe. For example, we recently announced that we entered into a joint venture with Maxit to supply authentication and aggregation solutions for the delivery of online content and services to customers in the People's Republic of China, or the PRC. We have limited experience in marketing and operating our services and products in international markets, and we may not be able to successfully develop our business in these markets. Our success in these markets will be directly linked to the success of relationships with potential customers, content partners and other third parties.
As the international markets in which we plan to operate continue to grow, we expect that competition in these markets will intensify. Local companies may have a substantial competitive advantage because of their greater understanding of, and focus on, the local markets. Some of our domestic competitors who have substantially greater resources than we do may be able to more quickly and comprehensively develop and grow in international markets. International expansion may also require significant financial investment including, among other things, the expense of developing localized products, the costs of acquiring foreign companies and the integration of such companies with our operations, expenditure of resources in developing customer and content relationships and the increased costs of supporting remote operations.
Other risks of doing business in international markets include the increased risks and burdens of complying with different legal and regulatory standards, difficulties in managing and staffing foreign operations, recruiting and retaining talented direct sales personnel, limitations on the repatriation of funds and fluctuations of foreign exchange rates, varying levels of Internet technology adoption and infrastructure, and our ability to enforce contracts and our intellectual property rights in foreign jurisdictions. In addition, our success in international expansion could be limited by barriers to international expansion such as tariffs, adverse tax consequences and technology export controls. If we cannot manage these risks effectively, the costs of doing business in some international markets may be prohibitive or our costs may increase disproportionately to our revenue. Some of our business partners also have international operations and are subject to the risks described above. Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our business partners are not able to successfully manage these risks.
Our agreements with some of our customers and content providers require fixed payments, which could adversely affect our financial performance.
Certain of our agreements with customers and content providers require us to make fixed payments to them. The aggregate amount of such fixed payments for the years ending December 31, 2013, 2014, 2015, and the two years thereafter are approximately $4.6 million, $1.4 million, $1.1 million, and $1.4 million, respectively. We are required to make these fixed payments regardless of the achievement of any revenue objectives or subscriber or usage levels. If we do not achieve our financial objectives, these contractual commitments would constitute a greater percentage of our revenue than originally anticipated and would adversely affect our profitability.
Our agreements with some of our customers and content providers contain penalties for non-performance, which could adversely affect our financial performance.

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We have entered into service level agreements with most of our customers. These agreements generally call for specific system “up times” and 24 hours per day, seven days per week support and include penalties for non-performance. We may be unable to fulfill these commitments due to circumstances beyond our control, which could subject us to substantial penalties under those agreements, harm our reputation and result in a reduction of revenue or the loss of customers, which would in turn have an adverse effect on our business, financial condition and results of operations. To date, we have never incurred any material penalties.
System failures or capacity constraints could harm our business and financial performance.
The provision of our services and products depends on the continuing operation of our information technology and communications systems. Any damage to or failure of our systems could result in interruptions in our service. Such interruptions could harm our business, financial condition and results of operations, and our reputation could be damaged if people believe our systems are unreliable. Our systems are vulnerable to damage or interruption from snow storms, terrorist attacks, floods, fires, power loss, telecommunications failures, security breaches, computer malware, computer hacking attacks, computer viruses, computer denial of service attacks or other attempts to, or events that, harm our systems. Our data center is also subject to break-ins, sabotage and intentional acts of vandalism and to potential disruptions if the operators of the facility have financial difficulties. Although we maintain insurance to cover a variety of risks, the scope and amount of our insurance coverage may not be sufficient to cover our losses resulting from system failures or other disruptions to our online operations. For example, the limit on our business interruption insurance is approximately $26.1 million. Any system failure or disruption and any resulting losses that are not recoverable under our insurance policies may materially harm our business, financial condition and results of operations. To date, we have never experienced any material losses.
Although we regularly back-up our systems and store the system back-ups in Atlanta, Georgia, Lewis Center, Ohio, and Buffalo, New York, we do not have full second-site redundancy. If we were forced to relocate to an alternate site and to rely on our system back-ups to restore the systems, we would experience significant delays in restoring the functionality of our platform and could experience loss of data, which could materially harm our business and our operating results.
Security breaches, computer viruses and computer hacking attacks could harm our business, financial condition and results of operations.
Security breaches, computer malware and computer hacking attacks are prevalent in the technology industry. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our business, financial condition and results of operations. We have previously experienced hacking attacks on our systems, and may in the future experience hacking attacks. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our technology infrastructure to the satisfaction of our customers and their consumers may harm our reputation and our ability to retain existing customers and attract new customers.
We may not maintain acceptable website performance for our customers, which may negatively impact our relationships with our customers and harm our business, financial condition and results of operations.
A key element to our continued growth is the ability of our customers’ consumers in all geographies to access our startpages within acceptable load times. We refer to this as website performance. We may in the future experience platform disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our technology simultaneously, and denial of service or fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these website performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve website performance, especially during peak usage times, and as our solutions become more complex and our user traffic increases. If our startpages are unavailable when consumers attempt to access them or do not load as quickly as they expect, consumers may seek other alternatives to obtain the information for which they are looking, and may not return to our startpages as often in the future, or at all. This would negatively impact our relationships with our customers. We expect to continue to make significant investments to maintain and improve website performance. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
We rely on our management team and need additional personnel to expand our business, and the loss of key officers or an inability to attract and retain qualified personnel could harm our business, financial condition and results of operations.

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We depend on the continued contributions of our senior management and other key personnel, especially Ronald N. Frankel, our Chief Executive Officer, George G. Chamoun, our Executive Vice President of Sales and Marketing, Scott A. Bailey, our Chief Operating Officer, and William J. Stuart, our Chief Financial Officer. The loss of the services of any of our executive officers or other key employees could harm our business and our prospects. All of our executive officers and key employees are at-will employees, which means they may terminate their employment relationship with us at any time.
Our future success also depends on our ability to identify, attract and retain highly skilled technical, managerial, finance, marketing and creative personnel. For example, we will need to hire personnel outside the United States to pursue an international expansion strategy, and we will need to hire additional advertising salespeople to sell more advertisements directly. We face intense competition for qualified individuals from numerous technology, marketing and media companies, and we may incur significant costs to attract them. We may be unable to attract and retain suitably qualified individuals, or we may be required to pay increased compensation in order to do so. If we were to be unable to attract and retain the qualified personnel we need to succeed, our business could suffer.
Volatility or lack of performance in the trading price of our common stock may also affect our ability to attract and retain qualified personnel. Many of our senior management personnel and other key employees have become, or will become, vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options or if the exercise prices of the options that they hold are significantly above the trading price of our common stock. If we are unable to retain our employees, our business, financial condition and results of operations would be harmed.
If we fail to manage our growth effectively, our business, financial condition and results of operations may suffer.
Following the merger of our predecessor companies, Chek, Inc., or Chek, and MyPersonal.com, Inc., or MyPersonal, to form Synacor, we have expanded our business primarily through organic growth. We expect to continue to grow organically, and we may choose to grow through strategic acquisitions in the future. This growth has placed, and may continue to place, significant demands on our management and our operational and financial infrastructure. Our ability to manage our growth effectively and to integrate new technologies and acquisitions into our existing business will require us to continue to expand our operational, financial and management information systems and to continue to retain, attract, train, motivate and manage key employees. Continued growth could strain our ability to:
develop and improve our operational, financial and management controls;
enhance our reporting systems and procedures;
recruit, train and retain highly skilled personnel;
maintain our quality standards; and
maintain customer and content owner satisfaction.
Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, financial condition and results of operations would be harmed.
We may expand our business through acquisitions of, or investments in, other companies or new technologies, or joint ventures or other strategic alliances with other companies, which may divert our management’s attention or prove not to be successful.
In January 2012, we completed an acquisition of certain mobile device software and technology from Carbyn, and in March 2013, we entered into a Joint Venture Agreement with Maxit Technology Incorporated to form Synacor China, Ltd., a joint venture in China. We may decide to pursue other acquisitions of, investments in, or joint ventures involving other technologies and businesses in the future. Such transactions could divert our management’s time and focus from operating our business.
Our ability as an organization to integrate acquisitions is unproven. Integrating an acquired company, business or technology is risky and may result in unforeseen operating difficulties and expenditures, including, among other things, with respect to:
incorporating new technologies into our existing business infrastructure;

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consolidating corporate and administrative functions;
coordinating our sales and marketing functions to incorporate the new business or technology;
maintaining morale, retaining and integrating key employees to support the new business or technology and managing our expansion in capacity; and
maintaining standards, controls, procedures and policies (including effective internal controls over financial reporting and disclosure controls and procedures).
In addition, a significant portion of the purchase price of companies we may acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our earnings based on this impairment assessment process, which could harm our operating results.
Future acquisitions could result in potentially dilutive issuances of our equity securities, including our common stock, or the incurrence of debt, contingent liabilities, amortization expenses or acquired in-process research and development expenses, any of which could harm our business, financial condition and results of operations. Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all.
We face many risks in connection with our joint venture, including, among other things, with respect to:
The JV Company not being able to obtain the approvals required from the PRC government for the establishment of a wholly foreign-owned subsidiary of the JV Company in the People's Republic of China, or the WFOE;
Increasing competition in the industry and the WFOE's ability to compete in the Chinese market;
The impact of regulatory changes in the industry;
Potential difficulties associated with operating the joint venture and the WFOE;
The joint venture's ability to obtain additional financing;
The WFOE's ability to offer competitive services in the Chinese market at a favorable margin;
General business and economic conditions, including seasonality of the industry and growth trends in the industry;
Our ability to successfully enter the Chinese market and operate internationally;
Potential delays, including obtaining permits, licenses and other governmental approvals;
Trade barriers and potential duties; and
Our and the joint venture's ability to protect intellectual property.
If we and the JV Company are not able to successfully manage these and other risks related to the joint venture, it could harm our business, financial condition and results of operations.
We may require additional capital to grow our business, and this capital may not be available on acceptable terms or at all.
The operation of our business and our growth strategy may require significant additional capital, especially if we were to accelerate our expansion and acquisition plans. If the cash generated from operations and otherwise available to us are not sufficient to meet our capital requirements, we will need to seek additional capital, potentially through debt or equity financings, to fund our growth. We may not be able to raise needed capital on terms acceptable to us or at all. Financings, if available, may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may cause our existing stockholders to suffer substantial dilution. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our common stock. Any debt financing obtained by us in the future could contain restrictive covenants that may potentially restrict our operations, and if we do not effectively manage our business to comply with those covenants, our business, financial condition and results of operations could be adversely affected. If new sources of financing are required but are insufficient or

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unavailable, we could be required to delay, abandon or otherwise modify our growth and operating plans to the extent of available funding, which would harm our ability to grow our business.
Our business depends, in part, on our ability to protect and enforce our intellectual property rights.
The protection of our intellectual property is critical to our success. We rely on copyright and service mark enforcement, contractual restrictions and trade secret laws to protect our proprietary rights. We have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with certain parties with whom we conduct business to limit access to and disclosure of our proprietary information. However, if we are unable to adequately protect our intellectual property, our business may suffer from the piracy of our technology and the associated loss in revenue.
Protecting against the unauthorized use of our intellectual property and other proprietary rights is expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could be costly and divert management resources, either of which could harm our business. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.
We are not currently involved in any legal proceedings with respect to protecting our intellectual property; however, we may from time to time become a party to various legal proceedings with respect to protecting our intellectual property arising in the ordinary course of our business.
Any claims from a third party that we are infringing upon its intellectual property, whether valid or not, could subject us to costly and time-consuming litigation or expensive licenses or force us to curtail some services or products.
Companies in the Internet and technology industries tend to own large numbers of patents, copyrights, trademarks and trade secrets, and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. We have been subject to claims that the presentation of certain licensed content on our startpages infringes certain patents of a third party, none of which have resulted in direct settlement or payments by us or any determination of infringement by us, and as we face increasing competition, the possibility of further intellectual property rights claims against us grows. Our technologies may not be able to withstand any third party claims or rights against their use. Any intellectual property claims, with or without merit, could be time-consuming, expensive to litigate or settle and could divert management resources and attention. An adverse determination also could prevent us from offering our services and products to others and may require that we procure substitute products or services for our customers.
In the case of any intellectual property rights claim, we may have to pay damages or stop using technology found to be in violation of a third party’s rights. We may have to seek a license for the technology, which may not be available to us on reasonable terms and may significantly increase our operating expenses. The technology also may not be available for license to us at all. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense. If we cannot license or develop technology for the infringing aspects of our business, we may be forced to limit our service and product offerings and may be unable to compete effectively. Any of these consequences could harm our operating results.
In addition, we typically have contractual obligations to our customers to indemnify and defend them with respect to third-party intellectual property infringement claims that arise from our customers’ use of our products or services. Such claims, whether valid or not, could harm our relationships with our customers, have resulted and could result in the future in us or our customers having to enter into licenses with the claimants and have caused and could cause us in the future to incur additional costs or reduced revenues. To date, neither the increase in our costs nor any reductions in our revenue resulting from such claims have been material. Such claims could also subject us to costly and time-consuming litigation as well as diverting management attention and resources. Satisfying our contractual indemnification obligations could also give rise to significant liability, and thus harm our business and our operating results.
We are not currently subject to any material legal proceedings with respect to third party claims that we or our customers’ use of our products and services are infringing upon their intellectual property; however, we may from time to time become a party to various legal proceedings with respect to such claims arising in the ordinary course of our business.
Any unauthorized disclosure or theft of personal information we gather could harm our reputation and subject us to claims or litigation.

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We collect, and have access to, personal information of subscribers, including names, addresses, account numbers, credit card numbers and e-mail addresses. Unauthorized disclosure of personal information regarding website visitors, whether through breach of our systems by an unauthorized party, employee theft or misuse, or otherwise, could harm our business. If there were an inadvertent disclosure of personal information, or if a third party were to gain unauthorized access to the personal information we possess, our operations could be seriously disrupted and we could be subject to claims or litigation arising from damages suffered by subscribers or our customers. In addition, we could incur significant costs in complying with the multitude of state, federal and foreign laws regarding the unauthorized disclosure of personal information. Finally, any perceived or actual unauthorized disclosure of the information we collect could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business.
We collect and may access personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, and our actual or perceived failure to comply with such obligations could harm our business.
We collect, and have access to, personal information of subscribers, including names, addresses, account numbers, credit card numbers and e-mail addresses. There are numerous federal, state and local laws around the world regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other subscriber data, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We generally comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third parties (including voluntary third-party certification bodies such as TRUSTe). We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection to the extent possible. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to users or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal information or other subscriber data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties we work with, such as customers, vendors or developers, violate applicable laws or our policies, such violations may also put subscriber information at risk and could in turn have an adverse effect on our business.
Any failure to convince advertisers of the benefits of advertising with us would harm our business, financial condition and results of operations.
We have derived and expect to continue to derive a substantial portion of our revenue from display advertising on our startpages. Such advertising accounted for approximately 20%, 23%, and 27% of our revenue for the years ended December 31, 2010, 2011, and 2012, respectively. Our ability to attract and retain advertisers and, ultimately, to generate advertising revenue depends on a number of factors, including:
increasing the numbers of consumers using our startpages;
maintaining consumer engagement on those startpages;
competing effectively for advertising spending with other online and offline advertising providers; and
continuing to grow our direct advertising sales force and develop and diversify our advertising capabilities.
If we are unable to provide high-quality advertising opportunities and convince advertisers and agencies of our value proposition, we may not be able to retain existing advertisers or attract new ones, which would harm our business, financial condition and results of operations.
Migration of high-speed Internet service providers’ subscribers from one high-speed Internet service provider to another could adversely affect our business, financial condition and results of operations.
Our high-speed Internet service provider customers’ subscribers may become dissatisfied with their current high-speed Internet service provider and may switch to another provider. In the event that there is substantial subscriber migration from our existing customers to service providers with which we do not have relationships, the fees that we receive on a per-subscriber basis, and the related search and display advertising revenue, could decline.

Our business and the trading price of our common stock may be adversely affected if our internal controls over financial reporting are found by management or by our independent registered public accounting firm not to be adequate.

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Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires our management to evaluate and report on our internal control over financial reporting. This report contains, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. In addition, our independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting beginning with the Annual Report on Form 10-K for the year in which we are no longer an “emerging growth company.” At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

While we have determined that our internal control over financial reporting was effective as of December 31, 2012, as indicated in our Management Report on Internal Control over Financial Reporting included in this Annual Report on Form 10‑K, we must continue to monitor and assess our internal control over financial reporting. If our management identifies one or more material weaknesses in our internal control over financial reporting and such weakness remains uncorrected at fiscal year-end, we will be unable to assert such internal control is effective at fiscal year-end. If we are unable to assert that our internal control over financial reporting is effective at fiscal year-end, or if our independent registered public accounting firm, when required, is unable to express an opinion on the effectiveness of our internal controls or concludes that we have a material weakness in our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would likely have an adverse effect on our business and stock price.

Even if we conclude our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting Principles, or GAAP, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.
In addition, a delay in compliance with the auditor attestation provisions of Section 404, when applicable to us, could subject us to a variety of administrative sanctions, including ineligibility for short-form resale registration, action by the SEC, the suspension or delisting of our common stock and the inability of registered broker-dealers to make a market in our common stock, which would further reduce the trading price of our common stock and could harm our business.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
    
We are an "emerging growth company," as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2012, we had substantial federal and state net operating loss carryforwards. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards to offset its post-change income and taxes may be limited. In general, an “ownership change” generally occurs if there is a cumulative change in our ownership by “five-percent stockholders” that exceeds 50 percentage points over a rolling three-year period. For these purposes, a five-percent stockholder is generally any person or group of persons that at any time during the applicable testing period has owned 5% or more of our outstanding stock. In addition, persons who own less than 5% of the outstanding stock are grouped together as one or more “public groups,” which are also treated as five-percent stockholders. Similar rules may apply under state tax laws. We may experience ownership changes in the future as a result of future transactions in our stock, some of which may be outside our control. As a result, our ability to use our pre-change net operating loss carryforwards to offset United States federal and state taxable income and taxes may be subject to limitations.

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Our joint venture's business prospects in China are dependent on government telecommunications infrastructure and budgetary policies, particularly the allocation of funds to sustain the growth of the telecommunications industry in China.
Our joint venture's business prospects in China include telecommunication service operators, and telecommunication service operators in China are directly or indirectly owned or controlled by the government of China. Accordingly, our joint venture's business prospects in China will also be heavily dependent on these government policies. Insufficient future funding allocated to China's telecommunications industry by the government could directly reduce the market for our joint venture's software and services in China. Chinese government initiatives directed at the market could also significantly affect the market conditions for our joint venture's Chinese customers and influence their level of spending on the services we offer. While some of these initiatives may increase market competition and generate more demand for our services, the anticipated increase in demand may not materialize. Our joint venture's prospective customers may not adapt well to the market conditions under the evolving regulatory environment and their demand for our joint venture's software and services may decrease as a result. The telecommunications industry in China may also become less competitive over time, either as a result of market propelled consolidations or as a result of government efforts to curtail competition. A less competitive market may create fewer incentives for spending on technology innovations and upgrades, which may directly affect our joint venture's business prospects in China.
Our proprietary rights may be inadequately protected and there is a risk of poor enforcement of intellectual property rights in China.
Our success and ability to compete depend substantially upon our intellectual property, which we protect through a combination of confidentiality arrangements and trademark registrations. We have registered several marks and filed many other trademark applications in the U.S. We have not applied for copyright protection in any jurisdiction, including in the U.S. We enter into confidentiality agreements with most of our employees and consultants, and control access to, and distribution of, our documentation and other licensed information, including information licensed to the JV Company. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization, or to develop similar technology independently. Since the Chinese legal system in general and the intellectual property regime in particular, are relatively weak, it is often difficult to enforce intellectual property rights in China.
Policing unauthorized use of our licensed technology is difficult and the steps we take may not prevent misappropriation or infringement of our proprietary rights. In addition, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others, which could result in substantial costs and diversion of our resources.
Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur with respect to our expansion into international markets. Our employees or other agents may engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences, including adverse publicity and damage to our reputation that may have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Industry
The growth of the market for our services and products depends on the continued growth of the Internet as a medium for content, advertising, commerce and communications.
Expansion in the sales of our services and products depends on the continued acceptance of the Internet as a platform for content, advertising, commerce and communications. The acceptance of the Internet as a medium for such uses could be adversely impacted by delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, privacy protection, reliability, cost, ease of use, accessibility and quality of service. The performance of the Internet and its acceptance as such a medium has been harmed by viruses, worms, and similar malicious programs, and the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If for any reason the Internet does not remain a medium for widespread content, advertising, commerce and communications, the demand for our services and products would be significantly reduced, which would harm our business.

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The growth of the market for our services and products depends on the development and maintenance of the Internet infrastructure.
Our business strategy depends on continued Internet and high-speed Internet access growth. Any downturn in the use or growth rate of the Internet or high-speed Internet access would be detrimental to our business. If the Internet continues to experience significant growth in number of users, frequency of use and amount of data transmitted, the Internet infrastructure might not be able to support the demands placed on it and the performance or reliability of the Internet may be adversely affected. The success of our business therefore depends on the development and maintenance of a sound Internet infrastructure. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as timely development of complementary products, such as routers, for providing reliable Internet access and services. Consequently, as Internet usage increases, the growth of the market for our products depends upon improvements made to the Internet as well as to individual customers’ networking infrastructures to alleviate overloading and congestion. In addition, any delays in the adoption of new standards and protocols required to govern increased levels of Internet activity or increased governmental regulation may have a detrimental effect on the Internet infrastructure.
A substantial majority of our revenue is derived from search and display advertising; our revenue would decline if advertisers do not continue their usage of the Internet as an advertising medium.
We have derived and expect to continue to derive a substantial majority of our revenue from search and display advertising on our startpages. Such search and display advertising revenue accounted for approximately 69%, 79%, and 83% of our revenue for the years ended December 31, 2010, 2011, and 2012, or $45.9 million, $72.1 million, and $101.6 million, respectively. However, the prospects for continued demand and market acceptance for Internet advertising are uncertain. If advertisers do not continue to increase their usage of the Internet as an advertising medium, our revenue would decline. Advertisers that have traditionally relied on other advertising media may not advertise on the Internet. Most advertising agencies and potential advertisers, particularly local advertisers, have only limited experience advertising on the Internet and devote only a small portion of their advertising expenditures to online advertising. As the Internet evolves, advertisers may find online advertising to be a less attractive or less effective means of promoting their services and products than traditional methods of advertising and may not continue to allocate funds for Internet advertising. Many historical predictions by industry analysts and others concerning the growth of the Internet as a commercial medium have overstated the growth of the Internet and you should not rely upon them. This growth may not occur or may occur more slowly than estimated.
Most of our search revenue is based on the number of paid “clicks” on sponsored links that are included in search results generated from our startpages. Generally, each time a consumer clicks on a sponsored link, the search provider that provided the commercial search result receives a fee from the advertiser who paid for such commercial click and the search provider pays us a portion of that fee. We, in turn, typically share a portion of the fee we receive with our customer. If an advertiser receives what it perceives to be a large number of clicks for which it needs to pay, but that do not result in a desired activity or an increase in sales, the advertiser may reduce or eliminate its advertisements through the search provider that provided the commercial search result to us. This reaction would lead to a loss of revenue to our search providers and consequently to lesser fees paid to us, which would have a material negative effect on our financial results.
Market prices for online advertising may decrease due to competitive or other factors. In addition, if a large number of Internet users use filtering software programs that limit or remove advertising from the users’ view, advertisers may perceive that Internet advertising is not effective and may choose not to advertise on the Internet.
The market for Internet-based services and products in which we operate is highly competitive, and if we cannot compete effectively, our sales may decline and our business may be harmed.
Competition in the market for Internet-based services and products in which we operate is intense and involves rapidly changing technologies and customer and subscriber requirements, as well as evolving industry standards and frequent product introductions. Our competitors may develop solutions that are similar or superior to our technology. Our primary competitors include high-speed Internet service providers with internal information technology staff capable of developing solutions similar to our technology. Other competitors include Yahoo!, Google, AOL and MSN, a division of Microsoft. Advantages some of our existing and potential competitors hold over us include the following:
significantly greater revenue and financial resources;
stronger brand and consumer recognition;
the capacity to leverage their marketing expenditures across a broader portfolio of services and products;

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more extensive proprietary intellectual property from which they can develop or aggregate content without having to pay fees or paying significantly lower fees than we do;
pre-existing relationships with content providers that afford them access to content while blocking the access of competitors to that same content;
pre-existing relationships with high-speed Internet service providers that afford them the opportunity to convert such providers to competing services and products;
lower labor and development costs; and
broader global distribution and presence.
If we are unable to compete effectively or we are not as successful as our competitors in our target markets, our sales could decline, our margins could decline and we could lose market share, any of which would materially harm our business, financial condition and results of operations.
Government regulation of the Internet continues to evolve, and new laws and regulations could significantly harm our financial performance.
Today, there are relatively few laws specifically directed towards conducting business over the Internet. We expect more stringent laws and regulations relating to the Internet to be enacted. The adoption or modification of laws related to the Internet could harm our business, financial condition and results of operations by, among other things, increasing our costs and administrative burdens. Due to the increasing popularity and use of the Internet, many laws and regulations relating to the Internet are being debated at the international, federal and state levels, which are likely to address a variety of issues such as:
user privacy and expression;
ability to collect and/or share necessary information that allows us to conduct business on the Internet;
export compliance;
pricing and taxation;
fraud;
advertising;
intellectual property rights;
consumer protection;
protection of minors;
content regulation;
information security; and
quality of services and products.
Several federal laws that could have an impact on our business have been adopted. The Digital Millennium Copyright Act of 1998 reduces the liability of online service providers of third-party content, including content that may infringe copyrights or rights of others. The Children’s Online Privacy Protection Act imposes additional restrictions on the ability of online services to collect user information from minors. In addition, the Protection of Children from Sexual Predators Act requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances.
It could be costly for us to comply with existing and potential laws and regulations, and they could harm our marketing efforts and our attractiveness to advertisers by, among other things, restricting our ability to collect demographic and personal information from consumers or to use or disclose that information in certain ways. If we were to violate these laws or regulations, or if it were alleged that we had, we could face private lawsuits, fines, penalties and injunctions and our business could be harmed.

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Finally, the applicability to the Internet and other online services of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain. Any new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could also increase our costs of doing business, discourage Internet communications, reduce demand for our services and expose us to substantial liability.
Public scrutiny of Internet privacy issues may result in increased regulation and different industry standards, which could deter or prevent us from providing our current products and solutions to our customers, thereby harming our business.
The regulatory framework for privacy issues worldwide is currently in flux and is likely to remain so for the foreseeable future. Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the Internet have recently come under increased public scrutiny. The United States government, including the Federal Trade Commission and the Department of Commerce, has announced that it is reviewing the need for greater regulation for the collection of information concerning consumer behavior on the Internet, including regulation aimed at restricting certain targeted advertising practices. In addition, the European Union is in the process of proposing reforms to its existing data protection legal framework, which may result in a greater compliance burden for companies with users in Europe. Various government and consumer agencies have also called for new regulation and changes in industry practices.
Our business, including our ability to operate and expand internationally, could be adversely affected if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices, our services or our privacy policies.
Risks Related to Ownership of Our Common Stock
Concentration of ownership among our directors, officers, large stockholders and their respective affiliates could limit our other stockholders’ ability to influence the outcome of key corporate decisions, such as an acquisition of our company.
Our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, beneficially own or control, directly or indirectly, as of December 31, 2012 over 30% of our outstanding common stock. As a result, these stockholders, if they act together, would have the ability to influence significantly the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, if they act together, would have the ability to influence significantly the management and affairs of our company. Accordingly, this concentration of ownership might harm the trading price of our common stock by:
delaying, deferring or preventing a change in our control;
impeding a merger, consolidation, takeover or other business combination involving us; or
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
Future sales of our common stock may cause the trading price of our common stock to decline.
As of February 15, 2012, the closing date of our initial public offering, stockholders holding some 17,666,204 shares of our common stock had demand and piggyback rights to require us to register such shares with the SEC. If we register any of these shares of common stock, the stockholders would be able to sell those shares freely in the public market.
In addition, the shares that are either subject to outstanding options or that may be granted in the future under our 2012 Equity Incentive Plan will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and Rules 144 and 701 under the Securities Act.
As of February 22, 2012, we registered the shares of our common stock that we may issue under our equity plans. These shares can be freely sold in the public market upon issuance, subject to any vesting.
If a substantial number of any of these additional shares described are sold, or if it is perceived that a substantial number of such shares will be sold, in the public market, the trading price of our common stock could decline.
Some provisions of our certificate of incorporation, bylaws and Delaware law may discourage, delay or prevent a merger or acquisition or prevent the removal of our current board of directors and management.

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Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may discourage, delay or prevent a merger or acquisition or prevent the removal of our current board of directors and management. We have a number of anti-takeover devices in place that will hinder takeover attempts, including:
our board of directors is classified into three classes of directors with staggered three-year terms;
our directors may only be removed for cause, and only with the affirmative vote of a majority of the voting interest of stockholders entitled to vote;
only our board of directors and not our stockholders will be able to fill vacancies on our board of directors;
only our chairman of the board, our chief executive officer or a majority of our board of directors, and not our stockholders, are authorized to call a special meeting of stockholders;
our stockholders will be able to take action only at a meeting of stockholders and not by written consent;
our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; and
advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
These provisions and other provisions in our charter documents could discourage, delay or prevent a transaction involving a change in our control. Any delay or prevention of a change in control transaction could cause stockholders to lose a substantial premium over the then-current trading price of their shares. These provisions could also discourage proxy contests and could make it more difficult for our stockholders to elect directors of their choosing or to cause us to take other corporate actions such stockholders desire.
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits “business combinations” between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock, for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests.
We have not paid cash dividends on our capital stock, and we do not expect to do so in the foreseeable future.
We have not historically paid cash dividends on our capital stock. We anticipate that we will retain all future earnings and cash resources for the future operation and development of our business, and as a result, we do not anticipate paying any cash dividends to holders of our capital stock for the foreseeable future. Any future determination regarding the payment of any dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board may deem relevant. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
The trading price and volume of our common stock has been and will likely continue to be volatile, and the value of an investment in our common stock may decline.
The trading price of our common stock has been, and is likely to continue to be, volatile and could decline substantially within a short period of time. For example, since shares of our common stock were sold in our initial public offering in February 2012 at a price of $5.00 per share through the close of business on March 1, 2013, our trading price has ranged from $2.72 to $18.00. The trading price of our common stock may be subject to wide fluctuations in response to various factors, some of which are beyond our control, including but not limited to the various factors set forth in this "Risk Factors" section, as well as:
variations in our financial performance;
announcements of technological innovations, new services and products, strategic alliances or significant agreements by us or by our competitors;
recruitment or departure of key personnel;
changes in the estimates of our operating results or changes in recommendations or withdrawal of research coverage by securities analysts;

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market conditions in our industry, the industries of our customers and the economy as a whole; and
adoption or modification of laws, regulations, policies, procedures or programs applicable to our business or announcements relating to these matters.
In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. Some companies that have had volatile market prices for their securities have had securities class actions filed against them. Such a suit filed against us, regardless of its merits or outcome, could cause us to incur substantial costs and could divert management’s attention.
If securities or industry analysts do not publish research or reports about our company, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
The requirements of being a public company, including increased costs and demands upon management as a result of complying with federal securities laws and regulations applicable to public companies, may adversely affect our financial performance and our ability to attract and retain directors.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and the rules and regulations of The NASDAQ Global Market. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and NASDAQ, impose additional requirements on public companies, including enhanced corporate governance practices. For example, the NASDAQ listing requirements require that listed companies satisfy certain corporate governance requirements relating to independent directors, audit committees, distribution of annual and interim reports, stockholder meetings, stockholder approvals, solicitation of proxies, conflicts of interest, stockholder voting rights and codes of business conduct. Our management team has limited experience managing a publicly-traded company or complying with the increasingly complex laws pertaining to public companies. In addition, most of our current directors have limited experience serving on the boards of public companies.
The requirements of these rules and regulations have increased and will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and may also place undue strain on our personnel, systems and resources. Our management and other personnel must devote a substantial amount of time to these requirements. These rules and regulations will also make it more difficult and more expensive for us to maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If we are unable to maintain adequate directors’ and officers’ insurance, our ability to recruit and retain qualified directors, especially those directors who may be considered independent for purposes of NASDAQ rules, and officers may be significantly curtailed.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate headquarters are located at 40 LaRiviere Drive, Buffalo, New York 14202. We lease approximately 31,000 square feet of office space at this address pursuant to a sublease agreement that expires in March 2016. The sublease agreement grants us a right of first offer over approximately 63,000 additional square feet in the same building.
We also maintain administrative and product development offices in New York, New York, Los Angeles, California and Ontario, Canada and have data centers in Atlanta, Georgia; Lewis Center, Ohio; Buffalo, New York; Denver, Colorado; and Amsterdam, The Netherlands.

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We believe that our facilities are adequate to meet our current needs and that suitable additional or substitute space will be available as needed.
ITEM 3.
LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently involved in any legal proceedings, the outcome of which, if determined adversely to us, would have a material adverse effect on our business, results of operations or financial condition.
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
Our common stock has been listed on The NASDAQ Global Market, or Nasdaq, under the symbol “SYNC” since February 10, 2012.

The following table sets forth, for the indicated periods, the high and low sales prices per share by quarter for our common stock as reported by NASDAQ.

Fiscal Year 2012 Quarters Ended:
High
 
Low
March 31, 2012 (1)
$
8.10

 
$
4.75

June 30, 2012
15.00

 
6.36

September 30, 2012
18.00

 
7.35

December 31, 2012
7.98

 
4.44


Notes:
(1)
There was no public market for our common stock prior to February 10, 2012.
Holders of Record
As of March 21, 2013, there were 110 holders of record of our common stock. The number of holders of record of our common stock does not reflect the number of beneficial holders whose shares are held by depositors, brokers or other nominees.
Dividend Policy
We have never declared or paid cash dividends on our common stock. It is our policy to retain earnings to finance the growth and development of our business and, therefore, we do not anticipate paying any dividends in the foreseeable future. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, operating results, applicable Delaware law, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. In addition, our amended and restated loan and security agreement restricts our ability to pay any dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Securities Authorized for Issuance Under Equity Compensation Plans

The information required to be disclosed by Item 201(d) of Regulation S-K regarding our equity securities authorized for issuance under our equity incentive plans is incorporated herein by reference to the section entitled “Securities Authorized for Issuance Under Equity Compensation Plans” in our definitive Proxy Statement for our Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of fiscal year 2012 pursuant to Regulation 14A.

Stock Performance Graph

Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed to be “filed” with the SEC or to be “soliciting material” under the Exchange Act, and it shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing.

The graph below compares the cumulative total stockholder return of our common stock with that of the NASDAQ Composite Index and the NASDAQ Internet Index from February 13, 2012 (the date on which our common stock commenced trading on the NASDAQ Global Market) through December 31, 2012. The graph assumes that $100 was invested in shares of our common stock, the NASDAQ Composite Index and the NASDAQ Internet Index at the close of market on February 13, 2012, and that dividends, if any, were reinvested. The comparisons in this graph are based on historical data and are not intended to forecast or be indicative of future performance of our common stock.

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Recent Sales of Unregistered Securities
None.
Use of Proceeds
In February 2012, we completed the initial public offering of shares of our common stock, in which we issued and sold 5,454,545 shares of common stock at a price to the public of $5.00 per share, for aggregate gross proceeds to the Company of $27.3 million, in each case excluding shares of common stock sold by selling stockholders in the offering. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-178049), which was declared effective by the SEC on February 9, 2012.
There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on February 10, 2012 pursuant to Rule 424(b).
Issuer Purchases of Equity Securities
No shares of our common stock were repurchased during the three months ended December 31, 2012.


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ITEM 6.
SELECTED FINANCIAL DATA
You should read the following selected consolidated historical financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements, related notes and other financial information included in this Annual Report on Form 10-K. The selected consolidated financial data in this section is not intended to replace the financial statements and is qualified in its entirety by the financial statements and related notes included in this Annual Report on Form 10-K.
We derived the selected consolidated financial data for the years ended December 31, 2010 , 2011 and 2012 and as of December 31, 2011 and 2012 from our audited consolidated financial statements and related notes, which are included in this Annual Report on Form 10-K. We derived the selected consolidated financial data for the years ended December 31, 2008 and 2009 and as of December 31, 2008, 2009 and 2010 from our audited consolidated financial statements and related notes, which are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results to be expected in the future.
 
Year Ended December 31,
 
2008
 
2009
 
2010
 
2011
 
2012
 
(in thousands except share and per share data)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
 
 
Revenue
$
52,571

 
$
60,798

 
$
66,232

 
$
91,060

 
$
121,981

Costs and operating expenses:
 
 
 
 
 
 
 
 
 
Cost of revenue (1)
28,575

 
34,074

 
36,703

 
48,661

 
66,620

Research and development (1)(2)
12,783

 
13,627

 
18,494

 
20,228

 
25,603

Sales and marketing (2)
5,732

 
5,591

 
6,211

 
8,582

 
9,120

General and administrative (1)(2)
4,997

 
4,966

 
5,656

 
6,879

 
11,011

Withdrawn initial public offering expenses
3,405

 

 

 

 

Depreciation
1,574

 
2,005

 
2,506

 
2,667

 
3,779

Other operating expenses
1,121

 

 

 

 
 
Total costs and operating expenses
58,187

 
60,263

 
69,570

 
87,017

 
116,133

(Loss) income from operations
(5,616
)
 
535

 
(3,338
)
 
4,043

 
5,848

Other income (expense)
156

 
69

 
(2
)
 
(17
)
 
1

Interest expense
(294
)
 
(285
)
 
(240
)
 
(109
)
 
(270
)
(Loss) income before income taxes
(5,754
)
 
319

 
(3,580
)
 
3,917

 
5,579

Provision (benefit) for income taxes
10

 
15

 
11

 
(6,015
)
 
1,764

Net (loss) income
(5,764
)
 
304

 
(3,591
)
 
9,932

 
3,815

Undistributed earnings allocated to preferred stockholders

 
279

 

 
8,583

 

Net (loss) income attributable to common stockholders
$
(5,764
)
 
$
25

 
$
(3,591
)
 
$
1,349

 
$
3,815

Net (loss) income per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
Basic
$
(3.41
)
 
$
0.01

 
$
(1.93
)
 
$
0.59

 
$
0.16

Diluted
$
(3.41
)
 
$
0.01

 
$
(1.93
)
 
$
0.45

 
$
0.14

Weighted average shares used to compute net (loss) income per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
Basic
1,690,458

 
1,814,029

 
1,865,294

 
2,303,443

 
24,411,194

Diluted
1,690,458

 
22,293,068

 
1,865,294

 
21,974,403

 
28,097,313

Other Financial Data:
 
 
 
 
 
 
 
 
 
Adjusted EBITDA (3)
$
(3,374
)
 
$
3,441

 
$
36

 
$
7,630

 
$
11,626


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 Notes:
(1)
Exclusive of depreciation shown separately.
(2)
Includes stock-based compensation as follows:
 
Year Ended December 31,
 
2008
 
2009
 
2010
 
2011
 
2012
 
(in thousands)
Research and development
$
221

 
$
252

 
$
398

 
$
295

 
$
523

Sales and marketing
142

 
189

 
202

 
203

 
404

General and administrative
305

 
460

 
268

 
422

 
1,072

(3)
We define adjusted EBITDA as net (loss) income, plus: provision (benefit) for income taxes, interest expense, other (income) expense, depreciation, and stock-based compensation. Please see “Adjusted EBITDA” below for more information and for a reconciliation of adjusted EBITDA to net (loss) income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
 
As of December 31,
 
2008
 
2009
 
2010
 
2011
 
2012
 
(in thousands)
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
8,830

 
$
10,462

 
$
5,412

 
$
10,925

 
$
41,944

Trade receivables, net
7,162

 
7,773

 
9,654

 
14,336

 
15,624

Property and equipment, net
7,707

 
6,631

 
7,110

 
8,301

 
11,043

Total assets
25,945

 
26,004

 
24,327

 
43,382

 
76,330

Long-term bank financing and capital lease obligations
2,914

 
1,247

 
1,203

 
2,098

 
1,712

Total stockholders’ equity
12,211

 
13,053

 
10,156

 
21,380

 
50,811

Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed within this Annual Report on Form 10-K adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.
We have included adjusted EBITDA in this Annual Report on Form 10-K because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in connection with the payment of bonuses to our executive officers. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
although depreciation is a non-cash charge, the assets being depreciated may have to be replaced in the future, and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditure requirements;
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

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Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net (loss) income and our other GAAP results. The following table presents a reconciliation of adjusted EBITDA to net (loss) income for each of the periods indicated:  
 
Year Ended December 31,
 
2008
 
2009
 
2010
 
2011
 
2012
 
(in thousands)
Reconciliation of Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(5,764
)
 
$
304

 
$
(3,591
)
 
$
9,932

 
$
3,815

Provision (benefit) for income taxes
10

 
15

 
11

 
(6,015
)
 
1,764

Interest expense
294

 
285

 
240

 
109

 
270

Other (income) expense (1)
(156
)
 
(69
)
 
2

 
17

 
(1
)
Depreciation
1,574

 
2,005

 
2,506

 
2,667

 
3,779

Stock-based compensation
668

 
901

 
868

 
920

 
1,999

Adjusted EBITDA
$
(3,374
)
 
$
3,441

 
$
36

 
$
7,630

 
$
11,626

     Note:
(1)
Other (income) expense consists primarily of interest income earned and foreign exchange gains and losses.

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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our results of operations and financial condition should be read in conjunction with the information set forth in “Selected Financial Data” and our financial statements and the notes thereto included in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon our current expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed under “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
Overview
We are a leading provider of startpages, TV Everywhere solutions, Identity Management (IDM) and various cloud-based services across multiple devices for cable, satellite, telecom and consumer electronics companies. We are also a leading provider of authentication and aggregation solutions for delivery of online content. Our technology allows our customers to package a wide array of online content and cloud-based services with their high-speed Internet, communications, television and other offerings. Our customers offer our services under their own brands on Internet-enabled devices such as PCs, tablets, smartphones and connected TVs.
We generate revenue from search and display advertising and by charging subscriber-based fees for services and products delivered through our startpages. Our results are driven primarily by our customer mix, the product and service mix preferences of those customers and the pricing of those products and services. We generate the majority of our revenue from search and display advertising on our startpages, which comprise consumer-facing components of our technology. Adding new customers with large consumer bases and expansion of our relationships with existing customers have resulted in an increasing shift in our revenue mix towards search and display advertising revenue. In addition, as new customers adopt our solutions, and as their respective consumers’ use of our startpages ramps up as described below, our growth is increasingly driven by search and display advertising revenue. These increases are largely driven by our model of sharing a portion of this search and advertising revenue with our customers. As we expand our value added services offerings, we expect to generate increased subscriber-based revenue from our customers.
Growth in search and display advertising revenue is driven largely by increasing consumer use of our startpages. As more consumers use our startpages and as consumers spend more time on these startpages, we have a greater number of opportunities to deliver advertisements. During the year ended December 31, 2012 , search and display advertising revenue was $101.6 million , a growth of 41% over $72.1 million for the year ended December 31, 2011 . Over the same period, our unique visitors increased by 40% , our search queries increased by 29% and our advertising impressions increased by 52% . We expect future growth in consumer engagement as our customers deliver more services through our cross-device, touchscreen-enabled startpages.
Our subscriber-based revenue consists of fees charged for the use of our proprietary technology and for the use of, or access to, services, such as e-mail, security, TV Everywhere, online games, music and other value added services and paid content. During the year ended December 31, 2012, subscriber-based revenue was $20.4 million, an increase of 8% from $19.0 million during the year ended December 31, 2011. We believe there are opportunities to generate new sources of subscriber-based revenue, such as the introduction of new value added services, including those delivered on cross-device, touchscreen-enabled devices. We believe that the variety of value added services and the introduction of new value added services will also drive increased search and display advertising revenue.
As new customers introduce our startpages to their consumers, usage of our solutions and our revenue from our startpages tends to increase over time. There are a variety of reasons for this ramp-up period. For example, a new customer may migrate its consumers from its existing technology to our technology over a period of time. Moreover, a new customer may initially launch a selection of our services and products, rather than our entire suite of offerings, and subsequently broaden their service and product offerings over time. When a customer launches a new service or product, marketing and promotional activities may be required to generate awareness and interest among consumers. Search and display advertising revenue typically grows significantly during the first one to three years after a customer launch, although there can be notable variances from customer to customer. Thereafter, changes in revenue tend to mirror changes in the consumer base of the applicable customer.
For the year ended December 31, 2012, we derived revenue from over 45 customers, with revenue attributable to four customers, CenturyLink (including revenue attributable to Qwest), Charter, Verizon and Toshiba, together accounting for approximately 73% of our revenue for the year ended December 31, 2012, or $88.4 million. One of these customers accounted

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for 20% or more of revenue in such period, and revenue attributable to each of the other three customers accounted for more than 10% in such period.
Revenue attributable to our customers includes the subscriber-based revenue earned directly from them, as well as the search and display advertising revenue generated through our relationships with our search and display advertising partners (such as Google for search advertising and advertising networks, advertising agencies and advertisers for display advertising). This revenue is attributable to our customers because it is produced from the traffic on our startpages. These partners provide us with advertisements that we then deliver with search results and other content on our startpages. Since our search advertising partner, Google, and our advertising network partners generate their revenue by selling those advertisements, we create a revenue stream for these partners. In the year ended December 31, 2012 , search advertising through our relationship with Google generated approximately 56% of our revenue, or $68.5 million (all of which was attributable to our customers).
We have experienced and expect in the future to experience growth in our business as we acquire new customers, as our existing customers acquire new consumers, as we roll out new products and services and as we expand our presence into international markets. We expect to continue to make capital expenditures in 2013 related to both the customer supporting activities and our internal information technology infrastructure. We expect in 2013 that our research and development headcount and associated expenses will be relatively consistent with the run rate of the fourth quarter of 2012,  as we continue to develop our technology, deliver new products and services, and make those and existing products and services available across different devices.
Although we experienced net losses in 2010 (as well as in prior years), we believe that the revenue opportunities afforded us by the growth in search and display advertising across our customers have enhanced our ability to achieve profitability in the future. Our costs of revenue, as a percentage of revenue, are expected to remain relatively consistent as most of these costs are associated with the sharing of revenue with our customers. We expect our operating expenses, as a percentage of revenue, in 2013 to be consistent with 2012.
The initiatives described below under “Key Initiatives” are expected to contribute to our ability to maintain and grow profitability via increases in advertising revenue, increases in customers and our consumer reach, and increases in availability of products across more devices. We expect the period in which we experience a return on future investments in each of these initiatives to differ. For example, more direct advertising at higher CPMs would be expected to have an immediate and direct impact on profitability while expansion into international markets may require an investment that involves a longer term return. We expect that some of the net proceeds of our initial public offering will be utilized with a goal of enhancing our technology and our systems capabilities to more efficiently support our customers, develop new products and features and report upon, analyze and manage the financial performance of the business in order to improve our ability to achieve consistent profitability in the future. As of the date of this Annual Report on Form 10-K, we have not yet determined the specific uses of the net proceeds of our initial public offering.
Trends Affecting Our Business
Our customers, who are predominantly high-speed Internet service providers that also offer television services, are facing increasing competition from companies that deliver video content over the Internet, more commonly referred to as “over-the-top,” or OTT. These new competitors include a number of large and growing companies, such as Google, Netflix, Inc., or Netflix, Hulu, LLC, or Hulu, and Amazon.com Inc., or Amazon. With the increased availability of high-speed Internet access and over-the-top programming, consumers’ video content consumption preferences may shift away from current viewing habits. As a result, many of our customers and potential customers are compelled to find new ways to deliver services and content to their consumers via the Internet. We expect this pressure to become even greater as more video content becomes available online. We expect to continue to benefit from this trend as customers adopt our solutions to package and deliver video programming and other related authentication services on our startpages.
Another trend affecting our customers and our business is the proliferation of Internet-connected devices, especially mobile devices. Smartphones, tablets and connected TVs have made it more convenient for consumers to access services and content online, including television programming. To remain competitive, our customers and potential customers must have the capability to deliver their services and products to consumers on these new devices. Our technology enables them to extend their presence beyond traditional personal computers, and we expect that some portion of our revenue growth will come from traffic on these devices.
Our business is also affected by growth in advertising on the Internet, of which proliferation of high-speed Internet access and Internet-connected devices will be the principal drivers. We believe such search advertising will continue to attract advertising spending to the Internet and will benefit our results of operations. Also, we expect our results of operations will benefit from the growth in the number of mobile Internet users as our customers adopt our cross-device, touchscreen-enabled startpages.

