Major Shareholder Cyrus Capital Not at All Happy About Sphere 3D

On December 20, 2016, Cyrus Capital Partners, L.P. sent a letter to Eric Kelly, chairman and CEO, Sphere 3D Corp., issuer outlining some of its concerns with the company’s management, operations and performance. This letter was published in a Sphere 3D ‘s SEC filing.

Dear Eric:
 
Cyrus Capital Partners, L.P., together with its managed affiliates, currently holds approximately 28.3% of equity interests in Sphere 3D Corp., and as such is one of the largest shareholders. In addition to our equity ownership, Cyrus is also a debtholder of the company through various loan instruments.
 
As you know, during Cyrus’ time as shareholder, we have consistently tried to work with and be supportive of the company’s board of directors and management team. However, recently, we have become frustrated with numerous aspects of Sphere management’s ability to address the company’s operating and costs structures as well as its ability to grow its revenue. This has led to significant financial hardships that, in our view, have endangered the company’s long-term viability.
 
We believe, based on our thorough evaluation, that, Sphere must implement a restructuring plan which we have discussed with the board and management.

In order for Cyrus to be supportive of a restructuring,
we believe that it must address the following:

• Separation of Sphere assets into distinct operational segments.
• Creation of wholly-owned subsidiaries of Sphere to hold the assets related to each distinct operational segment.
• Exchange certain debt of the company (including debt currently held by Cyrus) for equity interests in Sphere or such newly-formed subsidiaries.
• Modification to Sphere’s existing management and executive compensation arrangements and roles.
• Address the revenue growth issues across all of Sphere’s businesses.
• Provide additional financing to certain businesses of the company, subject to the conditions outlined above.
   

If executed correctly, we believe that a full restructuring would bring substantial benefits to all Sphere shareholders and stakeholders. In addition, Cyrus has indicated its willingness to provide additional financing to the Company to allow it to achieve a restructuring.
 
Cyrus intends to continue to actively engage to influence management, the board and the company with respect implementing a restructuring plan. Separately, we are at an internal level, discussing various strategic alternatives, including potential merger and acquisition candidates, financing arrangements and balance sheet optimization tactics that we believe will benefit Sphere and its shareholders.
 
Given this recent divergence of views between Cyrus and Sphere, Daniel J. Bordessa, who is a partner at Cyrus, has decided to resign from his position on the board before any conflicts arise.
 
Cyrus believes that the businesses of Sphere are currently significantly underperforming their potential and that a restructuring of the company on the basis outlined in this letter would allow Sphere to reach its full potential substantially increasing and maximizing shareholder and stakeholder value. We look forward to working constructively with the Board and management team in the near future.
 
Sincerely,
 
Thomas Stamatelos, COO, Cyrus Capital Partners, L.P.