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The launch of the Microsoft Windows 8 operating system in October 2012 has had an impact on our business.  As it relates to our business with consumer electronics customers that have the Windows 8 operating system pre-installed on their laptop or desktop computers, our startpages are now placed on a second tab when the Internet browser is launched. This has caused us to reduce our revenue expectations from our consumer electronics customers.
Key Initiatives
We are focused on several key initiatives to drive our business:
add new, and expand our existing offerings with current, cable, telecom, satellite and consumer electronics customers to increase our consumer reach;
continue to expand our offerings of, and invest in, cloud-based services such as e-mail and TV Everywhere and increase the number of customers using our TV Everywhere technology;
enhance our direct advertising sales effort to increase the CPMs derived from advertising;
extend the availability of our existing and new products and services to additional devices including tablets and smartphones;
expand our presence into international markets; and
invest in and acquire new technologies and products.
Key Business Metrics
In addition to the line items in our financial statements, we regularly review a number of business metrics related to Internet traffic and search and display advertising to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. We believe disclosing these metrics is useful for investors and analysts to understand the underlying trends in our business. The following table summarizes our key business metrics, which are unaudited, for the years ended December 31, 2010 , 2011 and 2012 :
 
Year Ended December 31,
 
2010
 
2011
 
2012
Key Business Metrics:
 
 
 
 
 
Unique Visitors (1)
8,235,583

 
14,619,254

 
20,440,169

Search Queries (2)
453,687,989

 
748,576,869

 
968,233,560

Advertising Impressions (3)
18,832,969,669

 
27,749,105,979

 
42,170,186,571

     Notes:
(1)
Reflects the number of unique visitors to our startpages computed on an average monthly basis during the applicable period.
(2)
Reflects the total number of search queries during the applicable period.
(3)
Reflects the total number of advertising impressions during the applicable period.
Unique Visitors
We define unique visitors as consumers who have visited one of our startpages at least once during a particular time period. We rely on comScore to provide this data. comScore estimates this data based on the U.S. portion of the Internet activity of its worldwide panel of consumers and its proprietary data collection method.
Search Queries
We define search queries as the number of instances in which a consumer entered a query into a search bar on our startpages during a particular time period. We rely on reports from our search partner, Google, to measure the number of such instances.



34


Advertising Impressions
We define advertising impressions as graphical, textual or video paid advertisements displayed to consumers on our startpages during a particular time period. We rely on reports from technology and advertising partners, including DoubleClick (a division of Google), to measure the number of advertising impressions delivered on our platform.
Components of our Results of Operations
Revenue
We derive our revenue from two categories: revenue generated from search and display advertising activities and subscriber-based revenue, each of which is described below. We record our search and display advertising revenue on a gross basis, which includes the net amount received from Google under our agreement with them. The following table shows the revenue in each category, both in amount and as a percentage of revenue, for 2010 , 2011 and 2012 .
 
Year Ended December 31,
 
2010
 
2011
 
2012
 
(in thousands)
Revenue:
 
 
 
 
 
Search and display advertising
$
45,859

 
$
72,084

 
$
101,559

Subscriber-based
20,373

 
18,976

 
20,422

Total revenue
$
66,232

 
$
91,060

 
$
121,981

Percentage of revenue:
 
 
 
 
 
Search and display advertising
69
%
 
79
%
 
83
%
Subscriber-based
31

 
21

 
17

Total revenue
100
%
 
100
%
 
100
%
Search and Display Advertising Revenue
We use Internet search and display advertising to generate revenue from the traffic on our startpages.
In the case of search advertising, we have a revenue-sharing relationship with Google, pursuant to which we include a Google-branded search tool on our startpages. When a consumer makes a search query using this tool, we deliver the query to Google and they return search results to consumers that include advertiser-sponsored links. If the consumer clicks on a sponsored link, Google receives payment from the sponsor of that link and shares a portion of that payment with us, which we in turn share with the applicable customer. The net payment we receive from Google is recognized as revenue.
We generate display advertising revenue when consumers view or click on a text, graphic or video advertisement that was delivered on a Synacor-operated startpage. We fill our advertising inventory with advertisements sourced by our direct salesforce, independent advertising sales representatives and advertising network partners. Revenue may be calculated differently depending on our agreements with our advertisers or the agreements between our advertising network partners and their advertisers. It may be calculated on a cost per impression basis, which means the advertiser pays based on the number of times its advertisements appear, or a cost per action basis, which means that an advertiser pays when a consumer performs an action after engaging one of its advertisements. Historically only a small percentage of our display advertising revenue has been calculated on a cost per action basis.
Subscriber-Based Revenue
We define subscriber-based revenue as subscription fees and other fees that we receive from our customers for the use of our proprietary technology and the use of, or access to, e-mail, security, TV Everywhere, games and other services, including value added services and paid content. Monthly subscriber levels typically form the basis for calculating and generating subscriber-based revenue. They are generally determined by multiplying a per-subscriber per-month fee by the number of subscribers using the particular services being offered or consumed. In other cases, the fee is fixed. We recognize revenue from our customers as the service is delivered.


35


Costs and Expenses
Cost of Revenue
Cost of revenue consists of revenue sharing, content acquisition costs and co-location facility costs. Revenue sharing consists of amounts accrued and paid to our customers for the traffic on our startpage resulting in the generation of search and display advertising revenue. The revenue-sharing agreements with our customers are primarily variable payments based on a percentage of the search and display advertising revenue. Content acquisition agreements may be based on a fixed payment schedule, on the number of subscribers per month, or a combination of both. Fixed-payment agreements are expensed over the term defined in the agreement. Agreements based on the number of subscribers are expensed on a monthly basis. Co-location facility costs consist of rent and operating costs for our data center facilities.
Research and Development
Research and development expenses consist primarily of compensation-related expenses incurred for the development of, enhancements to, and maintenance and operation of our technology and related infrastructure.
Sales and Marketing
Sales and marketing expenses consist primarily of compensation-related expenses to our direct sales and marketing personnel, as well as costs related to advertising, industry conferences, promotional materials, and other sales and marketing programs. Advertising cost is expensed as incurred.
General and Administrative
General and administrative expenses consist primarily of compensation related expenses for executive management, finance, accounting, human resources and other administrative functions.
Depreciation
Depreciation includes depreciation of our computer hardware and software, furniture and fixtures, leasehold improvements, and other property, and depreciation on capital leased assets.
Other Income (Expense)
Other income (expense) consists primarily of interest income earned and foreign exchange gains and losses.
Interest Expense
Interest expense primarily consists of expenses associated with our long-term debt, capital leases, and amortization of debt issuance costs.
Provision for Income Taxes
Income tax expense consists of federal and state income taxes in the United States and taxes in certain foreign jurisdictions.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities in the financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the following critical accounting policies and estimates addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. See Note 1, The Company and Summary of Significant Accounting Policies , of Notes to the Financial Statements. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.



36


Revenue Recognition
We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured.
The terms of our arrangements with our customers, Google and our advertising network partners are specified in written agreements. These written agreements constitute the persuasive evidence of the arrangements with our customers that are a pre-condition to the recognition of revenue. The evidence used to document that delivery or performance has occurred generally consists of communication of either numbers of subscribers or the revenue generated in a reporting period from customers, advertising partners, vendors and our own internally-generated reports. Occasionally, a customer will notify us of subsequent adjustments to previously reported subscriber data. These adjustments, once accepted by us, will result in adjustments to revenue and cost of revenue. The historical occurrences of such adjustments, and the amounts involved, have not been significant.
Although prices used in our revenue recognition formulas are generally fixed pursuant to the written arrangements with our customers, Google and our advertising network partners, the number of subscribers or the amount of search and display advertising revenue that are subject to our pricing arrangements are not known until the reporting period has ended. Although this data is, in most cases, available prior to the completion of our periodic financial statements, this data may need to be estimated. When made, these estimates are based upon our historical experience with the relevant party. Adjustments to these estimates have historically not been significant. The receipt of this volume data also serves to verify that we have appropriately satisfied our obligation to our customers for that reporting period. Adjustments are recorded in the period in which the data is received.
Pursuant to the terms of our customer contracts, we recognize revenue in each period for our services once the contract has been signed, its terms reviewed and understood, the service, content or both have been made available to the customer and reliable active subscriber information is made available to us.
We undertake an evaluation of the creditworthiness of both new and, on a periodic basis, existing customers. Based on these reviews we determine whether collection of our prospective revenue is probable.
Revenue Sharing
We pay our customers a portion of the revenue generated from search and display advertising. The portion paid to our customers depends on, among other things, the consumer base of the customer and their expected ability to drive consumer traffic to our startpages. This revenue consists of the consideration we receive from Google and our display advertising partners in connection with traffic supplied by the applicable customer.
Gross Versus Net Presentation of Revenue for Revenue Sharing
We evaluate our relationship between our search and display advertising partners and our customers in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 605-45, Principal Agent Considerations . We have determined that the revenue derived from traffic supplied by our customers is reported on a gross basis because we are the primary obligor (we are responsible to our customers for fulfilling search and display advertising services and value added and other services), are involved in the service specifications, perform part of the service, have discretion in supplier selection, have latitude in establishing price and bear credit risk.
Stock-Based Compensation
We account for stock-based compensation in accordance with the authoritative guidance on stock compensation. Under the fair value recognition provisions of this guidance, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. As a result, we are required to estimate the amount of stock-based compensation we expect to be forfeited based on our historical experience. If actual forfeitures differ significantly from our estimates, stock-based compensation expense and our results of operations could be materially impacted.

Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. These variables include the fair value of our common stock, our expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates, and expected dividends, which are estimated as follows:

37


Fair Value of Our Common Stock . Because our stock was not publicly traded prior to our initial public offering, the fair value of our common stock underlying our stock options was determined by our board of directors based on valuations prepared by an independent valuation specialist. The board of directors intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. Following the completion of our initial public offering in February 2012, our common stock has been valued by reference to its publicly traded price.
Expected Term . The expected term was estimated using the simplified method allowed under SEC guidance. As we develop more experience, our estimate of the life of awards may change.
    
Volatility. As we do not have a significant trading history for our common stock, the expected stock price volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the technology industry similar in size, stage of life cycle and financial leverage. We did not rely on implied volatilities of traded options in our industry peers' common stock because the volume of activity was relatively low. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

Risk-free Rate . The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Accordingly, we used an expected dividend yield of zero.
Income Taxes
We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, generally all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.
We also provide reserves as necessary for uncertain tax positions taken on our tax filings. First, we determine if a tax position is more likely than not to be sustained upon audit solely based on technical merits, including resolution of related appeals or litigation processes, if any. Second, based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement we recognize any such differences as a liability. In the event that any unrecognized tax benefits are recognized, the effective tax rate will be affected. Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will be the same as these estimates. These estimates are updated quarterly based on factors such as change in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues.
We follow specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and provide necessary valuation allowances as required. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgments regarding future profitability may change due to many factors, including future market conditions and our ability to successfully execute our business plans and/or tax planning strategies. Should there be a change in our ability to recover our deferred tax assets, our tax provision would increase or decrease in the period in which the assessment is changed.






38


Results of Operations
The following tables set forth our results of operations for the periods presented in amount and as a percentage of revenue for those periods. The period to period comparison of financial results is not necessarily indicative of future results.
 
Year Ended December 31,
 
2010
 
2011
 
2012
 
(in thousands)
Revenue
$
66,232

 
$
91,060

 
$
121,981

Costs and operating expenses:
 
 
 
 
 
Cost of revenue (1)
36,703

 
48,661

 
66,620

Research and development (1)(2)
18,494

 
20,228

 
25,603

Sales and marketing (2)
6,211

 
8,582

 
9,120

General and administrative (1)(2)
5,656

 
6,879

 
11,011

Depreciation
2,506

 
2,667

 
3,779

Total costs and operating expenses
69,570

 
87,017

 
116,133

(Loss) income from operations
(3,338
)
 
4,043

 
5,848

Other (expense) income
(2
)
 
(17
)
 
1

Interest expense
(240
)
 
(109
)
 
(270
)
(Loss) income before income taxes
(3,580
)
 
3,917

 
5,579

Provision (benefit) for income taxes
11

 
(6,015
)
 
1,764

Net (loss) income
$
(3,591
)
 
$
9,932

 
$
3,815

Notes:
(1)
Exclusive of depreciation shown separately.
(2)
Includes stock-based compensation as follows:
 
Year Ended December 31,
 
2010
 
2011
 
2012
 
(in thousands)
Research and development
$
398

 
$
295

 
$
523

Sales and marketing
202

 
203

 
404

General and administrative
268

 
422

 
1,072

 
Year Ended December 31,
 
2010
 
2011
 
2012
Revenue
100
 %
 
100
 %
 
100
 %
Costs and operating expenses:
 
 
 
 
 
Cost of revenue (1)
55

 
53

 
55

Research and development (1)
28

 
22

 
21

Sales and marketing
9

 
9

 
7

General and administrative (1)
9

 
8

 
9

Depreciation
4

 
3

 
3

Total costs and operating expenses
105

 
96

 
95

(Loss) income from operations
(5
)
 
4

 
5

Other income (expense)

 

 

Interest expense

 

 

(Loss) income before income taxes
(5
)
 
4

 
5

Provision (benefit) for income taxes

 
(7
)
 
1

Net (loss) income
(5
)%
 
11
 %
 
3
 %
Note:
(1)
Exclusive of depreciation shown separately.

39


Comparison of Years Ended December 31, 2010 , 2011 and 2012
Revenue

Year Ended December 31,
 
2010 to
2011%
Change
 
2011 to
2012%
Change

2010
 
2011
 
2012
 

(in thousands)
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Search and display advertising
$
45,859

 
$
72,084

 
$
101,559

 
57
 %
 
41
%
Subscriber-based
20,373

 
18,976

 
20,422

 
(7
)%
 
8
%
Total revenue
$
66,232

 
$
91,060

 
$
121,981

 
37
 %
 
34
%
Percentage of revenue:
 
 
 
 
 
 
 
 
 
Search and display advertising
69
%
 
79
%
 
83
%
 
 
 
 
Subscriber-based
31

 
21

 
17

 
 
 
 
Total revenue
100
%
 
100
%
 
100
%
 
 
 
 
In 2012 our revenue increased by $30.9 million , or 34% , compared to 2011. Search and display advertising revenue increased by $29.5 million , or 41% as a result of increased search queries and advertising impressions on our startpages, driven in part by the launch and subsequent ramping of significant new customers in September 2010 and July 2011. The total number of search queries increased by 29% in 2012, and the total number of advertising impressions increased by 52% in 2012 as compared with 2011. The increase in search queries accounted for approximately 58% of the increase in search and display advertising revenue in 2012, while the increase in advertising impressions accounted for approximately 42%. Subscriber-based revenue increased $1.4 million, or 8% due to increases in TV Everywhere and e-mail revenue, partially offset by a decrease in value added services revenue. The increases in TV Everywhere and email revenue were driven by adding new customers and increased consumer usage. The decrease in value-added services revenue is a result of decreased demand of our value-added service offerings by consumers.
In 2011 our revenue increased by $24.8 million, or 37%, compared to 2010. Search and display advertising revenue increased by $26.2 million, or 57% as a result of increased search queries and advertising impressions on our startpages, driven in part by the launch and subsequent ramping of significant new customers in September 2010 and July 2011. The total number of search queries increased by 65% in 2011, and the total number of advertising impressions increased by 47% in 2011 as compared with 2010. The increase in search queries accounted for approximately 73% of the increase in search and display advertising revenue in 2011, while the increase in advertising impressions accounted for approximately 27%. Subscriber-based revenue decreased $1.4 million, or 7% due to pricing adjustments in the subscriber-based fees we charge in order to participate in greater search and display advertising revenue resulting from the increases in search queries and advertising impressions.
Cost of Revenue
 
Year Ended December 31,
 
2010 to
2011%
Change
 
2011 to
2012%
Change
 
2010
 
2011
 
2012
 
 
(in thousands)
 
 
 
 
Cost of revenue
$
36,703

 
$
48,661

 
$
66,620

 
33
%
 
37
%
Percentage of revenue
55
%
 
53
%
 
55
%
 
 
 
 
Our cost of revenue increased by $18.0 million , or 37% , in 2012 compared to 2011. The increase in our cost of revenue was mainly driven by additional revenue-sharing costs from increased search and display advertising. Cost of revenue as a percentage of revenue increased to 55% of revenue in 2012 from 53% of revenue in 2011 because of changes in search and display advertising revenue attributable to the mix of customers with revenue-sharing arrangements.
Our cost of revenue increased by $12.0 million, or 33%, in 2011 compared to 2010. The increase in our cost of revenue was driven by additional revenue-sharing costs from increased search and display advertising. Cost of revenue as a percentage of revenue declined to 53% of revenue in 2011 from 55% of revenue in 2010 because of changes in search and display advertising revenue attributable to the mix of customers with revenue-sharing arrangements.


40


Research and Development Expenses
 
Year Ended December 31,
 
2010 to
2011%
Change
 
2011 to
2012%
Change
 
2010
 
2011
 
2012
 
 
(in thousands)
 
 
 
 
Research and development
$
18,494

 
$
20,228

 
$
25,603

 
9
%
 
27
%
Percentage of revenue
28
%
 
22
%
 
21
%
 
 
 
 
Research and development expenses increased by $5.4 million , or 27% , in 2012 compared to 2011. The increase was primarily due to a $4.1 million increase in employee-related costs as a result of the increase in headcount to support new product initiatives and customer deployments. The remaining increase includes a $0.5 million increase for reporting tools and a $0.3 million increase for contractors.
Research and development expenses increased by $1.7 million, or 9%, in 2011 compared to 2010. The increase was primarily due to a $1.5 million increase in employee-related costs as a result of the increase in headcount to support new product initiatives and customer deployments and an increase in bonus payout. In addition, there was a $0.8 million increase in expenses for contractors. These increases were partially offset by a $0.7 million decrease in spending on computer supplies and travel related expenses.
Sales and Marketing Expenses
 
Year Ended December 31,
 
2010 to
2011%
Change
 
2011 to
2012%
Change
 
2010
 
2011
 
2012
 
 
(in thousands)
 
 
 
 
Sales and marketing
$
6,211

 
$
8,582

 
$
9,120

 
38
%
 
6
%
Percentage of revenue
9
%
 
9
%
 
7
%
 
 
 
 
Sales and marketing expenses increased by $0.5 million , or 6% , in 2012 compared to 2011. The increase was primarily due to a $0.9 million increase in employee-related costs as a result of the increase in headcount as we hired salespeople in our advertising department. The offsetting decrease of $0.4 million includes decreases for legal fees and reporting services.
Sales and marketing expenses increased by $2.4 million, or 38%, in 2011 compared to 2010. The increase was primarily due to a $0.9 million increase in employee-related costs as a result of the increase in headcount as we hired salespeople in our advertising department. The remaining increase of $1.5 million includes increases for sales commissions, legal fees, reporting services and public relations costs.
General and Administrative Expenses
 
Year Ended December 31,
 
2010 to
2011%
Change
 
2011 to
2012%
Change
 
2010
 
2011
 
2012
 
 
(in thousands)
 
 
 
 
General and administrative
$
5,656

 
$
6,879

 
$
11,011

 
22
%
 
60
%
Percentage of revenue
9
%
 
8
%
 
9
%
 
 
 
 
General and administrative expenses increased by $4.1 million , or 60% , in 2012 compared to 2011. The increase was primarily due to a $2.0 million increase in spending on administrative expenses associated with being a public company and a $0.5 million increase in employee-related costs as a result of hiring in our finance department. The remainder of the increase includes $0.6 million for stock-based compensation partially driven by the accelerated vesting of stock options upon retirement of service of our former board members upon our initial public offering and $0.4 million increase in rent and other facility-related costs.
General and administrative expenses increased by $1.2 million, or 22%, in 2011 compared to 2010. The increase was primarily due to a $0.6 million increase in employee-related costs as a result of hiring in our executive management and finance departments as well as an increase in bonus payout. The remainder of the increase includes $0.3 million for independent contractors to support our growth.

41



Depreciation
 
Year Ended December 31,
 
2010 to
2011%
Change
 
2011 to
2012%
Change
 
2010
 
2011
 
2012
 
 
(in thousands)
 
 
 
 
Depreciation
$
2,506

 
$
2,667

 
$
3,779

 
6
%
 
42
%
Percentage of revenue
4
%
 
3
%
 
3
%
 
 
 
 
Depreciation increased by $1.1 million , or 42% , in 2012 compared to 2011. This increase was primarily driven by the purchase of assets to support the addition of new customers.
Depreciation increased by $0.2 million, or 6%, in 2011 compared to 2010. This increase was driven by the purchase of assets to support the addition of new customers.
Other (Expense) Income
 
Year Ended December 31,
 
2010
 
2011
 
2012
 
(in thousands)
Other (expense) income
$
(2
)
 
$
(17
)
 
$
1

For each of 2010, 2011 and 2012, other (expense) income consisted primarily of interest income coupled with foreign currency transaction losses related to our operations in the United Kingdom.
Interest Expense
 
Year Ended December 31,
 
2010
 
2011
 
2012
 
(in thousands)
Interest expense
$
240

 
$
109

 
$
270

Interest expense increased in 2012 compared to 2011 as a result of higher average capital lease balances. The interest rates applied to those balances remained substantially the same.
Interest expense decreased in 2011 compared to 2010 as a result of lower average capital lease and bank financing balances. The interest rates applied to those balances remained substantially the same year-over-year.
Provision (benefit) for Income Taxes
 
Year Ended December 31,
 
2010
 
2011
 
2012
 
(in thousands)
Provision (benefit) for income taxes
$
11

 
$
(6,015
)
 
$
1,764

We had historically incurred operating losses generating net operating loss carryforwards (“NOLs”) which are available to offset taxable income. Due to the uncertainty at December 31, 2010 to generate sufficient taxable income in the future and utilize the NOLs before they expire, we had recorded a valuation allowance to reduce our net deferred tax asset to zero. Consequently, we did not record any material income tax expense in 2010.
In the fourth quarter of 2011, as a result of weighing the positive and negative evidence we determined that we would more likely than not be able to generate sufficient taxable income in the future and would be able to utilize our net operating loss carryforwards. As a result, we recognized a $6.1 million income tax benefit related to the reduction of our deferred tax asset valuation allowance.
In 2012 our income tax provision included $2.9 million of deferred income tax expense, partially offset by a tax benefit of $1.1 million relating to a research and development credit.

42


Unaudited Quarterly Results of Operations and Other Data
The following tables present our unaudited quarterly results of operations and other data for the eight quarters ended December 31, 2012 . This unaudited quarterly information has been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, the statement of operations data includes all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. You should read this table in conjunction with our financial statements and related notes located elsewhere in this Annual Report on Form 10-K. The results of operations for any quarter are not necessarily indicative of the results of operations for any future periods.
 
For the Three Months Ended
 
March 31,
2011

 
June 30,
2011

 
September 30,
2011

 
December 31,
2011

 
March 31,
2012

 
June 30,
2012

 
September 30,
2012

 
December 31,
2012

 
(in thousands, except per-share data)
Statements of Operations Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
18,694

 
$
19,467

 
$
23,954

 
$
28,945

 
$
30,670

 
$
30,807

 
$
28,326

 
$
32,178

Costs and operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue (1)
9,980

 
10,078

 
12,814

 
15,789

 
16,764

 
16,876

 
15,792

 
17,188

Research and development (1)
4,602

 
4,718

 
4,950

 
5,958

 
6,288

 
6,123

 
6,218

 
6,974

Sales and marketing
1,796

 
1,888

 
2,127

 
2,771

 
2,377

 
2,399

 
2,000

 
2,344

General and administrative (1)
1,551

 
1,512

 
1,824

 
1,992

 
2,840

 
2,868

 
2,676

 
2,627

Depreciation
620

 
657

 
673

 
717

 
781

 
934

 
981

 
1,083

Total costs and operating expenses
18,549

 
18,853

 
22,388

 
27,227

 
29,050

 
29,200

 
27,667

 
30,216

Income from operations
145

 
614

 
1,566

 
1,718

 
1,620

 
1,607

 
659

 
1,962

Net income
111

 
592

 
1,485

 
7,744

 
1,174

 
1,199

 
652

 
790

Undistributed earnings allocated to preferred stockholders
101

 
541

 
1,292

 
6,692

 

 

 

 

Net income attributable to common stockholders
$
10

 
$
51

 
$
193

 
$
1,052

 
$
1,174

 
$
1,199

 
$
652

 
$
790

Net income per share attributable to common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.01

 
$
0.03

 
$
0.08

 
$
0.35

 
$
0.07

 
$
0.04

 
$
0.02

 
$
0.03

Diluted
$

 
$
0.03

 
$
0.07

 
$
0.34

 
$
0.04

 
$
0.04

 
$
0.02

 
$
0.03

Note:
(1)
Exclusive of depreciation shown separately
Liquidity and Capital Resources
Our primary liquidity and capital resource requirements are for financing working capital, investing in capital expenditures such as computer hardware and software, supporting research and development efforts, introducing new technology, enhancing existing technology, and marketing our services and products to new and existing customers. To the extent that existing cash and cash equivalents, cash from operations, cash from short-term borrowings and the net proceeds from our initial public offering are insufficient to fund our future activities, we may need to raise additional funds through public or private equity offerings or debt financings.
In connection with our initial public offering in February 2012, we received aggregate gross proceeds of $27.3 million. The net proceeds to Synacor from the offering were approximately $22.4 million after deducting underwriting discounts of $1.9 million and offering costs of $3.0 million.
In July 2011 we entered into an amended and restated loan and security agreement with a commercial bank. As of December 31, 2012, there was no outstanding principal amount of term loan debt.
The amended and restated loan and security agreement also provides us with a revolving credit line of $6.0 million, which we can draw on at any time before July 2013, subject to a borrowing base calculation. Borrowings under the revolving credit line accrue interest at a per annum rate equal to the bank’s prime rate plus 0.25%, subject to a minimum rate of 4.0% per annum, and must be repaid by July 2013. As of December 31, 2012, $6.0 million was fully available under the revolving credit line, with no outstanding borrowings.

43


The amended and restated loan and security agreement contains provisions that allow the bank to accelerate repayment of the new term loan, if any, and the revolving credit line upon a material adverse change, as defined in the agreement, as well as other events of default. Our obligations under the agreement are secured by a blanket lien on all of our assets in favor of the bank. The agreement contains certain financial performance, reporting and other covenants, including restrictions on paying dividends and making distributions to our stockholder. As of December 31, 2012, we were in compliance with the covenants.
As of December 31, 2012 , we had approximately $41.9 million of cash and cash equivalents and money market funds. We did not have any short-term or long-term investments. We believe that our existing cash and cash equivalents, along with cash flows from operations and availability under our revolving credit line, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months.
Cash Flows
 
Year Ended December 31,
 
2010
 
2011
 
2012
 
(in thousands)
Statements of Cash Flows Data:
 
Cash flows (used in) provided by operating activities
$
(1,333
)
 
$
8,678

 
$
14,657

Cash flows used in investing activities
(1,558
)
 
(1,848
)
 
(4,869
)
Cash flows (used in) provided by financing activities
(2,159
)
 
(1,317
)
 
21,237

Cash (Used in) Provided by Operating Activities
Operating activities provided $14.7 million of cash in 2012 . The cash flow from operating activities primarily resulted from our net income, adjusted for non-cash items, and changes in our operating assets and liabilities. We had net income of $3.8 million , which included a non-cash benefit from deferred income taxes of $1.6 million , non-cash depreciation of $3.8 million and non-cash stock-based compensation of $2.0 million . Changes in our operating assets and liabilities provided $3.5 million of cash, primarily due to an increase of our accounts payable of $2.3 million and an increase of our accrued expenses and other current liabilities of $1.7 million , partially offset by increases in our accounts receivable of $1.3 million. The increase in our accounts payable was attributable to a $1.4 million increase due to the timing of, and a change in payment terms with, a customer for their revenue share payment. The remaining increase of $0.9 million was primarily driven by increased spending due to the growth of our revenue-share payments associated with our revenue growth. The increase in our accrued expenses and other liabilities of $1.7 million was primarily driven by a $1.0 million increase for operating related expenses and components of our cost of revenue and a $0.5 million increase in our bonus accrual. The increase in our accounts receivable was primarily due to our revenue growth in 2012.
Operating activities provided $8.7 million of cash in 2011. The cash flow from operating activities primarily resulted from our net income, adjusted for non-cash items, and changes in our operating assets and liabilities. We had net income in 2011 of $9.9 million, which included a non-cash benefit from deferred income taxes of $6.1 million, non-cash depreciation of $2.7 million and non-cash stock-based compensation of $0.9 million. Changes in our operating assets and liabilities provided $1.2 million of cash in 2011, primarily due to an increase of $4.1 million in our accounts payable and an increase of $1.7 million of other accrued expenses partially offset by increases in our accounts receivable of $4.7 million. The increase in accounts payable was the result of increased spending due to the growth of our revenue-share payments associated with our revenue growth and the timing of payments to customers for revenue-sharing agreements and to content providers. The increase in other accrued expenses was mainly due to an increase in our bonus accrual. The increase in our accounts receivable was primarily due to our revenue growth in 2011.
Operating activities used $1.3 million of cash in 2010. The cash flow from operating activities primarily resulted from our net loss, adjusted for non-cash items, and changes in our operating assets and liabilities. We had a net loss in 2010 of $3.6 million, which included non-cash depreciation of $2.5 million and non-cash stock-based compensation of $0.9 million. Changes in our operating assets and liabilities used $1.1 million of cash in 2010, primarily due to an increase of $1.9 million in our accounts receivable partially offset by an increase of $1.0 million in our accounts payable. The increase in our accounts receivable was primarily due to our revenue growth in 2010. The increase in accounts payable was the result of increased spending due to the growth of our revenue-share payments associated with our revenue growth and the timing of payments to customers for revenue-sharing agreements.



44


Cash Used in Investing Activities
Cash used in investing activities in 2012 was $4.9 million consisting of $4.3 million of purchases of property, equipment and software to build out our data centers and $0.6 million paid for the acquisition of Carbyn.
Cash used in investing activities in 2011 was $1.8 million consisting principally of purchases of property, equipment and software to build out our data centers.
Cash used in investing activities in 2010 was $1.6 million consisting principally of purchases of property, equipment and software to build out our data centers.
Cash (Used in) Provided by Financing Activities
For the year ended 2012, net cash provided by financing activities was $21.2 million , consisting of $25.4 million of proceeds from issuance of common stock in our public offering, partially offset by cash paid for issuance costs of $2.8 million, and $1.2 million of proceeds from the exercise of common stock options, partially offset by $2.6 million for repayments on our capital lease obligations and bank financing.
For the year ended December 31, 2011, net cash used in financing activities was approximately $1.3 million primarily for repayments of $2.2 million on our capital lease obligations and bank financing partially offset by $0.8 million of proceeds from a sale/leaseback transaction relating to computer equipment.
For the year ended December 31, 2010, net cash used in financing activities was approximately $2.2 million primarily for repayments of $2.6 million on our capital lease obligations and bank financing and $0.2 million used for the repurchase of our common stock from our chief executive officer partially offset by proceeds of $0.6 million from borrowings on bank financing.
Recently Issued and Adopted Accounting Pronouncements
Comprehensive Income
In June 2011, the FASB issued new authoritative guidance on comprehensive income that eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, we must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. In December 2011, the requirement regarding the presentation of reclassification adjustments out of accumulated other comprehensive income was deferred indefinitely. We adopted this authoritative guidance in our interim period ending March 31, 2012.
Testing Goodwill for Impairment
In September 2011, the FASB issued new authoritative guidance that gives companies the option to make a qualitative evaluation about the likelihood of goodwill impairment. Companies will be required to perform the two-step impairment test only if it concludes that the fair value of a reporting unit is more likely than not, less than its carrying value. The accounting update is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. We adopted this new authoritative guidance for our goodwill impairment test performed during the first quarter of 2012.
Off-Balance Sheet Arrangements
At December 31, 2012, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Contractual Obligations
We lease office space and data center space under operating lease agreements and certain equipment under capital lease agreements. We are also obligated to make payments under various contracts with vendors and customers, principally for revenue-sharing and content arrangements.
    

    

45


The following table sets forth our future contractual obligations as of December 31, 2012 :
 
Payments due by period
 
Total
 
2013
 
2014
 
2015
 
2016
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
Capital lease obligations
$
4,053

 
$
2,280

 
$
1,640

 
$
133

 
$

 
$

Operating lease obligations
3,137

 
1,339

 
1,041

 
639

 
118

 

Contract commitments
8,587

 
4,648

 
1,419

 
1,080

 
1,080

 
360

Total
$
15,777

 
$
8,267

 
$
4,100

 
$
1,852

 
$
1,198

 
$
360

The contract commitments shown in the foregoing table represent fixed payment obligations to some of our customers and content providers. Agreements with certain customers and certain content providers require us to make fixed payments to them.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These primarily include interest rate and inflation risk.
Interest Rate Risk
Our cash and cash equivalents primarily consist of cash and money market funds. We currently have no investments of any type. Our exposure to market risk for changes in interest rates is limited because nearly all of our cash and cash equivalents have a short-term maturity and are used primarily for working capital purposes.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements are submitted on pages F-1 through F-20 o f this Annual Report on Form 10-K.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure and Control Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2012 . The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information require to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based upon the evaluation as of December 31, 2012 , our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Management’s Annual Report on Internal Control Over Financial Reporting

46

Table of Contents

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2012. This Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm due to a transition period established by the Jumpstart Our Business Startups Act, or JOBS Act, for emerging growth companies.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended December 31, 2012 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.

47

Table of Contents

PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the information in our proxy statement for our 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2012 .
Our board of directors has adopted a Code of Business Conduct and a Code of Ethics applicable to all officers, directors and employees, which is available on our website ( http://www.synacor.com ) under “Investors—Corporate Governance.” We will provide a copy of these documents to any person, without charge, upon request, by writing to us at Synacor, Inc., Investor Relations Department, 40 La Riviere Dr., Suite 300, Buffalo, New York 14202. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Business Conduct or Code of Ethics by posting such information on our website at the address and the location specified above.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the information in our proxy statement for our 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2012 .
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the information in our proxy statement for our 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2012 .
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the information in our proxy statement for our 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2012 .
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to the information in our proxy statement for our 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2012 .

48

Table of Contents

PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
Financial Statements: See Financial Statements and Supplementary Data, Part II, Item 8.
(b)
Financial Statement Schedules: Financial Statement Schedules have been omitted either because they are not required or because the information required is included in the notes to the financial statements.
(c)
Exhibits: See the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K.

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SYNACOR, INC.
By:
 
/ S / R ONALD  N. F RANKEL
 
 
Ronald N. Frankel
 
 
President and Chief Executive Officer
Dated: March 26, 2013
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald N. Frankel and William J. Stuart, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
 
Signature
Title
Date
 
 
 
/ S / R ONALD  N. F RANKEL
President, Chief Executive Officer and Director (Principal Executive Officer)
March 26, 2013
Ronald N. Frankel
 
 
/ S / W ILLIAM  J. S TUART
Chief Financial Officer (Principal Financial and Accounting Officer)
March 26, 2013
William J. Stuart
 
 
/ S / M ARWAN  F AWAZ
Director
March 26, 2013
Marwan Fawaz
 
 
/ S / G ARY  L. G INSBERG
Director
March 26, 2013
Gary L. Ginsberg
 
 
/ S / A NDREW  K AU
Director
March 26, 2013
Andrew Kau
 
 
/ S / J ORDAN  L EVY
Director
March 26, 2013
Jordan Levy
 
 
/ S / M ICHAEL  J. M ONTGOMERY
Director
March 26, 2013
Michael J. Montgomery
 
 


49

Table of Contents

EXHIBITS
The following exhibits are incorporated by reference herein or filed here within:
Exhibit No.
 
Description
 
Incorporated by Reference
 
Filed
Herewith
Form
 
File No.
 
Date of
Filing
 
Exhibit
Number
 
3.1
 
Fifth Amended and Restated Certificate of Incorporation
 
S-1/A
 
333-178049
 
1/30/2012
 
3.2
 
 
3.2
 
Amended and Restated Bylaws
 
S-1/A
 
333-178049
 
1/30/2012
 
3.4
 
 
10.1
 
Form of Indemnification Agreement between the Registrant and each of its directors and executive officers and certain key employees
 
S-1
 
333-178049
 
11/18/2011
 
10.1
 
 
10.2.1*
 
2000 Stock Plan
 
S-1
 
333-178049
 
11/18/2011
 
10.2.1
 
 
10.2.2*
 
Amendment to 2000 Stock Plan, adopted September 30, 2004
 
S-1
 
333-178049
 
11/18/2011
 
10.2.2
 
 
10.2.3*
 
Amendment to 2000 Stock Plan, adopted June 9, 2006
 
S-1
 
333-178049
 
11/18/2011
 
10.2.3
 
 
10.2.4*
 
Amendment to 2000 Stock Plan, adopted October 19, 2006
 
S-1
 
333-178049
 
11/18/2011
 
10.2.4
 
 
10.2.5*
 
Amendment to 2000 Stock Plan, adopted July 31, 2008
 
S-1
 
333-178049
 
11/18/2011
 
10.2.5
 
 
10.2.6*
 
Form of Stock Option Agreement under 2000 Stock Plan
 
S-1/A
 
333-178049
 
1/30/2012
 
10.2.6
 
 
10.2.7*
 
Stock Option Agreement under 2000 Stock Plan with Ronald N. Frankel
 
S-1/A
 
333-178049
 
1/30/2012
 
10.2.7
 
 
10.3.1*
 
2006 Stock Plan
 
S-1
 
333-178049
 
11/18/2011
 
10.3.1
 
 
10.3.2*
 
Amendment No. 1 to 2006 Stock Plan
 
S-1
 
333-178049
 
11/18/2011
 
10.3.2
 
 
10.3.3*
 
Amendment No. 2 to 2006 Stock Plan
 
S-1
 
333-178049
 
11/18/2011
 
10.3.3
 
 
10.3.4*
 
Amendment No. 3 to 2006 Stock Plan
 
S-1
 
333-178049
 
11/18/2011
 
10.3.4
 
 
10.3.5*
 
Amendment No. 4 to 2006 Stock Plan
 
S-1
 
333-178049
 
11/18/2011
 
10.3.5
 
 
10.3.6*
 
Amendment No. 5 to 2006 Stock Plan
 
S-1
 
333-178049
 
11/18/2011
 
10.3.6
 
 
10.3.7*
 
Amendment No. 6 to 2006 Stock Plan
 
S-1
 
333-178049
 
11/18/2011
 
10.3.7
 
 
10.3.8*
 
Amendment No. 7 to 2006 Stock Plan
 
S-1/A
 
333-178049
 
1/18/2012
 
10.3.8
 
 
10.3.9*
 
Form of Stock Option Agreement under 2006 Stock Plan with Jordan Levy
 
S-1/A
 
333-178049
 
1/30/2012
 
10.3.9
 
 

50

Table of Contents

Exhibit No.
 
Description
 
Incorporated by Reference
 
Filed
Herewith
Form
 
File No.
 
Date of
Filing
 
Exhibit
Number
 
10.3.10*
 
Stock Option Agreement under 2006 Stock Plan with Ronald N. Frankel
 
S-1/A
 
333-178049
 
1/30/2012
 
10.3.10
 
 
10.3.11*
 
Form of Stock Option Agreement with Ronald N. Frankel under 2006 Stock Plan
 
S-1/A
 
333-178049
 
1/30/2012
 
10.3.11
 
 
10.3.12*
 
Form of Stock Option Agreement with George G. Chamoun under 2006 Stock Plan
 
S-1/A
 
333-178049
 
1/30/2012
 
10.3.12
 
 
10.3.13*
 
Form of Stock Option Agreement with Scott A. Bailey under 2006 Stock Plan
 
S-1/A
 
333-178049
 
1/30/2012
 
10.3.13
 
 
10.3.14*
 
Form of Director Stock Option Agreement under 2006 Stock Plan
 
S-1/A
 
333-178049
 
1/30/2012
 
10.3.14
 
 
10.3.15*
 
Form of Director Stock Option Agreement under 2006 Stock Plan
 
S-1/A
 
333-178049
 
1/30/2012
 
10.3.15
 
 
10.4.1*
 
2012 Equity Incentive Plan
 
S-1/A
 
333-178049
 
1/18/2012
 
10.4
 
 
10.4.2*
 
Form of Stock Option Agreement under 2012 Equity Incentive Plan
 
S-1/A
 
333-178049
 
1/30/2012
 
10.4.2
 
 
10.4.3*
 
Form of Stock Unit Agreement under 2012 Equity Incentive Plan
 
S-1/A
 
333-178049
 
1/30/2012
 
10.4.3
 
 
10.4.4*
 
Form of Stock Option Agreement with Ronald N. Frankel under 2012 Equity Incentive Plan
 
 
 
 
 
 
 
 
 
X
10.4.5*
 
Form of Early Exercise Stock Option Agreement under 2012 Equity Incentive Plan
 
 
 
 
 
 
 
 
 
X
10.4.6*
 
Form of Option Agreement with Scott A. Bailey and George G. Chamoun under 2012 Equity Incentive Plan
 
 
 
 
 
 
 
 
 
X
10.4.7*
 
Form of Option Agreement with William J. Stuart under 2012 Equity Incentive Plan
 
 
 
 
 
 
 
 
 
X
10.5.1*
 
Letter Agreement dated July 31, 2007 with Ronald N. Frankel
 
S-1
 
333-178049
 
11/18/2011
 
10.5.1
 
 
10.5.2*
 
Severance Agreement with Ronald N. Frankel
 
S-1/A
 
333-178049
 
12/23/2011
 
10.5.2
 
 
10.6*
 
Letter Agreement dated October 15, 2010 with Scott A. Bailey
 
S-1
 
333-178049
 
11/18/2011
 
10.6
 
 
10.7.1*
 
Employment and Noncompetition Agreement dated December 22, 2000 between George G. Chamoun and CKMP, Inc.
 
S-1
 
333-178049
 
11/18/2011
 
10.7.1
 
 
10.7.2*
 
Severance Agreement with George G. Chamoun
 
S-1/A
 
333-178049
 
12/23/2011
 
10.7.2
 
 
10.8*
 
Letter Agreement dated August 3, 2011 with William J. Stuart
 
S-1
 
333-178049
 
11/18/2011
 
10.8
 
 
10.9.1
 
Amended and Restated Master Services Agreement between Charter Communications Operating, LLC and Synacor, Inc. dated as of April 1, 2010
 
S-1/A
 
333-178049
 
2/1/2012
 
10.9.1
 
 
10.9.2
 
Amendment #1 to Amended and Restated Master Services Agreement between Charter Communications Operating, LLC and Synacor, Inc. dated as of October 1, 2010
 
S-1/A
 
333-178049
 
1/13/2012
 
10.9.2
 
 
10.9.3
 
Amendment #2 to Amended and Restated Master Services Agreement between Charter Communications Operating, LLC and Synacor, Inc. dated as of May 25, 2011
 
S-1/A
 
333-178049
 
1/13/2012
 
10.9.3
 
 

51

Table of Contents

Exhibit No.
 
Description
 
Incorporated by Reference
 
Filed
Herewith
Form
 
File No.
 
Date of
Filing
 
Exhibit
Number
 
10.9.4
 
Amendment #3 to Amended and Restated Master Services Agreement between Charter Communications Operating, LLC and Synacor, Inc. dated as of December 9, 2011
 
S-1/A
 
333-178049
 
1/13/2012
 
10.9.4
 
 
10.10.1
 
Amended and Restated Master Services Agreement between Qwest Corporation and Synacor, Inc. dated as of January 1, 2012
 
10-Q
 
001-33843
 
11/14/2012
 
10.1.1
 
 
10.10.2

 
Amendment #1 to Amended and Restated Master Services Agreement between Qwest Corporation and Synacor, Inc. dated as of July 1, 2012

 
10-Q
 
001-33843

 
11/14/2012
 
10.1.2
 
 
10.10.3

 
Amendment #2 to Master Services Agreement between Qwest Corporation and Synacor, Inc.
dated as of August 23, 2012

 
10-Q
 
001-33843

 
11/14/2012
 
10.1.3
 
 
10.11*
 
2007 Management Cash Incentive Plan

 
10-Q
 
001-33843

 
5/15/2012
 
10.1
 
 
10.12
 
Master Services and Linking Agreement between Toshiba America Information Systems, Inc. and Synacor, Inc. dated as of July 1, 2010
 
S-1/A
 
333-178049
 
2/1/2012
 
10.12
 
 
10.13.1†
 
Google Services Agreement between Google Inc. and Synacor, Inc. dated as of March 1, 2011
 
S-1/A
 
333-178049
 
2/1/2012
 
10.13.1
 
 
10.13.2†
 
Amendment Number One to Google Services Agreement between Google Inc. and Synacor, Inc. dated as of July 1, 2011
 
S-1/A
 
333-178049
 
12/29/2011
 
10.13.2
 
 
10.14.1
 
Sublease dated March 3, 2006 between Ludlow Technical Products Corporation and Synacor, Inc.
 
S-1
 
333-178049
 
11/18/2011
 
10.14.1
 
 
10.14.2
 
First Amendment to Sublease dated as of September 25, 2006
 
S-1
 
333-178049
 
11/18/2011
 
10.14.2
 
 
10.14.3
 
Second Amendment to Sublease dated as of February 27, 2007
 
S-1
 
333-178049
 
11/18/2011
 
10.14.3
 
 
10.15.1*
 
Letter Agreement dated March 1, 2008 with Jordan Levy
 
S-1/A
 
333-178049
 
1/30/2012
 
10.15.1
 
 
10.15.2*
 
Letter Agreement dated June 23, 2009 with Jordan Levy
 
S-1/A
 
333-178049
 
1/30/2012
 
10.15.2
 
 
10.15.3*
 
Letter Agreement dated March 1, 2008 with Ronald N. Frankel
 
S-1/A
 
333-178049
 
1/30/2012
 
10.15.3
 
 
10.15.4*
 
Letter Agreement dated June 23, 2009 with Ronald N. Frankel
 
S-1/A
 
333-178049
 
1/30/2012
 
10.15.4
 
 
10.15.5*
 
Letter Agreement dated March 1, 2008 with George G. Chamoun
 
S-1/A
 
333-178049
 
1/30/2012
 
10.15.5
 
 


52

Table of Contents

Exhibit No.
 
Description
 
Incorporated by Reference
 
Filed
Herewith
Form
 
File No.
 
Date of
Filing
 
Exhibit
Number
 
10.15.6*
 
Letter Agreement dated June 23, 2009 with George G. Chamoun
 
S-1/A
 
333-178049
 
1/30/2012
 
10.15.6
 
 
10.16*
 
Form of Common Stock Repurchase Agreement
 
S-1/A
 
333-178049
 
1/30/2012
 
10.16
 
 
10.17.1 #
 
Master Services Agreement between Verizon Corporate Services Group Inc. and Synacor, Inc. dated as of July 25, 2011
 
 
 
 
 
 
 
 
 
X
10.17.2 #
 
Amendment #1 to Master Services Agreement between Verizon Corporate Services Group Inc. and Synacor, Inc. dated as of December 20, 2012
 
 
 
 
 
 
 
 
 
X
21.1
 
List of subsidiaries
 
S-1/A
 
333-178049
 
1/18/2012
 
21.1
 
 
23
 
Consent of Deloitte & Touche LLP
 
 
 
 
 
 
 
 
 
X
24.1
 
Power of Attorney (contained in the signature page of this Annual Report on Form 10-K)
 
 
 
 
 
 
 
 
 
X
31.1
 
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
 
 
X
31.2
 
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
 
 
X
32.1
 
Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
 
 
X
101.INS ††
 
XBRL Instance Document
 
 
 
 
 
 
 
 
 
 
101.SCH ††
 
XBRL Taxonomy Extension Schema
 
 
 
 
 
 
 
 
 
 
101.CAL ††
 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
 
 
 
 
 
 
 
101.LAB ††
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
 
 
 
 
 
 
 
101.PRE ††
 
XBRL Taxonomy Extension Presentation Linkbase
 
 
 
 
 
 
 
 
 
 
101.DEF ††
 
XBRL Taxonomy Extension Definition Linkbase
 
 
 
 
 
 
 
 
 
 
 
Notes:
 
 
Confidential treatment has been granted for portions of this document. The omitted portions have been filed with the Securities and Exchange Commission.
 
 
This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Synacor, Inc. specifically incorporates it by reference.
 
††  
XBRL (Extensible Business Reporting Language) information is "furnished" and not "filed" or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not otherwise subject to liability under these Sections.
 
*
Indicates management contract or compensatory plan or arrangement.
 
#  
Confidential treatment requested for portions of this document. The omitted portions have been filed with the Securities and Exchange Commission.

53

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INDEX TO THE FINANCIAL STATEMENTS
 
 
Page
Financial Statements
 


F- 1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Synacor, Inc.
Buffalo, New York
We have audited the accompanying consolidated balance sheets of Synacor, Inc. and subsidiary (the "Company") as of December 31, 2011 and 2012, and the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
    
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Williamsville, New York
March 26, 2013

F- 2

Table of Contents

SYNACOR, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2011 AND 2012
(In thousands except for share and per share data)  
 
2011
 
2012
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
10,925

 
$
41,944

Accounts receivable—net of allowance of $25 and $25
14,336

 
15,624

Deferred income taxes
3,534

 
1,999

Prepaid expenses and other current assets
1,811

 
1,831

Total current assets
30,606

 
61,398

PROPERTY AND EQUIPMENT—Net
8,301

 
11,043

DEFERRED INCOME TAXES, NON-CURRENT
2,549

 
2,527

OTHER LONG-TERM ASSETS
1,926

 
543

GOODWILL

 
819

TOTAL ASSETS
$
43,382

 
$
76,330

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
12,498

 
$
14,204

Accrued expenses and other current liabilities
5,492

 
7,328

Current portion of bank financing
250

 

Current portion of capital lease obligations
1,593

 
2,127

Total current liabilities
19,833

 
23,659

LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS
2,098

 
1,712

OTHER LONG-TERM LIABILITIES
71

 
148

Total liabilities
22,002

 
25,519

COMMITMENTS AND CONTINGENCIES (Note 7)

 

STOCKHOLDERS’ EQUITY:
 
 
 
Common stock, $0.01 par value—30,000,000 shares authorized, 3,052,856 issued and 2,733,356 outstanding at December 31, 2011, and 100,000,000 authorized, 27,517,665 issued and 27,198,165 shares outstanding at December 31, 2012
31

 
275

Preferred stock, $0.01 par value—10,000,000 shares authorized, no shares issued and outstanding at December 31, 2012

 

Convertible preferred stock, $0.01 par value—Series A, 5,709,638 shares authorized and 5,548,508 shares issued and outstanding at December 31, 2011, and no shares authorized, issued and outstanding at December 31, 2012
5,077

 

Convertible preferred stock, $0.01 par value—Series A-1, 570,344 shares authorized and 570,344 shares issued and outstanding at December 31, 2011, and no shares authorized, issued and outstanding at December 31, 2012
730

 

Convertible preferred stock, $0.01 par value—Series B, 3.500,000 shares authorized and 2,737,500 shares issued and outstanding at December 31, 2011, and no shares authorized, issued and outstanding at December 31, 2012
5,401

 

Convertible preferred stock, $0.01 par value—Series C, 2,740,407 shares authorized and 2,740,407 shares issued and outstanding at December 31, 2011, and no shares authorized, issued and outstanding at December 31, 2012
17,224

 

Treasury stock—at cost, 319,500 shares at December 31, 2011 and 2012
(569
)
 
(569
)
Additional paid-in capital
45,639

 
99,449

Accumulated deficit
(52,153
)
 
(48,338
)
Accumulated other comprehensive income

 
(6
)
Total stockholders’ equity
21,380

 
50,811

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
43,382

 
$
76,330

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

F- 3

Table of Contents

SYNACOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2011, AND 2012
(In thousands except for share and per share data)
 
 
2010
 
2011
 
2012
REVENUE
$
66,232

 
$
91,060

 
$
121,981

COSTS AND OPERATING EXPENSES:
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
36,703

 
48,661

 
66,620

Research and development (exclusive of depreciation shown separately below)
18,494

 
20,228

 
25,603

Sales and marketing
6,211

 
8,582

 
9,120

General and administrative (exclusive of depreciation shown separately below)
5,656

 
6,879

 
11,011

Depreciation
2,506

 
2,667

 
3,779

Total costs and operating expenses
69,570

 
87,017

 
116,133

(LOSS) INCOME INCOME FROM OPERATIONS
(3,338
)
 
4,043

 
5,848

OTHER (EXPENSE) INCOME
(2
)
 
(17
)
 
1

INTEREST EXPENSE
(240
)
 
(109
)
 
(270
)
(LOSS) INCOME BEFORE INCOME TAXES
(3,580
)
 
3,917

 
5,579

PROVISION (BENEFIT) FOR INCOME TAXES
11

 
(6,015
)
 
1,764

NET (LOSS) INCOME
(3,591
)
 
9,932

 
3,815

UNDISTRIBUTED EARNINGS ALLOCATED TO PREFERRED STOCKHOLDERS

 
8,583

 

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
(3,591
)
 
$
1,349

 
$
3,815

NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:
 
 
 
 
 
Basic
$
(1.93
)
 
$
0.59

 
$
0.16

Diluted
$
(1.93
)
 
$
0.45

 
$
0.14

WEIGHTED AVERAGE SHARES USED TO COMPUTE NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:
 
 
 
 
 
Basic
1,865,294

 
2,303,443

 
24,411,194

Diluted
1,865,294

 
21,974,403

 
28,097,313

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

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Table of Contents

SYNACOR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 2010, 2011, AND 2012
(In thousands)
 
 
2010
 
2011
 
2012
Net (loss) income
$
(3,591
)
 
$
9,932

 
$
3,815

Other comprehensive income:
 
 
 
 
 
Change in foreign currency translation adjustment

 

 
(6
)
Comprehensive (loss) income
$
(3,591
)
 
$
9,932

 
$
3,809

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



F- 5

Table of Contents

SYNACOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010, 2011, AND 2012
(In thousands except for share data)
 
Common Stock
 
Treasury Stock (Common)
 
Series A
Preferred Stock
 
Series A-1
Preferred Stock
 
Series B
Preferred Stock
 
Series C
Preferred Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income
 
Accumulated Deficit
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Total
BALANCE - January 1, 2010
1,834,946

 
$
18

 
(244,500
)
 
$
(368
)
 
5,548,508

 
$
5,077

 
570,344

 
$
730

 
2,737,500

 
$
5,401

 
2,740,407

 
$
17,224

 
$
43,465

 
$

 
$
(58,494
)
 
$
13,053

Exercise of common stock options
69,207

 
1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26

 
 
 
 
 
27

Stock-based compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
868

 
 
 
 
 
868

Repurchase of common shares
 
 
 
 
(75,000
)
 
(201
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(201
)
Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,591
)
 
(3,591
)
BALANCE - December 31, 2010
1,904,153

 
19

 
(319,500
)
 
(569
)
 
5,548,508

 
5,077

 
570,344

 
730

 
2,737,500

 
5,401

 
2,740,407

 
17,224

 
44,359

 

 
(62,085
)
 
10,156

Exercise of common stock options
1,148,703

 
12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
360

 
 
 
 
 
372

Stock-based compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
920

 
 
 
 
 
920

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,932

 
9,932

BALANCE - December 31, 2011
3,052,856

 
31

 
(319,500
)
 
(569
)
 
5,548,508

 
5,077

 
570,344

 
730

 
2,737,500

 
5,401

 
2,740,407

 
17,224

 
45,639

 

 
(52,153
)
 
21,380

Issuance of common stock upon initial public offering, net of offering costs
5,454,545

 
54

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22,293

 
 
 
 
 
22,347

Conversion of preferred stock to common stock upon initial public offering
17,395,136

 
174

 
 
 
 
 
(5,548,508
)
 
(5,077
)
 
(570,344
)
 
(730
)
 
(2,737,500
)
 
(5,401
)
 
(2,740,407
)
 
(17,224
)
 
28,258

 
 
 
 
 

Exercise of common stock options
1,615,128

 
16

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,196

 
 
 
 
 
1,212

Stock-based compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,063

 
 
 
 
 
2,063

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,815

 
3,815

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6
)
 
 
 
(6
)
BALANCE - December 31, 2012
27,517,665

 
$
275

 
(319,500
)
 
$
(569
)
 

 
$

 

 
$

 

 
$

 

 
$

 
$
99,449

 
$
(6
)
 
$
(48,338
)
 
$
50,811

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

F- 6

Table of Contents

SYNACOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2011, AND 2012
(In thousands)
 
2010
 
2011
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net (loss) income
$
(3,591
)
 
$
9,932

 
$
3,815

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
 
 
Depreciation
2,506

 
2,667

 
3,779

Stock-based compensation expense
868

 
920

 
1,999

Loss on disposal of property and equipment
5

 
11

 
35

Deferred income taxes

 
(6,083
)
 
1,557

Change in assets and liabilities:
 
 
 
 
 
Accounts receivable, net
(1,881
)
 
(4,682
)
 
(1,288
)
Prepaid expenses and other current assets
(484
)
 
(45
)
 
253

Other long-term assets
(121
)
 
164

 
380

Accounts payable
1,081

 
4,120

 
2,335

Accrued expenses and other current liabilities
444

 
1,709

 
1,715

Other long-term liabilities
(160
)
 
(35
)
 
77

Net cash (used in) provided by operating activities
(1,333
)
 
8,678

 
14,657

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
Purchases of property and equipment
(1,558
)
 
(1,848
)
 
(4,269
)
Cash paid for business acquisition

 

 
(600
)
Net cash used in investing activities
(1,558
)
 
(1,848
)
 
(4,869
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
Borrowings on bank financing
588

 

 

Proceeds from sale/leaseback

 
794

 

Repayment on bank financing
(250
)
 
(500
)
 
(250
)
Repayments on capital lease obligations
(2,323
)
 
(1,719
)
 
(2,336
)
Proceeds from exercise of common stock options
27

 
372

 
1,212

Purchase of treasury stock
(201
)
 

 

Proceeds from initial public offering

 

 
25,364

Initial public offering costs

 
(264
)
 
(2,753
)
Net cash (used in) provided by financing activities
(2,159
)
 
(1,317
)
 
21,237

Effect of exchange rate changes on cash and cash equivalents

 

 
(6
)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(5,050
)
 
5,513

 
31,019

CASH AND CASH EQUIVALENTS—Beginning of year
10,462

 
5,412

 
10,925

CASH AND CASH EQUIVALENTS—End of year
$
5,412

 
$
10,925

 
$
41,944

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
 
 
 
 
Cash paid for interest
$
247

 
$
110

 
$
259

Cash paid for income taxes

 
82

 
134

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
 
 
 
 
 
Property and equipment acquired under capital lease obligations and bank financing
$
1,840

 
$
2,185

 
$
2,484

Accrued business acquisition costs

 

 
500

Accrued property and equipment expenditures

 
235

 
269

Accrued initial public offering costs

 
1,042

 

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

F- 7

Table of Contents

SYNACOR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 , AND 2012 , AND
FOR THE YEARS ENDED DECEMBER 31, 2010 , 2011 , AND 2012
(In thousands except for share and per share data)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Synacor, Inc., together with its wholly-owned subsidiary, Synacor, Canada, Inc. (collectively, the “Company”), is a leading provider of startpages, TV Everywhere solutions, Identity Management (IDM) and various cloud-based services across multiple devices for cable, satellite, telecom and consumer electronics companies. The Company is also a leading provider of authentication and aggregation solutions for delivery of online content. The Company's technology allows its customers to package a wide array of online content and cloud-based services with their high-speed Internet, communications, television and other offerings. The Company's customers offer the Company's services under their own brands on Internet-enabled devices such as PCs, tablets, smartphones and connected TVs.

Initial Public Offering —    In February 2012, the Company completed its initial public offering whereby 6,818,170 shares of common stock were sold to the public at a price of $5.00 per share. The Company sold 5,454,545 common shares and selling stockholders sold 1,363,625 common shares. The Company received aggregate proceeds of $25,364 from the initial public offering, net of underwriters’ discounts and commissions but before deducting offering expenses of approximately $3,016 .
In connection with the initial public offering in February 2012, the Board of Directors of the Company approved a 1-for-2 reverse stock split of the Company’s common stock. All common shares, stock options, and per share information presented in these financial statements reflect the reverse stock split on a retroactive basis for all periods presented. There was no change in the par value of the Company’s common stock. The ratio by which shares of preferred stock were convertible into shares of common stock was adjusted to reflect the effects of the reverse stock split. In addition, in accordance with their rights and consistent with the conversion rates discussed in Note 8, Equity , all shares of the Company’s outstanding preferred stock were converted into common stock upon the closing of the initial public offering.
Basis of Presentation —The consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiary, Synacor Canada, Inc. All intercompany balances and transactions have been eliminated in consolidation.
Accounts Receivable —The Company records accounts receivable at the invoiced amount and does not charge interest on past due invoices. An allowance for doubtful accounts is maintained to reserve for potentially uncollectible accounts receivable. The Company reviews its accounts receivable from customers which are past due to identify specific accounts with known disputes or collectability issues. In determining the amount of the reserve, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations.
Property and Equipment —Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Leasehold improvements
3–10 years
Computer hardware
5 years
Computer software
3 years
Furniture and fixtures
7 years
Other
3–5 years
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets.
Long-Lived Assets —The Company reviews the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. For purposes of evaluating and measuring impairment, the Company groups a long-lived asset or assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the

F- 8

Table of Contents

impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. There has been no material adjustments to long-lived assets in any of the years presented.
Revenue Recognition —The Company derives revenue from two categories: revenue generated from search and display advertising activities and subscriber-based revenue, each of which is described below. Search and display advertising is recorded on a gross basis, which includes the net amount received from Google under the Company’s agreement with Google. The following table shows the revenue in each category for the years ended December 31, 2010 , 2011 and 2012 (in thousands):
 
Year Ended December 31,
 
2010
 
2011
 
2012
Search and display advertising
$
45,859

 
$
72,084

 
$
101,559

Subscriber-based
20,373

 
18,976

 
20,422

Total revenue
$
66,232

 
$
91,060

 
$
121,981

The Company uses Internet search and display advertising to generate revenue from the traffic on its startpages.
In the case of search advertising, the Company has a revenue-sharing relationship with Google, pursuant to which it includes a Google-branded search tool on its startpages. When a consumer makes a search query using this tool, the Company delivers the query to Google and they return search results to consumers that include advertiser-sponsored links. If the consumer clicks on a sponsored link, Google receives payment from the sponsor of that link and shares a portion of that payment with the Company, which in turn is shared with the applicable customer. The net payment received from Google is recognized as revenue.
Display advertising revenue is generated when consumers view or click on a text, graphic, or video advertisement that was delivered on one of the Company's startpages. Advertising inventory is filled with advertisements sourced by the Company’s direct sales force, independent advertising sales representatives, and also advertising network partners. Display advertising revenue is calculated on a cost per impression basis, which means the advertiser pays based on the number of times its advertisements appear, or a cost per action basis, which means that an advertiser pays when a consumer performs an action after engaging one of its advertisements. Historically, only a small percentage of display advertising has been calculated on a cost per action basis.
Subscriber-based revenue is defined as subscription fees and other fees that the Company receives from customers for the use of its proprietary technology, including the use of, or access to, e-mail, security, games and other value added services and paid content. Monthly subscriber levels typically form the basis for calculating and generating subscriber-based revenue. They are generally determined by multiplying a per-subscriber per-month fee by the number of subscribers using the particular services being offered or consumed. In other cases, the fee is fixed. Revenue is recognized from customers as the service is delivered.
Search and display advertising and subscriber-based revenue are recognized when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured.
The Company evaluates its relationship between search and display advertising partners and customers in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-45, Principal Agent Considerations . The Company has determined that the revenue derived from traffic supplied by its customers is reported on a gross basis because Synacor is the primary obligor (the Company is responsible to its customers for fulfilling search and display advertising services and value added and other services), is involved in the service specifications, performs part of the service, has discretion in supplier selection, has latitude in establishing price and bears credit risk.
Cost of Revenue —Cost of revenue consists of revenue sharing, content acquisition costs and co-location facility costs. Revenue sharing consists of amounts accrued and paid to customers for the traffic on their startpage resulting in the generation of search and display advertising revenue. The revenue-sharing agreements with customers are primarily variable payments based on a percentage of the search and display advertising revenue. Content-acquisition agreements may be based on a fixed payment schedule, on the number of subscribers per month, or a combination of both. Fixed-payment agreements are expensed on a straight-line basis over the term defined in the agreement. Agreements based on the number of subscribers are expensed on a monthly basis. Co-location facility costs consist of rent and operating costs for the Company’s data center facilities.
    

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Table of Contents

Concentrations of Risk —As of December 31, 2011 and 2012 , and for the years ended December 31, 2010 , 2011 , and 2012 the Company had concentrations equal to or exceeding 10% of the Company’s accounts receivable and revenue as follows:
 
Accounts Receivable
 
Revenue
 
2011
 
2012
 
2010
 
2011
 
2012
Google
45
%
 
40
%
 
49
%
 
57
%
 
56
%
Customer A (1)
11

 
9

 
14

 
N/A

 
N/A

Note:
(1)
For this purpose revenue includes only revenue earned directly by the Company from this customer for subscriber-based services and excludes revenue attributable to search and display advertising on the startpage. For the years ended December 31, 2011 and 2012, the revenue earned directly from Customer A was less than 10% .
For the years ended December 31, 2010 , 2011 and 2012 , the following customers received revenue-share payments equal to or exceeding 10% of the Company’s cost of revenue. The costs represent revenue share paid to customers for their supply of Internet traffic on the Company's startpages.
 
Cost of Revenue
 
2010
 
2011
 
2012
Customer A
21
%
 
14
%
 
20
%
Customer B
25

 
18

 
13

Customer C (1)
N/A

 
11

 
17

Customer D (2)
N/A

 
N/A

 
12

Note:
(1)
For the year ended December 31, 2010, the revenue share payments received by Customer C was less than 10% .
(2)
For the years ended December 31, 2010 and 2011, the revenue share payments received by Customer D were less than 10% .
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash primarily in checking and money market accounts with high credit quality financial institutions, which, at times, have exceeded federally insured limits. At December 31, 2012 , the Company had no cash at financial institutions that was in excess of the federally insured limits.
Research and Development —Research and development expenses consist primarily of compensation related expenses incurred for the development of, enhancements to, and maintenance and operation of the Company’s technology and related infrastructures.
Software Development Costs —Costs incurred during the preliminary project stage for software programs are expensed as incurred. External and internal costs incurred during the application development stage of new software development as well as for upgrades and enhancements for software programs that result in additional functionality are capitalized. In 2010 and 2011 the Company had not incurred significant external or internal costs related to the application development stage. In 2012, the Company incurred $778 of combined internal and external costs related to the application development stage. Internal and external training and maintenance costs are expensed as incurred.
Sales and Marketing —Sales and marketing expenses consist primarily of compensation related expenses to the Company’s direct sales and marketing personnel, as well as costs related to advertising, industry conferences, promotional materials, and other sales and marketing programs. Advertising cost is expensed as incurred.
General and Administrative —General and administrative expenses consist primarily of compensation related expenses for executive management, finance, accounting, human resources, and other administrative functions.
Earnings Per Share —Basic earnings per share, or EPS, is calculated in accordance with FASB ASC Topic 260, Earnings per Share , and is calculated using the weighted average number of common shares outstanding during each period.

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Contingently issuable or repurchasable shares are not used in the calculation of basic earnings per share until the contingency is resolved.
Diluted EPS assumes the conversion, exercise or issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the income per share. For purposes of this calculation, convertible preferred stock and options are considered to be potential common shares and are only included in the calculation of diluted earnings per share when their effect is dilutive.
The shares used to compute basic and diluted net income per share represent the weighted-average common shares outstanding. The Company’s preferred stockholders have the right to participate with common stockholders in dividends and unallocated income. Net losses are not allocated to the preferred stockholders. Therefore, when applicable, basic and diluted EPS are computed using the two-class method, under which the Company’s undistributed earnings are allocated amongst the common and preferred stockholders.
Stock-Based Compensation —The Company records compensation costs related to stock-based awards in accordance with FASB ASC 718, Compensation—Stock Compensation . Under the fair value recognition provisions of ASC 718, the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized ratably over the requisite service period of the award. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates prevesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The total expense recognized over the vesting period will only be for those awards that ultimately vest. See Note 9, Stock-based Compensation, for additional information on stock-based compensation.
Income Taxes —Deferred income tax assets and liabilities are determined based on temporary differences between the financial statement and income tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted income tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established to the extent necessary to reduce deferred income tax assets to amounts that more likely than not will be realized.
The Company accounts for uncertain tax positions using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax benefits that meet the more-likely-than-not recognition threshold should be measured as the largest amount of tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2012 , there was no accrued interest or penalties related to uncertain tax positions.
Accounting Estimates —The preparation of financial statements in conformity with GAAP in the U.S. requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts.
Fair Value of Financial Instruments —The carrying amounts of the Company’s capital leases and bank financing approximate fair value of these obligations based upon management’s best estimates of interest rates that would be available for similar debt obligations at December 31, 2011 and 2012 .
Fair Value Measurements —The provisions of ASC 820, Fair Value Measurements and Disclosures , establishes a framework for measuring the fair value in accounting principles generally accepted in the U.S. and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value as follows:
Level 1 —Level 1 inputs are defined as observable inputs such as quoted prices in active markets.
Level 2 —Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

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Level 3 —Level 3 inputs are unobservable inputs that reflect the Company’s determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Company’s own data.
In accordance with ASC 820, included within the Company’s cash and cash equivalents as of December 31, 2011 and 2012 are $ 1,295 and $ 0 , respectively, of money market funds that are classified as Level 1 financial assets. The fair value of cash and cash equivalents are primarily composed of the Company’s investments in money market instruments with original maturities of three months or less. The Company’s cash and cash equivalent balances excluded above are composed of cash, certificates of deposits with original maturities of one month or less, and overnight investments.
Acquisition— In January 2012, the Company acquired the assets of Carbyn, Inc., or Carbyn, an Ontario, Canada-based company. The assets acquired are principally comprised of mobile device software and technology and other intellectual property, which the Company is using to enhance its efforts in the development of next generation web applications for mobile devices. The aggregate purchase price is up to $1,100 for the acquired assets, of which $600 was paid upon consummation of the acquisition and the remaining $500 is due in April 2013 unless such amount is offset in satisfaction of certain indemnification obligations of Carbyn. In addition, the Company hired seven employees from Carbyn who accepted employment with Synacor Canada, Inc., a newly-formed and wholly-owned subsidiary of the Company. The acquisition and its impact on the balance sheet and results of operations are not material. The purchase price was allocated to the assets acquired based on their respective fair values as of the acquisition date, with the amount exceeding the fair value recorded as goodwill of $819 .
Joint Venture— In March 2013, the Company entered into a Joint Venture Agreement, pursuant to which it will initially own 50% of the newly formed Synacor China, Ltd (the JV Company). The Company has agreed to provide $400 in initial funding and up to $1,600 in additional funding to the JV Company over the next two years. Subject to the completion of customary regulatory requirements, the JV Company will, through a wholly foreign-owned subsidiary in the People's Republic of China (the “PRC”), supply authentication and aggregation solutions for the delivery of online content and series to customers in the PRC.
2. PROPERTY AND EQUIPMENT—NET
As of December 31, property and equipment, net consisted of the following (in thousands):
 
2011
 
2012
Computer equipment (1)
$
13,032

 
$
17,630

Computer software
1,409

 
3,715

Furniture and fixtures
1,049

 
1,050

Leasehold improvements
690

 
732

Work in process
760

 
226

Other
173

 
173

 
17,113

 
23,526

Less accumulated depreciation (2)
(8,812
)
 
(12,483
)
Total property and equipment—net
$
8,301

 
$
11,043

Notes:
(1)
Includes equipment under capital lease obligations of approximately $3,442 and $5,882 as of December 31, 2011 and 2012 , respectively.
(2)
Includes $687 and $1,834 of accumulated depreciation of equipment under capital leases as of December 31, 2011 and 2012 , respectively.







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3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
As of December 31, accrued expenses and other current liabilities consisted of the following (in thousands):
 
2011
 
2012
Accrued compensation
$
3,612

 
$
4,265

Accrued content fees
334

 
555

Accrued business acquisition consideration

 
500

Unearned revenue on contracts
255

 
297

Other
1,291

 
1,711

Total
$
5,492

 
$
7,328


4. BANK FINANCING
During 2012 the Company repaid in full its term loan principal amount of $250 outstanding as of December 31, 2011.
The Company has the ability to borrow $6,000 under a revolving credit line until July 2013. Any borrowings under the revolving credit line accrue interest at the greater of 4% or prime rate plus margin of 0.25% and must be repaid by July 2013. There were no borrowings outstanding on the revolving credit line as of December 31, 2011 or 2012.
The revolving credit line agreement contains provisions that would allow the lender to accelerate repayment of any borrowing upon a material adverse change as defined in the agreement. The term loan and the revolving credit line agreement contain certain financial performance and reporting covenants, and at December 31, 2011 and 2012 , the Company was in compliance with the covenants.
5. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2010 , 2011 , and 2012 , comprised the following (in thousands):
 
2010
 
2011
 
2012
Current:
 
 
 
 
 
United States Federal
$
2

 
$
47

 
$
151

State

 
7

 
20

Foreign
9

 
14

 
36

Total current provision for income taxes
11

 
68

 
207

Deferred:
 
 
 
 
 
United States Federal
(786
)
 
1,954

 
1,022

State
(158
)
 
373

 
535

Foreign

 
40

 

Total deferred (benefit) provision for income taxes
(944
)
 
2,367

 
1,557

Less increase (decrease) in valuation allowance
944

 
(8,450
)
 

Net deferred provision (benefit) for income taxes

 
(6,083
)
 
1,557

Total (benefit) provision for income taxes
$
11

 
$
(6,015
)
 
$
1,764

    





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The income tax effects of significant temporary differences and carryforwards that give rise to deferred income tax assets and liabilities as of December 31, 2011 and 2012 are as follows (in thousands):
 
2011
 
2012
Deferred income tax assets:
 
 
 
Stock and other compensation expense
$
351

 
$
835

Net operating losses
6,179

 
2,763

Research and development credits

 
1,676

Other federal and state carryforwards
116

 
375

Other
89

 
71

Gross deferred tax assets
6,735

 
5,720

Deferred income tax liabilities:
 
 
 
Fixed assets
(621
)
 
(566
)
Other
(5
)
 
(1
)
Gross deferred tax liabilities
(626
)
 
(567
)
Subtotal
6,109

 
5,153

Less unrecognized tax benefit liability
(26
)
 
(627
)
Net deferred tax assets
$
6,083

 
$
4,526

 
 
 
 
Recorded as:
 
 
 
Current deferred tax assets
$
3,534

 
$
1,999

Non-current deferred tax assets
2,549

 
2,527

Net deferred tax assets
$
6,083

 
$
4,526

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
 
2010
 
2011
 
2012
Balance—beginning of year
$

 
$
244

 
$
26

Additions for tax positions of prior years
244

 

 
601

Reductions for tax positions of prior years

 
(218
)
 

Balance—end of year
$
244

 
$
26

 
$
627

The tax positions at the end of 2010 and 2011 were primarily related to changes in tax depreciation methods related to fixed assets placed in service in prior years. The tax positions at the end of 2012 were primarily related to research and development carryforwards.
If the $627 of unrecognized tax benefits as of December 31, 2012 is recognized, approximately $614 would decrease the effective tax rate in the period in which each of the benefits is recognized. The remaining amount would be offset by the reversal of related deferred tax assets on which a valuation allowance is placed. The Company does not expect any material changes to its unrecognized tax benefits within the next twelve months.
    
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2011 and 2012, penalties and interest were immaterial.

The Company files income tax returns in the U.S. federal jurisdiction as well as many U.S. states and foreign jurisdictions. The tax years 2003 to 2011 remain open to examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years which have been carried forward and may be audited in subsequent years when utilized. The Company is currently not under examination in any major taxing jurisdictions.


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The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries, as such earnings are to be reinvested offshore indefinitely. The income tax liability would be insignificant if these earnings were to be repatriated.
On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012 (the "2012 Act"). Under prior law, a taxpayer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2011. The 2012 Act extends the research credit for two years to December 31, 2013. The extension of the research credit is retroactive and includes amounts paid or incurred after December 31, 2011. The retroactive tax effects for 2012 and the tax effects for 2013 will be recognized by the Company in the 2013 financial statements.
Income tax (benefit) expense for the years ended December 2010 , 2011 , and 2012 , differs from the expected income tax (benefit) expense calculated using the statutory U.S. Federal income tax rate as follows (dollars in thousands):
 
2010
 
2011
 
2012
Federal income tax (benefit) expense at statutory rate
$
(1,217
)
 
34
 %
 
$
1,332

 
34
 %
 
$
1,895

 
34
 %
State and local taxes—net of federal benefit
(158
)
 
4

 
251

 
6

 
310

 
6

Foreign taxes

 

 
54

 
1

 
14

 

Expiration of or changes to federal and state NOLs
135

 
(4
)
 
(42
)
 
(1
)
 
446

 
8

Federal research and development credit

 

 

 

 
(1,676
)
 
(30
)
Valuation allowance
944

 
(26
)
 
(7,959
)
 
(203
)
 

 

Permanent differences
256

 
(7
)
 
349

 
9

 
291

 
5

Uncertain tax position current activity

 

 

 

 
586

 
11

Other
51

 
(1
)
 

 

 
(102
)
 
(2
)
Total
$
11

 
 %
 
$
(6,015
)
 
(154
)%
 
$
1,764

 
32
 %
The Company had federal and state net operating loss (“NOL”) carryforwards of approximately $7,300 and $6,400 , respectively, at December 31, 2012 . In addition, the Company has approximately $2,000 of NOL carryforwards created by windfall tax benefits relating to stock compensation for which no deferred tax assets have been recorded. The Company had federal and state NOLs of approximately $16,100 and $14,700 , respectively, at December 31, 2011 . The NOLs will begin to expire in 2023. At December 31, 2010 due to the uncertainty as to the ability to generate sufficient taxable income in the future and utilize the NOLs before they expire, the Company had recorded a valuation allowance to reduce the net deferred tax asset to zero . At December 31, 2011, the Company weighed the positive and negative evidence and determined that it will more likely than not be able to generate sufficient taxable income in the future to be able to utilize the entire NOL in future periods. Therefore, the valuation allowance had been reduced to zero as of December 31, 2011.
6. INFORMATION ABOUT SEGMENT AND GEOGRAPHIC AREAS
The Company considers operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a total Company basis, accompanied by information about revenue by major service line for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the Company level. Accordingly, the Company has determined that it has a single reporting segment and operating unit structure.
    






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The following table sets forth revenue and long-lived tangible assets by geographic area (in thousands):
 
Years Ended December 31,
 
2010
 
2011
 
2012
Revenue:
 
 
 
 
 
United States
$
65,180

 
$
90,062

 
$
121,306

United Kingdom
766

 
998

 
675

Netherlands
286

 

 

Total revenue
$
66,232

 
$
91,060

 
$
121,981

 
Years Ended December 31,
 
2011
 
2012
Long-lived tangible assets:
 
 
 
United States
$
7,680

 
$
10,638

Netherlands
621

 
405

Total long-lived tangible assets
$
8,301

 
$
11,043

7. COMMITMENTS AND CONTINGENCIES
Lease Commitments —The Company leases office space and data center space under operating lease agreements and certain equipment under capital lease agreements with interest rates ranging from 3% to 7% .
Rent expense for operating leases was approximately $1,048 , $1,099 , and $1,529 for 2010 , 2011 , and 2012 , respectively.
Lease commitments as of December 31, 2012 can be summarized as follows (in thousands):
Years Ending
December 31
Operating
Lease Commitments
2013
$
1,339

2014
1,041

2015
639

2016 and thereafter
118

Total lease commitments
$
3,137

Years Ending
December 31
Capital
Lease Commitments
2013
$
2,280

2014
1,640

2015 and thereafter
133

Gross lease commitment
4,053

Less interest
(214
)
Net lease commitments
$
3,839

    





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Contract Commitments —The Company is obligated to make payments under various contracts with vendors and other business partners, principally for revenue-share and content arrangements. Contract commitments as of December 31, 2012 can be summarized as follows (in thousands):
Years Ending
December 31
Contract
Commitments
2013
$
4,648

2014
1,419

2015
1,080

2016
1,080

2017 and thereafter
360

Total contract commitments
$
8,587

Litigation —From time to time, the Company is a party to legal actions. In the opinion of management, the outcome of these matters will not have a material impact on the financial statements of the Company.
8. EQUITY
Common Stock —Effective on February 15, 2012, the Company's board of directors and stockholders approved the Fifth Amended and Restated Certificate of Incorporation. The total number of common shares that the Company is authorized to issue is 100,000,000 with a par value of $0.01 per share.
Preferred Stock Effective on February 15, 2012, the Company's board of directors and stockholders approved the Fifth Amended and Restated Certificate of Incorporation. The total number of preferred shares that the Company is authorized to issue is 10,000,000 with a par value of $0.01 per share.

Conversion Each share of Series A, A-1, B, and C preferred stock was convertible at the option of the holder at any time into common stock. The conversion rate was the quotient obtained by dividing the original issue price of the Series A, A-1, B, or C by the conversion price. Subsequent to the Second Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation, the conversion price was adjusted to effect a conversion of one preferred share into one and one-half common shares, as explained in Note 1, The Company and Summary of Significant Accounting Policies . The conversion price was subject to adjustment as set forth in the restated certificate of incorporation for certain dilutive issuances, splits, and combinations, as therein defined. Conversion was automatic upon either the consent of the holders of 66% of the outstanding shares of preferred stock or the effective date of a firm commitment underwritten public offering of the Company's common stock in which the post-offering valuation on a fully diluted basis was at least $150 million and the proceeds are not less than $25 million . All shares of the Company's outstanding preferred stock were converted into common stock in February 2012 in connection with the Company's initial public offering.
9. STOCK-BASED COMPENSATION
The Company recorded $868 , $920 and $1,999 of stock-based compensation expense for the years ended December 31, 2010 , 2011 , and 2012 , respectively. No income tax deduction is allowed for incentive stock options ("ISOs"). Accordingly, no deferred income tax asset is recorded for the expense related to these options. Stock option grants of non-qualified stock options ("NSOs") result in the creation of a deferred tax asset, which is a temporary difference, until the time that the option is exercised.
Total stock-based compensation expense included in the accompanying consolidated statements of operations and comprehensive income for the years ended December 31, 2010 , 2011 , and 2012 , is as follows (in thousands):
 
2010
 
2011
 
2012
Research and development
$
398

 
$
295

 
$
523

Sales and marketing
202

 
203

 
404

General and administrative
268

 
422

 
1,072

Total stock-based compensation expense
$
868

 
$
920

 
$
1,999

Equity Incentive Plans —The Company has four stock option plans, which authorize the Company to grant of up to 8,170,359 stock options (ISOs and NSOs), stock appreciation rights, restricted stock, restricted stock units (“RSUs”), and performance cash awards. The ISOs and NSOs will be granted at a price per share not less than the fair value of the Company's common stock at the date of grant. Options granted to date generally vest over a four -year period with 25% vesting at the end of one year and the remaining 75% vesting monthly thereafter. Options granted generally are exercisable up to 10 years . The Company began granting RSUs in December 2012, which generally vest over a four year period with 25% vesting at the end of one year and the remaining 75% vesting quarterly thereafter.

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Stock Option Activity —A summary of stock option activity for the year ended December 31, 2012 is as follows:
 
Number of
Stock
Options
 
Weighted
Average
Exercise
Price
 
Aggregate Intrinsic Value (in thousands)
 
Weighted Average Remaining Contractual Term (in years)
Outstanding—January 1, 2012
5,082,776

 
$
2.14

 
 
 
 
Granted
1,341,075

 
7.56

 
 
 
 
Exercised
(1,615,128
)
 
0.75

 
 
 
 
Forfeited
(297,916
)
 
4.99

 
 
 
 
Outstanding—December 31, 2012
4,510,807

 
4.06

 
$
9,066

 
7.44
Expected to vest—December 31, 2012
4,123,598

 
3.92

 
$
8,680

 
7.30
Vested and exercisable—December 31, 2012
1,943,335

 
2.14

 
$
6,495

 
5.48
    
Aggregate intrinsic value represents the difference between the Company's closing stock price of its common stock and the exercise price of outstanding, in-the-money options. The Company's closing stock price as reported on the NASDAQ as of December 31, 2012 was $5.47 . The total intrinsic value of options exercised was approximately $170 , $6,461 and $7,622 for the years ended December 31, 2010 , 2011 and 2012 , respectively. The weighted-average grant date fair value of options granted was $0.72 , $1.89 and $3.97 and for the years ended December 31, 2010 , 2011 and 2012 , respectively.
As of December 31, 2012 , total unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested stock options was approximately $5,769 which is expected to be recognized over a weighted-average period of 3.16 years.
The following table summarizes information about outstanding and vested stock options as of December 31, 2012 :
Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Number of Options Outstanding
 
Number of Options Vested and Exercisable
$
0.04

 
1.02
 
48,132

 
48,132

0.20

 
2.07
 
246,080

 
246,080

0.93

 
4.10
 
335,799

 
335,799

2.40

 
6.59
 
37,873

 
25,695

2.52

 
4.90
 
603,098

 
600,251

2.58

 
5.97
 
58,069

 
56,415

2.68

 
6.82
 
133,782

 
46,667

2.88

 
7.24
 
463,564

 
203,410

3.32

 
7.73
 
1,015,878

 
322,319

3.70

 
7.91
 
91,000

 
27,110

5.82

 
8.47
 
149,457

 

5.96

 
7.74
 
426,000

 
30,624

6.71

 
8.33
 
24,000

 

7.10

 
7.89
 
523,225

 

7.61

 
8.28
 
217,000

 

11.14

 
7.99
 
63,000

 

15.00

 
8.11
 
12,250

 

15.45

 
8.13
 
62,600

 
833

 
 
 
 
4,510,807

 
1,943,335

    
    

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Table of Contents



RSU Activity —A summary of RSU activity for the year ended December 31, 2012, is as follows:
 
Number of Shares
 
Weighted-Average Grant Date Fair Value
Unvested—January 1, 2012

 

Granted
50,000

 
$
5.82

Released

 

Forfeited

 

Unvested—December 31, 2012
50,000

 
$
5.82

Expected to vest —December 31, 2012
42,500

 
$
5.82

As of December 31, 2012 , total unrecognized compensation cost, adjusted for estimated forfeitures, related to RSUs was approximately $242 , which is expected to be recognized over the next 3.91 years.
    
Stock-Based Compensation Expense —The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation, including the fair value of the Company's common stock, the expected term (the period of time that the options granted are expected to be outstanding), the volatility of the Company's common stock, a risk-free interest rate, and expected dividends. The Company also estimates forfeitures of unvested stock options. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period estimates are revised. No compensation cost is recorded for options that do not vest. The Company uses the simplified calculation of expected life described in the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment , and volatility is based on an average of the historical volatilities of the common stock of several entities with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company uses an expected dividend yield of zero , as it does not anticipate paying any dividends in the foreseeable future. Expected forfeitures are based on the
Company's historical experience.
The following table presents the weighted-average assumptions used to estimate the fair value of options granted during the periods presented:     
 
2010
 
2011
 
2012
Volatility
53
%
 
51
%
 
58
%
Expected dividend yield

 

 

Risk-free rate
2.4
%
 
1.6
%
 
1.4
%
Expected term (in years)
6.25

 
6.25

 
6.25


10. NET (LOSS) INCOME PER COMMON SHARE DATA
Basic and diluted net (loss) income per common share is presented in conformity with the two-class method required for participating securities. The Company has determined that its Series A, A-1, B and C convertible preferred stock represented participating securities because they participated with common stock in dividends and unallocated income. Historically, the Company has not paid dividends. The holders of the Series A, A-1, B and C convertible preferred stock did not have a contractual obligation to share in the losses of the Company. The Company considers its preferred stock to be participating securities and, in accordance with the two-class method, earnings allocated to preferred stock and the related number of outstanding shares of preferred stock have been excluded from the computation of basic and diluted net income (loss) per common share.

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Table of Contents

The table below summarizes the calculation of basic and diluted net (loss) income per share for the years ended December 31, 2010 , 2011 and 2012 (in thousands, except share and per share amounts):
 
Year Ended December 31,
 
2010
 
2011
 
2012
Net (loss) income
$
(3,591
)
 
$
9,932

 
$
3,815

Less: Undistributed earnings allocated to preferred stockholders

 
(8,583
)
 

Net (loss) income attributable to common stockholders
$
(3,591
)
 
$
1,349

 
$
3,815

Weighted-average common shares used to compute net income (loss) per share attributable to common stockholders
1,865,294

 
2,303,443

 
24,411,194

Basic net (loss) income per share attributable to common stockholders
$
(1.93
)
 
$
0.59

 
$
0.16

Diluted net (loss) income per share attributable to common stockholders:
 
 
 
 
 
Net (loss) income
$
(3,591
)
 
$
1,349

 
$
3,815

Add: Undistributed earnings allocated to preferred stockholders

 
8,583

 

Net (loss) income attributable to common stockholders
$
(3,591
)
 
$
9,932

 
$
3,815

Number of shares used in basic calculation
1,865,294

 
2,303,443

 
24,411,194

Weighted-average effect of dilutive securities
 
 
 
 
 
Add:
 
 
 
 
 
Conversion of preferred stock (as-if converted basis)

 
17,395,136

 
1,948,635

Stock options

 
2,275,824

 
1,737,484

Number of shares used in diluted calculation (1)
1,865,294

 
21,974,403

 
28,097,313

Diluted net (loss) income per share attributable to common stockholders
$
(1.93
)
 
$
0.45

 
$
0.14

Note:
(1)
Stock options and convertible preferred shares are not included in the calculation of diluted net loss per share for the year ended December 31, 2010 because the Company had a net loss for that year. Accordingly, the inclusion of these equity awards would have had an antidilutive effect on the calculation of diluted loss per share.
The following equivalent shares were excluded from the calculation of diluted net (loss) income per share because their effect would have been anti-dilutive for the periods presented:
 
Year Ended December 31,
Antidilutive Equity Awards
2010
 
2011
 
2012
Stock options
2,342,694

 
367,250

 
137,850

Convertible preferred shares
17,395,136

 

 

Total
19,737,830

 
367,250

 
137,850

    
11. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) profit sharing plan that covers substantially all employees. Under the plan, eligible employees are permitted to contribute a portion of gross compensation not to exceed standard limitations provided by the Internal Revenue Service. The Company maintains the right to match employee contributions; however, no matching contributions were made during the years ended December 31, 2010 , 2011 , or 2012 .
******


F- 20


Synacor, Inc.
2012 Equity Incentive Plan
Notice of Stock Option Grant
(Early Exercise)
You have been granted the following option to purchase shares of the common stock of Synacor, Inc. (the “Company”):
Name of Optionee:
Ronald N. Frankel
Total Number of Shares:
_______________
Type of Option:
Nonstatutory Stock Option
Exercise Price per Share:
$_______
Date of Grant:
______ __, ____
Vesting Commencement Date:
______ __, ____

                
Date Exercisable:
This option may be exercised at any time after the Date of Grant for all or any part of the Shares subject to this option.
Vesting Schedule:
This option vests with respect to the first 25% of the shares subject to this option when you complete 12 months of continuous “Service” (as defined in the Plan) from the Vesting Commencement Date. Thereafter, this option vests with respect to an additional 1/48 th of the shares subject to this option when you complete each additional month of continuous Service.
In addition, if your Service is terminated without Cause (as defined below) other than following a Change in Control (as defined in the Plan), the option shall vest as to the number of Shares that would otherwise have vested as of the date 12 months following the date of your termination of Service, assuming your Service had continued through such date. If there is a Change in Control of the Company and (A) the acquirer or successor does not assume the option in full, (B) your compensation is reduced below your rate of compensation as of immediately prior to such Change in Control, (C) your place of employment is relocated more than 35 miles from the place of employment as of immediately prior to such Change in Control or (D) there is a reduction in your duties and responsibilities as a result of or following such Change in Control (which includes any termination of Service by the Company), then 100% of the shares subject to the option shall vest.

“Cause” means (a) your intentional failure to substantially perform duties assigned to you by the Company's Board of Directors, following at least 30 days written notice of such failure, (b) your commission of any act of fraud, embezzlement, felony, or other willful misconduct that causes material injury to the Company, (c) the intentional unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom you owe an obligation of nondisclosure as a result of your relationship with the Company, which unauthorized use of disclosure causes material harm to the Company, or (d) your willful breach of your obligations under any written covenant or agreement with the Company, which breach is not cured within 30 days following written notice thereof and which causes material harm to the Company.






Expiration Date:
______ __, ____. This option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement, and may terminate earlier in connection with certain corporate transactions as described in Article 9 of the Plan.

You and the Company agree that this option is granted under and governed by the terms and conditions of the Company's 2012 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to, and made a part of, this document.
You further agree to accept by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements). You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it will notify you by email.
You further agree to comply with the Company's Insider Trading Policy when selling shares of the Company's common stock.

Optionee
 
Synacor, Inc.
 
 
By:
 
 
 
Title:
 









































Synacor, Inc.
2012 Equity Incentive Plan
Stock Option Agreement
Grant of Option
Subject to all of the terms and conditions set forth in the Notice of Stock Option Grant, this Stock Option Agreement (the “Agreement”) and the Plan, the Company has granted you an option to purchase up to the total number of shares specified in the Notice of Stock Option Grant at the exercise price indicated in the Notice of Stock Option Grant.
All capitalized terms used in this Agreement shall have the meanings assigned in this Agreement, the Notice of Stock Option Grant or the Plan.
Tax Treatment
This option is intended to be an incentive stock option under Section 422 of the Code or a nonstatutory stock option, as provided in the Notice of Stock Option Grant. However, even if this option is designated as an incentive stock option in the Notice of Stock Option Grant, it shall be deemed to be a nonstatutory stock option to the extent it does not qualify as an incentive stock option under federal tax law, including under the $100,000 annual limitation under Section 422(d) of the Code.
Exercisability
This option is immediately exercisable with respect to all or any part of the option (however, this option may not be exercised for fractional shares), as set forth in the Notice of Stock Option Grant.
Vesting
This option vests in accordance with the vesting schedule set forth in the Notice of Stock Option Grant.
In no event will this option vest for additional shares after your Service has terminated for any reason.
Term
This option expires in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Date of Grant, as shown in the Notice of Stock Option Grant. (This option will expire earlier if your Service terminates, as described below, and this option may be terminated earlier as provided in Article 9 of the Plan.)
Termination of Service
If your Service terminates for any reason, this option will expire immediately to the extent the option is unvested as of your termination date and does not vest as a result of your termination of Service. The Company determines when your Service terminates for this purpose.
Regular Termination
If your Service terminates for any reason except death or total and permanent disability, then this option, to the extent vested as of your termination date, will expire at the close of business at Company headquarters on the date three months after your termination date.
Death
If you die before your Service terminates, then this option will expire at the close of business at Company headquarters on the date 12 months after the date of death.





Disability
If your Service terminates because of your total and permanent disability, then this option will expire at the close of business at Company headquarters on the date 12 months after your termination date.
For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Leaves of Absence and Part-Time Work
For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide  leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by applicable law, the Company's leave of absence policy, or the terms of your leave. However, your Service terminates when the approved leave ends, unless you immediately return to active work; provided that, if reemployment upon expiration of the approved leave is not guaranteed by statute or contract, then any incentive stock option shall cease to be treated as such and shall instead be treated as a nonstatutory stock option beginning six months following the first day of such leave.
If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company's leave of absence policy or the terms of your leave. If you commence working on a part-time basis, the Company may adjust the vesting schedule so that the rate of vesting is commensurate with your reduced work schedule.
Restrictions on Exercise
The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.
Notice of Exercise
When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form or, if the Company has designated a brokerage firm to administer the Plan, you must notify such brokerage firm in the manner such brokerage firm requires. Your notice must specify how many shares you wish to purchase. The notice will be effective when the Company receives it.
However, if you wish to exercise this option by executing a same-day sale (as described below), you must follow the instructions of the Company and the broker who will execute the sale.
If someone else wants to exercise this option after your death, that person must prove to the Company's satisfaction that he or she is entitled to do so.
You may only exercise your option for whole shares.
Form of Payment
When you submit your notice of exercise, you must include payment of the option exercise price for the shares that you are purchasing. To the extent permitted by applicable law, payment may be made in one (or a combination of two or more) of the following forms:
  By delivering to the Company your personal check, a cashier's check or a money order, or arranging for a wire transfer.
  By delivering to the Company certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the option shares issued to you.
  By giving to a securities broker approved by the Company irrevocable directions to sell all or part of your option shares and to deliver to the Company, from the sale proceeds, an amount sufficient to pay the option exercise price and any withholding taxes. (The balance of the sale proceeds, if any, will be delivered to you.) The directions must be given in accordance with the instructions of the Company and the broker. This exercise method is sometimes called a “same-day sale.”
Withholding Taxes
You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise. These arrangements include payment in cash. With the Company's consent, these arrangements may also include (a) payment from the proceeds of the sale of shares through a Company-approved broker, (b) withholding shares of Company stock that otherwise would be issued to you when you exercise this option with a fair market value no greater than the minimum amount required to be withheld by law, (c) surrendering shares that you previously acquired with a fair market value no greater than the minimum amount required to be withheld by law, or (d) withholding cash from other compensation. The fair market value of withheld or surrendered shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied to the withholding taxes.





Restrictions on Resale
You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option
Prior to your death, only you may exercise this option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or by means of a written beneficiary designation; provided that your beneficiary or a representative of your estate acknowledges and agrees in writing in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement and the Plan as if such beneficiary or the estate were you.
Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse's interest in your option in any other way.
Right of Repurchase
Until they vest in accordance with the Notice of Stock Option Grant, the Shares acquired under this Agreement shall be “Restricted Shares”. Except as permitted by the following sentence, you may not sell, transfer, pledge or otherwise dispose of any Restricted Shares without the written consent of the Company. You may transfer Restricted Shares to your spouse, children or grandchildren, or to a trust established by you for the benefit of yourself, your spouse, children and/or grandchildren. A transferee of Restricted Shares must agree in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If Restricted Shares are subject to a stock split, stock dividend or similar transaction, then the additional shares you receive as a result will also be Restricted Shares.
If your service terminates for any reason, the Company may repurchase any Restricted Shares then held by you for a purchase price equal to the lower of (i) the exercise price of each Restricted Share being repurchased or (ii) the Fair Market Value of such Restricted Share at the time the right of repurchase is exercised. If the Company wishes to exercise its right to repurchase the Restricted Shares, it must do so within 120 days of the termination of your Service. The Company may exercise its right or repurchase by providing notice to you, however, the Company will be deemed to automatically exercise its right of repurchase if it does not notify you within 120 days of the termination of your Service that it is declining to do so.
 If the Company exercises its right to repurchase your Restricted Shares, the Company will send you a check or otherwise remit payment to you in an amount equal to the repurchase price described in the preceding paragraph. Upon your receipt of such payment, you will no longer have any rights with respect to the Restricted Shares (including the right to vote or transfer the shares) and the Restricted Shares will be deemed to have been repurchased by the Company.
Restricted Shares will bear a legend referring to the Company's right of repurchase and any certificates issued representing Restricted Shares may be held in escrow by the Company. As your vested percentage increases, you may request (at reasonable intervals) that the Company release to you a non-legended certificate for your vested shares.
Retention Rights
Your option or this Agreement does not give you the right to be retained by the Company, a Parent, Subsidiary, or an Affiliate in any capacity. The Company and its Parents, Subsidiaries, and Affiliates reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights
You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by giving the required notice to the Company, paying the exercise price, and satisfying any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments
In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share will be adjusted pursuant to the Plan.
Effect of Significant Corporate Transactions
If the Company is a party to a merger, consolidation, or certain change in control transactions, then this option will be subject to the applicable provisions of Article 9 of the Plan.
Applicable Law
This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to its choice-of-law provisions).





The Plan and Other Agreements
The text of the Plan is incorporated in this Agreement by reference. In the event of any conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan will prevail.
The Plan, this Agreement and the Notice of Stock Option Grant constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Agreement may be amended only by another written agreement between the parties.
By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.





Synacor, Inc.
2012 Equity Incentive Plan
Notice of Stock Option Grant
(Early Exercise)
You have been granted the following option to purchase shares of the common stock of Synacor, Inc. (the “Company”):
Name of Optionee:
<<Name>>
Total Number of Shares:
<<TotalShares>>
Type of Option:
<<ISO>> Incentive Stock Option
 
<<NSO>> Nonstatutory Stock Option
Exercise Price per Share:
$<<PricePerShare>>
Date of Grant:
<<DateGrant>>
Vesting Commencement Date:
<<VestDay>>
Date Exercisable:
This option may be exercised at any time after the Date of Grant for all or any part of the Shares subject to this option.
Vesting Schedule:
This option vests with respect to the first <<CliffPercent>>% of the shares subject to this option when you complete <<CliffPeriod>> months of continuous “Service” (as defined in the Plan) from the Vesting Commencement Date. Thereafter, this option vests with respect to an additional <<Percent>>% of the shares subject to this option when you complete each additional <<IncrementPeriod>> of continuous Service.
Expiration Date:
<<ExpDate>>. This option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement, and may terminate earlier in connection with certain corporate transactions as described in Article 9 of the Plan.

    
You and the Company agree that this option is granted under and governed by the terms and conditions of the Company's 2012 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to, and made a part of, this document.
You further agree to accept by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements). You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it will notify you by email.
You further agree to comply with the Company's Insider Trading Policy when selling shares of the Company's common stock.



Optionee
 
Synacor, Inc.
 
 
By:
 
 
 
Title:
 













Synacor, Inc.
2012 Equity Incentive Plan
Stock Option Agreement
Grant of Option
Subject to all of the terms and conditions set forth in the Notice of Stock Option Grant, this Stock Option Agreement (the “Agreement”) and the Plan, the Company has granted you an option to purchase up to the total number of shares specified in the Notice of Stock Option Grant at the exercise price indicated in the Notice of Stock Option Grant.
All capitalized terms used in this Agreement shall have the meanings assigned in this Agreement, the Notice of Stock Option Grant or the Plan.
Tax Treatment
This option is intended to be an incentive stock option under Section 422 of the Code or a nonstatutory stock option, as provided in the Notice of Stock Option Grant. However, even if this option is designated as an incentive stock option in the Notice of Stock Option Grant, it shall be deemed to be a nonstatutory stock option to the extent it does not qualify as an incentive stock option under federal tax law, including under the $100,000 annual limitation under Section 422(d) of the Code.
Exercisability
This option is immediately exercisable with respect to all or any part of the option (however, this option may not be exercised for fractional shares), as set forth in the Notice of Stock Option Grant.
Vesting
This option vests in accordance with the vesting schedule set forth in the Notice of Stock Option Grant.
In no event will this option vest for additional shares after your Service has terminated for any reason.
Term
This option expires in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Date of Grant, as shown in the Notice of Stock Option Grant. (This option will expire earlier if your Service terminates, as described below, and this option may be terminated earlier as provided in Article 9 of the Plan.)
Termination of Service
If your Service terminates for any reason, this option will expire immediately to the extent the option is unvested as of your termination date and does not vest as a result of your termination of Service. The Company determines when your Service terminates for this purpose.
Regular Termination
If your Service terminates for any reason except death or total and permanent disability, then this option, to the extent vested as of your termination date, will expire at the close of business at Company headquarters on the date three months after your termination date.
Death
If you die before your Service terminates, then this option will expire at the close of business at Company headquarters on the date 12 months after the date of death.
Disability
If your Service terminates because of your total and permanent disability, then this option will expire at the close of business at Company headquarters on the date 12 months after your termination date.
For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Leaves of Absence and Part-Time Work
For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide  leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by applicable law, the Company's leave of absence policy, or the terms of your leave. However, your Service terminates when the approved leave ends, unless you immediately return to active work; provided that, if reemployment upon expiration of the approved leave is not guaranteed by statute or contract, then any incentive stock option shall cease to be treated as such and shall instead be treated as a nonstatutory stock option beginning six months following the first day of such leave.
If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company's leave of absence policy or the terms of your leave. If you commence working on a part-time basis, the Company may adjust the vesting schedule so that the rate of vesting is commensurate with your reduced work schedule.





Restrictions on Exercise
The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.
Notice of Exercise
When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form or, if the Company has designated a brokerage firm to administer the Plan, you must notify such brokerage firm in the manner such brokerage firm requires. Your notice must specify how many shares you wish to purchase. The notice will be effective when the Company receives it.
However, if you wish to exercise this option by executing a same-day sale (as described below), you must follow the instructions of the Company and the broker who will execute the sale.
If someone else wants to exercise this option after your death, that person must prove to the Company's satisfaction that he or she is entitled to do so.
You may only exercise your option for whole shares.
Form of Payment
When you submit your notice of exercise, you must include payment of the option exercise price for the shares that you are purchasing. To the extent permitted by applicable law, payment may be made in one (or a combination of two or more) of the following forms:
By delivering to the Company your personal check, a cashier's check or a money order, or arranging for a wire transfer.
By delivering to the Company certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the option shares issued to you.
By giving to a securities broker approved by the Company irrevocable directions to sell all or part of your option shares and to deliver to the Company, from the sale proceeds, an amount sufficient to pay the option exercise price and any withholding taxes. (The balance of the sale proceeds, if any, will be delivered to you.) The directions must be given in accordance with the instructions of the Company and the broker. This exercise method is sometimes called a “same-day sale.”
Withholding Taxes
You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise. These arrangements include payment in cash. With the Company's consent, these arrangements may also include (a) payment from the proceeds of the sale of shares through a Company-approved broker, (b) withholding shares of Company stock that otherwise would be issued to you when you exercise this option with a fair market value no greater than the minimum amount required to be withheld by law, (c) surrendering shares that you previously acquired with a fair market value no greater than the minimum amount required to be withheld by law, or (d) withholding cash from other compensation. The fair market value of withheld or surrendered shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied to the withholding taxes.
Restrictions on Resale
You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option
Prior to your death, only you may exercise this option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or by means of a written beneficiary designation; provided that your beneficiary or a representative of your estate acknowledges and agrees in writing in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement and the Plan as if such beneficiary or the estate were you.
Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse's interest in your option in any other way.





Right of Repurchase
Until they vest in accordance with the Notice of Stock Option Grant, the Shares acquired under this Agreement shall be “Restricted Shares”. Except as permitted by the following sentence, you may not sell, transfer, pledge or otherwise dispose of any Restricted Shares without the written consent of the Company. You may transfer Restricted Shares to your spouse, children or grandchildren, or to a trust established by you for the benefit of yourself, your spouse, children and/or grandchildren. A transferee of Restricted Shares must agree in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If Restricted Shares are subject to a stock split, stock dividend or similar transaction, then the additional shares you receive as a result will also be Restricted Shares.
If your service terminates for any reason, the Company may repurchase any Restricted Shares then held by you for a purchase price equal to the lower of (i) the exercise price of each Restricted Share being repurchased or (ii) the Fair Market Value of such Restricted Share at the time the right of repurchase is exercised. If the Company wishes to exercise its right to repurchase the Restricted Shares, it must do so within 120 days of the termination of your Service. The Company may exercise its right or repurchase by providing notice to you, however, the Company will be deemed to automatically exercise its right of repurchase if it does not notify you within 120 days of the termination of your Service that it is declining to do so.
 If the Company exercises its right to repurchase your Restricted Shares, the Company will send you a check or otherwise remit payment to you in an amount equal to the repurchase price described in the preceding paragraph. Upon your receipt of such payment, you will no longer have any rights with respect to the Restricted Shares (including the right to vote or transfer the shares) and the Restricted Shares will be deemed to have been repurchased by the Company.
Restricted Shares will bear a legend referring to the Company's right of repurchase and any certificates issued representing Restricted Shares may be held in escrow by the Company. As your vested percentage increases, you may request (at reasonable intervals) that the Company release to you a non-legended certificate for your vested shares.
Retention Rights
Your option or this Agreement does not give you the right to be retained by the Company, a Parent, Subsidiary, or an Affiliate in any capacity. The Company and its Parents, Subsidiaries, and Affiliates reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights
You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by giving the required notice to the Company, paying the exercise price, and satisfying any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments
In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share will be adjusted pursuant to the Plan.
Effect of Significant Corporate Transactions
If the Company is a party to a merger, consolidation, or certain change in control transactions, then this option will be subject to the applicable provisions of Article 9 of the Plan.
Applicable Law
This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to its choice-of-law provisions).
The Plan and Other Agreements
The text of the Plan is incorporated in this Agreement by reference. In the event of any conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan will prevail.
The Plan, this Agreement and the Notice of Stock Option Grant constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Agreement may be amended only by another written agreement between the parties.
By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.





Synacor, Inc.
2012 Equity Incentive Plan
Notice of Stock Option Grant
(Early Exercise)
You have been granted the following option to purchase shares of the common stock of Synacor, Inc. (the “Company”):

Name of Optionee:
<<Name>>
Total Number of Shares:
<<TotalShares>>
Type of Option:
<<ISO>> Incentive Stock Option
 
<<NSO>> Nonstatutory Stock Option
Exercise Price per Share:
$<<PricePerShare>>
Date of Grant:
<<DateGrant>>
Vesting Commencement Date:
<<VestDay>>
Date Exercisable:
This option may be exercised at any time after the Date of Grant for all or any part of the Shares subject to this option.
Vesting Schedule:
This option vests with respect to the first «CliffPercent»% of the shares subject to this option when you complete «CliffPeriod» months of continuous “Service” (as defined in the Plan) from the Vesting Commencement Date. Thereafter, this option vests with respect to an additional «Percent»% of the shares subject to this option when you complete each additional «IncrementPeriod» of continuous Service. In addition, if there is a Change of Control of the Company, and (a) the acquirer or successor entity does not assume this option in full, (b) your compensation is reduced below your rate of compensation as of immediately prior to such Change of Control, or (c) there is a material reduction in your duties and responsibilities as a result of or within 12 months following such Change of Control, then 100% of the shares subject to the option shall vest.
Change of Control shall have the same meaning as set forth in the employment offer letter between you and the Company dated as of August 2, 2011.
Expiration Date:
<<ExpDate>>. This option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement, and may terminate earlier in connection with certain corporate transactions as described in Article 9 of the Plan.



















You and the Company agree that this option is granted under and governed by the terms and conditions of the Company's 2012 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to, and made a part of, this document.
You further agree to accept by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements). You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it will notify you by email.
You further agree to comply with the Company's Insider Trading Policy when selling shares of the Company's common stock.
Optionee
 
Synacor, Inc.
 
 
By:
 
 
 
Title:
 















































Synacor, Inc.
2012 Equity Incentive Plan
Stock Option Agreement
Grant of Option
Subject to all of the terms and conditions set forth in the Notice of Stock Option Grant, this Stock Option Agreement (the “Agreement”) and the Plan, the Company has granted you an option to purchase up to the total number of shares specified in the Notice of Stock Option Grant at the exercise price indicated in the Notice of Stock Option Grant.
All capitalized terms used in this Agreement shall have the meanings assigned in this Agreement, the Notice of Stock Option Grant or the Plan.
Tax Treatment
This option is intended to be an incentive stock option under Section 422 of the Code or a nonstatutory stock option, as provided in the Notice of Stock Option Grant. However, even if this option is designated as an incentive stock option in the Notice of Stock Option Grant, it shall be deemed to be a nonstatutory stock option to the extent it does not qualify as an incentive stock option under federal tax law, including under the $100,000 annual limitation under Section 422(d) of the Code.
Exercisability
This option is immediately exercisable with respect to all or any part of the option (however, this option may not be exercised for fractional shares), as set forth in the Notice of Stock Option Grant.
Vesting
This option vests in accordance with the vesting schedule set forth in the Notice of Stock Option Grant.
In no event will this option vest for additional shares after your Service has terminated for any reason.
Term
This option expires in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Date of Grant, as shown in the Notice of Stock Option Grant. (This option will expire earlier if your Service terminates, as described below, and this option may be terminated earlier as provided in Article 9 of the Plan.)
Termination of Service
If your Service terminates for any reason, this option will expire immediately to the extent the option is unvested as of your termination date and does not vest as a result of your termination of Service. The Company determines when your Service terminates for this purpose.
Regular Termination
If your Service terminates for any reason except death or total and permanent disability, then this option, to the extent vested as of your termination date, will expire at the close of business at Company headquarters on the date three months after your termination date.
Death
If you die before your Service terminates, then this option will expire at the close of business at Company headquarters on the date 12 months after the date of death.
Disability
If your Service terminates because of your total and permanent disability, then this option will expire at the close of business at Company headquarters on the date 12 months after your termination date.
For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Leaves of Absence and Part-Time Work
For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide  leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by applicable law, the Company's leave of absence policy, or the terms of your leave. However, your Service terminates when the approved leave ends, unless you immediately return to active work; provided that, if reemployment upon expiration of the approved leave is not guaranteed by statute or contract, then any incentive stock option shall cease to be treated as such and shall instead be treated as a nonstatutory stock option beginning six months following the first day of such leave.
If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company's leave of absence policy or the terms of your leave. If you commence working on a part-time basis, the Company may adjust the vesting schedule so that the rate of vesting is commensurate with your reduced work schedule.





Restrictions on Exercise
The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.
Notice of Exercise
When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form or, if the Company has designated a brokerage firm to administer the Plan, you must notify such brokerage firm in the manner such brokerage firm requires. Your notice must specify how many shares you wish to purchase. The notice will be effective when the Company receives it.
However, if you wish to exercise this option by executing a same-day sale (as described below), you must follow the instructions of the Company and the broker who will execute the sale.
If someone else wants to exercise this option after your death, that person must prove to the Company's satisfaction that he or she is entitled to do so.
You may only exercise your option for whole shares.
Form of Payment
When you submit your notice of exercise, you must include payment of the option exercise price for the shares that you are purchasing. To the extent permitted by applicable law, payment may be made in one (or a combination of two or more) of the following forms:
By delivering to the Company your personal check, a cashier's check or a money order, or arranging for a wire transfer.
By delivering to the Company certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the option shares issued to you.
By giving to a securities broker approved by the Company irrevocable directions to sell all or part of your option shares and to deliver to the Company, from the sale proceeds, an amount sufficient to pay the option exercise price and any withholding taxes. (The balance of the sale proceeds, if any, will be delivered to you.) The directions must be given in accordance with the instructions of the Company and the broker. This exercise method is sometimes called a “same-day sale.”
Withholding Taxes
You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise. These arrangements include payment in cash. With the Company's consent, these arrangements may also include (a) payment from the proceeds of the sale of shares through a Company-approved broker, (b) withholding shares of Company stock that otherwise would be issued to you when you exercise this option with a fair market value no greater than the minimum amount required to be withheld by law, (c) surrendering shares that you previously acquired with a fair market value no greater than the minimum amount required to be withheld by law, or (d) withholding cash from other compensation. The fair market value of withheld or surrendered shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied to the withholding taxes.
Restrictions on Resale
You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option
Prior to your death, only you may exercise this option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or by means of a written beneficiary designation; provided that your beneficiary or a representative of your estate acknowledges and agrees in writing in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement and the Plan as if such beneficiary or the estate were you.
Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse's interest in your option in any other way.





Right of Repurchase
Until they vest in accordance with the Notice of Stock Option Grant, the Shares acquired under this Agreement shall be “Restricted Shares”. Except as permitted by the following sentence, you may not sell, transfer, pledge or otherwise dispose of any Restricted Shares without the written consent of the Company. You may transfer Restricted Shares to your spouse, children or grandchildren, or to a trust established by you for the benefit of yourself, your spouse, children and/or grandchildren. A transferee of Restricted Shares must agree in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If Restricted Shares are subject to a stock split, stock dividend or similar transaction, then the additional shares you receive as a result will also be Restricted Shares.
If your service terminates for any reason, the Company may repurchase any Restricted Shares then held by you for a purchase price equal to the lower of (i) the exercise price of each Restricted Share being repurchased or (ii) the Fair Market Value of such Restricted Share at the time the right of repurchase is exercised. If the Company wishes to exercise its right to repurchase the Restricted Shares, it must do so within 120 days of the termination of your Service. The Company may exercise its right or repurchase by providing notice to you, however, the Company will be deemed to automatically exercise its right of repurchase if it does not notify you within 120 days of the termination of your Service that it is declining to do so.
 If the Company exercises its right to repurchase your Restricted Shares, the Company will send you a check or otherwise remit payment to you in an amount equal to the repurchase price described in the preceding paragraph. Upon your receipt of such payment, you will no longer have any rights with respect to the Restricted Shares (including the right to vote or transfer the shares) and the Restricted Shares will be deemed to have been repurchased by the Company.
Restricted Shares will bear a legend referring to the Company's right of repurchase and any certificates issued representing Restricted Shares may be held in escrow by the Company. As your vested percentage increases, you may request (at reasonable intervals) that the Company release to you a non-legended certificate for your vested shares.
Retention Rights
Your option or this Agreement does not give you the right to be retained by the Company, a Parent, Subsidiary, or an Affiliate in any capacity. The Company and its Parents, Subsidiaries, and Affiliates reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights
You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by giving the required notice to the Company, paying the exercise price, and satisfying any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments
In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share will be adjusted pursuant to the Plan.
Effect of Significant Corporate Transactions
If the Company is a party to a merger, consolidation, or certain change in control transactions, then this option will be subject to the applicable provisions of Article 9 of the Plan.
Applicable Law
This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to its choice-of-law provisions).
The Plan and Other Agreements
The text of the Plan is incorporated in this Agreement by reference. In the event of any conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan will prevail.
The Plan, this Agreement and the Notice of Stock Option Grant constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Agreement may be amended only by another written agreement between the parties.
By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.





Synacor, Inc.
2012 Equity Incentive Plan
Notice of Stock Option Grant
(Early Exercise)
You have been granted the following option to purchase shares of the common stock of Synacor, Inc. (the “Company”):

Name of Optionee:
<<Name>>
Total Number of Shares:
<<TotalShares>>
Type of Option:
<<ISO>> Incentive Stock Option
 
<<NSO>> Nonstatutory Stock Option
Exercise Price per Share:
$<<PricePerShare>>
Date of Grant:
<<DateGrant>>
Vesting Commencement Date:
<<VestDay>>
Date Exercisable:
This option may be exercised at any time after the Date of Grant for all or any part of the Shares subject to this option.
Vesting Schedule:
This option vests with respect to the first «CliffPercent»% of the shares subject to this option when you complete «CliffPeriod» months of continuous “Service” (as defined in the Plan) from the Vesting Commencement Date. Thereafter, this option vests with respect to an additional «Percent»% of the shares subject to this option when you complete each additional «IncrementPeriod» of continuous Service. In addition, if he Company experiences a Change of Control during the Optionee's service with the Company and the Optionee is subject to an Involuntary Termination in connection with or within twelve (12) months following such Change of Control, then an additional number of unvested shares subject to the option will vest equal to the number of option shares that would vest if the Optionee provided another twelve (12) months of service with the Company following the effective date of the Involuntary Termination.
 
“Change of Control” means ans a sale of all or substantially all of the Company's assets, or any merger or consolidation of the Company with or into another corporation other than a merger or consolidation in which the holders of more than 50% of the shares of capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by their being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company, or such surviving entity, outstanding immediately after such transaction.





 
“Involuntary Termination” means termination of the Optionee's Service: (i) without Cause by the Company or a Subsidiary, Parent, Affiliate or successor thereto, as appropriate; or (ii) by the Optionee within 30 days following (A) a material reduction in the Optionee's job responsibilities, provided that neither a mere change in title alone nor reassignment following a Change of Control to a position that is substantially similar to the position held prior to the Change of Control shall constitute a material reduction in job responsibilities; (B) relocation by the Company or a Subsidiary, Parent, Affiliate or successor thereto, as appropriate, of the Optionee's work site to a facility or location more than 50 miles from the Optionee's principal work site for the Company at the time of the Change of Control; or (C) a reduction in Optionee's then-current base salary by at least 10%, provided that an across-the-board reduction in the salary level of all other employees or consultants in positions similar to the Optionee's by the same percentage amount as part of a general salary level reduction shall not constitute such a salary reduction.
 
“Cause” means the Optionee is terminated by the Company for: (i) Optionee's willful failure substantially to perform his or her duties and responsibilities to the Company or deliberate violation of a Company policy; (ii) Optionee's commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Optionee of any proprietary information or trade secrets of the Company or any other party to whom the Optionee owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) Optionee's willful breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether an Optionee is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Optionee. The foregoing definition does not in any way limit the Company's ability to terminate an Optionee's employment or consulting relationship at any time, with or without Cause or notice, and the term “Company” will be interpreted to include any Subsidiary, Parent, Affiliate or successor thereto, if appropriate.
Expiration Date:
<<ExpDate>>. This option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement, and may terminate earlier in connection with certain corporate transactions as described in Article 9 of the Plan.









    
    
    







You and the Company agree that this option is granted under and governed by the terms and conditions of the Company's 2012 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to, and made a part of, this document.
You further agree to accept by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements). You also agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a website, it will notify you by email.
You further agree to comply with the Company's Insider Trading Policy when selling shares of the Company's common stock.

Optionee
 
Synacor, Inc.
 
 
By:
 
 
 
Title:
 















































Synacor, Inc.
2012 Equity Incentive Plan
Stock Option Agreement
Grant of Option
Subject to all of the terms and conditions set forth in the Notice of Stock Option Grant, this Stock Option Agreement (the “Agreement”) and the Plan, the Company has granted you an option to purchase up to the total number of shares specified in the Notice of Stock Option Grant at the exercise price indicated in the Notice of Stock Option Grant.
All capitalized terms used in this Agreement shall have the meanings assigned in this Agreement, the Notice of Stock Option Grant or the Plan.
Tax Treatment
This option is intended to be an incentive stock option under Section 422 of the Code or a nonstatutory stock option, as provided in the Notice of Stock Option Grant. However, even if this option is designated as an incentive stock option in the Notice of Stock Option Grant, it shall be deemed to be a nonstatutory stock option to the extent it does not qualify as an incentive stock option under federal tax law, including under the $100,000 annual limitation under Section 422(d) of the Code.
Exercisability
This option is immediately exercisable with respect to all or any part of the option (however, this option may not be exercised for fractional shares), as set forth in the Notice of Stock Option Grant.
Vesting
This option vests in accordance with the vesting schedule set forth in the Notice of Stock Option Grant.
In no event will this option vest for additional shares after your Service has terminated for any reason.
Term
This option expires in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Date of Grant, as shown in the Notice of Stock Option Grant. (This option will expire earlier if your Service terminates, as described below, and this option may be terminated earlier as provided in Article 9 of the Plan.)
Termination of Service
If your Service terminates for any reason, this option will expire immediately to the extent the option is unvested as of your termination date and does not vest as a result of your termination of Service. The Company determines when your Service terminates for this purpose.
Regular Termination
If your Service terminates for any reason except death or total and permanent disability, then this option, to the extent vested as of your termination date, will expire at the close of business at Company headquarters on the date three months after your termination date.
Death
If you die before your Service terminates, then this option will expire at the close of business at Company headquarters on the date 12 months after the date of death.
Disability
If your Service terminates because of your total and permanent disability, then this option will expire at the close of business at Company headquarters on the date 12 months after your termination date.
For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Leaves of Absence and Part-Time Work
For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide  leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by applicable law, the Company's leave of absence policy, or the terms of your leave. However, your Service terminates when the approved leave ends, unless you immediately return to active work; provided that, if reemployment upon expiration of the approved leave is not guaranteed by statute or contract, then any incentive stock option shall cease to be treated as such and shall instead be treated as a nonstatutory stock option beginning six months following the first day of such leave.
If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company's leave of absence policy or the terms of your leave. If you commence working on a part-time basis, the Company may adjust the vesting schedule so that the rate of vesting is commensurate with your reduced work schedule.
Restrictions on Exercise
The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation.





Notice of Exercise
When you wish to exercise this option, you must notify the Company by filing the proper “Notice of Exercise” form at the address given on the form or, if the Company has designated a brokerage firm to administer the Plan, you must notify such brokerage firm in the manner such brokerage firm requires. Your notice must specify how many shares you wish to purchase. The notice will be effective when the Company receives it.
However, if you wish to exercise this option by executing a same-day sale (as described below), you must follow the instructions of the Company and the broker who will execute the sale.
If someone else wants to exercise this option after your death, that person must prove to the Company's satisfaction that he or she is entitled to do so.
You may only exercise your option for whole shares.
Form of Payment
When you submit your notice of exercise, you must include payment of the option exercise price for the shares that you are purchasing. To the extent permitted by applicable law, payment may be made in one (or a combination of two or more) of the following forms:
By delivering to the Company your personal check, a cashier's check or a money order, or arranging for a wire transfer.
By delivering to the Company certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the option shares issued to you.
By giving to a securities broker approved by the Company irrevocable directions to sell all or part of your option shares and to deliver to the Company, from the sale proceeds, an amount sufficient to pay the option exercise price and any withholding taxes. (The balance of the sale proceeds, if any, will be delivered to you.) The directions must be given in accordance with the instructions of the Company and the broker. This exercise method is sometimes called a “same-day sale.”
Withholding Taxes
You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise. These arrangements include payment in cash. With the Company's consent, these arrangements may also include (a) payment from the proceeds of the sale of shares through a Company-approved broker, (b) withholding shares of Company stock that otherwise would be issued to you when you exercise this option with a fair market value no greater than the minimum amount required to be withheld by law, (c) surrendering shares that you previously acquired with a fair market value no greater than the minimum amount required to be withheld by law, or (d) withholding cash from other compensation. The fair market value of withheld or surrendered shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied to the withholding taxes.
Restrictions on Resale
You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option
Prior to your death, only you may exercise this option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will or by means of a written beneficiary designation; provided that your beneficiary or a representative of your estate acknowledges and agrees in writing in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement and the Plan as if such beneficiary or the estate were you.
Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse's interest in your option in any other way.





Right of Repurchase
Until they vest in accordance with the Notice of Stock Option Grant, the Shares acquired under this Agreement shall be “Restricted Shares”. Except as permitted by the following sentence, you may not sell, transfer, pledge or otherwise dispose of any Restricted Shares without the written consent of the Company. You may transfer Restricted Shares to your spouse, children or grandchildren, or to a trust established by you for the benefit of yourself, your spouse, children and/or grandchildren. A transferee of Restricted Shares must agree in writing on a form prescribed by the Company to be bound by all provisions of this Agreement. If Restricted Shares are subject to a stock split, stock dividend or similar transaction, then the additional shares you receive as a result will also be Restricted Shares.
If your service terminates for any reason, the Company may repurchase any Restricted Shares then held by you for a purchase price equal to the lower of (i) the exercise price of each Restricted Share being repurchased or (ii) the Fair Market Value of such Restricted Share at the time the right of repurchase is exercised. If the Company wishes to exercise its right to repurchase the Restricted Shares, it must do so within 120 days of the termination of your Service. The Company may exercise its right or repurchase by providing notice to you, however, the Company will be deemed to automatically exercise its right of repurchase if it does not notify you within 120 days of the termination of your Service that it is declining to do so.
 If the Company exercises its right to repurchase your Restricted Shares, the Company will send you a check or otherwise remit payment to you in an amount equal to the repurchase price described in the preceding paragraph. Upon your receipt of such payment, you will no longer have any rights with respect to the Restricted Shares (including the right to vote or transfer the shares) and the Restricted Shares will be deemed to have been repurchased by the Company.
Restricted Shares will bear a legend referring to the Company's right of repurchase and any certificates issued representing Restricted Shares may be held in escrow by the Company. As your vested percentage increases, you may request (at reasonable intervals) that the Company release to you a non-legended certificate for your vested shares.
Retention Rights
Your option or this Agreement does not give you the right to be retained by the Company, a Parent, Subsidiary, or an Affiliate in any capacity. The Company and its Parents, Subsidiaries, and Affiliates reserve the right to terminate your Service at any time, with or without cause.
Stockholder Rights
You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by giving the required notice to the Company, paying the exercise price, and satisfying any applicable withholding taxes. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments
In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share will be adjusted pursuant to the Plan.
Effect of Significant Corporate Transactions
If the Company is a party to a merger, consolidation, or certain change in control transactions, then this option will be subject to the applicable provisions of Article 9 of the Plan.
Applicable Law
This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to its choice-of-law provisions).
The Plan and Other Agreements
The text of the Plan is incorporated in this Agreement by reference. In the event of any conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan will prevail.
The Plan, this Agreement and the Notice of Stock Option Grant constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. This Agreement may be amended only by another written agreement between the parties.
By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.



CONFIDENTIAL TREATMENT REQUESTED

SYNACOR
MASTER SERVICES AGREEMENT

This Master Services Agreement (this “ Master Agreement ”) is entered into and made effective as of July 25, 2011 (the “ Effective Date ”) by and between Synacor, Inc., a Delaware corporation having a place of business located at 40 La Riviere Drive, Suite 300, Buffalo, New York 14202 (“ Synacor ”) and Verizon Corporate Services Group Inc., a New York corporation with its principal place of business at One Verizon Way, Basking Ridge, New Jersey 07920, acting on behalf of itself and its Affiliates, including Verizon Online LLC (“ Client ” or “ Verizon ”).

WHEREAS, Verizon as an Internet Service Provider (“ISP”) maintains several web portals through which Verizon delivers content and certain functionality; and

WHEREAS, Verizon has a web portal targeted for its consumer customers and a web portal for its small business customers; and

WHEREAS, Synacor provides web portal solutions for ISPs; and

WHEREAS, Verizon desires to engage Synacor to have Synacor provide a white labeled portal solution using Synacor for delivery of web search, advertising, general interest content and other functionality described herein to its consumer and business customers through such web portal solution;

WHEREAS, Synacor will provide to Verizon certain content, search capabilities and sourced advertising for inclusion on the designated web portals as set forth in this Agreement, and more specifically as set forth in the exhibits to this Agreement; and

WHEREAS , Synacor may host components of the infrastructure supporting web portals for Verizon as set forth in this Agreement, and Verizon may host components of such infrastructure; and

WHEREAS , Verizon and Synacor will maintain and integrate various Verizon proprietary applications, including, without limitation, customer information necessary for single sign on (“SSO”), eServices and Support, Email, FiOS Services, Verizon’s VAS services, and Verizon sourced content which may be placed upon or integrated with the Synacor hosted or provided web portals, each as set forth in this Agreement.


NOW THEREFORE, in consideration of the mutual promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
 
1.
Definitions:

(a)
Account Information ” means all user names, login IDs, passwords and other User registration information provided by Client and Users in connection with the Services.

(b)
Advertising Costs ” means [*]

(c)
Advertising Sales Fee ” means [*] of the Gross Advertising Revenue related to Direct Advertising. [*]

(d)
Advertising Services ” shall have the meaning set forth in Schedule D.

(e)
Advertisements ” mean graphical, digital, interactive and rich forms of media, including, without limitation, banners, buttons, boxes, skyscrapers and any other Standard IAB Units, text, brand wraps and surveys, skins, podcast, video, mobile, contextual sponsored links, and any other online Advertisements served by Synacor or a third-party contracted with Synacor.

(f)
Affiliate ” means any corporation or other legal entity that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with such corporation or other legal entity.

1
CONFIDENTIAL
[*] = CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.


CONFIDENTIAL TREATMENT REQUESTED



(g)
Bandwidth Cost(s) ” means [*]

(h)
Call Detail Information ” shall be any information that pertains to the transmission of specific telephone calls, including: (a) for outbound calls, the number called and the time, location or duration of any call, and (b) for inbound calls, the number from which the call was placed and the time, location, or duration of any call.

(i)
Client Branded Portal ” means the Consumer Portal and Small Business Portal.

(j)
Client Provider ” means a third party from whom Client obtains distribution rights for the Client Sourced Content.

(k)
Client Sourced Content ” means the Content (whether Portal Content or Premium Content) provided by Client or Client Providers engaged by Client.

(l)
Consumer Portal ” shall mean the web based portal as further described in Schedule B-1.

(m)
Content ” means the games, video, multimedia, images, graphics, statistics, articles, blogs, webinars and other text included on the Client Branded Portals as specifically contemplated and limited in this Agreement or such additional materials as may be mutually agreed in writing by the Parties.

(n)
Content Provider ” means the Client Providers and Synacor Providers as applicable.

(o)
Control(s) ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract, management agreement or otherwise.
.
(p)
Customer Proprietary Network Information ” or “ CPNI ” shall be as defined in 47 U.S.C. Section 222(f) (1).

(q)
[*]

(r)
Direct Advertising ” means the sale of advertising inventory whereby the advertiser, the advertiser’s agency, or the advertiser’s direct representative or media buying partner (1) has a direct payment relationship with Synacor or the Client, as opposed to having such payment relationship with advertising networks (such as Advertising.com or National Ad Force). For clarity, an advertising network is generally a company who principally represents websites for the sale of their advertising inventory and such websites typically receive a net amount for advertising from the advertising network which is less than what the advertising network received from the advertiser or its representative. Advertising networks’ relationships with advertisers are generally limited to insertion orders and implementation of campaigns limited to the websites they represent; whereas an advertiser’s agency or advertiser’s direct representative or media buying partner typically has a contractual relationship with the advertiser to place or handle all or a portion of their advertising budget for the purpose of placing advertisements on websites across a significant portion of the internet unrelated to any one website, or network of websites.

(s)
Escrow Materials ” means the then-current source code for the Synacor proprietary software utilized by Synacor to provide the Services hereunder, and all tools, libraries and other software required to translate or convert the deposited source code to executable code (e.g. software compilers, linkers, assemblers, translators and interpreters, and system tools and system libraries of the development platform) which software is not readily available to Verizon commercially off the-shelf. Escrow Materials will also include a machine readable copy of the development notes documenting problems encountered during translation/conversion of the deposited source code to executable code and associated fixes. Such Escrow Materials will be a copy of software used for the underlying development, support, and maintenance of the Synacor provided Client Branded Portals.

(t)
" Gross Advertising Revenue " means all revenue, [*], due Synacor or Client from all Advertisements that appear on or within the Client Branded Portal, Client’s webmail, [*], whether sourced by Client, Synacor or from third party advertising partners. For advertising placed in or along with Content (i.e. a pre-roll or post-roll ad. or similar

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such Advertisements), where the Party placing the Advertisement has a revenue share agreement with the applicable Content Provider related to such placement, [*].

(u)
Gross Search Revenue ” means revenue, except as specifically excluded by the Parties herein, due Synacor from its Search Services Providers.

(v)
Infrastructure Costs ” means [*]

(w)
Net Advertising Revenue ” means Gross Advertising Revenue less any applicable Advertising Costs and less any applicable Advertising Sales Fee.

(x)
Net Search Revenue ” means Gross Search Revenue less Search Costs.

(y)
Net Search and Advertising Revenue ” means Net Search Revenue plus Net Advertising Revenue less Reporting Costs

(z)
Party” or “Parties ” means Synacor and/or Verizon, as appropriate.

(aa)
Personal Information ” shall be information that, either alone or in combination with other data, identifies or uniquely relates to an individual, such as an individual’s name, social security number, financial account numbers (including, without limitation, credit or debit card number or bank account information), account passwords and pass codes, driver’s license and/or government-issued identification number, mother’s maiden name, and healthcare records).

(ab)
Portal Content ” means Content that the User does not have to pay an additional fee to view (either separately or as part of a service the User receives from Client).

(ac)
Premium Content Product ” means subscription and/or fee based Content sourced by either Party that is a single element of a Premium Offering.

(ad)
Premium Offering ” means a single product offered to Users that is made up of one or more Premium Content Products.

(ae)
Reporting Costs ” means fees or costs incurred by Synacor directly attributable to providing reporting to Client under this Agreement (i.e. Omniture fees).

(af)
Search Costs ” means [*] fees due from Synacor to the Search Services Providers [*].

(ag)
Search Services ” shall have the meaning set forth in Schedule C.

(ah)
Search Services Providers ” shall have the meaning set forth in Schedule C.

(ai)
Small Business Portal” means the web portal as further described in Schedule B-2.

(aj)
“Subscriber(s)” shall mean residential and small to medium business customers of Verizon’s DSL-based High Speed Internet (“HSI") and/or FiOS data services;


(ak)
Synacor Provider ” means a third party from whom Synacor obtains distribution rights for the Synacor Sourced Content.
(al)
Synacor Sourced Content ” means the Content (whether Portal Content or Premium Content) provided by Synacor or Synacor Providers.

(am)
Term ” shall have the meaning set forth in Section 7.1.


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(an)
User ” means any visitor to either of the Client Branded Portals, including Subscribers and non-Subscribers.

(ao)
Verizon Competitor ”[*]. The list of Verizon Competitors related to Advertising Guidelines is set forth in Attachment C to Schedule D titled “Verizon Competitors List”. The list of Verizon Competitors for purposes of the assignment provision in Section 18(b) is set forth in Schedule O.

(ap)
Version 2.1 ” shall have the meaning set forth in Schedule B.

(aq)
Version 3.0 ” shall have the meaning set forth in Schedule B.

(ar)
Version 3.5 ” shall have the meaning set forth in Schedule B.


2. SYNACOR SERVICES AND RESPONSIBILITIES

2.1. Services . Subject to the terms and conditions of this Master Agreement, as may be amended in a writing signed by the Parties, Synacor shall provide the following services to the Client, hereinafter referred collectively as the “Services”: (a) Portal Services as set forth in Schedule B including related infrastructure and hosting; (b) Search Services as set forth in Schedule C; (c) Advertising Services as set forth in Schedule D; (d) Synacor provided Premium Offerings as set forth in Schedule E; (e) Technical Support, Operations Support, Security, Content Management and other components of the Client Branded Services as defined by Service Level Agreements in Schedule G, and (f) Content Management as set forth in Schedule I. Such Services will be provided in accordance with the terms and conditions set forth herein and those set forth in the Addenda, Schedules, and Exhibits attached hereto and incorporated herein, and any other addenda, schedules, exhibits as may subsequently be agreed to and signed by each of the Parties hereto and attached to this Master Agreement from time to time (collectively, the “Supplements” and, together with the Master Agreement, the “Agreement”). Synacor may provide the Services directly to Client, or indirectly using contractors or other third party vendors or service providers, provided that in any event, Synacor shall be responsible for the delivery of the Services to Client in accordance with this Agreement. Each Party shall provide the other with reasonable cooperation, assistance, information and access as may be lawful and necessary to initiate Client’s and its Users’ use of the Services (such as, for example, developing any content, user interfaces or appearance specific to the Services contracted for by Client).

2.2. [*]

2.3. Infrastructure Planning. The Parties agree that Synacor will host, in its data center(s), all of the infrastructure required to provide and support the Services. The Parties agree that improvements to infrastructure will be pursued as set forth in Schedule G to support load balancing and more effective failover resolution. [*] The Parties will work diligently to create technical and process solutions which minimize injecting any risk or negative performance impacts which would require modification of the terms of this Agreement.
    

2.4. Additional Services. Upon mutual agreement of the Parties, Client may engage Synacor to provide development services or other professional services outside the overall scope of this Agreement (“Additional Services”). Such Additional Services shall be provided pursuant to a separately executed Professional Services Addendum and shall be provided as part of the Services. From time to time, Synacor may offer other services to Client that are beyond the scope of this Agreement. All such other services shall be provided upon terms and conditions as the Parties may mutually establish in writing.

2.5. Service Enhancements. As a normal roadmap planning function, Synacor agrees to provide revisions [*] including new features, enhancements or user-interface improvements (“Service Enhancements”) that generally and consistently improve the quality of the Services offered upon launch. Client may request additional or unique change orders for the Services at any time, which requests will be promptly reviewed by Synacor. If the Parties agree to move forward with any such change, the Parties will negotiate a statement of work (“SOW”) related to such change, which may include a mutually agreed upon fee for such services. Ownership of the change shall be determined as indicated in Section 4.2. Additionally, the Parties will meet [*] to review Client response to the Services and to discuss potential roadmap Service Enhancements.


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Except as otherwise agreed by mutual written agreement, the Parties agree that Synacor will create and make available to Client, [*] for additional components and changes, an online Service demonstration; testable interface or other appropriate version [*]

2.6.     [*] that if Client has chosen to implement or have Synacor implement features, functionality or applications that are different than those of Synacor’s other customers, it is Client’s responsibility to ensure that they are of a quality that is satisfactory to Client prior to implementation.

2.7.     [*] Client understands and agrees that Synacor currently has a portal at www.synacor.net which is currently used for client demonstration purposes, but which is a public portal, and that Synacor provides portals to other clients including but not limited to telecommunications companies and MSOs, and neither shall be prohibited under this provision. Synacor may, during the Term, offer a portal similar to the Client Branded Portals directly to consumers and/or business users as a retail offering. [*]
 
2.8.      Content Management . Synacor shall provide an electronic mechanism to provide Client an opportunity to manage and view the Content available to Client on the Consumer Portal and Small Business portal as further set out in Schedule I. Client may request, and to the extent Synacor has the rights to do so from the relevant Content Provider, Synacor agrees to provide, commercially reasonable modifications to any text, images or Synacor Sourced Content displayed on the Client Branded Portals at any time in accordance with the terms of this Agreement, or alternatively at Verizon’s request, Synacor will remove the Synacor Sourced Content in question.

Synacor shall update, replace and refresh the Content on a regular basis depending on the frequency from which updates are received from Content Providers, and Synacor will provide Client a list of the schedule of such updates.  To the extent Synacor has the rights from the Synacor Providers to archive such Provider’s Content, Synacor will maintain such archives.  Synacor will provide Client with a list of its archive rights for the Synacor Sourced Content within [*] after execution of this Agreement. If, based on such list, Client reasonably requires such Content to be archived for longer periods; Synacor will use commercially reasonable efforts to obtain longer archive rights from the relevant Synacor Providers. Additionally, to the extent Synacor manages the display of Client’s service offers on the Client Branded Portals; Synacor will archive such offers for a reasonable, mutually agreed upon period of time.  In the event Client requires such archived Content or offers to be retrieved, Synacor will retrieve any such archived information.  Client may also request Synacor’s assistance in retrieving Synacor provided Advertisements that have been displayed on the Client Branded Portals, and Synacor will work with third parties to attempt to obtain a copy of the requested Advertisement.

If at any time Client does not wish to have particular Content on the Client Branded Portals, Client shall have the right to have it removed by Synacor within the timeframes set forth in Schedule G, including if Client is not comfortable with the archive rights available from the relevant Content Provider. If Client wishes to have Content removed or add additional Content, the Parties will work together to find substitute or additional content.

Synacor agrees that it will provide Client reasonable advance written notice if there is a change in any Synacor Content Provider other than those Synacor Content Providers already in place at the time of the initial implementation. Upon receipt of such notice, Client will determine if those replacement Content Providers meet the Content needs of the Client at its sole discretion. If the Content provided by those replacement Content Providers do not meet the Content needs of the Client, Client may choose not to include such Content on the Client Branded Portal.

2.9.     Implementation Date. The Parties agree to support a rollout project plan that will progress in phases as described in Schedule H.

2.10. Testing, Acceptance of the Services. Synacor shall maintain a suitable test lab environment to support Client’s testing of any changes to the interfaces and/or systems by Synacor and Client prior to and during any implementation periods during the Term. Synacor will ensure that the test lab environment is up and available for Verizon's testing needs during normal business hours. Synacor will provide assistance in resolving any connectivity issues to the test lab within [*] of Client’s request for such resolution. Any such testing shall not contain any User Personal Information or CPNI of any kind. Client and Synacor will schedule testing on a mutually agreed-upon schedule, provided that initial testing must be scheduled to conclude [*] prior to any launch of the Client Branded Portal.


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Absent express, contrary provisions in the Agreement, Client shall have [*] from the date of actual delivery (the “Acceptance Period”) of the Client Branded Portal for testing to accept or reject such deliverable for failure to comply with the applicable project specifications (“Acceptance Test”). The applicable project specifications for the launch of the Version 2.1, and the Consumer Portal Versions 3.0 and 3.5, and the initial launch of the Small Business Portals shall be as set forth in Schedules B-1 and B-2. Project specifications for any subsequent changes shall be set forth in a statement of work or customer product definition document that is mutually agreed to in writing by the Parties. If no notice of acceptance or rejection has been supplied during the Acceptance Period [*] If still no response is provided then absent written rejection after such reminder notification, Client shall be deemed to have accepted the Client Branded Portal, and in any event, if the change is commercially launched with Client’s permission, such launch shall be deemed acceptance. In the event Client rejects the Client Branded Portal, Client shall identify, in detail and in writing, any part of the deliverable which fails to meet the project specification and upon receipt of a notice of rejection, Synacor will use commercially reasonable efforts to correct the identified deficiencies specified in such notice and resubmit the Client Branded Portal to Client. Synacor shall complete and deliver the Client Branded Portal, including any required corrections, no later than [*] after receipt of Client’s notice of rejection for retesting.

If, following retesting, the Service does not meet the project specifications or comply with the Agreement, Synacor shall respond with a documented corrective action plan (“Corrective Action Plan”) established by Client and Synacor jointly. The plan which shall be mutually agreed upon shall address the failure to conform to project specifications, or to comply with the Agreement, with a root cause analysis of the problem, the proposed solution, any process modification to prevent reoccurrence, the time frame for any changes, and the person(s) responsible for Synacor’s implementation of the Corrective Action Plan.

The Corrective Action Plan shall be presented to the Client’s designated representative for concurrence prior to implementation, which concurrence shall not be unreasonably withheld or delayed. Upon completion of the Corrective Action Plan by Synacor, Client may either re-initiate its acceptance procedures and the applicable Acceptance Period shall start anew, or Client may forego further testing and issue a Notice of Acceptance.

Notwithstanding the foregoing, if Synacor fails to successfully launch the initial Client Branded Portals or other mutually agreed major releases after implementation of the Corrective Action Plan [*]

2.11. Technical Support.     Synacor will provide Client with technical support services as described in Schedule G - Service Level Agreement attached hereto. Synacor agrees that it will (a) provide Client with Tier 2 and Tier 3 support as set out in Schedule G and (b) adhere to the technical support standards regarding the functionality, quality, and service levels specified and agreed to between the Parties as set forth in Schedule G.

2.12. Limitations.   Synacor will not be responsible for, nor liable hereunder in connection with, any failure in the Services due to or resulting from: (a) any Client Materials (as defined in Section 3.2) or other content provided by Client or any of its agents; except to the extent that such Client Materials are altered or modified by Synacor or (b) Client’s failure to provide the Client Materials necessary for Synacor to provide the Services hereunder after request by Synacor or as required under the Agreement.
 
2.13. Privacy Policy. The privacy policy to be placed upon the Client Branded Portals shall be Client’s privacy policy as set out at www.verizon.com/privacy as updated from time to time in Client’s sole discretion (“Privacy Policy”). Synacor agrees that it will hold and protect User Personal Information and CPNI in accordance with this Agreement and the Privacy Policy. In the event Client modifies its Privacy Policy, it will provide reasonable prior notice to Synacor of such modifications, and Synacor will implement any changes to its practices related thereto in accordance with a mutually agreed implementation plan.

2.14. Data Collection and Use. 

2.14.1.    [*] Unless otherwise agreed to by Client in advance and in writing, Synacor shall not disclose to third parties or use any [*] User Personal Information or CPNI except as reasonably necessary to perform its obligations under this Agreement or to comply with any legal or regulatory requirement, but in strict compliance with this Agreement. Synacor and Client agree that Synacor may utilize a Verizon-provided, industry-standard user and session cookies, and access the data on such user and session cookies, which may

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include [*] solely to verify that a User has been authenticated and to establish and present a customized Client Branded Portal experience for the User. Synacor may maintain or store data contained in such cookies including but not limited to a non-personally identifiable unique identifier, provided however that Synacor does not store any [*] from such cookies unless expressly approved by Client. For the avoidance of doubt, all data on a session cookie, including [*] is Client Confidential Information. Furthermore, Client acknowledges and agrees that Synacor may also create “Aggregated Data”. “Aggregated Data” means information created using data collected from the Client Branded Portals including but not limited to data that describes the habits, usage patterns or the demographics of Client’s Users as a group, but does not indicate the identity of any particular User in any manner that would enable Synacor or the receiving Party of Aggregated Data to personally identify any individual User. In no event will Aggregated Data contain personally identifiable information or data that could be decomposed or combined with other data to identify Client as the source of the information or as a customer of Synacor or the identity of the person or entity providing such information or data. The Aggregated Data will not contain Confidential Information as defined in Section 5 herein. The use and disclosure of Aggregated Data shall be in accordance with each Party’s published privacy policy and applicable laws, rules and regulations, and with this Agreement. Synacor may provide Aggregated Data to Synacor Providers, Synacor investors and other Synacor clients, but Synacor shall not identify Client as the source of the underlying data used to create such Aggregated Data. [*]

2.14.2. Synacor may use cookies and other similar technologies to analyze and measure user activity, including for the purpose of targeting Advertisements to Users. Such Cookies or technologies, or use thereof, utilizes non-personally identifiable information about Users, and shall comply with all applicable federal, state, local or municipal laws or regulations. [*] Users should be able to opt-out of receiving cookies from third party advertising networks at the Network Advertising Initiatives cookie opt-out page or by visiting the NAI site at http://www.networkadvertising.org/managing/opt_out.asp.

2.14.3. The Parties acknowledge and agree that Synacor cannot place any Advertisements on the Client Branded Portals that are delivered via OBA until Client has provided written approval of the methodologies that the Parties will employ (a) to ensure that AdChoices icons or links appear in appropriate places on all pages with Advertisements served via OBA; and (b) to develop and maintain AdChoices Landing Pages that will inform Users about the Advertisements served via OBA and about the Users' options for managing their choices related to OBA, including the ability to opt out of participating in OBA programs.

2.15. [*]

2.16. [*]

2.17. Client Management. Synacor will designate a team of its staff to manage the Client relationship. This team will handle all day to day aspects involving the Services provided to Client. This will include, for example purposes only, and not as a limitation, revenue management, content management, and advertising management. Client will be provided with the necessary contact information of those assigned to its account by Synacor.

3. CLIENT RESPONSIBILITIES

3.1. Client Support; Synacor Status. Client acknowledges that the continuing performance of certain Services may depend on its provision of cooperation, assistance, information and access to Synacor. If Client fails to timely provide any of the foregoing and it can be shown that failure is a direct cause of a delay, then Synacor will not be liable for any corresponding delay in its performance. The Parties will communicate with each other regularly to identify any instances which may cause a delay. The Parties’ designated contacts are responsible for facilitating communication between Synacor and Client regarding all technical and business matters.

3.2. Materials and Equipment.   Client will provide (on its own behalf, or on behalf of its sponsors or advertisers) certain materials, domain names, Client Sourced Content, and other information (collectively, “Client Materials”) to Synacor as necessary to perform the Services. Client shall obtain, operate and maintain in good working order all equipment and ancillary services needed for Users to connect to, access or otherwise use the Services via the Internet, including without limitation, modems, servers, hardware, software, network and communication services (“Equipment”). Client shall maintain

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the integrity and security of its Equipment (physical, electronic and otherwise), account passwords, Client Materials and other data.

3.3. Provision of Test Accounts. As conforms to Client’s systemic ability, Client agrees to supply test accounts that Synacor may use to test (in test and production environments) all Synacor software releases. The number of test accounts provided and the specific attributes of these accounts will be mutually agreed and based on the overall functionality that must be tested. These accounts will be maintained by Client throughout the Term for the testing of regular software releases and monitoring of the product functionality in the live environment. As account profiles change and functionality is added, Client will provide additional test accounts or modify existing test accounts as requested by Synacor. Client understands and agrees that without the test accounts Synacor is not able to properly test the software and Client's specific implementation thereof. Synacor agrees that any shared production test accounts such as but not limited to Professional Networking Moderator accounts will not contain User Personal Information or CPNI.

3.4. Implementation Support. The Parties agree that for Version 2.1 Phase 1, implementation plans will be jointly developed and generally agreed not later than [*] after the Effective Date for the Consumer Portal and Small Business Portal for each of the following areas: Search; Advertising; Consumer News and Entertainment Content, SSO, and Test Planning. Further, for each of the other versions identified in Schedule B-1, Schedule B-2 and Schedule H, the Parties agree that implementation plans will be jointly developed [*]

3.5. Client Efforts. Unless otherwise agreed by the Parties, Client agrees to [*] comply with the following [*] practices throughout the Term of the Agreement beginning upon launch of the Client Branded Portal (for those practices related to the Client Branded Portal), and upon launch of the Small Business Portal, Phase 2, for those practices related to the Small Business Portal:

i)
[*]

ii)
[*]

iii)
Client will establish a link to the Client Branded Portal from the Client commercial site, currently Verizon.com.

iv)
Client will establish the Client Branded Portal as [*] path to Verizon’s branded web mail, currently Verizon.net.

v)
The Consumer Portal and the Small Business Portal shall be the only Verizon portals or starting points from which Client’s new Subscribers can access content and services similar to or competitive to those provided by Synacor.

vi)
Client will prompt the Subscriber to download a Client branded toolbar as part of Client’s service installation process, so long as Client is offering a Client branded toolbar;

vii)
Client will establish a link to the Small Business Portal from the Client commercial site, currently Verizon.com; and

viii)
Client will set the Small Business Portal as a path to Verizon’s business Subscribers’ Web mail by including access to web mail in the Services so long as the Small Business Portal is in service, and in the top-level navigation area throughout the Small Business Portal;
 
3.6. Potential Marketing Activities . Synacor and Client will work together on developing mutually agreeable marketing programs, projects and communications to promote the Client Branded Portals. Examples of potential marketing of the Client Branded Portals may include, for example purposes only and not as binding obligations, the following list of activities:

i)
Synacor and Verizon may utilize their available tools to promote the Client Branded Portal, including via their web sites, browser favorites, gadgets or widgets, Verizon’s messaging solutions, Verizon’s VAS services, Verizon’s independent toolbar and / or other Verizon assets / services.

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i)
Client may include account management functions for Subscriber accounts that can be launched from and/or performed through the Client Branded Portal(s). For clarity, these account management functions will be solely determined by Client; may exclude any such account management functions which are elsewhere provisioned at the time of the signing of this Agreement, and may not prohibit Client from accessing such account management functions from Client hosted locations.

3.7. Designated Residential Start Page . Client agrees that Client shall not offer its residential Subscribers another general interest portal or page that competes with the Client Branded Portals to be set as their start page or home page during Client’s HSI or FiOS data installation process during the Term. Synacor acknowledges and agrees that Subscribers are free to set their own start page or home page at any time, irrespective of what start page or home page Client provides during Client’s HSI or FiOS data installation process.

3.8. Designated Business Start Page . Client agrees that Client shall not offer its mass market business Subscribers another general interest portal or page that competes with the Small Business Portal to be set as their start page or home page during Client’s HSI or FiOS data installation process during the Term. Synacor understands and agrees that there may be another start page for Client’s mid to large business customers. Synacor acknowledges and agrees that Subscribers are free to set their own start page or home page at any time, irrespective of what start page or home page Client provides during Client’s HSI or FiOS data installation process.


4. LICENSE; INTELLECTUAL PROPERTY.

4.1. Client License Grant.    During the term of the Agreement, Client hereby grants to Synacor a limited, nonexclusive, non-transferable and royalty-free right and license to use, reproduce, modify, distribute, perform and display the Client Materials and Client’s trade names, trademarks, service marks, and domain names as defined in Schedule K (collectively, the “Client Marks”) solely in connection with the Services as contemplated by this Agreement, subject to Client’s Trademark License attached hereto as Schedule K. Except for the limited rights and licenses expressly granted herein, Client and its Affiliates shall retain all right, title and interest in and to the Client Materials, Client Marks and Equipment, including any intellectual property rights or other proprietary rights therein and thereto. Synacor agrees that it shall not, and it shall ensure that Synacor Providers do not, use, display or modify Client’s trademarks for use under this Agreement in any manner without the prior written consent of Client.

4.2. Ownership.   

(a) Except for the limited rights and licenses expressly granted herein, and except to the extent Client Materials, Client provided components, or Client’s equipment is included in the Services, Synacor shall retain all right, title and interest in and to (i) the Synacor Sourced Content, (ii) Synacor’s logos, product and service names, trademarks, service marks, and domain names (collectively, the “Synacor Marks”); (iii) the software owned or licensed by Synacor and used in connection with the Services (collectively, the “Software”); (iv) all other materials (including any hardware), information, ideas, inventions, know-how, methods, processes, templates, tools, frameworks, works of authorship, trade secrets and technologies that are owned or licensed by Synacor and that may be used in the performance of the Services; and (v) all intellectual property rights or other proprietary rights in and to any of the foregoing (all of the foregoing being referred to as “Synacor Property”). For clarity, in the event Client’s Materials, components or equipment are included in the Synacor Property, Client shall retain ownership of such Materials, components and equipment, and Synacor shall retain ownership to all other aspects of the Synacor Property. Unless specifically agreed to the contrary in a written, fully signed SOW, all Services including deliverables provided hereunder shall be owned by Synacor. Except as specifically set forth herein, all Software, hardware and other technology used by Synacor and owned or licensed by Synacor to provide the Services will be installed, accessed and maintained only by or for Synacor and no license therein is granted to Client.

(b) All licenses, rights, title, interest and intellectual property rights of any kind in and to the Content are entirely owned by and reserved to the applicable Content Provider and may be used by the Content Provider in such manner as the Content Provider may choose. Without limiting the foregoing, each Party hereby assigns to the applicable Content Provider all right, title and interest in the Content provided by the Content Provider, together with the goodwill attaching thereto, that may inure to such Party in connection with this Agreement or from such Party’s use of the Content hereunder. Each

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Party agrees that it will not and will not assist any third party to register or attempt to register any trademark, trade name or other intellectual property right related to any Content or any derivation or adaptation thereof or any work, symbol, design or mark which is so similar thereto as to suggest a relationship with any Content Provider or affiliate of a Content Provider. Each Party agrees that it will not, nor will it assist any third party to, challenge the validity or ownership of any patent, copyright, trademark, or other intellectual property registration of any Content. If a Party breaches any provision of this section, such Party agrees that it will, at its expense, immediately terminate the unauthorized activity and promptly execute and deliver to the other Party or a Content Provider, as requested, such assignments and other documents as required to transfer to the Content Provider all rights to the registrations, patents or applications involved.

4.3. Synacor Marks. Client is not granted any right to use the Synacor Marks under this Agreement. Should Client and Synacor subsequently desire that Client be granted the right to use the Synacor Marks during the Term, any use thereof will be subject to a separate written agreement between the Parties or an amendment to this Agreement.

4.4. Restrictions.   Except as specifically permitted in this Agreement, Client shall not directly: (a) use any of Synacor’s Proprietary Information (as such term is defined in Section 5.1) to create any software that is similar to any of the Software used under this Agreement; (b) decompile, disassemble, reverse engineer or use any similar means to attempt to discover the source code of the Software, or the Services, or the trade secrets therein, or otherwise circumvent any technological measure that controls access to the Software or Services; (c) encumber, transfer, rent, lease, or time-share the Software or Services (except with other entities which are Controlled by, under common Control with or Controlling Client, subject to Synacor’s prior written consent), or use them in any service bureau arrangement or otherwise for the benefit of any third party; (d) access, copy, distribute, manufacture, adapt, create derivative works of or otherwise modify any Software or Services; (e) remove any proprietary notices; or (f) knowingly permit any third party associated with the Client to engage in any of the acts proscribed in clauses (a) through (e) above.

5. CONFIDENTIALITY.

5.1 Proprietary Information.   Each Party (the “Receiving Party”) understands that the other Party (the “Disclosing Party”) or its representatives has disclosed or may disclose information relating to the finances, business, marketing plans, clients, operations, technology or software of the Disclosing Party. “Proprietary Information” means any of the foregoing information (including all originals, copies, notes, analyses, digests and summaries) which is either (a) disclosed in writing and marked as confidential at the time of disclosure or (b) disclosed in any manner such that a reasonable person would understand the nature and confidentiality of the information. Proprietary Information shall not include any information that the Receiving Party can demonstrate by its written records (i) is or becomes generally available to the public without breach of this Agreement, (ii) was in its possession or known by it prior to receipt from the Disclosing Party, (iii) was rightfully disclosed to it by a third party not under an obligation of confidentiality, or (iv) was independently developed without reference to or use of any Proprietary Information of the Disclosing Party. For purposes of this Agreement, User Personal Information and User Account Information is Client Proprietary Information.

5.2. Non-Disclosure.   The Receiving Party shall keep all Proprietary Information strictly confidential and shall not disclose such Proprietary Information to any third party except to its directors, officers, employees, independent contractors and subcontractors who have a need to know such information and who are bound by similar obligations of confidentiality. The Receiving Party shall not use the Proprietary Information of the Disclosing Party except to the extent necessary to perform its obligations under this Agreement. The Receiving Party shall use a commercially reasonable degree of care to protect the Proprietary Information. Each Party shall bear the responsibility for any breach of confidentiality by its employees and contractors.

5.3. Terms of this Agreement . The terms and conditions of this Agreement will be deemed to be the Confidential Information of each Party and may not be disclosed without the consent of the other Party; provided that each Party may: (a) provide a copy of this Agreement or generally describe this Agreement to any third party with which such Party is having bona fide merger or acquisition discussions or with whom such Party combines by merger, acquisition or otherwise under obligations of confidentiality at least as stringent as the confidentiality terms of this Agreement; (b) disclose this Agreement to its directors, officers, and legal and financial advisors, under obligations of confidentiality for such legal and financial advisors at least as stringent as the confidentiality terms of this Agreement; (c) disclose this Agreement to its Affiliates and the Affiliates’ directors, officers and legal and

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financial advisors with a “need to know” such information, under obligations of confidentiality for such Affiliates, and Affiliates’ directors, officers and legal and financial advisors at least as stringent as the confidentiality terms of this Agreement; or (d) summarize this Agreement in a prospectus or registration statement filed by such Party with any state or federal securities regulatory authority; provided, however, that the filing Party shall provide a copy of such summary to the other Party for prompt review and approval prior to filing. In the event the Receiving Party is required by applicable law or by the terms of any listing agreement to file this Agreement with any governmental agency or in any other public forum, the Receiving Party shall use commercially reasonable efforts to redact from such filing the economic terms contained in this Agreement and such other terms as the Disclosing Party may reasonably request.

5.4. Required Disclosure .  Nothing herein shall prevent a Receiving Party from disclosing the Disclosing Party’s Proprietary Information as necessary pursuant to the lawful requirement of a governmental agency or when disclosure is required by operation of law or by court order; provided , that prior to any such disclosure, the Receiving Party shall (a) promptly notify the Disclosing Party in writing of such requirement to disclose; (b) cooperate fully with the Disclosing Party (at the Disclosing Party’s expense) in protecting against any such disclosure or obtaining a protective order; (c) the Receiving Party discloses only that portion of Proprietary Information that is advised in writing by counsel it is required to disclose; and (d) the Receiving Party uses reasonable efforts to obtain safeguards that confidential treatment reasonably acceptable to the Disclosing Party will be accorded to such Proprietary Information.

5.5. [*] Any contact with Users in any event, shall be done in compliance with this Agreement and upon the prior approval of Client, except that Client hereby approves all contact with Users necessary to provide technical support for issues escalated from Client.

5.6. Return of Proprietary Information . All Proprietary Information shall remain the property of the Disclosing Party and the original and all copies thereof, on whatever physical, electronic or other media such Information may be stored, shall be returned or destroyed (at the Disclosing Party’s option) within ten business days of the Disclosing Party’s request or the termination or expiration of this Agreement.

5.7. Relief.   Each Party agrees that any breach of the obligations in this Section 5 will cause irreparable harm to the Disclosing Party for which Money damages will not be an adequate remedy. Therefore, the Disclosing Party shall, in addition to any other legal or equitable remedies, be entitled to seek an injunction or similar equitable relief against such breach or threatened breach of this Section 5 without the necessity of posting any bond.

6. REVENUE SHARE, REVENUE ASSURANCE, PAYMENT TERMS AND TAXES.

6.1. Revenue Share .  Client and Synacor shall share revenues and fees as set forth in Schedule A. With regard to revenue shares, each Party shall pay to the other Party the revenue shares earned on a calendar month basis within [*] from the last day of the month in which the revenues are earned. Any other fees due from Client to Synacor shall be due net [*] from receipt of invoice. Any dispute regarding a payment hereunder must be submitted to the appropriate Party in writing within [*] following receipt of the reporting associated with such inaccuracy. Each Party will make commercially reasonable efforts to resolve inaccuracies promptly ([*] of notice) and accurately. If the Parties are unable to resolve any such disputes [*] of notice of the dispute, the dispute will be referred to the Joint Steering Committee for resolution. All payments shall be made in full in United States dollars, at the appropriate Party’s usual business address or to an account designated by such Party.

6.2. Revenue Assurance. [*] Synacor will make available to Client and the Revenue Assurance Group the following data for the Consumer and Small Business Portals and a combination of the Consumer and Small Business Portals: (i) aggregate number of users unique visitors, page views, average revenues on Advertisements, (ii) any applicable refunds or other adjustments applied for the applicable period; (iii) the Revenue Share Percentage applied (as set forth in Schedule A); (iv) the amount of Fees earned by Client for such period; and (v) such other data sufficient for Client to have all relevant transaction activity and data and information relevant to Synacor’s calculations, to the extent mutually agreed upon by the Parties. If any of the above-referenced data is not available through the Online Reporting System, Synacor shall provide such information to Client in a separate written (including email) monthly report.

6.3. Online Reporting System. Synacor will provide Client access to its online reporting system (the “Online Reporting System”), on which Client may view reporting Synacor generally makes available to its other clients including, without

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limitation, search revenue estimates, high-level site traffic metrics, and other custom metrics upon request. The information is available in a manner that allows Client to segment it by date, and by site (e.g., the Consumer Portal and its various components vs. Small Business Portal and its various components). Synacor will use reasonable commercial efforts to make this Online Reporting System available to Client [*], excluding scheduled maintenance and causes beyond Synacor’s control (such as Internet outages).

6.4.      Reporting by Synacor. As soon as reasonably practicable, but not more than [*] following the last day of each calendar month, Synacor shall provide Verizon, in electronic format, a detailed report for search and display Advertisement activity and related metrics as described in Schedule M and Section 12 below. This report will include at minimum the following information: Search Queries, Portal Page Views and Gross Revenue on all relevant sites referenced in Schedule B. Synacor will provide detailed documentation describing bandwidth costs related to this Agreement each month. The reporting provided by Synacor to Verizon shall be used solely for the purposes of calculating payments under this Agreement and to evaluate the performance of this Agreement.

6.5. Taxes and Costs. For the avoidance of doubt, all fees are in United States dollars and do not include sales, use, value-added or import taxes, customs duties or similar taxes that my be assessed by any jurisdiction. Client shall not be liable for tax payments with respect to this Agreement or Services provided under it, except for state and local sales and use taxes, as applicable to Client. Client shall not be liable for sales, use or other taxes applicable to Synacor. Synacor agrees that it shall be Synacor’s responsibility to withhold all federal, state, or local income taxes, social security taxes, unemployment and other payroll taxes required by law to be withheld from the compensation of its employees or contractors performing work hereunder. Each Party is responsible for all costs associated with the setup, maintenance and other performance obligations of such Party under this Agreement.

7. TERM AND TERMINATION .

7.1. Term.   This Agreement shall commence as of the Effective Date and shall continue thereafter in full force and effect for a period of three (3) years from the launch of Version 3.5 of the Client Branded Portal (“Initial Term”). Thereafter, the Agreement shall automatically renew for up to two (2) terms of two years each (each a “Renewal Term”), and together with the Initial Term, the “Term”), provided however that either Party may prevent an automatic renewal by providing the other Party with at least six (6) months prior written notice of non-renewal.

7.2. Termination for Cause.   In addition to any of its other remedies, either Party may terminate this Agreement: (a) in the event that the other Party materially breaches any provision of the Agreement and the breaching Party fails to cure such breach within thirty (30) days after receiving written notice of such breach from the non-breaching Party; or (b) immediately upon written notice to the other Party in the event any assignment is made by the other Party for the benefit of creditors, or if a receiver, trustee in bankruptcy or similar officer shall be appointed to take charge of any or all of such other Party’s property or if a voluntary or involuntary petition under federal bankruptcy laws or similar state statutes is filed against the other Party, or if it dissolves or fails to operate in the ordinary course.

7.3. [*]

7.4. Client Termination. Client may terminate this Agreement or any part of the Services provided by Synacor upon thirty (30) days written notice if any of the following events occur: (i) Chronic failure as set forth in Schedule G; (ii) Synacor is acquired by or otherwise comes under Control of any Verizon Competitor, as described in Section 18(a), or (iii) revenue payments are not received from Synacor for any three (3) months during a rolling six-month period.

7.5. Effects of Termination.   Upon any expiration or termination of this Agreement, all rights and obligations of the Parties shall cease, except that: (a) all obligations that accrued prior to the effective date of termination or during the wind-down period described below (including without limitation, all payment obligations) shall survive termination; (b) each Party shall destroy or return to the other Party all of the other Party’s Proprietary Information in its possession or under its control; and (c) Synacor shall, after providing Client with an electronic copy of such information and data in a mutually agreeable format, delete archived account information and other transaction data. The provisions of Sections 4.2 (Ownership), 4.4 (Restrictions), 5 (Confidentiality), 6 (Synacor Revenue Share and Taxes), 8 (Representations and Warranties; Indemnities), 9 (Limitations of Liability), 10 (Open APIs and RSS Feeds), 13 (General Provisions) and this Section 7 shall survive any termination or expiration of this Agreement.

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7.6. Wind-Down. In the event of any expiration or termination of the Agreement or any part of the Services for any reason, the Parties mutually agree as follows:

(a)    [*]

(b.)     [*]

(c.)    [*]

(d.)    [*]

(e.)     [*]

(f.)     [*]
7.7. Escrow.

(a) Maintenance of Escrow Agreement . At Client’s option and at Synacor’s expense, within [*] after the Effective Date, Synacor shall add Verizon as a beneficiary to its existing Escrow Agreement between Synacor and Iron Mountain (“ the Escrow Agent”) a copy of which is contained in Exhibit N, for the term of the Agreement to secure Client’s rights hereunder (the “Escrow Agreement”). The Escrow Agreement shall be an agreement separate from, but supplemental to, this Agreement. Such Escrow Agreement shall be established and maintained for the benefit of Client, Synacor will notify Client [*] before terminating any agreement with the Escrow Agent named above. Synacor agrees to immediately enter into a similar agreement with another escrow agent, acceptable to Client; such acceptance will not be unreasonably withheld. Failure to enter into such Escrow Agreement shall be deemed to be a material breach by Synacor for which Client shall be entitled to terminate this Agreement pursuant to Section 7.2.

(b) Escrow Deposits. Upon adding Client as a beneficiary to the Escrow Agreement, Synacor shall deposit copies of the then-current Escrow Materials with the Escrow Agent, subject to the terms and conditions of the Escrow Agreement, which deposit shall be promptly and routinely supplemented by Synacor and otherwise kept current so as to accurately reflect the source code for the then current version of the software utilized to provide the Client Branded Portals (including releases or updates provided to Client hereunder as well as any other material upgrade or modification of or enhancement thereto), and the same shall be part of the Escrow Materials. Synacor shall designate a mutually acceptable neutral third party who, at the expense and request of Verizon made from time to time shall audit the materials deposited with the Escrow Agent for purposes of determining whether Synacor has fulfilled its deposit obligations.

(c) Escrow Release Events . Occurrence of any of the following triggering events, each an “Escrow Release Event”, will permit Client to obtain the Escrow Materials held in Escrow and Client shall have the right to use such source code solely in accordance with the purposes and rights set forth in this Agreement.
i.
[*]

ii.
Synacor files a voluntary petition in bankruptcy; or

iii.
Synacor is adjudged bankrupt; or

iv.
a court assumes jurisdiction of the assets of Synacor under a federal reorganization act; or

v.
a trustee or receiver is appointed by a court for all or a substantial portion of the assets of the Synacor; or

vi.
Synacor becomes insolvent or suspends its business; or

vii.
Synacor makes an assignment of its assets for the benefit of its creditors except as required in the ordinary course of business.


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(d) License to Use Escrow Materials . Upon release of the Escrow Materials, Client shall have a license to use such Escrow Materials to maintain the Client Branded Portals until such time as Client migrates to a replacement service. Release of the Escrow Materials does not convey ownership thereof.

8. REPRESENTATIONS AND WARRANTIES; INDEMNITIES.

8.1. Synacor Representations and Warranties. Synacor represents and warrants to Client that now and during the Term, (a) it has all rights necessary to enter into and perform this Agreement and to grant the limited rights and licenses granted herein including, without limitation, all necessary rights in the Services, the Synacor Sourced Content and [*], and that Synacor’s performance under this Agreement and its provision of the Services including, without limitation, the Synacor Sourced Content and Advertisements will not infringe any third party rights, including but not limited to any third party intellectual property rights, copyrights (including, without limitation, music synchronization and performance rights and dramatic and non-dramatic music rights), trademark rights, patent rights or rights of privacy or publicity of any third party (collectively, “Intellectual Property Rights”); (b) Synacor has and will have licenses or other legal rights sufficient to perform its obligations under this Agreement from the Synacor Providers of the Synacor Sourced Content, from the Search Services Providers; and from providers of Advertisements that are live, displayed or otherwise on the Client Branded Portals; (c) Synacor will use commercially reasonable efforts to ensure that Synacor Sourced Content does not violate any applicable law, including but not limited to such item being libelous, slanderous, obscene, defamatory or indecent, misleading, inaccurately described; (d) Synacor will use efforts commensurate with industry standards to (i) screen its proprietary software against viruses, worms, spyware and adware (“Malicious Agents”), promptly notify Client and remove any such Malicious Agents of which it becomes aware as soon as practicable, and (ii) not knowingly install or knowingly cause to be installed on any User’s computer or operating system any spyware, adware or other software, code or routines that interfere with, alter or modify a user’s computer or software or which monitors, records or transmits user information (including without limitation credit card or password data), key strokes, URL visits or Internet use, without a user’s knowledge and consent; (e) in its allowed collection of User Personal Information, User Account Information and any CPNI pursuant to the implementation and provision of Services under this Agreement, Synacor will at all times, take reasonable steps to ensure the security of the User Personal Information, User Account Information and any CPNI, including protecting it from intrusion (electronic or physical) by or disclosure of such information to unauthorized third parties, and to remain in compliance with the provisions of this Agreement pertaining to User Personal Information, User Account Information and CPNI and all applicable federal and state laws, rules and regulations related to the security and storage of such information; (f) it will ensure the Direct Advertisements placed on the Client Branded Portal meet the guidelines attached hereto and made a part hereof in Attachment A, Attachment B and Attachment C to Schedule D; (g) it will use commercially reasonable efforts to ensure the non Direct Advertisements placed on the Client Branded Portal meet the guidelines attached hereto and made a part hereof in Attachment A, Attachment B and Attachment C to Schedule D; (h) the Services provided by Synacor under this Agreement shall be provided in accordance with applicable laws and regulations including but not limited to laws and regulations applicable to its provision or use of the Services including, without limitation, OFAC regulations, export laws, anti-bribery laws, and all laws and regulations applicable to User Personal Information and CPNI, privacy, data security, unsolicited electronic mail and spyware or other harmful code or routines; (i) the Services will be provided by qualified personnel; and (j) Synacor shall not send or authorize the sending of unsolicited, bulk commercial email or other online communication to Client Users in violation of applicable anti-spam laws or Client policies communicated in advance to Synacor, and it shall use commercially reasonable efforts to ensure that its Advertisers are not obtaining Client User’s email address or Personal Information from Synacor or from cookies placed on the Client Branded Portal.

EXCEPT AS EXPRESSLY PROVIDED HEREIN, SYNACOR MAKES NO WARRANTIES OF ANY KIND AND EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT, ACCURACY, ADEQUACY OR COMPLETENESS OF THE SERVICES OR ANY WARRANTIES RELATED TO THE CONTENT PROVIDED TO CLIENT OR THE RESULTS TO BE OBTAINED FROM THEIR USE. SYNACOR DOES NOT WARRANT THAT THE SERVICES WILL MEET THE REQUIREMENTS OF CLIENT OR THOSE OF ANY THIRD PARTY AND, IN PARTICULAR, SYNACOR DOES NOT WARRANT THAT THE SYSTEM WILL BE ERROR FREE OR WILL OPERATE WITHOUT INTERRUPTION.

8.2. Client Representations and Warranties [*] EXCEPT AS EXPRESSLY PROVIDED HEREIN, CLIENT MAKES NO WARRANTIES OF ANY KIND AND EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR

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IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.
    
8.3. Synacor Indemnifications. Synacor shall indemnify, defend and hold Client, its Affiliates and each of their respective officers, directors, employees, representatives, licensors and agents (collectively the “Client Parties”) harmless from and against any and all third party claims, allegations, suits, actions, investigations, judgments, deficiencies, settlements, inquiries, demands or other proceedings of whatever nature or kind, whether formal or informal (collectively “Claims”) brought against any of the Client Parties and against any and all costs, damages, liabilities, charges, losses, fees and expenses including reasonable attorney’s fees (collectively “Liabilities”) incurred by Client related to Claims arising from (a) Synacor’s breach of any of its representations and warranties set forth herein; (b) any claim that the Services or the Synacor Sourced Content infringe the Intellectual Property Rights of any third party; and (c) any claim for libel, defamation, violation of right of privacy or publicity, copyright infringement, trademark infringement or other infringement of any third-party right, fraud, false advertising, misrepresentation, product liability or violation of any law, statute, ordinance, rule or regulation throughout the world in connection with the Advertisements sourced directly or indirectly by Synacor or the Synacor Sourced Content (unless such Advertisement or Synacor Sourced Content has been modified by Client without the written consent of the Advertiser, Content Provider, or Synacor). Synacor agrees that it may not, without Client’s prior written consent, enter into any settlement or compromise of any claim that results in any admission of liability or wrongdoing on the part of Client or its Affiliates, which consent shall not be unreasonably withheld or delayed.

8.4. Client Indemnifications [*]

8.5. Claims. In case any Claim is brought by a third party for which a Party (the “Indemnifying Party”) is required to indemnify the other Party (the “Indemnified Party”) pursuant to this Section 8, the Indemnified Party shall provide prompt written notice thereof to the Indemnifying Party (provided, however, that any failure or delay in notice shall not excuse the Indemnified Party of its obligations hereunder) of such Claim, and the Indemnifying Party shall assume the defense of such Claim. The Parties shall cooperate reasonably with each other in the defense of any Claim, including making available (under seal if desired, and if allowed) all records reasonably necessary to the defense of such Claim, and the Indemnified Party shall have the right to participate in the defense of such Claim with counsel of its own choosing at its own expense. The Indemnifying Party shall not enter into any settlement of any Claim without the prior written consent of the Indemnified Party (such consent not to be unreasonably withheld) if Indemnified Party’s rights would be directly and materially impaired thereby, of if such settlement results in any admission of liability or wrongdoing. Without limiting the foregoing, in the event of any Claim or threatened Claim of infringement involving a portion of any Software and/or Services provided by Synacor, Synacor may (at Synacor’s option) (i) procure the right or license for Client to continue to use and otherwise exploit in accordance with the terms hereof such portion of the Software and/or Services on commercially reasonable license terms; or (ii) modify or alter (to the extent that Synacor has rights to so modify or alter), or delete any such portion of the Software and/or Services, as the case may be, so as to make such portion non-infringing while maintaining substantially comparable functionalities and capabilities of such parts of the Software and/or Services that are material to Client’s then-current or demonstrably anticipated use hereunder. If options (i) and (ii) are not commercially reasonable, either Synacor or Verizon may terminate this Agreement or the rights and licenses granted hereunder.

9. LIMITATIONS OF LIABILITY.

9.1 Limitation on Indirect Liability . EXCEPT AS SET FORTH IN SECTION 9.3, NEITHER PARTY MAY BE HELD LIABLE UNDER THIS AGREEMENT FOR ANY DAMAGES OTHER THAN DIRECT DAMAGES,  EVEN IF THE PARTY IS AWARE OR SHOULD KNOW THAT SUCH DAMAGES ARE POSSIBLE AND EVEN IF DIRECT DAMAGES DO NOT SATISFY A REMEDY.

9.2 Limitation on Amount of Liability .   IN NO EVENT SHALL THE TOTAL CUMULATIVE LIABILITY (A) OF SYNACOR AND ITS AFFILIATES TO CLIENT AND ITS AFFILIATES, OR (B) OF CLIENT AND ITS AFFILIATES TO SYNACOR AND ITS AFFILIATES, UNDER THIS AGREEMENT FOR ANY REASON FROM ALL CAUSES OF ACTION OF ANY KIND, EXCEED US [*] Each Party’s payment obligations to the other Party are not subject to this Section 9.2

9.3.
Exceptions to Limitations .

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(a) As to Synacor, these limitations do not apply to breaches of confidentiality obligations, or Indemnification obligations.
(b) As to Client, these limitations do not apply to Indemnification obligations


10. OPEN APIs AND RSS FEEDS.

From time to time, Synacor may offer Client the ability to include certain functionality on the Client Branded Portal that Synacor has integrated via publicly available open APIs, RSS feeds, or similar technology. The providers of open APIs and RSS feeds often (i) do not include product representations, warranties or indemnifications in their terms of use, (ii) make no commitment that the functionality will continue to be available, and (iii) disclaim liability associated with such products. Notwithstanding the above, Synacor shall use commercially reasonable efforts to ensure that any publicly available open APIs, RSS feeds, or similar technology shall meet the level and quality as required by Verizon. If Verizon chooses to include functionality on the Client Branded Portal that Synacor has integrated via publicly available open APIs, RSS feeds, or similar technology and for any reason the open APIs or RSS Feeds do not meet such level and quality, or if they otherwise violate any third party rights, notwithstanding anything herein to the contrary, as Verizon’s sole remedy, Verizon may, if practical, immediately remove (or request that Synacor immediately remove) such publicly available open APIs, RSS feeds, or similar technology from being accessible to Users.

11. PUBLICITY. Except as it relates to Client’s marketing of the Client Branded Portals and related matters, neither Party will issue any press release or make any public announcements, nor otherwise disclose any information concerning this Agreement without the prior written consent of the other.

12. RECORDS AND AUDIT.

12.1. Audit.

(a) Each Party shall have the right to audit the books and records of the other Party solely relating to this Agreement upon reasonable notice and at its’ expense, not more frequently than annually during the Term of the Agreement and for a period of [*] thereafter and to take extracts from and/or make copies of such records. Each Party shall maintain during the Term and for a period of [*] thereafter all books, records, accounts, and technical materials regarding its activities in connection herewith sufficient to determine and confirm all amounts payable to the other Party and all compliance with all other material obligations hereunder. Upon a Party’s request and with reasonable notice, the other Party will permit one or more representatives of an auditor or agent of the requesting Party’s choice to examine and audit, during normal business hours, such books, records, accounts, documentation and materials, and take extracts therefrom or make copies thereof for the purpose of verifying the correctness of payments made pursuant hereto and/or compliance with the other material obligations hereunder. Unless otherwise agreed by the Parties in writing, such examination shall be in material accordance with generally accepted accounting principles. The audited Party shall pay any unpaid delinquent amounts within ten days of the other Party’s request. To the extent such examination discloses an underpayment greater than [*], the audited Party shall fully reimburse the other Party, promptly upon demand, for the reasonable fees and disbursements due the auditor for such audit; provided that such prompt payment shall not be in lieu of any other remedies or rights available to such other Party hereunder. In all other events, all fees and expenses of the auditing Party’s auditor or agent under this Section shall be paid by the auditing Party. If an audit reveals an overpayment, the auditing Party shall promptly notify the other Party and shall pay the amount of any such overpayment to the other Party within [*] thereafter.

(b) If any report of an audit under the provisions of subsection (a) of this Section discloses to the auditing Party any underpayments or overpayments, a copy of such audit report shall be promptly delivered to the audited Party. Unless the amount of any underpayment or overpayment shown on such report is disputed by the audited Party, in writing (a “Notice of Dispute”), within [*] after receipt of the audit report, the audit report shall be deemed accepted and all amounts due thereunder shall be paid pursuant to subsection 11(a). In the event that Client and Synacor have not resolved all disputed items to their mutual satisfaction within [*] after a Notice of Dispute has been received by the auditing Party, they shall promptly submit such audit report and all supporting work papers to an independent accounting firm of national stature in the United States selected by mutual agreement of Client and Synacor for binding review of any disputed items. All costs and expenses of such review shall be apportioned between the Parties on the basis of each Party bearing the expense of that

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portion of the review which shall be related to disputed items that are resolved against such Party. If Client and Synacor are unable to agree upon the selection of an independent accounting firm of national stature in the United States to perform the binding review of any disputed items, the determination and selection of the independent accounting firm of national stature shall be settled by arbitration in New York, New York in accordance with the rules and regulations of the American Arbitration Association.

(c.) In no case will information shared under this Section include confidential information of third parties including, without limitation, Personal Information relating to Verizon’s customers or highly sensitive information of Verizon including, without limitation, classified, restricted, or legally privileged information.



13.     Background Checks.
 
13.1.
For each of the employees that Synacor wishes to assign to perform Services for Client, Synacor shall certify to Client that it has used commercially reasonable efforts to conduct, or use an agency to conduct, on a pre-employment basis, criminal history checking, and verification of education, employment history, Social Security Number and legal right to work, as described herein (collectively referred to as “background checking”). For purposes of this Section, “employee” shall include Synacor’s employees only. Background Checking, at a minimum, shall include the following:

13.1.1    A criminal history check consisting of upper and lower County criminal searches for felony and misdemeanor criminal convictions. The foregoing notwithstanding, a criminal history check must, in any event, include felony and misdemeanor criminal convictions (or the equivalent thereof under relevant non-US law) in all locations where the employee to be assigned has resided, has been employed, or has attended school in the seven (7) year period immediately preceding his or her employment with Synacor, and a check of U.S. Government Specially Designated National and export denial lists, including but not limited to OFAC screening. Synacor shall contract with a reputable national background investigation company that maintains, has access to, or will obtain, the foregoing information. During the Term, in addition to the pre-employment OFAC screening, Synacor will conduct OFAC compliance screening in accordance with applicable federal law on an annual basis for its employee and subcontractor customer sales and support team assigned to directly support the Client. Such OFAC screening will include the names of those screened, the locations where they will be working, and the date of the screening and the results of such screening. For any period of time encompassed in the foregoing background check requirement when the employee or contractor was resident outside of the United States, such background checking shall be conducted by a reputable investigative agency that conducts background checking in the relevant country(ies) for global technology firms, utilizing database checking, field checking and interviews as needed. The criminal history check shall also include an all states check of available national and state sex offender registries.
13.1.2     The highest diploma, degree or certificate earned during secondary education shall be verified.
13.1.3. Recent employment history shall be verified for at least the previous seven (7) years of employment and military service, or less if the employee was a full-time student during that period.
13.1.4    The name to which employee’s Social Security Number is attributed shall be verified.
13.1.5    The employee’s citizenship, most recent country of permanent residence, and legal right to work in the jurisdiction in which the employee will be performing Services for Client shall be verified within eight (8) days of such employee’s hire date through e-Verify electronic I-9.

13.2.
For any period of time encompassed in the foregoing background check requirement when the employee was resident outside of the United States, such background checking shall be conducted by a reputable investigative agency that conducts background checking in the relevant country(ies) for transnational technology firms comparable to Client, utilizing database checking, field checking and interviews as needed. The criminal convictions check shall include the equivalent, under relevant non-US law, of those convictions described in Section 13.1.

Synacor shall secure from each employee who provides Services to Client such employee’s written consent to perform the background checking specified in this Section 13.

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13.3.
Synacor will not assign, without Client’s written authorization, any employee to provide Services to Client if such employee’s background check described above reveals that the employee: has been convicted of a felony during the seven-year period preceding their employment with Synacor (or the equivalent thereof under relevant non-US law). The foregoing shall not apply to a minor traffic violation (a moving traffic violation other than reckless driving, hit and run, driving to endanger, vehicular homicide, driving while intoxicated or other criminal offense involving gross negligence, recklessness, intentional or willful misconduct while operating a motor vehicle), to a conviction that has been legally expunged; or does not have the legal right to work in the jurisdiction in which the employee will be performing Services for Client.

13.4. Synacor shall use commercially reasonable efforts to include in its contracts with all permitted subcontractors and agents, a requirement that such subcontractors and agents (a) conduct a pre-employment criminal background check on each of their respective employees who perform Service to Client, and (b) prohibit any individuals who have a conviction or deferred-adjudication history of any crime that indicates the individual may pose a serious risk of injury to a customer or prospective customer from providing services to Client under this Agreement.

14. Foreign Based Services. Synacor represents and warrants that the Service provided hereunder will not be provided, directed, controlled, supervised, or managed, and no data or Verizon customer communication (voice or data) relating to any such service shall be stored or transmitted, at, in, or through, a site located outside of the United States without the advance written consent of Verizon and without obtaining the required licenses and approvals prior to movement outside the United States. For clarity, the foregoing shall not prohibit Synacor from using off-shore resources for development of the Services. Synacor agrees that, in the event it comes into possession of any Verizon customer data, no such data shall be stored or transmitted, at, in or through, a site located outside of the United States without the advance written consent of Verizon. For purposes of this provision, the term “Verizon customer data” shall mean: (a) any subscriber information, including, without limitation, name, address, phone number or other personal information of any Verizon subscriber; (b) any call-associated data, including, without limitation, the telephone number, internet address or similar identifying designator associated with a communication; (c) any billing records; (d) the time, date, size, duration of a communication or the physical location of equipment used in connection with a communication; or (e) the content of any Verizon customer communication.;

15. Export. The Parties acknowledge that the export, import, and use of certain hardware, software, and technical data provided under the Agreement is regulated by the United States and other governments and agrees to comply with all applicable laws and regulations, including the U.S. Export administration Act, the regulations promulgated there under by the U.S. Department of Commerce, and any other applicable laws or regulations. Without limiting the generality of the foregoing the Parties further agree:
a. The Parties shall not export, re-export, release, transfer or allow the diversion of any items, hardware, software, technology, or the direct product of such technology obtained by Parties under this Agreement without first complying fully with all applicable law and obtaining any and all required licenses from US and other governmental authorities.
b. The Parties shall not conduct business with any company, individual, organization or country that is subject to trade sanctions, embargoes, or other restrictions under US law, nor any entity that is involved in an end use prohibited under US law including but not limited to chemical or biological weapons proliferation or nuclear or missile technology proliferation, in either case without complying fully with all applicable law and obtaining any and all required licenses from US and other governmental authorities.
c. The Parties shall cooperate with and provide to the appropriate authority all necessary information needed to facilitate full compliance with all trade-related laws and regulations.
16. Security.
16.1.
Security Levels. Synacor will maintain levels of security consistent with industry standards, but in no event less than reasonable level of security. Synacor will implement commercially reasonable industry standards to guard against external breaches of security as well as the loss, misuse or unintended distribution of customer data and other information.

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16.2.
Co-operation with Law Enforcement or Civil Subpoenas. Upon receipt by either Party of notice of a law enforcement demand (e.g. subpoena, court order or Title III order) or civil subpoena or court order, the Parties will cooperate fully with ach other and the receiving Party will respond promptly in compliance with the timeframes set forth in such legal process.

16.3.
Security Incident Reporting Obligations. [*] Synacor shall at all times comply with applicable laws regarding the reporting of Security Incidents, including without limitation, those laws pertaining to disclosure of lost or stolen personally identifiable or credit card information.

16.4.
[*]

16.5.
[*]

16.6.
Synacor and any approved subcontractors shall comply with the provisions of all applicable
federal, state, county and local laws, ordinances, regulations, rules, codes and orders (collectively “law”) in performance of this Agreement, including but not limited to any laws pertaining to employment of labor, hours of labor, OFAC regulations, export laws, health and safety, payment of wages, payment of taxes, and with those laws and the provisions of this Agreement that apply to the safeguarding, protection, and disposal of User Personal Information, User Account Information and CPNI. In the event of an unauthorized disclosure of User Personal Information, User Account Information and CPNI in violation of the foregoing, Synacor shall provide notice of same by e-mail to [*] within [*], and to the contract notice addressee set forth in Section 18(h) (Notices) by the means set forth therein. In addition, no person conducting or assisting in an investigation on behalf of Client, whether employed by Synacor or by an approved subcontractor, shall make any false statements to obtain information. Synacor shall also procure any required permits or certificates necessary to perform its obligations under this Agreement. Synacor and any approved subcontractor shall indemnify and hold Client harmless against all Claims (as defined in Section 8.3) arising out of or related to such noncompliance.

16.7.    Security Audit .
(a) In addition to other security related provisions in the Agreement and other Exhibits to the Agreement, if there are changes made by Synacor to its security document set forth in Schedule J, Synacor will provide an updated written copy of such updated systematic security plan to Client within [*] of the Effective Date. Within such plan, Synacor shall provide its security procedures in place within its network as well as its physical security procedures. Synacor shall comply with Client’s reasonable security requirements as may be provided to Synacor in writing.
  
(a)
Once per calendar year during the Term, upon Client’s written request Synacor shall [*] have a security audit performed by a reputable security audit company selected by Synacor and agreed by Client (such agreement not to be unreasonably withheld). In the event the audit costs more than [*] Additional such security audits shall be performed if a specific and material risk relating to Synacor’s non-disclosure or security obligations hereunder arises; such additional audit shall be [*] if the specific and material risk relates in particular to Synacor, but shall be at [*] if the specific and material risk does not relate particularly to Synacor (for example, if a security incident at another Client vendor causes Client to conduct additional security audits of a number of its vendors). [*] The Parties will determine the scope of any security audit by mutual agreement, but each such audit will, at a minimum, examine, describe and evaluate, and make recommendations with respect to security measures employed by Synacor to meet its obligations under this Agreement.

(b)
Each Party shall be entitled to receive a copy of any written report or recommendations resulting from any such audit; such report shall constitute Confidential Information of Synacor. Synacor shall promptly implement changes based on any security audit recommendations that are identified as necessary to address high risks. Synacor shall be under no obligation to bear the costs of implementing any changes recommended by the security audit company if and to the extent such costs are unreasonable as compared to the revenues received by Synacor pursuant to this Agreement; provided however, that [*] Except to the extent Client sustains actual damages as a result of its termination of the Agreement under this subsection, such termination by Client in and of itself shall not give rise to any liability against either Party

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(c)
In the event the auditing company makes recommendations other than those to address high risks, the Parties shall negotiate in good faith whether such recommendations should be implemented and how the costs of such changes should be allocated between the Parties.

16.8.
Security Standards . As of the Effective Date, Synacor abides by the security standards set forth on Schedule J (“Security Standards”). Syancor will provide Client any updates or changes to those security standards as those may occur.

17. GOVERNANCE.
 
17.1. Joint Steering Committee.
(a)
Verizon shall appoint two (2) representatives and Synacor shall appoint two (2) representatives to serve as members of a four (4) person Joint Steering Committee (the “Joint Steering Committee”), each of whom shall be an employee of the Party appointing the representative with a position of appropriate authority. Each Party's initial representatives to the Joint Steering Committee are identified in Exhibit L. Each Party may change its Joint Steering Committee representatives by giving ten (10) days written notice thereof to the other Party.

(b)
The Joint Steering Committee shall be the appropriate forum to discuss all material concerns and major decisions relating to this Agreement. It is the intent of the Parties that the Joint Steering Committee shall act quickly to address issues and resolve concerns and disputes in a manner that is consistent with the status of the Parties as strategic business partners. Each Party's representatives to the Joint Steering Committee shall communicate with one another as necessary to perform the Parties' respective obligations hereunder.

(c)
The Joint Steering Committee shall conduct regular meetings, on no less than an annual basis, and shall also meet as often as necessary either in person or by telephone. The Joint Steering Committee shall meet at mutually acceptable times and locations. Any Party may call a Joint Steering Committee meeting upon reasonable written notice. All decisions by the Joint Steering Committee must be unanimous and in writing to be binding on the Parties. The Joint Steering Committee is not authorized to amend, alter or extend this Agreement in any manner.

17.2
. Project Teams .

(a)
Each Party shall designate one person as such Party’s “Team Leader,” and such Team Leader shall be responsible for overall project administration, day to day operations and shall be such Party’s primary liaison with the other Party. Further, each Party shall designate representatives to participate on the following mutually agreed “Project Teams”. Each Project Team shall have a project leader. The project leader of each team shall report regularly to the Team Leaders designated pursuant to this Section 17. Each Project Team shall have a number of representatives as designated by each Party in its sole discretion, which may be as few as one from each Party. Each Project Team shall meet as often as is deemed necessary by the project leader of such Project Team. Synacor will keep Client’s Team Leader informed when collaborating with various Client organizations, such as Product Line Management, Project Management, Creative, E-Care and Tech Support and with external workgroups (as needed).

(b)
Additional Committees . The Parties shall appoint representatives to participate on a Product Planning Committee, a Security Committee, a Technical Support and an Operations Committee, a Marketing and Advertising Committee, an Infrastructure Planning Committee and such other committees as the Parties or the Joint Steering Committee may mutually agree are appropriate (each, a “Project Committee”).

(c)
Product Planning Committee. The Product Planning Committee shall be responsible for overseeing the development, operation, and ongoing maintenance of, as well as discussing the product roadmap for, the Services. The Product Planning Committee and any other appointed committees shall meet regularly and communicate with one another as necessary to perform the Parties’ respective obligations hereunder. Each Party may change its representatives to any of the committees by giving written notice to the other Party.

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i)
Roadmap. At least [*] during the Term, Synacor shall disclose to Verizon, through the Product Planning Committee, a roadmap plan, including, as appropriate, the functionality and schedules of plans for enhancements, social media, customer experience, modifications and additions to the Service, search, advertising, and other Synacor features, products, or services that would impact the revenue share or Verizon’s technical support requirements under this Agreement (the “Roadmap”).

(a)
Security Committee . Each Party will promptly respond to reasonable inquiries from the other Party regarding security breaches, fraudulent activity, denial of service attacks, and other security-related issues with respect to the Services and provide all reasonable assistance to such Party in helping investigate such issues. The Parties will create a Project Committee that will meet at least [*] to discuss any security, fraud, spam, malicious code (e.g., Viruses) or similar issues with respect to each Party’s network and the Services. If either Party raises material concerns during a meeting about the foregoing issues, the members will use reasonable efforts to develop and implement a plan acceptable to both Parties to mitigate such concerns, which may include a security audit, performed in a manner, at a time, and by a third party security firm acceptable to both Parties, and paid for by the Party requesting the audit.

(b)
Technical Support and Operations Committee – will plan for service launches and updates and meet regularly to review call drivers and opportunities to reduce customer complaints as well as focus on continuous improvements to the availability, performance levels and processes supporting the Services.

(c)
Marketing, Search and Advertising Committee – will meet regularly and plan for the ongoing support of Verizon Marketing Campaign’s utilizing mutually agreed Client Branded Portal tools. This committee will also focus on continuous improvement to Search and Advertising operations and performance.

(d)
Infrastructure Planning Committee – The Parties will meet from time to time to identify, discuss and plan longer term data center, network, server, software and / or other components which will support world class performance and reliability for the Services including targets for load balancing, non-service impacting fail-overs, and continuous improvements in page load times, security solutions and evolving technologies.

(h) Notwithstanding anything contained in this Section 17, the committees will use commercially reasonable efforts to come to mutual agreement on any topics, plans, or projects discussed.  [*]

18. GENERAL PROVISIONS.   

(a)
Compliance with Laws; Policies : Each Party will comply with all applicable laws, rules, and regulations in fulfilling its obligations under this Agreement. Each Party will comply with its applicable policies in fulfilling its obligations under this Agreement. Each Party will comply with its legal obligations to produce information in response to court orders, subpoenas, and other legal process, subject to the provisions of Section 5.

(b)
Assignment : This Agreement is not transferable by either Party without the other Party’s prior written consent (which shall not be unreasonably withheld), except that either Party may (without consent) assign its rights and obligations hereunder to any of its Affiliates or to any successor to all or substantially all of its business (by sale of equity or assets, merger, consolidation or otherwise). However, if Synacor is acquired by a Verizon Competitor, Synacor will provide Client notice thereof, and Client will have the right to terminate this Agreement as a result thereof provided notice is received pursuant to Section 7.4 no later than one year from the date the notice was received by Client. For purposes of this Section only, a Verizon Competitor shall be one or more of the companies listed in Schedule O. This Agreement will be binding upon, and inure to the benefit of, the successors, representatives and permitted assigns of the Parties.

(c)
Entire Agreement : This Agreement constitutes the entire agreement, and supersedes all prior negotiations, understandings or agreements (oral or written); between the Parties concerning the subject matter of this Agreement. In the event of any conflict or inconsistency between the terms and conditions in the Master Agreement and any Supplement, the terms and conditions of the Supplement will prevail unless such Supplement

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expressly provides otherwise. Any different or additional terms contained in any purchase order, confirmation or similar form, even if signed by the Parties after the date hereof, shall have no force or effect.

(d)
Independent Contractors : The Parties hereto are independent contractors, and no agency, partnership, joint venture, or employment relationship is created as a result of this Agreement and neither Party has any authority of any kind to bind the other in any respect.

(e)
Third Party Beneficiaries : This Agreement is intended for the sole and exclusive benefit of the Parties hereto. Except for the Parties hereto or as may be expressly provided in any Supplement, no third party shall have any right to rely upon this Agreement for any purpose whatsoever.

(f)
Waiver : The failure of either Party to enforce its rights under this Agreement at any time for any period shall not be construed as a waiver of such rights. No change, modification or waiver to this Agreement will be effective unless in writing and signed by both Parties.

(g)
Illegality or Unenforceability : In the event that any provision of this Agreement shall be determined to be illegal or unenforceable, that provision will be limited or eliminated to the minimum extent necessary so that the Agreement shall otherwise remain in full force and effect and enforceable.

(h)
Force Majeure . A Party’s non-performance under this Agreement shall be excused if and only to the extent that such non-performance is due to a cause beyond such Party’s reasonable control, including but not limited to governmental action, acts of terrorism, earthquake, fire, flood or other acts of God, labor strikes, work stoppages or slowdowns or other job actions, power failures and Internet-wide disturbances; provided that the adversely affected Party may terminate this Agreement if such failure or delay is material and continues for more than thirty (30) consecutive days.
  
(i)
Notices : All notices or other communications required or permitted under this Agreement will be in writing and will be deemed to have been duly given when received, if personally delivered; when receipt is electronically confirmed, if transmitted by facsimile or e-mail; the day after being sent, if sent for next day delivery by recognized overnight delivery service; or upon receipt, if sent by certified or registered mail, return receipt requested. Either Party may change its address for the purpose of this paragraph by giving written notice to the other Party of such change. Notices to shall be addressed as follows:

[*]

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(a)
Governing Law : This Agreement shall be governed by and construed in accordance with the laws of the State of New York, USA without regard to the conflicts of laws provisions thereof. Exclusive jurisdiction and venue for any action arising under this Agreement is in the federal and state courts located in New York, and both Parties hereby consent to such jurisdiction and venue for this purpose.

(b)
Headings : Headings are for convenience only and shall in no way affect interpretation of the Agreement.

(c)
Counterparts : This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Execution of a facsimile copy shall have the same force and effect as execution of an original, and a facsimile signature shall be deemed an original and valid signature.




IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Effective Date.

SYNACOR, INC.
VERIZON CORPORATE SERVICES GROUP INC.
        

By:     /s/ Ronald Frankel                 By:     /s/ W.R. Mudge            

Name:     Ronald Frankel                     Name:     W.R. Mudge            

Title:     President & CEO                     Title: President Consumer & Mass Business Markets

Date:     7-25-11                         Date:     7-22-11                





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SCHEDULE A
TO
MASTER SERVICES AGREEMENT

PRICING SCHEDULE

This Schedule A is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

The revenue share and fee structure for the Services are set forth below.

1.
Revenue Share Structure, Limitations and Fees: The following Revenue Share structure, additional fees and limitations shall apply to the Services provided under this Agreement.

(a)
Search Services and Advertising Revenue Share: [*]

(b)
Premium Offering Fees: Compensation for Premium Offerings (either Synacor Sourced or Client Sourced), if any will be as identified in Schedule E. Once agreed upon by the Parties in writing, then such Premium Offering fees may be paid by a reduction or increase in the revenue shares set out in Section 1(a) or as otherwise agreed according to Schedule E.

(c)
Infrastructure Costs: [*]

(d)
Bandwidth Costs: Unless otherwise mutually agreed by the Parties in writing, Synacor shall be responsible for obtaining all necessary bandwidth to provide the Service to Users and Subscribers and Synacor will bear [*] of the costs associated therewith, including but not limited to content distribution network costs related to the inclusion of video (excluding video related to services like FiOS or Flexview) on the Client Branded Portals, and Client [*], via a reduction in the Search and Advertising Revenue Share funds distributed to Client. In no event will the Bandwidth Costs attributed to Client exceed [*] Upon written request from Client to Synacor, the Parties agree that they will meet and discuss in good faith the commercial feasibility of Synacor utilizing the Verizon Digital Media Service once Verizon makes the service commercially available. The Parties agree that if

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Synacor contracts with Verizon Digital Media Service and pursuant to such contract, Synacor obtains bandwidth to provide the Service to Users, the Parties will agree in writing on any applicable adjustments to the Bandwidth Costs allocation set forth in this Agreement.

(e)
Professional Services: Customizations not specified as part of the initial launch process or beyond the reasonable scope of ongoing support are considered professional services and may be provided for an additional, mutually agreed upon fee.

(f)
Payment Terms: All payments due from Synacor to Client under this Agreement shall be made within [*] after the end of each month in which the applicable revenue share was earned.




SCHEDULE B
TO
SYNACOR MASTER SERVICES AGREEMENT

PORTAL SERVICES

This Schedule B is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

This Schedule is separated into two sub-schedules, Schedule B-1 and Schedule B-2. Schedule B-1 addresses those Portal Services from Synacor for the Client consumer portal and Schedule B-2 addresses those Portal Services from Synacor for the Client small business portal.

Schedule B-1
TO
SYNACOR MASTER SERVICES AGREEMENT

CONSUMER PORTAL

Introduction. Synacor will provide Client with Portal Services for its consumer customers as set forth in this Schedule B-1. As of the Effective Date, Client operates a consumer portal which is referred to herein as “Version 2.0”. During the Term, Synacor will provide Client components for a modification of Client’s existing consumer portal as set forth herein, an independently designed portal which may integrate some ongoing Client modules which will be Version 3.0, and a revised 3.0 portal which will be Version 3.5. However, the overall architecture flow is subject to change throughout the Term if agreed upon in writing by both Synacor and Verizon.

1.
Phase 1 – Version 2.1 Phase 1 – Version 2.1 Phase 1 will be based on Version 2.0 with the changes set forth below. The changes to be included in Phase 1 are:

(a)
Synacor’s Search and Advertising Services as set forth in Schedules C and D will replace such services previously provided by Client, and integrate Client’s house advertising. The Search Box, including search query input components and the web Search Engine Results Page (“SERP”) will be provided by Synacor, jointly designed by Synacor and Client, and shall conform to industry, Client, and the Search Service Provider’s standards. Client may include other search services, such as site search or shopping search services and advertising, on the Client’s consumer portal utilizing the same search bar as for web search services as set forth in Schedules C and D, provided that Client will not include any other general web search services on the consumer portal. Synacor will provide advertising sales for each of the third party advertising placements and will incorporate Client house ads in Client ad modules and/or in rotation with third party ads as agreed by the Marketing and Advertising Planning Committee and in Schedule D. Client may also provide advertising sales

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for third party advertising placements on the Consumer Portal subject to the terms and conditions of Schedule D.
(b)
Toolbar: Synacor will provide the URL and any other technical compatibility information or functionality needed to ensure a functioning search box in Client’s toolbar will be supported, from which search queries may be entered and which will provide web search results on Synacor’s SERP which search queries and search results shall be separately identified in all search reporting.
2.
Phase 2 - Version 2.1 Phase 2 –Phase 2 will be based on Version 2.1 Phase 1 with the changes set forth below. The changes to be included in Phase 2 are those set forth in Phase 1 plus:

(a)
Subject to Content Provider approval, Synacor will provide a Headline News Component to replace and / or improve the existing Headline News component(s) on My Verizon 2.0.
(b)
Subject to appropriate Content Provider approval, Synacor will host and provide secondary channels, which will include Content sourced from both Client and Synacor, including:
i.
News [*]
ii.
Sports [*]
iii.
Video [*]
iv.
Music: Latest music news, photos, music videos, streaming music and local radio.
v.
In Theatres: Latest movie news and photos along with movie listings and times, box office top-10, movie trailers and reviews.
vi.
Entertainment: Aggregates assets from TV, Video, In Theatres, Music and Games into one “entertainment” channel. Further, the Entertainment Channel will integrate certain of Client’s personalized Content which may include VOD, Flex View Titles, FiOS TV Online components, Primetime listings and DVR settings. The exact Client Content to be integrated is subject to change based upon technical and business agreement of the Parties.
vii.
Local: Zip code based local news, events, classifieds, radio, movie listings, lottery results and more.
viii.
Finance: Personal finance news and advice.
3.
Phase 3 - Version 3.0 – Synacor, in design collaboration with Client, will provide a first version of a Consumer Portal (the key elements of differentiation from version 2.1 being a new start page to be provided by Synacor that will include the functionality set forth below, which shall not require User authentication. All newly registered Subscribers and all logged out Subscribers including those who were previously on Version 2.0 or 2.1 will be redirected according to a mutually agreed implementation plan. Subscribers that existed prior to the launch of Version 3.0, upon login, will be directed to the start page of the most recent Phase of Version 2.1. Prior to the launch of Version 3.5, a Subscriber who existed prior to Version 3.0 will be able to traverse back and forth between Version 3.0 as a logged out Subscriber and Version 2.1 as a logged in Subscriber from the agreed upon navigation elements located on the identified Verizon and Synacor pages. However, Client agrees that all Subscribers will be redirected to Version 3.0 within [*] after launch of Version 3.0 or as otherwise mutually agreed in a written implementation plan. Phase 3 will include the features and functionality from Phase 2 plus the following:
(a)
Features and Functionality

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i.
The Consumer Portal will contain Synacor’s standard portal template branded with Client presentation layer (look and feel, logos, trademarks, etc.) as modified by joint agreement with Client together with Subscriber authentication.
ii.
Synacor will host agreed upon pages and Synacor Sourced Content within Synacor’s data center according to the Service Level Agreement attached to the Agreement as Schedule G.
iii.
Single Sign-On (SSO) [*]

iv.
Support for Customized Navigation, and Links to unique Help or Process Support functions and other services to be mutually agreed in support of Verizon’s existing embedded base of Co-branded Portal Subscribers.
v.
Content publishing and administration functionality which Client can use to publish Client Sourced Content to mutually agreed components.
vi.
Consumer Portal Navigation: Verizon’s overall portal navigation will inform the navigation of the Consumer Portal and carry over the persistent Verizon header and add sub-navigation within the body of the Consumer Portal linking to various channels as agreed upon by the Steering Committee.
vii.
The Parties will integrate in a manner that enables the Search query input components as well as the SERP pages to be capable of A/B testing and the Parties agree to cooperate in continuous improvements as part of the roadmap planning described in the Governance section.
viii.
Component Discovery: The Consumer Portal allows Users to discover, add and remove components from the Synacor provided Home page. Synacor has a large library of components from which Users can pick and choose. Synacor will work with Client to create a roadmap to present components that Client desires to be made available to Subscribers for consumption on the homepage. Synacor will support existing Verizon interfaces as mutually agreed by the Parties.
ix.
Drag & Drop: Client and Synacor components included in the 3.0 version will permit users to drag and drop those components around on the homepage to create their desired layout.
x.
Client-specific-content Components: These areas within the Consumer Portal will be used to promote Client’s core services and customer support or other functions desired by the Client. Synacor will accommodate existing Client implementations, integration and process support as mutually agreed by the Parties.
xi.
Services Component: Prominently placed above the fold, the services component is a configurable module that houses the most frequently used sub-components. Subscribers are able to personalize this component, allowing them to sort, add and remove each of the sub-components. Client and Synacor will mutually agree to the elements and order of the elements.
xii.
Promotional Opportunities: In prominent areas on the homepage and throughout the Consumer Portal, Synacor will feature Content related to Client’s core services as agreed upon by the Steering Committee which may include Flex View, Home Phone, Wireless, My Perks, On Demand, Pay Per View, TV Online, and Set Top Box Controls or other products. Client will specify the targeted elements and campaigns including desired frequency of run, etc. and the Parties will design and manage these promotional opportunities through the Marketing / Advertising team as identified in the section on Governance. Synacor will ensure updates are placed in a timely manner and agrees to utilize its full complement of tools in a commercially

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reasonable manner as requested by Verizon including use of alerting tools, interstitial pages, popouts, mouseovers, and others as may be developed over time.
4.
Phase 4 - Version 3.5 - Version 3.5 of the Consumer Portal will consist of no new functionality introduced by Synacor, but will instead solely be a migration of all logged-in Subscribers to the Version 3.0 homepage. Except for Client’s embedded base of Co-branded experiences, specifically, the pre-existing Verizon Yahoo!, Verizon with MSN, and Verizon with AOL users, all such Subscribers will no longer have access to any alternative portal.
5.
Product Roadmap – Notwithstanding anything herein to the contrary, the Product Planning Committee will review the functionality suggested by Client in the following section, and determine what, if any, of such functionality should be included in the Consumer Portal. Any agreed upon functionality will be included in a roadmap(s) created by the Product Planning Committee as further described in Section 17 of the Master Agreement, and Parties will implement such roadmap.
[*]
6.
Content: Subject to Synacor Providers’ approval, the below-listed Content will be provided and updated by Synacor and integrated into the Consumer Portal. In the event any Synacor Provider withholds approval, Synacor will provide prompt notice thereof to Client. The below-referenced Content and Synacor Providers may change from time to time, provided however, that if such changes are at Synacor’s option, Synacor will use commercially reasonable efforts to replace such Content with equivalent Content in terms of brand reputation and quality, quantity and frequency of content. Provision of all Content shall be subject to the terms and conditions in Schedule F of this Agreement.
Content Mapping

Content
Synacor Solution
News
[*]
Business & Personal Finance
[*]
Entertainment Video
[*]
Streaming Music
[*]
Local Radio
[*]
Music News & Photos
[*]
Music Videos
[*]
In Theatres
-    Showtimes
-    Box Office Results
-    Movies Coming Soon
-    Movie Reviews
-    Movie Trailers
[*]
Astrology Data
[*]
Sports
[*]
Local Events
[*]
Local News
[*]
Local Gas Prices
[*]
Lottery Results
[*]

[*]

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8. Throughout the Term, Synacor will:


a.
Make recommendations in support of Client’s ongoing refinement of site objectives as related to user experience as well as communicated business goals (such as acquisition, retention, cost-reduction, and revenue generation). Additionally, Synacor shall analyze and document related recommendations in formats suitable for both executive (i.e. PowerPoint summary) as well as operational presentation (i.e. project plan, functional requirement recommendation document, etc.).

b.
Perform competitive benchmarking of features and functionality as well as researching industry best practices to provide recommendations and strategies based on this data.

c.
Prepare presentations, mock-ups and relevant documentation as needed in support of ongoing project implementation.

d.
Comply with Client’s corporate brand guidelines, VOL Manual of Style and predefined Web templates and styles that will be provided by Client. Client may make modifications to its guidelines from time to time, and in such event, it will provide written notice thereof to Synacor, and Synacor will have a reasonable time to come into compliance with such modifications.

9. Implementation of all Client requests made above shall be subject to mutually agreed specifications, and timelines and for new Client requests, costs. Additionally, the Parties understand and agree that the projects specified here may change from time to time upon mutual agreement of the Parties pursuant to the governance process set forth in Section 17 of the Master Agreement.

 

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ATTACHMENT A TO SCHEDULE B-1
TO
SYNACOR MASTER SERVICES AGREEMENT

Images are on the following pages. The remainder of this page is intentionally blank.

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SCHEDULE B-2

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TO
SYNACOR MASTER SERVICES AGREEMENT

SMALL BUSINESS PORTAL SERVICES

This Schedule B-2 is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

Schedule B-2

Introduction. As of the Effective Date, Client operates a small business centric portal for its small business customers that is referred to as the “Small Business Center”. Synacor will provide Client with Portal Services for its business customers as set forth in this Schedule B-2. Such Services will be provided in three phases. During Business Phase 1, Synacor will provide Client web search and advertising services for Client’s existing business portal currently located at business.verizon.net to replace the web search and advertising currently included on such business portal. Synacor will provide Client with a new homepage, News, Resources, and Local channels for its business portal in Business Phase 2 and other mutually agreed functionality each of which is further described herein. [*]

1.
Business Phase 1 – For Business Phase 1, the Small Business Center will include the following functionality from Synacor:

(a)
Search Services on portal: Synacor shall replace Client’s web search services on Client’s Small Business Center with Synacor’s Web Search Services as set forth in Schedules C and D. The search query input components and the SERP pages will be jointly designed by Synacor and Client and shall conform to industry, Client, and the Search Service Provider’s standards. Client may include other search services, such as site search or shopping search services and advertising, on the Client’s Small Business Center utilizing the same search bar as for web search services as set forth in Schedules C and D, provided that Client will not include any other general web search services on the Small Business Center.
(b)
Search Services on Verizon Toolbar: Synacor will provide web search services for Client’s browser-based toolbar that resolve to Synacor’s Search Engine Results Page (“SERP”).
During Business Phase 1, Client will host, manage and control the entire Small Business Center other than the Web Search Services provided by Synacor.
A draft mock-up of the SERP is shown in Attachment A to this Schedule B-2.
2.
Business Phase 2 – In Business Phase 2, Synacor shall provide Client with the Homepage and three channels to replace Client’s current News & Resources channel. Business Phase 2 shall be the introduction of the Small Business Portal to initially complement Client’s Small Business Center, and the portal framework as well as Content and Services provided by Synacor shall be provided, managed, and controlled by Synacor. To the extent applicable during Business Phase 2, Client will provide, manage and control Client Content and Client provided Channels for the Small Business Channel. Phase 2 will include the services from Phase 1 above, as well as the features & functionality specified below:

(a)
News Channel. Synacor will provide News Channel that replaces a portion of the current News & Resources Channel within the Verizon.net business portal. The News Channel will deliver textual and video news articles and photos/images, including Top Headlines, Business News, Local News, Technology News, and Stock Checker. The Parties agree that popular content, such as relating to entertainment or sports, may be offered on the channel, but shall be given less prominence in all respects to the general news and business content. Content offered by Synacor shall be displayed on Synacor-hosted article pages. Such article pages shall feature a large

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image, the full text of the article (in pages if needed), email/print/share buttons, related articles links, third party advertising and Client advertising.
(b)
Editor’s Pick. Synacor will provide for Client an exclusive Editor’s Pick DCC (Dynamic Content Component) slide, which will feature Synacor editor-selected topics from the textual and media content otherwise available on the Small Business Portal. Synacor editors will promote Client provided Content at Verizon’s sole discretion, such as webinars, blogs and Verizon-commissioned content, which may replace selected Synacor Content.
(c)
Resources Channel. Synacor will provide a Resources Channel that replaces a portion of the current News & Resources Channel within the Verizon.net Small Business Center. The Resource Channel will deliver business-related text and video, feature articles and blogs, and other content, which would cover topics like the following: industry information, small business management advice, small business trends, small business issues, small business success stories, and tactical advice for small businesses (i.e., “how to” articles). The Resources Channel will include:
(i)
Video: Video made available on the Resource Channel will include small business video content from those generally made available by Synacor to its other portal clients. The Resource Channel will include links to the videos made available on a separate video channel which will include additional video providers’ video Content.
1.
Synacor shall provide a video player for use on Synacor-provided channels as well as Client-provided channels. Such player will be similar to the players Synacor generally makes available to its clients.
(ii)
Travel: A sub-channel will be provided allowing Users access to travel related news and information and a quick search/reservation advertising component.
(iii)
Verizon Content: Client will have the opportunity at all times beginning with Phase 2, via its permitted use of the CMS detailed in Schedule I, to include Client-commissioned content, Client webinars, and other Client resources content in designated spaces on the Resources Channel. Alternatively, Synacor will ingest and display Client-provided modules.
(iv)
Financial Advice: Synacor will provide business-oriented and personal financial advice articles.
(v)
Industry Information: Synacor will initially categorize certain of its Synacor Sourced Content into at least ten (10) top small business industries, including: Accounting, Construction, Finance, Food & Beverage, Health Care, Legal, Manufacturing, Retail, Consumer Products, and Sales & Marketing. The industry categories may change over time on a commercially reasonable basis including based on relative usage data, with approval from Client. Synacor will link the articles in the industry categories to Client’s industry-specific small business solutions (e.g., Secure Mail for law firms) as requested by Client. Industry Information navigation will appear above the fold on the Resources landing page.
(vi)
Sub-navigation: At launch, the Resources channel will contain content for and be organized by the following management functional areas: Management (i.e., owning or running a small business), Finance (i.e., finance and accounting for a small business), Marketing (i.e., marketing and sales for a small business), Technology (i.e., information and communications technology for a small business), and Travel (i.e., travel information and reservation (advertising) tool)
(d)
Local Channel: Synacor will provide Client with a local channel consisting of local news, events, traffic, radio, gas prices and maps. Such Local Channel will also include Client provided weather Content. The channel will also feature local business listings, if available, third party advertising and Client promotions and Content.
(f) Single Sign-On (SSO): [*]

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(g)
Homepage. The provided Business Homepage / Overview will contain Synacor’s standard business portal template shown in Attachment A to this Schedule B-2, which is branded with Client presentation layer (look and feel, logos, trademarks, etc.) as provided in the Client-provided small business style guides, and portions of the Portal Content indicated in Section 4 below. Synacor shall build both a page for unauthenticated visitors and for authenticated portal users. At a minimum(and as shown in Attachment A to this Schedule B-2), the Homepage shall initially include the following components:
a.
Announcements and Alerts: Synacor will display Client’s announcements and promotions in a banner at the top of the unauthenticated page. For authenticated users, Synacor will display personalized messages, if provided by Client.
b.
DCC: Slides for Top Headlines, Business News, Client Offers and Editor’s Pick (described in News above) on the unauthenticated page
c.
Client Featured Applications: Graphical, clickable promotions shown in unauthenticated state.
d.
Industry Information: described above
e.
Local News: described above
f.
Individual users’ Email application on authenticated version of the page. Client will manage and host the content, and Synacor shall ingest the modules.
g.
Other applications for individual users, as applicable, on authenticated version of the page. Client will manage and host the content, and Synacor shall ingest the modules.
h.
Third Party Advertising as described in Schedule D
i.
Client advertising as described in Schedule D
j.
Client Support Links
k.
Professional Networking Module. Authenticated version to be managed and hosted by Client and ingested by Synacor.
l.
Component Discovery: Synacor’s home page shall allow Users to discover, add, rearrange and remove modules from the home page. Synacor has a large library of components from which Users can pick and choose, as shown in Attachment A to this Schedule B-2 Additionally, Synacor will work with Client to add/change components that Client desires to be made available to Users for consumption on the Small Business Center home page, as mutually agreed by the Parties.
m.
Drag & Drop: Synacor will enable logged-in Users to drag and drop components around in designated areas of the home page to create their desired layout.
n.
Email Preview Component: A prominent area on the authenticated homepage will include a component that will leverage IMAP and allow Users to view their inbox and compose messages from the homepage with one-click access to their email.
o.
Services Component: Prominently placed above the fold, the services component is a configurable module that provides one-click access to the most frequently used Client services, such as email.

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Authenticated Users are able to personalize this component, allowing them to sort, add and remove each of the services.

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a.
Video Player [described above] featuring Business News
b.
Verizon Discount Programs: promotional space for Client.
c.
Client Application Recommendations: Personalized for the User.
(g)
Small Business Center Navigation: Initially, the Small Business Portal will include a persistent Verizon small business header, footer and sub-navigation linking to various channels, including several channels that Client will continue to manage, such as Marketplace, My Account, My Applications, Community, and Support. Prominent links shall also be provided to Client’s Facebook and Twitter pages, Check Email, Sign In, Personalize and “Make This My Homepage” While this may change over time, Synacor agrees to use the approach to architecture as approved by Client’s IT team.
(h)
Advertising Services: Synacor shall replace Client’s advertising services on Client’s Small Business Center with Synacor’s Advertising Services as set forth in Schedules C and D.
(i)
Synacor will host the portal framework within Synacor’s data center according to the Service Level Agreement attached to the Agreement as Schedule G.

(j)
Client Specific Components: Synacor will display Content related to Client’s services as agreed upon by the Steering Committee utilizing its full complement of promotional tools generally made available to its clients, which tools may include alerting tools, pop-outs and mouse-overs, for the promotion of Client’s products, services, portal features and the like, as provided by Client.
Illustrative mock-ups for the above pages are attached in Attachment A to B-2.
3. [*]

4. Content: Subject to Synacor Providers’ approval, the below-listed Content will be provided and updated by Synacor and integrated into the Small Business Portal. In the event any Synacor Provider withholds approval, Synacor will provide prompt notice thereof to Client. The below-referenced Content and Synacor Providers may change from time to time, provided however, that if such changes are at Synacor’s option, Synacor will use commercially reasonable efforts to replace such Content with equivalent Content in terms of brand reputation and quality, quantity and frequency of content. Provision of all Content shall be subject to the terms and conditions in Schedule F of this Agreement.

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Content Category
Synacor Providers
News – Top Headlines, Business News, Technology News, CNN News Video, and others as provided by sources
[*]
Small Business Finance
[*]
Industry Information
[*]
Travel Information
[*]
Streaming Music
[*]
Local Radio by zip code
[*]
Small Business Advice, Success Stories, Trends, Issues & Industry News
[*]
Stock Quote
[*]
Local Events by zipcode
[*]
Local News by zipcode
[*]
Local Gas Prices
[*]
Small Business Videos
[*]
Photos and Images
[*]
Job Function Features: Management, Finance, Marketing, Technical
[*]

Synacor shall display logos or other prominent attribution for major content providers [*] near their content if allowed and as agreed with the Content Provider.
    
5.
Client Obligations Related to the Small Business Portal: Client will provide the following functionality, and Content, as well as any data necessary to operate the requested functionality:

[*]

6.
Product Roadmap – Notwithstanding anything herein to the contrary, the Product Planning Committee will review the functionality suggested by Client in the following section, and determine what, if any, of such functionality should be included in the Small Business Portal. Any agreed upon functionality will be included in a roadmap(s) created by the Product Planning Committee as further described in Section 17 of the Master Agreement, and Parties will implement such roadmap.
[*]

7.
Throughout the Term, Synacor will:

a.
Make recommendations in support of Client’s ongoing refinement of site objectives as related to user experience as well as communicated business goals (such as acquisition, retention, cost-reduction, and revenue generation). Additionally, Synacor shall analyze and document related recommendations in formats suitable for both executive (i.e. PowerPoint summary) as well as operational presentation (i.e. project plan, functional requirement recommendation document, etc.).

b.
Perform competitive benchmarking of features and functionality as well as researching industry best practices to provide recommendations and strategies based on this data.

c.
Prepare presentations, mock-ups and relevant documentation as needed in support of ongoing project implementation.

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d.
Comply with Client’s corporate brand guidelines, VOL Manual of Style and predefined Web templates and styles that will be provided by Client. Client may make reasonable modifications to its guidelines from time to time, and in such event, it will provide written notice thereof to Synacor, and Synacor will have a reasonable time to come into compliance with such modifications.

6.
Implementation of all Client requests made above shall be subject to mutually agreed specifications, and timelines and for new Client requests, costs. Additionally, the Parties understand and agree that the projects specified here may change from time to time upon mutual agreement of the Parties pursuant to the governance process set forth in Section 17 of the Master Agreement.

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ATTACHMENT A TO SCHEDULE B-2
TO
SYNACOR MASTER SERVICES AGREEMENT
Images are on following pages. The remainder of this page is intentionally blank.


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Unauthenticated Home Page
Synacor Solution
Search Bar
Sign In/Register
Verizon SBC Footer
VZ Strategic Promo area
Synacor Industry Content
VZ Promo & Advertising
VZ Support Component
VZ Promo & Advertising
Synacor Stock Checker
Synacor Solution
VZ Resources Promo
Synacor Local News Component
Synacor provided Resources Content
Editor’s Pick Slide Component
Alerts/Announcements
VZ Community Component
VZ Promo Component
Services Component

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Authenticated
Home Page
Verizon Personalized Recommendations
Verizon’s Subscriber’s Choice of Applications
User Controlled Zone
Verizon Header – Synacor Search
New Primary Navigation
VZ Branding
User Controls Icons
(“Drag and Drop”)
Synacor Video Player and Content
VZ Controlled Zone
User’s Email Application
(Example of opened Services Component)


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News
Channel
Home Page
News Archive
(Not shown)
Top Headlines with Photo
Headlines by News Sub-Channels
Advertising
User Choice of Top Industries
Photo
Gallery

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Content
Provider
Attribution
Synacor Content Modules Linking to Sub-Channels
Synacor
Travel
Sub-Channel
(Not shown)
Area for inclusion of Verizon Content
Synacor Industry Information
Categories
Resources
Channel
Home
Page

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Verizon
Weather Module
Synacor
Local Radio
Module
Synacor
Traffic/Maps
Module
Verizon
Local Community
Synacor
Local
Events
Synacor
Local News
User Change of Location
Local Channel Home Page
Synacor News Slides (not shown) published by Synacor
Dynamic Content
Component


Verizon
Offer Slide (not shown)




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Component
Discovery
(For placement only)




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Promotional
Tools






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Search Engine Results Page (SERP)

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SCHEDULE C
TO
SYNACOR MASTER SERVICES AGREEMENT

SEARCH SERVICES

This Schedule C is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

The following establishes the terms and conditions by which the Parties will work together to facilitate the delivery of web search related services to Client's Users.

1 .     Definition of Search Services and Selection of Web Search Services Provider.    

(a.)
Version 2.1 and the Client Branded Portals will include multiple search options for Users, including Web Search, site search, shopping search, and any others mutually agreed to by the Parties from time to time. Initially, and unless otherwise agreed by the Parties, such search options will be displayed to Users as tabs above the search bar. Synacor provided Search Services (“Web Search Services”) will include the search box and search functionality originating under the Web search tab and the Search Engine Results Page (SERP) that is generated based on the search criteria entered into such search box. A Synacor provided SERP page will also be generated from search criteria being entered by a User (i) in the search box in Client’s toolbar; (ii) for Users with such toolbar, entering multiple keywords into the address bar or (iii) who has set their browser setting search preference to use Client’s search service. Search Services also include Web Search Preferences, which will allow Client’s Users to define settings, such as ‘safe search’, for their search results. The SERP is a portion of the Search Service that will provide the User with descriptions, links associated with search terms, and other useful tools to assist the User.

(b.)
Synacor shall be the exclusive provider of Web Search Services on the Client Branded Portal and Version 2.1through its agreement with its Search Services provider (“Search Services Provider”). The foregoing shall not restrict Client’s ability to use other Web search functionality on the Yahoo portal or other similar co-branded online experiences currently existing as of the Effective Date.

(c.)
The Parties agree that upon launch, Google will be the Web Search Services Provider and that at the time of signing Synacor has additional relationships including Ask which may be used by mutual written agreement of Client and Synacor to enhance the overall search experience and SERP results. The Web Search Services Provider may only be changed with approval of Client upon [*] advance written notice, which approval will not be unreasonably withheld.
 
2.     Description of Web Search Services.

(a.) Operation of Web Search Services and SERP.
Each time a User enters a search request in a search box (a “Search Query”) using the ‘web’ option or a search is requested by Client’s end user as defined above, Synacor shall return to such User an initial SERP including a set of up to [*] non-paid search results (each such set being referred to as a “Search Results Set” and additional sponsored and / or paid links (referred to as “Sponsored Links”) with placement as agreed to by the Parties. Additional Search Result Sets and Sponsored Links will be presented as subsequent SERP pages whenever available which may be enumerated with clickable page links below the search results set of the first page. SERP results displays may further include Client provided results depending on the search word or category as identified as matching the key words or phrases Client provides based on site search results or similar sourcing options.

Synacor will further work with its Search Services Provider to filter and exclude Sponsored Links according to the Search Services Provider’s then-current filtering options and capabilities. As of the Effective Date, the Search Services Provider’s standard process for filtering Sponsored Links and AFC Ads includes the ability to filter based on keywords and URLs. Therefore, Synacor will provide the Search

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Services Provider the list of Verizon Competitors incorporated herein in Attachment C to Schedule D, and will work with Client to determine other keywords, URLs, and competitors that Client may wish to add to the block list given to the Search Services Provider to have filtered from the Sponsored Links and AFC Ads. Whenever Synacor requests the Search Services Provider add a new Client-approved keyword or URL be added to the block list, Synacor will notify the Search Services Provider and work with the Search Services Provider to add the new keywords or URLs to the block list as expeditiously as possible. Synacor will also send Client a notification confirming that Synacor has requested that the Search Services Provider add the new keywords or URLs to the block list. Client understands and agrees that the Search Services Provider may not agree to block all requested keywords or URLs, and that inclusion of keywords on the block list does not guarantee that all Sponsored Links or AFC Ads that include such keywords will be blocked. Synacor shall provide written notification to Client of which keywords or URLs will not be blocked. In the event Client or Synacor discovers that a Sponsored Link or AFC Ad is displayed that does include a keyword from the block list, Synacor will work with its Search Services Provider to have such Sponsored Link or AFC Ad removed in accordance with Synacor’s obligations under Schedule G.

Synacor shall support a Web Search Preferences page which will include Advanced Search features and standard user customizations of the Web Search results rendered on the SERP. The Parties will agree on the default preferences settings and comply with industry and Client Advertising standards set forth in Attachment A to Schedule D. Further, Client shall have the opportunity to approve any and all changes to the SERP page and the Web Search Preferences page before changes are made, which approval shall not be unreasonably withheld.

(b.) Hosting and Control. At all times during the Term Synacor shall (a) deliver and manage any and all pages, except for My Verizon 2.1 pages on which Web Search Services are provided; (b) maintain complete technical and editorial control of such pages; and (c) act as the intermediary for all transmissions between Search Services Provider and such pages. In the event Synacor is not delivering, managing, or maintaining control over the websites on which Search Services are to be provided, such as with My Verizon 2.1 pages, Synacor may need approval from the Search Services Provider to provide the Search Services on the relevant pages. If such approval by the Search Services Provider is withheld, Synacor agrees that Client may directly provide an alternative solution.
(c.) Context Sensitive Advertising. Synacor may also provide context sensitive advertising (AFC Ads) within the Client Branded Portal and on Version 2.1 with Client’s written approval to do so. Any such service will be provided in accordance with Section 2(a) above.

(d.)
Additional Client Search Services. Synacor and Client will work to integrate Client’s additional Search services inclusive of Shopping and Site Search. At launch the Shopping link will be directed to the Client Nextag search services solution. Client may change that solution at any time with written notice to Synacor. Site search will be directed to the Client’s site search solution. Client will provide Synacor with the URLs needed to redirect the Additional Search Services described here to their destination sites.

3.
Disclaimers. Client understands and agrees that Search Services Provider shall not be liable to Client for any damages, whether direct, indirect, incidental or consequential, arising from the Client Branded Portals’ access to or use of the Web Search Services. However, Synacor shall ensure that it will view the traffic of Search on a daily basis in order to stop any computer program, script or other non-human device (spiders, bots, etc without the direct request and control of the natural person) coming from a User that would cause an increase in Search queries which may result in a Search Provider to cease paying revenue on those queries.

4.
No Warranties. Client understands and agrees that Search Services Provider makes no warranties, express or implied, with respect to the Search Services, including without limitation, warranties for merchantability, fitness for a particular purpose, and non-infringement.

5.
Client Not Third Party Beneficiary . Client expressly acknowledges and agrees that Client is not a third party beneficiary under any agreement between Synacor and Search Services Provider.


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6.
Search Bar. Client expressly grants Synacor permission and Synacor agrees to include a search bar on the Client Branded Portal(s) above the fold in a location mutually agreeable to the Parties and in Version 2.1 as set forth in Schedule B-1. Synacor shall regularly explore and test optimizations that are consistent with overall Client Style Guides and are approved by Client.

7.
Prohibited Acts. Synacor and Client shall not, and shall not allow any third party to:

(a.)
directly or indirectly generate queries, or impressions of or clicks on search results and/or advertising results, through any automated, deceptive, disingenuous or other fraudulent means (including, but not limited to, click spam, robots, macro programs, and Internet agents); or
(b.)
encourage or require Users or other persons, either with or without their knowledge, to click on search results and/or advertising results through offering incentives or any other methods that are manipulative, deceptive, malicious or fraudulent; or
(c.)
"crawl", "spider", index or in any non-transitory manner store or cache information obtained from the Search Services (including, but not limited to, Search Results and/or advertising results, or any part, copy or derivative thereof);



 
















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SCHEDULE D
TO
SYNACOR MASTER SERVICES AGREEMENT

ADVERTISING

This Schedule D is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

The following establishes the terms and conditions by which the Parties will work together to facilitate the delivery of Advertising to the Client Branded Portals.

1.
Advertising Services .
a.
The advertising services provided by Synacor may include, without limitation, the integration of e-commerce, video, banner advertising and other forms of paid advertising or advertising support content (videos with in-stream video ads included), in contextually relevant programmed areas on My Verizon 2.1 or throughout the later versions of the Client Branded Portal(s) (“Advertising Services”). Synacor and Client may sell Client Branded Portal advertising inventory directly or through agents to advertisers or through advertising networks or other third parties.

b.
[*]

c.
If any ecommerce offerings like [*] or other affiliate programs such as [*]are included by either Party on the Client Branded Portal, such offerings and programs shall not be considered Direct Advertising for the purpose of determining the advertising revenue share set forth in Schedule A.

2.
User Rights Regarding Advertising . Client agrees to include language in its privacy policy clearly disclosing that in the course of serving Advertisements on Client web sites, third parties may be placing and reading cookies on Users’ browsers, or using web beacons to collect non personally-identifiable information about Users’ online behavior.  Client’s privacy policy should also include information about how Users can manage cookies. Synacor, in addition to other provisions in the Agreement, agrees that its advertising sales and operations will conform to Client’s Standards and Policies set forth in Attachments A, B and C to this Schedule D. Synacor further agrees that any advertising networks it uses to provide advertising will be NAI members, and Synacor will adhere, and ensure that any advertising networks delivering Advertisements via OBA on the Client Branded Portals will adhere, to the online behavioral advertising principles located at www.aboutads.info for Advertisements provided under this Agreement.

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3.
Advertising Guidelines , Advertisement Quality, Excluded Advertising and Advertisement Removal.
a.
Synacor agrees to abide by the Client Advertising Guidelines as set forth in Attachment A to this Schedule D, as may be modified by Client. Synacor agrees to maintain a quality of third party advertisements that are not and shall not be of the category and type set forth on Attachment B to Schedule D attached hereto and made a part hereof. Synacor will filter Advertisements from the Verizon Competitor list as set forth in Attachment C to this Schedule D. Client reserves the right to request that Synacor remove any Advertisement that is prohibited as set forth in to this Schedule D, and Synacor shall either remove it or request its removal from its third party advertiser in accordance with the advertising SLAs set forth in Schedule G.
b.
In addition, any Advertisements that will be placed on the Small Business Portal will not be inappropriate for a business related website as determined by the Marketing, Search, and Advertising Committee. For example purposes only and not as a limitation, the Parties agree that advertisements for personal products (e.g., weight loss, mouthwash), personal services (e.g., dating services), animated ads, ads in bold colors and/or fonts or personal entertainment (e.g., games, movies) would be considered inappropriate on the Small Business Portal. If such Advertisements appear on the Small Business Center Portal, then Synacor will remove those Advertisements promptly upon notice from Client in accordance with its obligations in Schedule G .

4.
Paid Advertising Inventory . The Parties agree that Synacor shall include paid advertising on each of the main Navigation Landing Pages of the Client Branded Portals, excluding My Account and Support, and including at least two advertisements on each page, with at least one of those being of significant size [*] The “Navigation Landing Pages” mean the Start page, news and entertainment pages of the applicable Client Branded Portals. Any other placements of paid advertising to be included on the Client Branded Portals, if any, shall be as mutually agreed by the Marketing, Search and Advertising Committee. In addition, that Committee will identify the placement, size, frequency, etc. of any intrusive, video, or in-line advertisements. Client shall have the right to identifying specific sites and / or placements to be excluded. Upon Client approval, Synacor may also include a reasonable amount of advertising in Client’s webmail and any other mutually agreed advertising inventory. Additionally, text links and sponsorships may be used in a commercially reasonable manner on the Client Branded Portals with advertising placements as shown in the mockups attached in Attachment A to Schedule B-1 and Attachment A to Schedule B-2 as applicable, or as otherwise agreed by the Parties.
5.
[*]
6.
[*]

7.
Client Provided Advertising . Client may include directly sold advertising on the Client Branded Portals and will use commercially reasonable efforts to ensure that the rates for such advertising are comparable with the rates typically produced by similar online advertising. Any Advertising Revenue earned from Client sales of Advertising inventory shall be subject to the revenue share calculation set forth in Schedule A.

8.
Video Advertising. Synacor may provide on the Client Branded Portals video advertising, however, such video advertising, in addition to complying with Client’s adverting guidelines and prohibited content policies set forth in Attachments A, B and C to this Schedule D, must comply with the Video Advertising Guidelines set forth in Attachment D to this Schedule D.

9.
Training Related to Advertising Sales.   Synacor agrees to provide training to one or more Client representatives related to advertising on the Portal upon Client request up to [*] per year or whenever an substantive release occurs during the Term upon Client’s request.  Such training will be provided to Client in a “train the trainer” format allowing the attendees to subsequently train other Client employees.  Any such training can be provided at Client’s site, and the expenses related to such training shall be reimbursed by Client.  If Client requires additional training, such training will be provided at Synacor’s then-standard rate.

10.
Reporting . Synacor will provide Client with access to detailed tracking reports as provided in Schedule M that will allow Client to monitor the volume of paid and in-house advertising delivered to the Client Branded Portals and the revenue earned (subject to billing corrections and accounting adjustments) there from, provided, that such records will be subject to the confidentiality obligations of the Parties set forth in this Agreement.



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ATTACHMENT A TO SCHEDULE D

Client Advertising Guidelines


This Attachment A to Schedule D is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.


1.
Client Advertising Guidelines

1.1.
Advertising delivered onto the Client Branded Portals must comply with the requirements as set forth herein.  Client may make changes to these guidelines at any time upon written communication, including via email, to Synacor, provided that it gives Synacor reasonable notice and time to comply with such changes. Client shall hold final authority as to whether advertising complies with these guidelines. As such, Client reserves the right to reject or request immediate removal of any advertising that it deems not compliant and shall notify Synacor in such circumstance.  Client may attempt to negotiate changes to the advertising with Synacor, but is not obligated to do so.

1.2.
Synacor shall maintain an advertising review group whose function is to examine all Direct Advertising campaigns and their associated advertisers, and creatives for compliance with Attachments A, B and C to Schedule D, and user experiences upon click for compliance with Attachment B to Schedule D before any publication.  This examination will include at a minimum using commercially reasonable efforts to determine the following:  i) that the campaign satisfies all legal and industry accepted advertising guidelines, including those promulgated by the Federal Trade Commission and follow Interactive Advertising Bureau (IAB) guidelines found at http://www.iab.net, ii)  that the advertising does not violate the law (e.g., libel, copyright, trademark, right of privacy, etc.), iii)  that the advertising is  not misleading, inaccurate or fraudulent  and does not make unfair competitive claims, iv)  that the advertising does not contain any material that falls into the categories on the attached Restricted Categories List or that links to such material, v) that the advertising is not for an advertiser on the attached Verizon Competitors list and does not link to an advertiser on the Verizon Competitors list. Any Advertising that Synacor reasonably believes may be outside of these standards must be reviewed in advance by the Advertising, Search and Marketing Committee and approved by Client.

1.3.
In addition, throughout the term of this agreement, Synacor’s advertising review group shall comply with the following:

1.3.1.
Client Advertising Guidelines :
Prior to publication, in addition to using commercially reasonable efforts to ensure that Direct Advertising does not contain any material that falls into the categories on the attached Restricted Categories List in Attachment B or that links to such material, Synacor will use commercially reasonable efforts to ensure all Direct Advertising campaigns and creatives to be displayed on the Client Branded Portals comply with the Client Advertising Guidelines set forth in this Attachment A to Schedule D. With regard to advertising Synacor sells indirectly through ad networks or otherwise, Synacor will use commercially reasonable efforts to ensure that such third parties do not display advertisements that are not compliant with Attachment B or include any of the Verizon Competitors listed in Attachment C to this Schedule D.

1.3.2.
Client Block Lists
Prior to publication, and other than for Sponsored Links and context sensitive advertising (“AFC” Ads), Synacor will use commercially reasonable efforts to ensure that no advertising campaigns will be delivered to the Client Branded Portals, as applicable, that promote any of the companies on the block list in Attachment C (or products and services of the companies listed therein).  With regard to Sponsored Links and AFC Ads, Synacor will comply with the commitments made in Schedule C related to blocking Verizon Competitors.

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Attachment B: Restricted Categories List

This Attachment B to Schedule D is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

Synacor will examine all Direct Advertisements sold by Synacor prior to publication, to ensure all campaigns and their associated advertisers, creatives and user experiences upon click do not contain or link to the following material. Synacor should contact the designated contact person at Verizon if there is a question as to particular campaigns and their compliance with this requirement:

[*]

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Attachment C: Verizon Competitor List for Advertising

This Attachment C to Schedule D is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

Synacor must examine all Direct Advertisements sold by Synacor prior to publication to ensure all campaigns and their associated advertisers, creatives and user experiences upon click do not contain or link to the following material. Synacor should contact the designated contact person at Client if there is a question as to particular campaigns and their compliance with this requirement.

Synacor will not sell advertising inventory directly to a company included on the following block list, and will provide any third-party ad networks with this list in an effort to ensure such ad networks also block such companies’ advertisements when providing advertising for the Client Branded Portals. The block list is as follows:



1.
[*]

ATTACHMENT D

Advertising Video Guidelines

This Attachment D to Schedule D is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

1.
In- Stream Video (played or viewed from a video player)
a.
[*]
b.
Companion Ads
i.
May have an adjacent ad (also known as companion ad) that appears next to the video player
[*]
iii.
It is important to note that this is a minimum consideration set and that other ad sizes may also be offered by a publisher in addition to at least one of the listed sizes.
iv.
The streaming video ad and the companion ad are both clickable
c.
Controls
v.
Minimum player controls present should be Start/Stop and Volume/On/Off/Softer/Louder.
vi.
Other recommended and acceptable buttons include Fast Forward/Rewind, Pause, Zoom and other Interactive buttons as needed.
1.
All buttons should be enabled throughout the video ad play, with the exception of Fast Forward.
d.
Insertion Point
vii.
Ads can run before (pre-roll), between (mid-roll) or after (post- roll) video content and overlay advertisements.

2.
Ad Submission Recommendations
a.
Technical Specs
[*]

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b.
Aspect Ratio
[*]

3.
Best Practices for Publishers
a.
Video players should gracefully accommodate both aspect ratios (4:3 or 16:9) by adding color bands or adjusting the player size to fit.
b.
Publishers should disclose to advertisers when running multiple ads in a pod during commercial breaks.
c.
Other durations commonly accepted:
[*]
d.
In order to deliver optimal user experiences, publishers should continuously manage and analyze the ratio of ads to content.
e.
It is recommended that frequency capping practices be employed. When frequency capping is practiced, publishers should disclose frequency capping practices to the buyers. Frequency caps will be determined by the Marketing, Search and Advertising Committee.









































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SCHEDULE E
TO
SYNACOR MASTER SERVICES AGREEMENT
PREMIUM OFFERINGS & COMPENSATION SCHEDULE

Provision of Premium Offerings is subject to the terms and conditions in Schedule F and all other provisions of the Agreement unless specifically expressly excluded below. The timing of the implementation of Premium Offerings will be solely at Client’s discretion.

1.    Premium Offerings and Associated Compensation.

In the event Client elects to offer any of the Premium Offerings sourced by Synacor or Premium Offerings sourced by Client, on the Client Branded Portals, the Executive Steering team will (i) select a module compensation structure from the list below; (ii) select a compensation approach from the list below and (iii) negotiate in good faith specific rate(s) for each such Premium Offering; and (iv) develop a mutually agreeable Statement of Work (“SOW”) memorializing the agreement of Client and Synacor as to the Premium Offering. Such SOW development shall be done at the direction of the Executive Steering Committee. Any request by Client for a Premium Offering shall not be unreasonably denied by Synacor. If the Parties cannot agree upon a compensation structure, then the Executive Steering Committee shall intervene and have final decision on the rate structure. This change in the compensation would apply only so long as the Premium Offering was being offered. Client can opt to remove such Premium Offering from the Client Branded Portal in its sole discretion upon [*] notice to Synacor.

[*]

SCHEDULE F
TO
SYNACOR MASTER SERVICES AGREEMENT
CONTENT DISTRIBUTION

This Schedule F is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

3.    Content. The Content to be included in the Client Branded Portal(s) may be Synacor Sourced Content and/or Client Sourced Content. All Portal Content and Premium Content Products are subject to the terms and conditions included in this Schedule. Synacor will provide Client on an ongoing basis throughout the Term an updated list of Synacor Providers which would include a schedule as to the frequency of updates to the Content provided on the Client Branded Portals by the various Synacor Providers.

4.    Content Hosting and Delivery System. [*] Depending upon the implementation of the CMS for Client, hosting and serving of Client Sourced Content may be provided by Client, Client Providers, or Synacor, and hosting and serving of Synacor Sourced Content will be provided by Synacor or Synacor Providers. Through the CMS, upon Client’s prior approval, Synacor can: (i) offer new Content which it has obtained for distribution; (ii) create and modify bundles of Content to be made available to Users.

5.    Terms of Use . Client will include on the Client Branded Portals links to terms of use (“TOU”) related to the Users’ use of the Client Branded Portals. The Parties will work together to ensure that the appropriate links thereto are on the Client Branded Portals. Client agrees to include in such TOU, any restrictions related to the Content, if any, that are set forth in this Agreement that would require notice to or compliance with by the User. Synacor may request that Client amend, modify or otherwise change the TOU, and Client will not unreasonably decline such request, provided, however, that Client agrees to amend the terms of the TOU (i) if new, Client approved, Content is added to the Client Branded Portal and the relevant Synacor Provider requires modification to the TOU in order for its content to appear on the Client Branded Portals, or (ii) if applicable laws require modifications to such TOU. Client acknowledges that individual Content Providers may require separate terms of use to be presented to Users who utilize their Content, and Synacor may include such terms of use on the Client Branded Portals in a mutually agreed location. Client agrees that to the extent a Synacor Provider requires that it be included as a third party beneficiary to the TOU, Client will include such required language in the TOU.

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6.    Licenses.

(a) Subject to the provisions of the Agreement, Synacor grants to Client during the Term, a worldwide limited, non-exclusive, non-transferable, right and license to: (i) display the Synacor Sourced Content, solely on the Client Branded Portals in the United States; and (ii) use and utilize Synacor Provider trademarks, logos and other works which are protected by intellectual property rights laws (the “Synacor Provider Properties”) solely in connection with the display of Synacor Sourced Content to Users pursuant to this Agreement. For clarity purposes, Synacor acknowledges and agrees that any display of the Synacor Sourced Content to individuals who may access the Synacor Sourced Content via the Internet from outside the United States does not constitute a violation of the right and license granted in this Section 4(a).

(b) Subject to the provisions of the Agreement, Client grants to Synacor during the Term, a limited, non-exclusive, non-transferable, royalty‑free right and license to: (i) transmit and distribute individual copies of the Client Sourced Content, solely for purposes of distributing the Client Sourced Content to Users; and (ii) use and utilize such Client and Client Provider trademarks, logos and other works which are protected by intellectual property rights laws (the “Client Properties”) in connection with the distribution of Content to Users pursuant to this Agreement. Synacor expressly agrees that it shall not, and shall not permit any third party to, duplicate, copy, modify, amend, add to, delete from or otherwise make any change whatsoever in the Client Sourced Content or otherwise violate any intellectual property rights in the Client Sourced Content including but not limited to copyrights of third parties therein.    

(c) As to individual pieces of Content, the rights and licenses to use such Content as granted herein shall expire upon the expiration or earlier termination of the agreement pursuant to which distribution rights and licenses to such Content are made available, and neither Synacor nor Synacor’s Provider shall have any liability in such event, except as set forth below in this Section 5(c). Either Party shall have the right to have particular Content promptly removed upon notice to the other Party: (i) if the distribution of such Content has exposed or is reasonably expected to expose it to potential legal liability; or (ii) in the event a Synacor Provider or Client Provider ceases to operate a site, or produce or distribute such Content. In the event there is a change to Content hereunder, Synacor will provide Client notice and replacement Content as provided in Section 2.8 of the Master Agreement.

7.    Content Provider Requirements.

(a)    Client acknowledges and agrees that the look, feel, size and placement of any Synacor Sourced Content on the Client Branded Portal (and any change or modification thereof), may be subject to requirements or limitations from the Synacor Providers, and the Parties will work together to address such requirements or limitations. Client understands and agrees that Client may need to include additional terms, conditions and restrictions on the use of such Synacor Sourced Content in its TOU.

(b)    Client will not, at any time, permit access to the Synacor Sourced Content by any access method other than through the Client Branded Portal(s) unless approved in advance by Synacor. If Client wishes to use the Synacor Sourced Content other than as permitted herein, and Synacor does not currently have the rights for such use, Synacor will use commercially reasonable efforts to obtain such rights from the Synacor Provider. To the extent such rights are able to be obtained; the Parties will address the appropriate business model for such use, and mutually agree in writing to the new use as associated business model.

(c)    User access to the Premium Content Products or Premium Offerings may, upon mutual agreement of the Parties, be included either as a stand alone product or as part of Client’s tiered offerings to the extent authorized in Schedule E. Client will not permit access to Synacor Sourced Premium Content Products or Premium Offerings to anyone who is not a paid subscriber to such Synacor Sourced Premium Content Products or Premium Offering, unless approved in advance by Synacor.

(d)    Client will not (i) interfere with Synacor Sourced Premium Content by sending any interstitials, pop-up windows, or other messages or files to the User during the time in which any Synacor Sourced Premium Content is displayed on the Synacor Provider’s site, or by having interstitials inserted immediately prior to the Synacor Provider’s page load that are monetized or (ii) sell any advertising in, on, or related to any Synacor Sourced Content, including but not limited to banners, buttons, links, streaming audio or streaming video advertisements unless approved in advance by Synacor. In connection with Synacor Sourced Content distributed pursuant to this Agreement, without the prior submission to Synacor of any relevant materials which Synacor may request (including but not limited to web pages) and unless Client has obtained Synacor’s written approval, Client will not use the name, logo or any of the proprietary marks of any Synacor Provider in any sales, advertising or marketing materials.

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SCHEDULE G
TO
SYNACOR MASTER SERVICES AGREEMENT
SERVICE LEVEL AGREEMENT AND CUSTOMER SUPPORT PROCEDURES

This Schedule G is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.
             
SERVICE LEVELS

I. General

Synacor shall provide the agreed to service levels seven (7) days a week, twenty-four (24) hours a day, consisting of threshold performance standards, monitoring, notification, repair of service outages, and maintenance, as well as compliance with Search, Advertising, Content and Security guidelines as set forth in this Service Level Agreement (“SLA”). Synacor (with Client’s input when necessary) will track and report on each category included herein and for each significant incident will provide a written ‘After Action Review Report’ identifying: (a.) the appropriate elements involved such as incident description, time of occurrence, duration, type of User affected and components impacted, and other elements as appropriate; (b) analysis of the root cause(s) of the incident; (c.) activities undertaken to correct this incident; and (d) plans to ensure the incident does not recur. These After Action Review Reports will be summarized with all other activities including activities not specifically identified in an After Action Review Report in monthly reports as needed to help determine if a Standard or Chronic violation has occurred. Client’s representatives on the appropriate governance committee(s) will be responsible to review, concur, or escalate the assessments of responsibility.

It is expected that the evaluation of Synacor’s performance against this SLA will be evaluated on a monthly basis beginning [*] from the date of activation of this SLA.

This SLA excludes events resulting from acts of God, war, acts by civil or military authorities, and energy shortages inclusive of fuel providers, except if such deficiency would have been avoided by properly designed, redundant solutions),
Incident system fixes and / or work-arounds will conform to the priority schedule identified in the Standard Priority Response Time Table in Customer Support Procedures, Section 2 below.

[*]

The SLAs and other Synacor obligations contained in this Schedule G apply only to those Services provided by Synacor, and specifically exclude products or services contributed by Client (including but not limited to the non-Synacor provided portions of Version 2.1 of the Consumer Portal) and any issues cause by Client or Client’s provided products or services.

II. Monitoring and Notice to Client

In an effort to detect potential problems before they impact the availability and performance of the system or services, Synacor continuously monitors the status of the systems using both automated and manual tools employed in its 24 by 7 network operations center (NOC). Synacor shall poll for the symptoms of P1 and P2 outages [*]

III. Portal Availability and Portal Performance:

A.
Portal SLA.
(i)
“Portal Availability” means that the Client Branded Portal is fully functional with [*] average uptime in any calendar month. For these purposes, “Fully Functional” means that the applicable service is continuously operable, available, and responsive to Client’s Users without significant delay or malfunction at any time.

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[*]

C. Subset Measurement. [*]

D.    Portal Availability SLA Non-Performance Consequences. If Client makes a request to Synacor within [*]of receipt of the SLA performance data after the end of the month in which Synacor failed to meet the Portal Availability SLA, the SLA Non-Performance Consequences set forth below will be applied to Client’s account for such month. To the extent possible, the adjustment will be applied during the billing period following the month in which such failure occurs (or as soon thereafter as possible) and shall be detailed as a separate line item on the revenue share report, but in no event later than the following month . For example if adjustment is due for failure(s) that occurred in the month of September, such adjustment(s) will be applied to the October billing period.

[*]

E.
Chronic Failure to Meet Portal Availability SLA. [*]

F.
Reporting From Synacor. For any month in which the Portal Availability SLA is missed, within [*] of notification, Synacor will provide a complete written explanation as to why this offense occurred and what operational processes are in place to correct this offense from occurring again. To the extent there is a commercially reasonable correction available, should the reason for the failure not be corrected within [*], the Parties agree to convene the appropriate committee to discuss the reasons for such delayed correction and determine a mutually agreed upon timeframe for correction.

[*]

V. Client Changes and/or Actions

In the event Client or Synacor requests changes to be made, the Parties will use commercially reasonable efforts to comply with the following:

1.
Client and Synacor will produce a Change Control Matrix identifying what tasks are considered business as usual and what tasks require a change control
2.
All changes must be tested prior to the change being scheduled. The testing process for the change must be documented and linked to the change request.
3.
All changes require at least [*] advance notification prior to implementation, unless considered an emergency change, in which case approval and implementation may be less than [*]
4.
All change controls must have an assigned event number that can be historically tracked.
5.
All changes must have an attached Method of Procedure (MOP) that can be reviewed in advance.
6.
All changes must document how success / failure will be determined. That procedure will be included in the MOP
7.
All changes must have a documented back out procedure within the MOP
8.
If a change is backed out, it must be completed prior to [*] Eastern time unless otherwise agreed. The Parties will work together to ensure that the agreed upon maintenance window is long enough to allow for implementation and a possible back out before such time.
9.
Backed out changes will be reviewed for the root cause of the failure. The testing of the repair must be documented and completed before a follow up change is scheduled.
10.
Client reserves the right to cancel or reschedule a Synacor change if it conflicts with another planned change, provided however, if the Synacor change is critical, Verizon may cancel the conflicting change instead. In the event Verizon cancels a Synacor change, and an incident occurs that would have been avoided by such change, such incident shall not be included in the calculation of the SLA.
11.
Synacor must comply with all Client planned network quiet periods and directed moratoriums, and Client shall comply with all Synacor planned network quiet periods and directed moratoriums.
12.
All change controls will be performed in a maintenance window. This does not apply to repairs necessary to recover from an outage.
13.
Synacor will disclose to Client which infrastructure, if any, is shared with other Synacor customers. To the extent is it commercially reasonable to do so, such shared infrastructure will be redundant.

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14.
Synacor will use commercially reasonable efforts to ensure that changes in shared infrastructure based on another client’s request do not impact Client's service. Verizon change management requirements apply to all infrastructure shared with Verizon.

Client acknowledges that they may have the ability to take actions or make any changes which may adversely affect the performance of the Services. In some cases, Synacor may be able to mitigate the risk of the actions or changes as described in the table below; provided however, that this risk mitigation will require Client to provide notice to Synacor of their intent to make these changes, as well as all pertinent details, in advance of the actual change. In the event Client does not provide reasonable notice (as set forth in the table below), Synacor will not be responsible for any downtime, degradation or other SLA-related problems that were caused, in whole or in part, by the change. Some examples of when notice is required to be given to Synacor are delineated below. However, Client should always provide a reasonable amount of notice to Synacor before taking any actions or making any changes that may adversely affect the performance of the Services, and Synacor reserves the right to require a postponement of any actions that it reasonably believes requires mitigation before deployment.


Action / Change
Risk
Synacor Mitigation
Required Notification
Addition, by the Client, of third-party content or application to the System (for example, advertising or marketing promotions)
JavaScript, Flash or other types of code added to pages may affect performance of page, or cause it not to load completely in the event of network problems between consumer and third-party service.
Synacor will perform a “crash test” to determine if the pages will be affected by faulty scripting or unreachable hosts. At request of Client, Synacor will also work with third party to minimize risk. Based on the result of the crash test, Synacor will make a recommendation to Client. If risk cannot be further mitigated, Synacor will not be responsible for issues arising from implementation of the service.
Full technical details of proposed change [*]prior to implementation.
Insertion, by the Client or its delegates, of HTML content using Synacor’s content publishing interfaces and API’s.
Improperly formed HTML can cause web pages to be incorrectly displayed. Excessive iframes or similar entities, or the inclusion of large files, can slow the portal or cause heightened server load. Improper use of the CMS can cause pages or content to be removed.
Synacor will provide consulting services related to HTML at request of Client. Synacor will provide HTML and CMS management services in accordance with Master Services Agreement.
A minimum of [*] notice is needed for consultation; Client should notify Synacor as early as possible for complex projects.
Addition of new cookies to portal or webmail domain by Client or third party acting on behalf of Client.
Cookies affect the size of our log files, as well as the incoming bandwidth. Some third-party providers set as much as 1kb of cookies, which are transmitted to Synacor on every request for a page or image. For a large Client, this small change can constitute over 20 GB of log files per day.
Synacor will analyze the affect of the additional cookies, and ensure that the log rotation processes and the network connections can accommodate the extra traffic.
[*] prior to implementation.

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Promotions or other actions intended to drive significantly more traffic to the portal.
A significant increase in traffic can affect the utilization of the network, servers, and other components of the service.
Synacor typically provides an N+1 server configuration at minimum and allocates extra network capacity to accommodate normal increased usage. Analysis of the expected traffic will allow us to determine whether additional hardware or network capacity is necessary.
Synacor should be involved in all marketing promotions as early as possible. A minimum of [*] notification is required for all changes expected to increase usage [*]
Changes to Synacor-facing API’s and data exchange mechanisms.
If login or Client data API’s change, consumers may be unable to log in or access services.
Synacor will need to change all integration code, perform Unit and Regression testing, and then release the code to the Production servers. This is normally a four to eight week process.
Notification is requested a minimum of [*] prior to implementation.
Changes to Client’s network.
Variable risk depending on scope of change.
Synacor’s network team will assess the impact of the change.
Synacor requires [*] notice of maintenance or testing that may have an impact on access to Synacor services or products.
Changes / configurations to Name Service including MX Record
Access to service may be disrupted; variable risk depending on scope of change.
Synacor’s network team will assess the impact of the change.
A minimum of [*] notice is needed for consultation.

VI. Security

Synacor and Client agree to an initial Security Committee meeting to integrate the Policies and Processes needed to ensure integrated proactive and reactive security processes are jointly developed and in place prior to launch. Synacor’s and Client’s Security Teams proactively evaluate security risks, develop and implement policies and incident prevention programs, educate management and staff about security policies, and handles computer security incidents.

System Intrusion - In the event of a system intrusion by an unauthorized person or malicious code, affected parties will be notified and a solution will be implemented. Notification will occur upon confirmation by Synacor’s Security Team that there was a bona fide intrusion event. Where Client identifies a security incident, Synacor agrees to work with Client’s security team to expeditiously resolve the incident and develop solutions to ensure they do not reoccur.

Network Security Synacor maintains network firewalls to prevent unauthorized access to the network infrastructure and systems. Network attacks such as denial-of-service attacks are logged. Synacor will notify Client when such attacks are verified. Any new threats that emerge will be addressed with industry standard solutions as soon as commercially feasible and threats deemed by Client to be sufficiently severe will result in a meeting with the parties within 8 hours to jointly develop a plan to resolve the incident or find suitable work arounds until such resolution may be affected.

In the event Synacor’s failure to implement industry standard practices related to system intrusion and network security have caused chronic instances of system intrusion or chronic failure of its network security, Client shall have the right to terminate this Agreement pursuant to Section 7.4 of the Master Agreement. Chronic instances of system intrusion and failure of network security will be deemed to have occurred when:
a)
There have been [*] or more instances in a rolling [*] period of system intrusion that (i) has had a material impact on the Service including but not limited to a material commercial impact, material impact on functionality of the portal, or material impact to safety of the user data, and (ii) is related to publicly known, preventable threats.
b)
There have been [*] or more instances in a rolling [*] period where Synacor’s lack of industry standard practices related to network firewalls has caused a failure to prevent unauthorized access to the network which resulted in a material impact on the Service including but not limited to a material commercial impact, material impact on functionality of the portal, or material impact to safety of the user data.


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VII. Load Balancing and Disaster Recover y.
(a) Load Balancing: Synacor will provide and / or support load balancing and disaster recovery services related to the Client Branded Portal.  The Parties agree a load balancing solution may require Synacor and / or Verizon to implement a second location and the Parties agrees to pursue such performance solutions in an expeditious manner, not to exceed [*] for the Effective Date of this Agreement. As part of launching the ‘load-balancing’ solution, actual testing of the service will be required to ensure validity of the solution and a pre-requisite for sign-off by both Synacor and Verizon.  During this testing period, issues that may arise will not be considered for the purposes of calculating Portal unavailability or Chronic Portal unavailability.
(b) Establishment of Secondary Data Center for Disaster Recovery and Maintenance Purposes : Upon launch of Version 3.0 of the Consumer Portal, Synacor and Client will provide a mechanism by which a minimal version of the start page can be quickly deployed in an emergency. The intent is for this page to be delivered as quickly as possible under one hour depending on the architecture as determined by the Parties. The emergency start page will at a minimum include access for Users to log into email and Client’s self service tools.
Synacor will provide the following disaster recovery solution related to the Client Branded Portal within [*] of the Effective Date of the Agreement. Synacor's disaster recovery plan takes into account the partial or full destruction of Synacor's primary data center and the need to minimize outages during Maintenance Windows. For purposes of this Agreement, the term “Disaster” shall apply to any event which prevents the Synacor data center infrastructure from providing the Client Branded Portal services as agreed upon by both parties.  Such events may include full or partial destruction of Synacor's primary data center facility, failure of redundant access circuits to said facility, fires, loss of power, and earthquakes or floods affecting the facility.  Such events may also include systemic failures of shared equipment within the facility and / or within Synacor's cages due to hardware or software issues.
Under the terms of this Agreement, Synacor’s Disaster Recovery objectives consist of restoring the Client Branded Portals services at Synacor’s secondary data center, which shall be in a geographically diverse location from the primary data center, at normal production capacity within a [*] period from the time of "declaration of disaster”. In addition, Synacor will, when necessary in its reasonable judgment, use the secondary data center to minimize outages during Maintenance Windows. “Declaration of disaster” will occur upon mutual agreement of the parties except that Synacor shall declare such disaster independently upon evidence that such is necessary as soon as possible should a Verizon representative be unable to timely participate in such declaration triggering a restoral action. Client understands and agrees that the period beginning upon declaration of disaster during which transition is made to the disaster recovery site (up to four hours) shall not count against Portal Availability commitments if they are caused by one of the exclusions in Section I “General” above.
Synacor shall ensure the Client Branded Portals; toolbar support and any other support item in the scope of this agreement code and subscriber data / preferences are backed up to the secondary Synacor data center not less frequently than on a daily basis. When Synacor’s load balancing solution is in place – this backup shall be near real time.

VIII. Scheduled Maintenance Windows
[*]

IX. Emergency Maintenance Notification

In the event that emergency maintenance is required and it will adversely affect Client’s Users, Synacor will make reasonable efforts to notify Client about the emergency maintenance window. Notification will be based on practicality and the degree of adverse affect on the applicable service or availability thereof. Emergency maintenance windows are counted against Portal Availability percentages (as applicable), unless Synacor and Client mutually agree otherwise in writing (timely acknowledged email approval being sufficient for this purpose).


X. Customer Support Procedures.

A. Incident Management

Tier 1 – Client will provide first level support to Users, consisting of (i) handling questions from Users regarding customer/technical support, order processing, and use of the Service; and (ii) accepting and responding to problem calls from Users relating to the Service as set out in agreement; (iii) supporting User devices and underlying Client systems and architecture; (iv) providing notification to Synacor of changes, maintenance, outages of underling systems that may affect Service.

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Tier 2/Tier 3 – Synacor will provide second level and escalated support to Client, consisting of (i) accepting and responding to problem escalations reported by Users or representatives of Client with regard to problems that cannot be resolved by Client, (ii) resolving reported problems as set forth in the agreement, (iii) providing notification to Client of changes, maintenance, outages of underlying systems that may affect Service, (iv) initial and ongoing training to Tier 1 related to services Synacor sources or manages for Client, (v) regular support of weekly (or other agreed upon period) Operational review meetings to detect and resolve current call drivers and planning for modifications and updates.

Synacor will provide Client and Users (in the case of Users, Tier 2 and Tier 3 level support) the following:
(i)
Technical Support offered in English.
(ii)
Email address for submitting 2 nd level support incidents to Synacor.
(iii)
Phone support 24 hours, 7 days a week.

B. Priority

Client will determine the priority at the time the incident is reported. The priority can change in accordance with the definitions below if the impact to the Client has been reduced since the incident was reported.
Incidents will be categorized by product category, with the following priorities definitions:
Priority 1 (P1) means that the system or service is completely or substantially non-operational that causes severe commercial impact, including, but not limited to, an outage of a Client Branded Portal or of the Web Search Service.
Priority 2 (P2) means that a problem with the system or service that causes significant commercial impact. This includes, but is not limited to, latency issues that impact the customer experience and major content and/or advertising components that are non-operational or significantly degraded.
Priority 2A (P2A) means that an advertisement or content element or search result has been identified as being in violation of the terms of this agreement and for which Client has no directly available mechanism to correct.
Priority 3 (P3) means a less significant problem or incident with the system or service where Client or Users are able to continue utilize the system or service with an applicable workaround.
Priority 4 (P4) means a problem or incident that does not qualify as a priority 1, 2, or 3 incident.
Support response time means the elapsed time between the receipt of incident escalation and the target time within which Synacor begins support as verified by a verbal or email confirmation to Client.
Standard Support Response times are as follows:
Incident Priority
Initial Response
System Fix or Workaround Implemented
P1
[*]
[*]
P2
[*]
[*]
P2A
[*]
[*]
P3
[*]
[*]
P4
[*]
[*]

Synacor will be responsible for the control and management of incident calls, assignment of priority and escalation to resources within Synacor in their sole and absolute discretion. Client will have access into Synacor’s tracking system as needed to confirm issues have been logged and to understand status. Synacor will ensure that inquiries about incidents will be supported via phone calls or emails with response times not to exceed [*] during business hours and [*] during non-business hours. In the event of an outage where the Client Branded Portal is completely unavailable, troubleshooting will be performed on a conference bridge. The perceived fix owner will host the bridge and make it accessible by either Verizon or Synacor for progress monitoring and information exchange.

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Escalations are to be utilized in the event that acceptable status and/or resolution is not accomplished by the Synacor Support Team in the timeframes indicated.

C.
Tier 2 and Tier 3 Responsiveness Failures. Notwithstanding the foregoing, in the event that Synacor fails to remedy a Priority 1 problem within [*] of receipt of notification from Client and such failure affects the SLAs, Synacor shall provide the credit to Client set forth above. In the event that the Agreement is terminated or cancelled for any reason as of the end of the then current month, Synacor shall apply the credit owed for such month against the last payment issued by Synacor. For the avoidance of doubt, a Priority 1 problem shall not be considered resolved if the same problem arises within [*] following declaration by Synacor that the originally reported Priority 1 problem was resolved. Additionally, resolution of a Priority 1 problem by Synacor in one instance shall not preclude recovery of credits by Client for any subsequent unresolved Priority 1 problems, pursuant to the terms of this paragraph, in the same month or in any subsequent month. The credit in any given month shall not exceed the monthly fee that would otherwise apply (e.g. if no credits were applied against such fee) for the month in which such failure or unavailability occurred.

XI. Escalation Path.

The escalation process consists of the reporting, troubleshooting, diagnosis, and resolution processes. All incidents are assigned to a Synacor Support Engineer substantially in accordance with the Standard Support Response Times set forth herein. However, Synacor may choose from time to time to handle issues outside of the escalation path indicated below if, in Synacor’s sole judgment, such issues either need to be escalated more quickly or can be resolved without escalation.



Escalation Levels


Escalation Response Time

Synacor
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
 
 
 

Schedule H – Implementation Planning and Targeted Timelines

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This Schedule H is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

Synacor and Verizon agree to cooperate in the creation and implementation of an integrated Project Plan to expedite the delivery of Services in a commercially feasible manner. The key targeted deliverables and targeted delivery dates for each of the portal experiences described in Schedule B shall be:

[*]


The Parties agree that the foregoing timeframes are target dates, and that they are subject to change.








SCHEDULE I
Content Management

This Schedule I is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

I. Synacor shall provide Client with Site and News Management tools for Client to review content and
allow Client to manage Content without Synacor involvement as required by Client in its sole
discretion and as set forth herein.

II.
Site Management Tool.

(a) Synacor’s Site Management tool allows Verizon to manage the content of specific areas within a
page, and publish pages directly each as specified in this Section II, and gives Verizon the capability to test changes in Synacor’s QA environment prior to rolling them to production if desired.

(a) The Site Management Tool supports a user permissions model so that Content can be developed,
previewed and approved by different stakeholders within Client’s organization before being released to production.

(c)     The Site Management Tool may be used by Client to perform the following tasks:
Editing of specific content areas on the Home, News, Entertainment and Resources pages, using predefined templates developed by Synacor. The Parties will determine the initial design and content areas that can be managed by Client within [*] from Client’s written request for use of the Site Management Tool for a given component.

III. News Management Tool.

(a)
Synacor will develop a News Management Tool to allow Client to edit/disqualify specific content at Client’s discretion within the permissions set in the News Management Tool. Synacor’s News Management Tool will allow Client’s editors to edit headlines, eliminate stories from displaying within categories, and move stories between categories.  The functionality of the tools will be independent of the delivery method chosen. This functionality will be developed by Synacor within [*] of the execution of this Agreement, based on Client requirements documented by Client in writing and provided to Synacor as of the Effective Date, and will initially support news content at a minimum. For the avoidance of doubt, the provision of the News Management Tool will not affect Synacor’s content editing and management responsibilities, but Client’s changes shall over-ride Synacor’s edits. The News Management Tool in its completed form will include functionality allowing the user of the Tool to:

i. View news stories in a convenient List View that displays title, status

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(blocked or not), date and last modified.
ii. Filter news stories by source news feed via a pull down menu.
iii. Search for a specific news story by entering the story ID.
iv. Block (deactivate) and unblock (activate) news stories.
v. View a selected news story in popup window that displays details such
as photo (if any), photo caption, news text.
vi. Edit the ‘Title’ of a selected news story.
vii. Edit the ‘Photo Caption’ of a selected news story.
viii. Correct errors in the news ‘Story Text’.

(b)
During the period that the News Manager is not available for Client’s use, Synacor will be responsible for manually performing the functions as described above, upon Client request and within a mutually agreed upon timeframe subject to Section 2.8 of the Master Agreement. If Client wishes to include or remove Client Sourced Content before the News Management Tool is available, or otherwise is not able to publish or remove such content using such tool, Client shall notify Synacor and Synacor shall use commercially reasonable efforts to publish or remove the Client Sourced Content in mutually agreed upon components in the timeframes specified in Schedule G, provided that such standard shall only apply to up to [*] per day.

IV. Synacor’s right to remove Content. Notwithstanding anything herein to the contrary, Synacor shall
have the right to remove any Content edited by Client which (i) Synacor reasonably believes to be offensive, misleading, or potentially in violation of copyrights or other intellectual property rights of third parties, (ii) Synacor otherwise reasonably believes may create legal risk, or (iii) Synacor is requested by the relevant content provider to remove.

V. Synacor’s Content Management Obligations related to the Small Business Center: Synacor will use commercially reasonable efforts to comply with the following obligations throughout the Term beginning upon launch of Business Phase 2:
    
(a) Synacor shall review and correct the Home/Overview, News and Resources pages of the Small Business Portal, as well as any sub-channels on the Small Business Portal provided by Synacor under this Agreement, for any feed, display or other technical content problems, such as those listed below.
i.    Feeds not updating
ii.     Truncated words
iii.    Photos distorted
iv.    Foreign characters or symbols
v.    Video player malfunctions

(b.)
Synacor shall review and correct any issues on the Home/Overview, News and Resources pages of the Small Business Portal, as well as any sub-channels on the Small Business Portal provided by Synacor under this Agreement, for any feed, display or other editorial content problems, such as:

i.
Inappropriate content for business audience on the Small Business Portal
ii.
Excessive headline or content source length
iii.
Repetitive headlines
iv.
Old dates
v.
PR and advertorial content

(c.) Synacor shall use commercially reasonable efforts to ensure that Content served under this Agreement shall be optimized for search engine discovery and ranking.        


SCHEDULE J
TO
SYNACOR MASTER SERVICES AGREEMENT
[*]

 

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This Schedule J is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

[*]

SCHEDULE K
TO
MASTER SERVICES AGREEMENT

VERIZON TRADEMARK LICENSE

This Schedule K is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

1. Subject to the terms and conditions specified in this Agreement, Verizon hereby grants to Synacor, for the Term of this Agreement, a limited, non-exclusive, non-transferable and royalty free right and license to use the trade names, trademarks and service marks [*] and the [*] (hereinafter “Verizon Licensed Marks”) exactly as depicted in the graphic configuration for the Verizon Licensed Marks furnished by Verizon to Synacor , but only in conjunction with the marketing by Synacor hereunder and solely in the Verizon region in accordance with this Agreement. Verizon may in its sole discretion at any time add to or delete from the Verizon Licensed Marks and change the graphic configuration of the Verizon Licensed Marks.
    
2. Synacor agrees that the style of use of the Verizon Licensed Marks shall be in the form and style conforming to Verizon’s trademark licensing affiliate’s (“Verizon Licensing Company’s”) trademark usage guidelines and Brand Identity Standards, as updated from time to time, and as provided with reasonable advance written notice to Synacor by Verizon Licensing Company. Synacor shall not use any of the Verizon Licensed Marks as part of its corporate name, trade name, business name or Internet domain name. Any new marks that Verizon adds to its list must not be confusingly similar to any then-current existing Synacor-owned Marks.

3. Synacor shall submit to Verizon Licensing Company for review and approval in a commercially reasonable timeframe prior to proposed use, all advertising, sales brochures, promotional materials, video and audio tapes, telemarketing scripts, press releases, and other items or materials, in which the Verizon Licensed Marks are used (“Materials”) to the representative listed below for review and approval at least [*] prior to proposed use. Subsequent changes to previously submitted material still in the approval process will be approved within [*] unless otherwise agreed to by the Parties. Synacor shall not publish, distribute or use any Materials without the prior written approval of the following representative of Verizon Licensing Company:
Primary Contact:

[*]

The representative designated above shall be responsible for communicating the approval or disapproval of the Materials utilizing the Verizon Licensed Marks to Synacor in the timeframe noted above.

4. Notwithstanding the foregoing, Synacor may designate at the time of submission that the requested approval is for multiple/repetitive, identical uses on the same medium. Synacor may request approval for such multiple/repetitive, identical use for a period not to exceed twelve (12) months or through the end of the Term of this Agreement, whichever is less. Such multiple/repetitive, identical use shall be in accordance with the Services and shall be subject to revocation by Verizon upon written notice to Synacor.

5. Verizon reserves the right, in its sole discretion and without cause, to refuse to approve any proposed Synacor use of the Verizon Licensed Marks.

6. Synacor acknowledges that Verizon’s affiliate, Verizon Trademark Services LLC (“VTS”) is the sole and exclusive owner of rights in the Verizon Licensed Marks, undertakes not to challenge the validity of the Verizon Licensed Marks, or VTS’ registration and ownership of the Verizon Licensed Marks, and agrees that it will do nothing inconsistent with such ownership.

7. Synacor further acknowledges and agrees that all use of the Verizon Licensed Marks by Synacor and all goodwill developed therefore shall inure to the benefit of and be on behalf of VTS who is the owner of the Verizon Licensed Marks.

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8. Synacor agrees that nothing in this Agreement shall give Synacor any right, title or interest in or to the Verizon Licensed Marks other than the right to use the Verizon Licensed Marks in the manner contemplated by this Agreement, and only for so long as this Agreement is in force.

9. Synacor agrees that it will not utilize the Verizon Licensed Marks or any confusingly similar trademarks, service marks, trade names or domain names, except in connection with the marketing under the service launch as permitted hereunder and then only during the Term of this Agreement.

10. Synacor agrees that it will not hereafter seek registration of the Verizon Licensed Marks or any similar trademarks, service marks, trade names or domain names in its own name or in the name of its affiliates.

11. Synacor agrees to cooperate reasonably with Verizon, at Verizon’s expense, in the procurement of any registration of the Verizon Licensed Marks which Verizon may choose to undertake at Verizon’s sole discretion, including, but not limited to supplying evidence of use of the Verizon Licensed Marks to Verizon.

12. Infringement.

12.1 Synacor agrees to use commercially reasonable efforts to notify Verizon promptly of any unauthorized use of the Verizon Licensed Marks by others, to the extent Synacor has actual notice of such use. Verizon and its parent and affiliated companies shall have the sole right to engage in infringement or unfair competition proceedings involving the Verizon Licensed Marks.

12.2 Action by Verizon. Verizon shall have the right, but not the obligation, to challenge and attempt to eliminate each unauthorized use. Synacor, at Verizon’s expense, shall reasonably cooperate with Verizon in investigating, prosecuting and settling any infringement action instituted by Verizon against any person or entity engaging in an unauthorized use. Synacor, at its own expense, shall have the right to participate with counsel of its own choice in the investigation, prosecution and/or settlement of any such infringement action instituted by Verizon.

12.3 Recoveries. Any recovery obtained in connection with or as a result of any infringement action contemplated under this section, whether by settlement or otherwise, shall be retained by Verizon.

13. Upon termination or expiration of the Services, the license to use the Verizon Licensed Marks granted hereunder shall terminate and Synacor shall promptly cease any use of such Verizon Licensed Marks. Except for materials kept for archival purposes, Synacor shall also promptly destroy or return to Verizon all advertising, sales brochures, promotional materials, video and audio tapes, telemarketing scripts, press releases, and other items and materials in its possession or control, which use or display the Verizon Licensed Marks.

SCHEDULE L
TO
SYNACOR MASTER SERVICES AGREEMENT

GOVERNANCE COMMITTEE REPRESENTATIVES

This Schedule L is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.


[*]



SCHEDULE M
TO
SYNACOR MASTER SERVICES AGREEMENT
REPORT EXAMPLES
 

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This Schedule M is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

Synacor shall extract data from various sources (including web logs, web analytics tools, ad vendors) to build custom reports as set forth herein. In no event shall any report contain any CPNI or Customer Personal Information, or information that can be disassembled or dissected so that a User could be identified or Client could be identified, except to the extent mutually agreed by the Parties in writing. Theses reports shall be Confidential and neither the data included in those reports, nor the actual reports will be shared with any third parties except in the form of aggregate data as agreed in the Master Agreement. These reports shall be available to Client online at all times or by email depending on the source of the applicable report.

1. Reporting Requirements.
[*] Synacor will work with Verizon to ensure that each portal site can be properly benchmarked – as a site as well as by channel - by competitive benchmarking tools including, but not limited to, Nielsen and comScore.
Synacor will provide reporting as follows:
1. 2. Synacor will provide the following reports through a secured, web-based interface along with FTP archived and email report options to Client designated personnel:
[*]

1.2.6. User Satisfaction. The Parties will agree to a methodology for reporting about User satisfaction which methodology may include
[*]

1.2.5 A/B and Multivariate Testing Results. Synacor will provide reports covering any optimization and testing activities on the sites with the following metrics built into each report;
[*]

1.3. All reports should be provided to Client showing data in the aggregate as well as being able to be dissected at any level of the portal site hierarchy. In any event no data collected or provided shall be allowed to be dissected or disassembled to show the identity of Users.
1.4. Synacor shall provide samples of Synacor’s current standard reporting, but not include HBX reporting samples. Copies of such standard samples shall be attached hereto as Schedule WW.
1.5. All reports, including the information contained therein, the use and disclosure of such information shall be subject to this Agreement, Client’s Privacy Policy, and to applicable laws, rules and regulations, and will not reveal Client as the source of the information. Synacor shall not provide the information, contained in any report provided by Client to Client’s Competitor(s).
The report examples below are illustrative of the type of reports and the type of data that Synacor will provide to Client:
[*]

2.0 Online Reporting
Synacor shall provide Client with a web-based reporting interface where Client can view daily traffic and export data for the Client-Branded Portals.
[*]

3. Analytical Tools
Adobe SiteCatalyst is Synacor’s 3
rd -party analytics solution of choice as of the Effective Date. Synacor has expertise in both in advanced implementation and report development within the SiteCatalyst report suite and will provide Client with in-depth reporting in response to Client’s reasonable requests.

[*]

4. Web log and user data

[*]

5. Reporting for Synacor Content on Verizon hosted pages
For any content (components, widgets) that is pulled in and served on Client hosted pages Synacor will provide tracking on the number of times such content was requested along with clickstream activity. Synacor will also make tracking modifications to

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this content to pass data to Client’s hosted page analytics within a reasonable time in Synacor’s standard development cycle after receiving the requirements from Verizon.

6.
Initial Reporting Requirements.
The Parties understand and agree that the reporting requirements herein are the initial requirements and may change from time to time upon mutual agreement of the Parties.














SCHEDULE N
TO
SYNACOR MASTER SERVICES AGREEMENT
ESCROW AGREEMENT
(Attached separately)

This Schedule N is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

 
The Parties agree that this Agreement is the complete agreement between the Parties hereto concerning the subject matter of this Agreement and replaces any prior or contemporaneous oral or written communications between the Parties. There are no conditions, understandings, agreements, representations, or warranties, expressed or implied, which are not specified herein. Each of the Parties herein represents and warrants that the execution, delivery, and performance of this Agreement has been duly authorized and signed by a person who meets statutory or other binding approval to sign on behalf of its business organization as named in this Agreement. This Agreement may only be modified by mutual written agreement of the Parties.
Note: If contracting electronically via the online portal, clicking the “I Accept” button displayed as part of the ordering process, evidences ¨ Depositor’s ” or ¨ Beneficiary’s ” agreement to the preceding terms and conditions (the “Agreement”). If you are entering into this Agreement via the online portal on behalf of a company or other legal entity, you represent that you have the authority to bind such entity to these terms and conditions, in which case the terms “you” or “your” shall refer to such entity. If you do not have such authority, or if you do not agree with these terms and conditions, you must select the “I Decline” button.
 

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CHOOSE ONE:   x   DEPOSITOR or   Â BENEFICIARY
 
IRON MOUNTAIN INTELLECTUAL PROPERTY MANAGEMENT, INC.
 
 
 
 
 
S IGNATURE :
 
/s/ Brian C. Neeson
 
S IGNATURE :
 
P RINT  N AME :
 
Brian C. Neeson
 
P RINT  N AME :
 
T ITLE :
 
Controller
 
T ITLE :
 
D ATE :
 
May 19, 2005
 
D ATE :
 
E MAIL  A DDRESS
 
[*]
 
E MAIL  A DDRESS :
ipmcontracts@ironmountain.com
A UTHORIZED P ERSON ( S )/N OTICES T ABLE
Please provide the name(s) and contact information of the Authorized Person(s) under this Agreement; All Notices will be sent electronically and/or through regular mail to the appropriate address set forth below.
 
P RINT  N AME :
 
[*]
 
P RINT  N AME :
 
[*]
T ITLE :
 
[*]
 
T ITLE :
 
[*]
E MAIL  A DDRESS
 
[*]
 
E MAIL  A DDRESS
 
[*]
S TREET  A DDRESS  1
 
50 Fountain Plaza-Ste 1520
 
S TREET  A DDRESS  1
 
50 Fountain Plaza-Ste 1520
P ROVINCE /C ITY /S TATE
 
Buffalo, NY
 
P ROVINCE /C ITY /S TATE
 
Buffalo, NY
P OSTAL /Z IP  C ODE
 
14,202

 
P OSTAL /Z IP  C ODE
 
14,202

P HONE  N UMBER
 
[*]
 
P HONE  N UMBER
 
[*]
F AX  N UMBER
 
1-716-332-0080
 
F AX  N UMBER
 
1-716-332-0080
B ILLING C ONTACT I NFORMATION T ABLE
Please provide the name and contact information of the Billing Contact under this Agreement. All Invoices will be sent electronically and/or through regular mail to the appropriate address set forth below.
 
P RINT  N AME :
 
[*]
 
 
T ITLE :
 
[*]
 
Approved as to Operational Content:
E MAIL  A DDRESS
 
[*]
 
Iran Mountain Operations
S TREET   ADDRESS  1
 
50 Fountain Plaza-Ste 1520
 
 
/s/ Yolanda Cranberry
P ROVINCE /C ITY /S TATE
 
Buffalo, NY
 
Name:
 
Yolanda Cranberry,
P OSTAL /Z IP  C ODE
 
14,202

 
 
 
Contracts Administrator
P HONE  N UMBER
 
[*]
 
Date:  
 
April 26, 2005
F AX  N UMBER
 
1-716-332-0080
 
 
 
 
IRON MOUNTAIN INTELLECTUAL PROPERTY MANAGEMENT, INC.
All notices should be sent to ipmcontracts@ironmountain.com OR Iron Mountain, Attn: Contract Administration, 2100 Norcross Parkway, Suite 150, Norcross, Georgia, 30071, USA.
 

E XHIBIT A

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CONFIDENTIAL
[*] = CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.


CONFIDENTIAL TREATMENT REQUESTED

E SCROW S ERVICE W ORK R EQUEST
 
 
 
 
 
 
 
 
 
SERVICE
Check box (es) to order
service
SERVICE DESCRIPTION
 
ONE-TIME
FEES
 
ANNUAL
FEES
  
PAYING PARTY
Check box to identify the Paying Party
for each service below.
   Add and Manage New Escrow Account
Iron Mountain will open a new escrow deposit account that includes a minimum of one (1) Depositor and one (1) complete set of Deposit Material. All Deposit Material will be securely stored in controlled vaults that are owned and/or operated by Iron Mountain. Account services include unlimited deposits, electronic vaulting, access to Iron Mountain Connect™ Escrow Management Center for secure online account management and submission of electronic Work Requests, and secure destruction of deposit materials upon account termination.
 
Iron Mountain will assign a Client Manager for each escrow account. These Managers will provide client training from time to time to facilitate secure Internet access to escrow account(s). Assigned Managers will also ensure timely fulfillment of client Work Requests (e.g., deposit updates, new beneficiary enrollment) and communication of status.
 
[*]
 
[*]
  
  Depositor -   OR   -     Beneficiary
   Add and Manage Auxiliary Account
Iron Mountain will open and manage an Auxiliary Deposit Account for a new product or depositor in accordance with the service description immediately above and the Agreement that governs the Initial Deposit Account#                                          .
 
N/A
 
[*]
  
  Depositor -   OR   -     Beneficiary
   Add Deposit Tracking Notification
Iron Mountain will send periodic notices to Depositor and/or Beneficiary related to Deposit Material as specified within the terms of the agreement
 
N/A
 
[*]
  
  Depositor -   OR   -     Beneficiary
   Add Beneficiary
Iron Mountain will fulfill a Work Request to add a new Beneficiary to an escrow account, where possible, and provide notice as appropriate to all relevant Parties.
 
N/A
 
[*]
  
  Depositor -   OR   -     Beneficiary
   Add Initial Verification of Deposit Material
Iron Mountain will fulfill a Work Request to perform initial Verification Services, which includes a final report sent to Client, on Deposit Material to ensure consistency between Depositor’s representations (i.e., Exhibit B and Supplementary Questionnaire) and stored Deposit Material. For a more detailed description see Verification Services Options below.
 
N/A
 
[*]
  
  Depositor -   OR   -     Beneficiary
   Add Custom Verification of Deposit Material
Iron Mountain will fulfill a Work Request to perform one or more levels of custom Verification Services, which includes a final report sent to Client. on Deposit Material, Client and Iron Mountain will agree on a custom Statement of Work (“SOW”) prior to the start of fulfillment For a more detailed description see Verification Services Options below.
 
Custom
Quote
Based
on
SOW
 
Custom
Quote
Based on
SOW
  
  Depositor -   OR   -     Beneficiary
   Add Dual Vaulting
Iron Mountain will fulfill a Work Request to store deposit materials in one additional location as defined within the Service Agreement Duplicate storage request may be in the form of either physical media or electronic storage.
 
N/A
 
[*]
  
  Depositor -   OR   -     Beneficiary
   Release Deposit Material
Iron Mountain will process a Work Request to release Deposit Material by following the specific procedures defined in Exhibit C “Release of Deposit Materials” the Escrow Service Agreement.
 
[*]
 
N/A
  
  Depositor -   OR   -     Beneficiary

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CONFIDENTIAL TREATMENT REQUESTED

   Add Custom Services
Iron Mountain will provide its Escrow Expert™ consulting Services (e.g., licensing escrow strategy development, dual/remote vaulting, account consolidation) based on a custom SOW mutually agreed to by all Parties.
 
[*]
 
N/A
  
  Depositor -   OR   -     Beneficiary
   Delete Account
Iron Mountain will fulfill a Work Request to terminate an existing escrow account by providing notice to all Parties to the Agreement, removing Deposit Material from the vault and then either securely destroying or returning the Deposit Material via commercial express mail carrier as instructed All accrued Services Fees must be collected by Iron Mountain prior to completing fulfillment to terminate an existing escrow account.
 
[*]
 
[*]
  
[*]
   Replace/Delete Deposit Materials
Iron Mountain will replace/delete deposit material in accordance with the terms of the agreement. Materials will be returned as directed by depositor or destroyed using Iron Mountain Secure Shredding
 
[*]
 
[*]
  
[*]
Upon Escrow Service Agreement execution, please provide your initials below in the appropriate location to indicate your acceptance of this Escrow Services Work Request inclusive of agreed Services pricing and indication of which Party is financially responsible for payment of specific Services.
 
D EPOSITOR  I NITIALS
 
 
  
B ENEFICIARY  I NITIALS
 
 
Note: Clients may submit Work Requests electronically through their escrow account online OR may complete this form along with any other supporting exhibits required and email and/or fax this Work Request to their assigned Client Manager at Iron Mountain for fulfillment.


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CONFIDENTIAL TREATMENT REQUESTED

V ERIFICATION S ERVICES O PTIONS

1.
Initial Verification – Consistency.
 
1.1.
Iron Mountain shall perform an initial verification (“ Initial Verification ”) of the Deposit Material upon receipt of the first deposit and for each update. To help perform this evaluation, Iron Mountain will examine the Exhibit B, and request that the Depositor complete an Escrow Deposit Questionnaire. Iron Mountain will then analyze the Escrow Deposit Questionnaire and Exhibit B, prepare and deliver a report to Depositor and Beneficiary containing its finding(s) and opinion(s) as to the Deposit consistency based on the information supplied. Iron Mountain’s report will include information regarding:
 
1.1.1.
The hardware and software configuration(s) needed to read the Deposit Material media associated with the Exhibit B;
 
1.12.
The software needed to interpret the data read from the media (i.e. Zip, tar, cvs type files); and
 
1.1.3.
The hardware and software configurations needed to compile the software product defined by the Exhibit B.
 
1.2.
Iron Mountain’s Systems Analysts will also be available to discuss the Initial Verification’s technical consistency evaluation and other deposit verification issues. Iron Mountain’s higher levels of verification address issues of readability, inventory, ability to be compiled or other testing as requested by a Party.
2.
Level One (1) – Inventory.
 
2.1.
This series of verification tests provides insight into whether the necessary information required to recreate the Depositor’s development environment has been properly stored in escrow. These tests detect errors that often inhibit effective use of the escrow deposit.
 
2.2.
Steps include:  Analyzing deposit media readability, virus scanning, developing file classification tables, identifying the presence/absence of build instructions, and identifying materials required to recreate the Depositor’s software development environment.
 
2.3.
Deliverables:  At completion of testing, Iron Mountain will distribute a report to Beneficiary detailing Iron Mountain’s investigation. This report will include build instructions, file classification tables and listings. In addition, the report will list required software development materials, including, without limitation, required source code languages and compilers, third-Party software, libraries, operating systems, and hardware, as well as Iron Mountain’s analysis of the deposit When identifying materials required to re-create Depositor’s software development environment, Iron Mountain will rely on information provided in Depositor’s completed questionnaire (obtained via a Iron Mountain verification representative) and/or information gathered during Iron Mountain’s testing experience.
 
3.
Level Two (2) – Build.
 
3.1.
This series of tests includes a standard effort to compile the Deposit Material and build executable code.
 
3.2.
Steps include:  Recreating the Depositor’s software development environment, compiling source files and modules, linking libraries and recreating executable code.
 
3.3.
Deliverables:  Iron Mountain will provide a report detailing the steps necessary to recreate the software/hardware development environment, problems encountered with testing, and Iron Mountain’s analysis of the deposit.
 

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4.1.3.
Option C  – Iron Mountain recreates the runtime environment for the licensed technology and installs the executables created during the Level II testing into that environment. (The environment is generally “scaled down” from the actual live environment) Iron Mountain then runs test scripts supplied by the Beneficiary and provides a report of the test results to all Parties. This may require Depositor approval.
 
4.1.4.
Services may be provided by Iron Mountain or individuals or organizations employed by or under contract with Iron Mountain, at the discretion of Iron Mountain.
 

CONFIDENTIAL TREATMENT REQUESTED
E XHIBIT B
D EPOSIT M ATERIAL D ESCRIPTION
Deposit Account Number:                    
C OMPANY NAME :                                         
D EPOSIT N AME                                           AND D EPOSIT V ERSION          (Deposit Name will appear in account history reports)
D EPOSIT M EDIA (P LEASE L ABEL A LL M EDIA WITH THE D EPOSIT N AME P ROVIDED A BOVE )
 
 
 
 
 
 
 
 
 
 
M EDIA  T YPE
 
Q UANTITY
 
 
 
M EDIA  T YPE
 
Q UANTITY
 
 
 
 
 
   Internet File Transfer
 
N/A
 
 
 
   3.5” Floppy Disk
 
 
 
 
 
 
 
   CD-ROM / DVD
 
 
 
 
 
   Documentation
 
 
 
 
 
 
 
   DLT Tape
 
 
 
 
 
   Hard Drive / CPU
 
 
 
 
 
 
 
   DAT Tape
 
 
 
 
 
   Circuit Board
 
 
 
 
 
 
 
   Other (describe here):
 
 
 
 
 
 
 
 
D EPOSIT E NCRYPTION (Please check either “Yes” or “No” below and complete as appropriate)
Is the media or are any of the files encrypted? ¨ Yes or ¨ No
If yes, please include any passwords and decryption tools description below. Please also deposit all necessary encryption software with this deposit.
 
Encryption tool name
 
 
Version
 
Hardware required
 
 
 
 
Software required
 
 
 
 
Other required information
 
 
 
 
D EPOSIT C ERTIFICATION (Please check the box below to Certify and Provide your Contact Information
 

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  I certify for Depositor that the above described Deposit Material has been transmitted electronically or sent via commercial express mail carrier to Iron Mountain at the address below.
 
  Iron Mountain has inspected and accepted the above described Deposit Material either electronically or physically. Iron Mountain will notify Depositor of any discrepancies.
N AME :
 
 
N AME :
 
 
D ATE :
 
 
D ATE :
 
 
E MAIL  A DDRESS :
 
 
 
T ELEPHONE  N UMBER :
 
 
 
F AX  N UMBER :
 
 
 
Note: If Depositor is physically sending Deposit Material to Iron Mountain, please label all media and mail all Deposit Material with the appropriate Exhibit B via commercial express carrier to the following address:
Iron Mountain Intellectual Property Management, Inc.
Attn: Vault Administration
2100 Norcross Parkway, Suite 150
Norcross, GA 30071
Telephone: (770) 239-9200
Facsimile: (770) 239-9201
 

E XHIBIT C
R ELEASE O F D EPOSIT MATERIAL
Iron Mountain will use the following procedures to process any Beneficiary Work Request to release Deposit Material.
1.
Release Conditions . Depositor and Beneficiary agree that Iron Mountain will provide notice via electronic mail and/or regular mail to the Depositor if a Beneficiary under this Agreement submits a Deposit Material release Work Request based on one or more of the following conditions (defined as “ Release Conditions ”);
(i)
Breach of the License Agreement by the Depositor for the Deposit Material covered under this Agreement; or
(ii)
Failure of the Depositor to function as a going concern or operate in the in the ordinary course; or
(iii)
Depositor is subject to voluntary or involuntary bankruptcy.
2.
Release Work Request . A Beneficiary may submit a Work Request to Iron Mountain to release the Deposit Material covered under this Agreement, Iron Mountain will send a written notice of this Beneficiary Work Request within five (5) business days to the authorized Depositor representative(s).
3.
Contrary Instructions . From the date Iron Mountain mails written notice of the Beneficiary Work Request to release Deposit Material covered under this Agreement, Depositor representative(s) shall have ten (10) business days to deliver to Iron Mountain contrary, instructions (“Contrary Instructions”). Contrary Instructions shall mean the written representation by Depositor that a Release Condition has not occurred or has been cured. Contrary Instructions shall be on company letterhead and signed by an authorized Depositor representative, Upon receipt of Contrary Instructions, Iron Mountain shall send a copy to an authorized Beneficiary representative by commercial express mail. Additionally, Iron Mountain shall notify both Depositor representative(s) and Beneficiary representative(s) that there is a dispute to be resolved pursuant to the Disputes provisions of this Agreement. Iron Mountain will continue to store Deposit Material without release pending (i) joint instructions from Depositor and Beneficiary that accept release of Deposit Material; or (ii) dispute resolution pursuant to the Disputes provisions of this Agreement; or (iii) receipt of an order from a court of competent jurisdiction.

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4.
Release of Deposit Material . If Iron Mountain does not receive Contrary Instructions from an authorized Depositor representative, Iron Mountain is authorized to release Deposit Material to the Beneficiary or, if more than one Beneficiary is registered to the deposit, to release a copy of Deposit Material to the Beneficiary. Iron Mountain is entitled to receive any uncollected Service fees due Iron Mountain from the Beneficiary before fulfilling the Work Request to release Deposit Material covered under this Agreement. This Agreement will terminate upon the release of Deposit Material held by Iron Mountain.
5.
Right to Use Following Release . Beneficiary has the right under this Agreement to use the Deposit Material for the sole purpose of continuing the benefits afforded to Beneficiary by the License Agreement and/or Master Services Agreement. Notwithstanding, the Beneficiary shall not have access to the Deposit Material unless there is a release of the Deposit Material in accordance with this Agreement. Beneficiary shall be obligated to maintain the confidentiality of the released Deposit Material.
 

E XHIBIT D
A UXILIARY D EPOSIT A CCOUNT T O THREE - PARTY M ASTER E SCROW SERVICE
A GREEMENT
(N OTE : T O B E C OMPLETED O NLY IF D EPOSITOR E STABLISHED A THREE - PARTY M ASTER E SCROW SERVICE A GREEMENT )
Initial Deposit Account Number:                    
               (“ Depositor ”) has entered into a Three-Party Master Escrow Service Agreement with Iron Mountain Intellectual Property Management, Inc. (“ Iron Mountain ”). Pursuant to that Agreement, Depositor may deposit certain Deposit Material with Iron Mountain.
Depositor desires that new Deposit Material be held in a separate account and be maintained separately from the initial account. By execution of this Exhibit E, Iron Mountain will establish a separate account for the new Deposit Material. The new account will be referenced by the following name:                                        .
Depositor hereby agrees that all terms and conditions of the existing Three-Party Master Escrow Service Agreement previously entered into by Depositor and Iron Mountain will govern this account. The termination or expiration of any other account of Depositor will not affect this account.
 
CHOOSE ONE:   Â   DEPOSITOR or   Â BENEFICIARY
 
 
 
IRON MOUNTAIN INTELLECTUAL PROPERTY MANAGEMENT, INC.
 
 
 
 
 
S IGNATURE :
 
 
 
 
 
S IGNATURE :
 
 
P RINT  N AME :
 
 
 
 
 
P RINT  N AME :
 
 
T ITLE :
 
 
 
 
 
T ITLE :
 
 
D ATE :
 
 
 
 
 
D ATE :
 
 
E MAIL  A DDRESS
 
 
 
 
 
E MAIL  A DDRESS :
 
ipmcontracts@ironmountain.com
 

E XHIBIT E
E NROLLMENT F ORM
Deposit Account Number:                    
Depositor, Beneficiary and Iron Mountain Intellectual Property Management, Inc. (“Iron Mountain”), hereby acknowledge that                                         is the   ¨    “ Depositor ” or   ¨    “ Beneficiary ” referred to in the Three-Party Master Escrow Service Agreement that supports Deposit Account Number:                                         with Iron Mountain as the escrow agent and                                         is the   ¨    Depositor or   ¨    Beneficiary enrolling under this Agreement.    ¨    “ Depositor ” or    ¨   “ Beneficiary ” hereby agrees to be bound by all provisions of such Agreement.

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A UTHORIZED P ERSON ( S )/N OTICES T ABLE
Please provide the name(s) and contact information of the Authorized Person(s) under this Agreement. All Notices will be sent electronically and/or through regular mail to the appropriate address set forth below.
 
P RINT  N AME :
 
 
 
P RINT  N AME :
 
 
T ITLE :
 
 
 
T ITLE :
 
 
E MAIL  A DDRESS
 
 
 
E MAIL  A DDRESS
 
 
S TREET  A DDRESS
 
 
 
S TREET  A DDRESS
 
 
P ROVINCE /C ITY /S TATE
 
 
 
P ROVINCE /C ITY /S TATE
 
 
P OSTAL /Z IP  C ODE
 
 
 
P OSTAL /Z IP  C ODE
 
 
P HONE  N UMBER
 
 
 
P HONE  N UMBER
 
 
F AX  N UMBER
 
 
 
F AX  N UMBER
 
 
B ILLING C ONTACT I NFORMATION T ABLE
Please provide the name and contact information of the Billing Contact under this Agreement. All Invoices will be sent to this individual at the address set forth below.
 
P RINT  N AME :
 
 
T ITLE :
 
 
E MAIL  A DDRESS
 
 
S TREET  A DDRESS  1
 
 
P ROVINCE /C ITY /S TATE
 
 
P OSTAL /Z IP  C ODE
 
 
P HONE  N UMBER
 
 
F AX  N UMBER
 
 
IRON MOUNTAIN INTELLECTUAL PROPERTY MANAGEMENT, INC.
All notices should be sent to ipmcontracts@ironmountain.com OR Iron Mountain, Attn: Contract Administration, 2100 Norcross Parkway, Suite 150, Norcross, Georgia, 30071, USA.
N OTE : S IGNATURE BLOCKS F OLLOW ON T HE N EXT P AGE
 
 
DEPOSITOR
 
 
 
BENEFICIARY
 
 
 
 
 
S IGNATURE :
 
 
 
 
 
S IGNATURE :
 
 
P RINT  N AME :
 
 
 
 
 
P RINT  N AME :
 
 
T ITLE :
 
 
 
 
 
T ITLE :
 
 
D ATE :
 
 
 
 
 
D ATE :
 
 
E MAIL  A DDRESS
 
 
 
 
 
E MAIL  A DDRESS :
 
 
 
IRON MOUNTAIN INTELLECTUAL PROPERTY MANAGEMENT, INC.
 
 
S IGNATURE :
 
 
P RINT  N AME :
 
 
T ITLE :
 
 
D ATE :
 
 
E MAIL  A DDRESS :
 
ipmcontracts@ironmountain.com
 

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EXHIBIT Q
E SCROW D EPOSIT Q UESTIONNAIRE
Introduction
From time to time, technology escrow beneficiaries may exercise their right to perform verification services. This is a service that Iron Mountain provides for the purpose of validating relevance, completeness, currency, accuracy and functionality of deposit materials.
Purpose of Questionnaire
In order for Iron Mountain to determine the deposit material requirements and to quote fees associated with verification services, a completed deposit questionnaire is requested. It is the responsibility of the escrow depositor to complete the questionnaire.
Instructions
Please complete the questionnaire in its entirety by answering every question with accurate data. Upon completion, please return the completed questionnaire to the beneficiary asking for its completion, or e-mail it to Iron Mountain Technology Escrow Services to the attention of Shane Ryan at shaneryan@ironmountain.com.
Escrow Deposit Questionnaire
General Description
1
What is the general function of the software to be placed into escrow?
2
On what media will the source code be delivered?
3
What is the size of the deposit in megabytes?
Requirements for the Execution of the Software Protected by the Deposit
1
What are the system hardware requirements to successfully execute the software? (memory, disk space, etc.)
2
How many machines are required to completely set up the software?
3
What are the software and system software requirements, to execute the software and verify correct operation?
Requirements for the Assembly of the Deposit
1
Describe the nature of the source code in the deposit. (Does the deposit include interpreted code, compiled source, or a mixture? How do the different parts of the deposit relate to each other?)
2
How many build processes are there?
3
How many unique build environments are required to assemble the material in the escrow deposit into the deliverables?
 


4
What hardware is required for each build environment to compile the software? (including memory, disk space, etc.)
5
What operating systems (including versions) are used during compilation? Is the software executed on any other operating systems/version?

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6
How many separate deliverable components (executables, share libraries, etc.) are built?
7
What compilers/linkers/other tools (brand and version) are necessary to build the application?
8
What, if any, third-party libraries are used to build the software?
9
How long does a complete build of the software take? How much of that time requires some form of human interaction and how much is automated?
10
Do you have a formal build document describing the necessary steps for system configuration and compilation?
11
Do you have an internal QA process? If so, please give a brief description of the testing process.
12
Please list the appropriate technical person(s) Iron Mountain may contact regarding this set of escrow deposit materials.
Please provide your contact information below
Name:
 
 
 
 
 
Telephone:
 
 
 
 
 
Company:
 
 
 
 
 
Address:
 
 
 
 
 
City, State
 
 
 
Postal Code
 
Country:
 
 
 
 
 
E-mail:
 
 
 
 
 
For additional information about Iron Mountain Technical Verification Services, please contact
Shane Ryan at 978-667-3601 ext. 100 or by e-mail at mailto: shaneryan@ironmountain.com .
www.ironmountain.com













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SCHEDULE O
TO
SYNACOR MASTER SERVICES AGREEMENT

CLIENT COMPETITORS FOR CHANGE OF CONTROL PROVISION


This Schedule O is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

The list set forth below is a list of Client Competitors for purposes of Client’s rights under the change control provision of the Agreement. Client reserve the right to modify this list upon [*] written notice to Synacor.

[*]

 







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[*] = CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

CONFIDENTIAL TREATMENT REQUESTED

AMENDMENT #1
TO
MASTER SERVICES AGREEMENT

This Amendment #1 to Master Services Agreement (“Amendment No. 1”) effective as of December 20, 2012 (“Amendment No. 1 Effective Date”) is between Synacor, Inc. (“Synacor”) and Verizon Corporate Services Group Inc., acting on behalf of itself and its Affiliates, including Verizon Online LLC (“Verizon” or “Client”) under which the Parties hereto mutually agree to modify and amend the Master Services Agreement , dated as of July 25, 2011 (including Supplements and, together with the Master Agreement, the “Agreement”). All terms defined herein shall be applicable solely to this Amendment No. 1. Any capitalized terms used herein, which are defined in the Agreement and not otherwise defined herein, shall have the meanings ascribed to them in the Agreement.

WHEREAS, Verizon as an Internet Service Provider (“ISP”) maintains several web portals through which Verizon delivers content and certain functionality; and

WHEREAS, Synacor provides web portal solutions for ISPs; and

WHEREAS, Verizon currently engages with Synacor to have Synacor provide a white labeled portal solution using Synacor for delivery of web search, advertising, general interest content and other functionality through such web portal solution; and

WHEREAS, Verizon is preparing to centralize its online video search and discovery experiences as well as launch new offerings;

WHEREAS, Verizon desires to utilize the services of Synacor to extend Verizon’s current offering of TV Everywhere services to Users; and

WHEREAS, Verizon and Synacor desire that Synacor provide to Verizon the additional services described in this Amendment No. 1, in accordance with the terms set forth herein; and

WHEREAS, the Parties desire to modify certain terms and conditions of the Agreement, including but not limited to the addition of additional services as defined herein, as further described herein.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Parties agree as follows:

1.
Video Search and Discovery Services. The Master Agreement is modified by adding a new Schedule P, “Video Search and Discovery Services” to the Agreement, which schedule is attached hereto as Exhibit A to this Amendment No.1 and made a part hereof.

2.
TV Everywhere Services.

(a)
The Master Agreement is modified by adding a new Schedule Q, “TV Everywhere Services” to the Agreement, which schedule is attached hereto as Exhibit B to this Amendment No.1 and made a part hereof.

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(a)
[*]
1.
Section 2.1 of Agreement. Section 2.1 of the Agreement is modified by      replacing the first sentence of that section with the following:
“Subject to the terms and conditions of this Master Agreement, as may be amended in a writing signed by the Parties, Synacor shall provide the following services to the Client, hereinafter referred collectively as the "Services": (a) Portal Services as set forth in Schedule B including related infrastructure and hosting; (b) Search Services as set forth in Schedule C; (c) Advertising Services as set forth in Schedule D; (d) Synacor provided Premium Offerings as set forth in Schedule E; (e) Technical Support, Operations Support, Security, Content Management and other components of the Client Branded Services as defined by Service Level Agreements in Schedule G, (f) Content Management as set forth in Schedule I, (g) Video Search and Discovery Services as set forth in Schedule P, and (h) TV Everywhere Services as set forth in Schedule Q.”
2.
[*]
3.
[*]
4.
[*]
5.
Counterparts. This Amendment No. 1 may be executed in two (2) or more counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument. The exchange of a fully-executed Amendment No. 1 (in counterparts or otherwise) by fax or other electronic means shall be sufficient to bind the Parties to the terms and conditions of this Amendment No.1.
6.
Press Release. Each Party may issue a press release related to the relationship established under this Amendment promptly after Amendment Effective Date. Such press release must be approved by the other Party.


The remainder of this page is intentionally left blank.











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CONFIDENTIAL
[*] = CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

CONFIDENTIAL TREATMENT REQUESTED


1.
Entire Agreement. This Amendment represents the complete and exclusive statement of the mutual understanding of the Parties and supersedes all previous written and oral agreements and communications relating to any of the subject matter of this Amendment. Except as explicitly modified, all terms, conditions and provisions of the Agreement shall continue in full force and effect.


IN WITNESS WHEREOF , the Parties hereto have executed this Amendment as of the Amendment Effective Date.

SYNACOR, INC.
VERIZON CORPORATE SERVICES GROUP INC.

By: ___ /s/ Scott Bailey _________             By: ___ /s/ Maitreyi Krishanasi _____
Name: __ Scott Bailey _________             Name: __ Maitreyi Krishanasi _____
Title: ___ Chief Financial Officer ______             Title: ___ Director, FIOSTV _______

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Exhibit A to Amendment No. 1 to the Master Services Agreement


This Exhibit A is attached to and constitutes a material part of Amendment No. 1 to the Master Services Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

SCHEDULE P
TO
SYNACOR MASTER SERVICES AGREEMENT

VIDEO SEARCH AND DISCOVERY SERVICES

This Schedule P is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

The following establishes the terms and conditions by which the Parties will work together to facilitate the delivery of search and discovery services to Client's Users .

1. Summary of Services.

Because of changes to the structure of the MyVerizon site(s), Client desires to have changes reflected in the overall navigation and structure of the “Video” sections including: FlexView, TV Online, TV Listings as well as Synacor provided solutions for video and series aggregation. Synacor will bring “Video Entertainment” components together in a way that is easy for consumers to search and explore such video content.

1.
Client responsibilities:

(a)
Client agrees to provide Synacor reasonable cooperation, assistance, information and access throughout the term of the Search and Discovery Services, and that failure to do so may negatively impact Synacor’s provision of the Search and Discovery Services. In such event, Synacor shall be excused from such performance to the extent Client’s unreasonable action or omission has caused a delay in or otherwise prevented Synacor’s performance hereunder.

(b)
Client, after testing and acceptance, may accept Synacor’s syndicated header/navigation/search bar to be included on Verizon hosted FlexView/On Demand, TV listings and other TV-related pages.

2.
Synacor Responsibilities.
(a)
Synacor will work with Client to agree on a methodology for passing a search query from the aggregated search bar to the Flexview search results page.

(a)
Synacor agrees to provide Client reasonable cooperation, assistance, information and access throughout the term of the Search and Discovery Services, and that failure to do so may negatively impact Client’s responsibilities.

(b)
Synacor will provide the following deliverables to Client :
i.
Custom navigation to support Verizon Start page navigation and masthead changes

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i.
Custom layout of Primetime landing page (now called "Movies & TV") that prominently features TV Everywhere partners with their content
ii.
Aggregated Search that enables search queries to be directed to the correct engine (Verizon or Synacor)
   
Exhibit B to Amendment No. 1 to the Master Services Agreement

This Exhibit B is attached to and constitutes a material part of Amendment No. 1 to the Master Services Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

SCHEDULE Q
TO
SYNACOR MASTER SERVICES AGREEMENT

TV EVERYWHERE SERVICES

This Schedule Q is attached to and constitutes a material part of the Agreement. Unless otherwise defined herein, capitalized terms shall have the meaning set forth in the Agreement.

The following establishes the terms and conditions by which the Parties will work together to facilitate the delivery of TV Everywhere services to Client's Users .

Overview : Client desires to provide a subset or all of its subscribers the opportunity to consume Programmer Content (as defined below) online pursuant to the subscriber’s agreement with Client and Client’s agreement with the applicable Programmers (as defined below), and to define the criteria by which such consumption will be made available to its subscribers. Synacor will provide an authentication and entitlement service whereby the criteria of eligibility for subscribers will be determined from data provided by Client to Synacor combined with data received by Synacor from Programmers. Such determination will then be communicated as appropriate to enable subscribers to consume relevant associated Programmer Content. Subject to the terms and conditions of set forth in this Schedule Q and the Agreement, Synacor shall provide its authentication and entitlement service and other related services as further described in Schedule Q (the “TV Everywhere Services”).


1.
TV EVERYWHERE SERVICES DESCRIPTION
The following is a description of the TV Everywhere Service as it will be initially provided to Client. Synacor may update the processes, procedures, tools or technologies it uses from time to time, upon written notice to Client, but the fundamental nature of the TV Everywhere Services will remain consistent unless mutually agreed by the Parties hereto.

TV Everywhere System Overview: Synacor shall provide to Client under the terms and conditions of the Agreement, the TV Everywhere Services utilizing the SES, as defined below. The SES performs the following functions:

Expanding Client’s efforts as identity provider (IdP) to Programmer Properties and other service providers (SPs) authenticating Users, [*]

[*]

Answer authorization queries regarding content and services to which an authenticated user is entitled based on their current active subscription with Client.

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Provide to Programmers designated by Client authentication and authorization information related to both [*] as needed [*]
Integrate with Client backend systems for both [*]
Provide additional user data to Programmers, such as parental control settings, as authorized by Client.

Cache data from the Client systems as desired by Client to reduce load on Client backend systems.

Provide a rules engine to support additional flexibility in the authorization communication between Client and Programmers.

Provide via the Client Branded Portal and other delivery mechanisms a user interface to display [*] as provided by Programmer or other content providers, and enable appropriately authenticated and authorized Users to find and view Programmer Content.

Ingest metadata to support the User experience on the Client Branded Portal, and availability of such data via APIs as needed by Client.

2.
Definitions. The following definitions shall only apply to the TV Everywhere Services as described In this Schedule Q:
(a)
“CDN” means content delivery network.
(b)
Channel ” means an online counterpart to a single television channel. For example: ESPN1 and ESPN2 are each single television channels, and all Programmer Content associated with such television channels that is to be provided online shall be considered a Channel. Any given Programmer may own the rights to Programmer Content on a number of Channels.
(c)
“TV Everywhere User ” means a residential video subscriber that, based on data provided by Client to Synacor, is authorized to receive the relevant Programmer Content.
(d)
GUID ” means a globally unique identifier.
(e)
Programmer ” means a provider of Programmer Content.
(f)
Programmer Content ” means television video programming accessible online only by authenticated Users, and any logos, trademarks, service marks, meta data, or other materials owned and/or made available by a Programmer.
(g)
SES ” means the Synacor TV Everywhere System that is a modular mediation platform.
(h)
“Transition Period” shall have the meaning set forth in Section 5(c) of this Schedule Q.
(i)
“Transition Services” shall have the meaning set forth in Section 5(c) of this Schedule Q.

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3.
Client Responsibilities.
(a)
Client Cooperation:
i.
Client agrees to provide Synacor reasonable cooperation, assistance, information and access related to integrating each of the Programmers and throughout the term of the TV Everywhere Service and that failure to do so may negatively impact Synacor’s provision of the TV Everywhere Service. In such event, Synacor shall be excused from such performance to the extent Client’s unreasonable action or omission has caused a delay in or otherwise prevented Synacor’s performance hereunder.
ii.
Client will integrate with Synacor for authentication/authorization such that Synacor may explore the following information for Users: subscribed channels, account status (primary or sub), Parental Control values, etc. to enable front-end visual indicators and proper page flows based on entitlement state.
iii.
Client will secure content metadata and syndicated player rights and provide integration details to Synacor based on a separate time schedule, in order to provide ample time for integration, testing and deployment.
(b)
Client Backend Integration with the SES Platform: For the purposes of authentication and authorization, Client will supply appropriate APIs or interfaces to integrate with the SES platform. The Parties hereto will mutually agree to the appropriate authentication integration method, but regardless of such integration method[*] Only the integration between Client and the [*] will be necessary, which need not involve integration with the Synacor identity federation or use of SAML or similar technologies.
(c)
[*]

(d)
Provision of Programmer Content: Client will work with Synacor so that the Programmer makes available or, as appropriate, provides to Synacor all Programmer Content and all related players and other third party products or services provided by the Programmer (including updates thereto and maintenance thereof) necessary to display the Programmer Content as contemplated by this Schedule Q.

(e)
Rights to Programmers’ Content: Client will ensure that it has all applicable rights and licenses necessary from all Programmers with which it wishes Synacor to integrate its SES (i) to allow Synacor to perform its obligations under this Schedule Q, (ii) to allow Users to access, view, or consume such Programmer’s Content on Client’s website(s), and if agreed between Client and Programmer, then on Programmer’s Properties, (iii) to utilize or allow Synacor to utilize all embedded players and other third party products or services necessary to display the Programmer Content as contemplated by this Schedule Q, and (iv) to allow Synacor to display Programmer trademarks, service marks, or other logos for the purpose of providing the TV Everywhere Services. [*] If at any time during the term of the Amendment, such rights terminate or are modified in any way that affects the TV Everywhere Services provided hereunder; Client will provide Synacor written notice thereof within no more than [*] after Client becomes aware of such termination or modification. If the termination or modification will be effective in less than [*] from the date Client becomes aware thereof, Client will provide notice to Synacor immediately upon its awareness thereof. In the event such rights or licenses are terminated, Client will promptly modify its backend systems to disallow Client’s subscribers from accessing, viewing or consuming Programmer’s Content on Client’s website and such Programmer’s Properties using the SES. If such rights or licenses are modified, Client will make the necessary changes to comply with such modification.

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(f)
TV Everywhere Data: Client understands and agrees that the authorization that occurs through the TV Everywhere Services is based on Client’s data that identifies which Users are authorized to access certain Programmer Content online because of their subscription to the relevant television channel or otherwise. Client agrees that [*] and will provide Synacor continuous access to such data, and will [*] not, at any time, permit access to the Programmer Content to any Users who are not entitled to such access. Synacor agrees that such data is owned by Client, and Synacor shall only have the right to use such data to fulfill its obligations under this Schedule Q of the Agreement. Client [*] such that each Programmer provides Synacor the necessary Programmer Content, data and assistance to perform the integration with such Programmer.
(g)
Compliance with Programmer Requirements: Programmers may from time to time, require Synacor [*] to pass through to [*] Client certain requirements in order to allow the integration of such Programmer’s Content with the SES. To the extent a Programmer has specified any such requirements to Synacor, Synacor will provide Client [*]
(h)
Test Accounts: Client will, upon Synacor’s written request, supply at least [*] test accounts to enable Synacor to effectively test (in test and production environments) all software releases related to the TV Everywhere Services. These accounts are to be maintained by Client throughout the Term for the testing of regular software releases and monitoring of the product functionality in the live environment. As account profiles change and functionality is added, Client will provide additional test accounts or modify existing test accounts as reasonably requested by Synacor ,and agreed to by the Client. Client acknowledges that without the test accounts, Synacor is not able to properly test and monitor the proper functioning of the software underlying the TV Everywhere Services and Client's specific implementation thereof.
4.
Synacor Responsibilities; User Information; Deliverables.
(a)
Integration: [*] Synacor will provide a Movies and TV based channel on the portal and a full search and discovery experience using the metadata provided by Programmers. Synacor will work with Client and Programmers to promote Programmer Content as approved by Client. Where a Programmer has required specific display of metadata and promotion of assets on the Client Branded Portal, Synacor will work with Client in a commercially reasonable manner, to assist Client with its compliance with such requirement and determine the final disposition of the Client Branded Portal, display of metadata, and User experience. However, Client agrees that upon receipt of any such specific requirements from the Programmer, it will collaborate with Synacor prior to committing to such requirements to determine if such requirements are reasonable and achievable.

(b)
Protection of User and Programmer Information: [*] Except as described in the following sentence, no personally identifying information shall be passed. Subject to Section 8 hereof, the Programmer can offer login accounts on their website, ask the user for information, and tie the authenticated session to this Programmer-controlled user account. [*]
(c)
[*]
(d)
[*]
Client and Synacor desire to expand the scope of the TV Everywhere Services to include deliverables in addition to those specified above in this Section 4(d), but the Parties have not come to agreement on the specifications, payment and other terms associated with such deliverables. If the Parties reach agreement, they shall set forth such terms on Exhibit 2 to this Schedule Q, which Exhibit shall be deemed incorporated into and made a part of

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this Schedule Q upon execution by Synacor and Client. Any such services set forth on Exhibit 2 shall be referred to in this Schedule Q as the “Phase II Services.”

(e)
Service Level Commitment: Synacor will provide the TV Everywhere Services in accordance with the service levels set forth on Exhibit 1 to this Schedule Q.
(f)
[*]

5.
Programmer Termination.
(a)
Client’s Request to Remove Individual Programmers – Except with regard to termination of Client’s rights in Programmer Content which is addressed in Section 3(e) above, Client shall have the right to request that Synacor disable Client’s integration of the SES with a given Programmer or Channel as soon as possible upon notice from Client.
(b)
Synacor’s right to Remove Individual Programmers - Synacor shall have the right to disable any integration with any Programmer’s Content upon prior written notice to Client: (i) if Synacor reasonably believes the distribution of such Content would result in the violation of third party intellectual property rights; (ii) in the event a Programmer ceases to produce or distribute such Content; (iii) if an agreement between Synacor and a Programmer, that gave Synacor the right to integrate with any Programmer’s Content, expires or terminates (unless Client obtains an agreement directly with the Programmer which expressly allows for Synacor to perform such integration); (iv) if the Programmer Content or the integration is causing the SES Platform or the TV Everywhere Services to malfunction; (v) the Programmer Content does not display properly (unless such issue is caused by Synacor); or (vi) if Synacor’s right to integrate such Programmer Content otherwise ceases. In each case, Synacor will give Client as much prior written notice as is reasonably practical in such circumstances, and the Parties will work together to determine whether a comparable substitute is available for such Programmer Content.
(c)
Transition Services. [*] provided, however, that in the event that Synacor terminated this Agreement due to Client’s failure to pay any amounts due and owing to Synacor, then Synacor will provide the Transition Services only if Client pays any outstanding amounts, unless such amounts are in dispute, in which case, to receive the Transition Services, Client shall be required to place all outstanding amounts in escrow with an independent third party pending resolution of such dispute.
6.
Term. Unless earlier terminated in accordance with any termination rights of either Party set forth in this Schedule Q, the term of the TVE Services shall be coterminous with the term of the Agreement.
7.
Indemnities – [*]
8.
Launch dates – Synacor and Client shall work together in an effort to develop a mutually agreeable launch date for each Channel; it being understood that each target launch date is dependent on the cooperation and technical assistance of the applicable Programmer. Client agrees not to commit to a launch date for any Channel with any Programmer without Synacor’s input and agreement. Each Channel launch must be specifically approved by Client.
9.
Additional Services . Upon mutual agreement of the Parties hereto, Synacor will provide additional services relating to the delivery of Programmer Content ( e.g. , hosting, storage, bandwidth, encoding, transcoding, DRM, and CDN services). In such event, Client will reimburse Synacor for all costs associated therewith, and pay Synacor a reasonable management fee related thereto as mutually agreed upon by the Parties hereto.

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10.
Limitations.
(a)
Client acknowledges and agrees that Synacor will not be responsible for, nor liable in connection with (a) the quality, or substance of Programmer Content; (b) Client’s or any Programmer’s negligence, acts or omissions; (c) availability of Programmer Content not hosted by Synacor; or (d) incorrect data provided by Client or a Programmer in regard to the TV Everywhere Service.
(b)
Client acknowledges and agrees that integration of Programmer Content from certain Programmers may require such Programmer’s prior consent, and Client shall be responsible for obtaining such consent.  Synacor shall not be liable for any delays resulting from failure of a Programmer to provide such consent.
(c)
Client acknowledges and agrees that the TV Everywhere Service, and the fee associated therewith, does not include Synacor providing access to content through on the Client Branded Portal that is not television based video. Any other video, premium, or other content that Client would like Synacor to include on the portal will be governed by the rest of the Agreement or a separate amendment as necessary, and may be subject to a separate fee as mutually agreed by the Parties hereto.
11.
Channel Integration Fees. [*]
12.
Phase II Services Fees. If the Parties agree upon the Phase II Services, the fees for such services shall be set forth on Exhibit 2 to this Schedule Q.
13.
Maintenance Fees; Right of Termination. [*]

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EXHIBIT 1
TO SCHEDULE Q (TV EVERYWHERE SERVICES)

TV EVERYWHERE SERVICE LEVEL AGREEMENT AND CUSTOMER SUPPORT PROCEDURES
SERVICE LEVELS

I. General

Synacor shall provide the TV Everywhere Services at the agreed upon service levels [*] consisting of monitoring, notification, repair of servi c e outages and maintenance, as set forth in this Service Level Agreement (“SLA”).

It is expected that the evaluation of Synacor’s performance in accordance with the service levels set forth in this SLA will be evaluated on a [*] basis beginning [*] from the date of the launch of the TV Everywhere Services.

This SLA excludes events resulting from failures of Programmer hosting and/or delivery systems, Client authentication and authorization systems, acts of God, war, acts by civil or military authorities, energy shortages, or other causes beyond Synacor’s reasonable control, whether or not similar to the foregoing.

[*]

II. Monitoring

In an effort to detect potential problems before they impact the availability and performance of the system or services, Synacor will, upon receipt of appropriate test accounts from Client, continuously monitor the status of its systems using both automated and manual tools employed in its 24 by 7 network operations center. Client understands that such monitoring is not fully possible without the appropriate test accounts.

III. Entitlement Related API Availability

[*]

IV. Client Changes and/or Actions

Client acknowledges that it or the Programmers may have the ability to take actions or make changes which can adversely affect the performance of the TV Everywhere Services. In some cases, Synacor may be able to mitigate the risk of the actions or changes as described in the table below; provided however, that this risk mitigation will require Client to provide notice to Synacor of its or any Programmer’s intent to make these changes, as well as all pertinent details, in advance of the actual change. In the event Client does not provide sufficient notice (as set forth in the table below), Synacor will not be responsible for any downtime, degradation or other SLA-related problems that were caused, in whole or in part, by the change. Synacor makes no representation or warranty that any Client or Programmer change will be successful and Synacor shall have no liability for any changes or modifications by Client or any third party. Some examples of when notice is required to be given to Synacor are delineated below. However, Client should always provide a reasonable amount of notice to Synacor before taking any actions or making any changes that may adversely affect the performance of the TV Everywhere Services, and Synacor reserves the right to require a postponement of any actions that it believes requires mitigation before deployment.

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[*]

V. Security

Synacor’s Security Team proactively evaluates security risk, develops and implements policies and incident prevention programs, educates management and staff about security policies, and handles computer security incidents.
[*]

VI. Scheduled Maintenance Windows
Synacor reserves one or more windows, for weekly application revision/infrastructure   maintenance, should the need for such maintenance arise. [*]


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VII. Emergency Maintenance Notification

In the event that emergency maintenance is required and it will adversely affect Client’s Users, Synacor will make reasonable efforts to notify Client about the emergency maintenance window. Notification will be based on practicality and the degree of adverse effect on the applicable service or availability thereof. Emergency maintenance windows are counted against API Availability percentages, unless Synacor and Client mutually agree otherwise in writing (email being sufficient for this purpose).


CUSTOMER SUPPORT PROCEDURES

I. Incident Management

Tier 1 – Client will provide first level support to end users, consisting of (i) handling questions from end users regarding customer/technical support, order processing, and use of the Service; and (ii) accepting and responding to problem calls from end users relating to the Service as set out in agreement; (iii) supporting End User devices and underlying Client systems and architecture; (iv) providing notification to Synacor of changes, maintenance, outages of underling systems that may affect Service.

Tier 2/Tier 3 – Synacor will provide second level support to Client, consisting of (i) accepting and responding to problem escalations reported by end users or representatives of Client with regard to problems that cannot be resolved by Client, (ii) resolving reported problems as set forth in the agreement, (iii) providing notification to Client of changes, maintenance, outages of underlying systems that may affect Service.

Synacor will provide Client and end users of Client (in the case of end-users, Tier 2 and Tier 3 level support) the following:
(i)
Technical Support offered in English.
(ii)
Email address for submitting 2 nd level support incidents to Synacor.
(iii)
Phone support 24 hours, 7 days a week.

II. Priority

Client will estimate the priority at the time the incident is reported. The priority can change at any time during the process.
Incidents will be categorized by product category, with the following priorities definitions:
Priority 1 (P1) means that the system or service is substantially non-operational that causes severe commercial impact and there are no known workarounds and/or system availability requirements
Priority 2 (P2) means that a problem with the system or service that causes significant commercial impact which cannot be resolved (temporarily) by workarounds.
Priority 3 (P3) means a non-critical problem or incident with the system or service where Client are able to continue utilize the system or service and a workaround is not immediately available.
Priority 4 (P4) means a not a priority 1, 2, or 3 incident, non-critical, with applicable workaround available.
Support response time means the elapsed time between the receipt of incident escalation and the target time within which Synacor begins support as verified by a verbal or email confirmation to Client.

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Standard Support Response times are as follows:
Incident Priority
Initial Response
System Fix or Workaround Implemented
P1
[*]
[*]
P2
[*]
[*]
P3
[*]
[*]
P4
[*]
[*]

Synacor will be responsible for the control and management of incident calls, assignment of priority and escalation to resources within Synacor in their sole and absolute discretion.
III. Escalation Path

The escalation process consists of the reporting, troubleshooting, diagnosis, and resolution processes. All incidents are assigned to a Synacor support engineer substantially in accordance with the standard support response times set forth herein. However, Synacor may choose from time to time to handle issues outside of the escalation path indicated below if, in Synacor’s reasonable judgment, such issues either need to be escalated more quickly or can be resolved without escalation.


[*]


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EXHIBIT 2
TO SCHEDULE Q (TV EVERYWHERE SERVICES)

PHASE II SERVICES


[Intentionally left blank]



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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-179608 on Form S-8 of our report dated March 26, 2013 , relating to the financial statements of Synacor, Inc. (the “Company”) appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2012 .

/s/ Deloitte & Touche LLP

Williamsville, New York
March 26, 2013





Certifications
I, Ronald N. Frankel, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Synacor, 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(s) 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(s) 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 the registrant’s board of directors (or persons performing the equivalent functions):
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 26, 2013
/s/ Ronald N. Frankel
Chief Executive Officer
(Principal Executive Officer)




Certifications
I, William J. Stuart, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Synacor, 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(s) 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(s) 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 the registrant’s board of directors (or persons performing the equivalent functions):
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 26, 2013
/s/ William J. Stuart
Chief Financial Officer
(Principal Financial and Accounting Officer)




Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Ronald N. Frankel, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Synacor, Inc. on Form 10-K for the fiscal year ended December 31, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Synacor, Inc.
Date: March 26, 2013
 
/s/ Ronald N. Frankel
 
 
Ronald N. Frankel
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
I, William J. Stuart, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Synacor, Inc. on Form 10-K for the fiscal year ended December 31, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Synacor, Inc.
Date: March 26, 2013
 
/s/ William J. Stuart
 
 
William J. Stuart
 
 
Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Synacor, Inc. and will be retained by Synacor, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. This certification “accompanies” the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to 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 the Form 10-K), irrespective of any general incorporation language contained in such filing.