Exhibit
(a)(1)(A)
OFFER TO
EXCHANGE
CERTAIN OUTSTANDING OPTIONS
FOR RESTRICTED STOCK UNITS
This
document constitutes part of the prospectus relating
to the Limelight Networks, Inc. 2007 Equity Incentive Plan
and Amended and Restated 2003 Incentive Compensation Plan,
covering securities that have been registered under the
Securities Act of 1933, as amended.
May 15,
2008
LIMELIGHT
NETWORKS, INC.
Offer to Exchange Certain
Outstanding Options for Restricted Stock Units
This offer and withdrawal rights will expire at
5:00 p.m., Pacific Daylight Time,
on June 16, 2008 unless we extend them.
By this offer, Limelight Networks, Inc. and our subsidiaries or
one of our affiliated companies (collectively referred to as
Limelight, the Company, we,
our or us) is giving you the opportunity
to exchange some or all of your outstanding options that were
granted after April 1, 2007, and were granted under our
2007 Equity Incentive Plan or Amended and Restated 2003
Incentive Compensation Plan, whether vested or unvested, for
restricted stock units (the Offer). You may
participate in this offer if you are an eligible employee of
Limelight in Japan, the United Kingdom or the United States. Our
executive officers and the members of our board of directors are
not eligible employees and may not participate in the Offer.
Restricted stock units are a promise by Limelight to issue
shares of our common stock in the future provided the vesting
criteria are satisfied.
If you participate in the offer, the number of restricted stock
units you receive will depend on the number of eligible options
that you exchange.
We will grant restricted stock units on the same
U.S. business day on which we cancel the exchanged options
(the restricted stock unit grant date). We expect
the restricted stock unit grant date to be June 16, 2008.
If the expiration date of the Offer is extended, the restricted
stock unit grant date will be similarly delayed. The restricted
stock units will be granted under the terms of the
Companys 2007 Equity Incentive Plan and the restricted
stock unit agreement.
The vesting schedule of the restricted stock units is detailed
in Section 9 of this Offer to Exchange Certain Outstanding
Options for Restricted Stock Units (the Offer to
Exchange). Vesting is conditioned upon your continued
active service to the Company or one of its subsidiaries through
each applicable vesting date.
Our common stock is traded on the Nasdaq Global Market under the
symbol LLNW. On May 14, 2008, the closing price
of our common stock was $2.85 per share. You should evaluate the
risks related to our business, our common stock, and this offer,
and review current market quotes for our common stock, among
other factors, before deciding to participate in this offer.
See Risks of Participating in the Offer beginning
on page 10 for a discussion of risks that you should
consider before participating in this offer.
IMPORTANT
If you choose to participate in the offer, you must deliver a
completed election form via facsimile,
e-mail
(via
PDF or similar imaged document file) or by hand delivery before
5:00 p.m., Pacific Daylight Time, on June 16, 2008 to
the Companys Human Resources representative, Kate Garcia,
at:
Limelight Networks, Inc.
2220 W. 14th Street
Tempe, Arizona 85281
Fax:
602-850-5242
E-mail:
kgarcia@llnw.com
Only responses that are complete, signed and actually received
by the Companys Human Resources representative by the
deadline will be accepted. Limelight intends to confirm the
receipt of your election form
and/or
any
withdrawal form by
e-mail
within two (2) U.S. business days. If you have not
received an
e-mail
confirmation, it is your responsibility to confirm that we have
received your election form
and/or
withdrawal form. Responses submitted by any other means,
including interoffice or U.S. mail (or other post) and
Federal Express (or similar delivery service) are not permitted.
Neither the U.S. Securities and Exchange Commission (the
SEC) nor any state securities commission has
approved or disapproved of these securities or passed judgment
upon the accuracy or adequacy of this offer. Any representation
to the contrary is a criminal offense.
You should direct questions about this offer and requests for
additional copies of this Offer to Exchange and the other Offer
documents to the Companys Human Resources representative,
Kate Garcia, at:
Limelight Networks, Inc.
2220 W. 14th Street
Tempe, Arizona 85281
Fax:
602-850-5242
E-mail:
kgarcia@llnw.com
Offer to
Exchange dated May 15, 2008
You should rely only on the information contained in this
Offer to Exchange or documents to which we have referred you. We
have not authorized anyone to provide you with different
information. We are not making an offer of the restricted stock
units in any jurisdiction where the offer is not permitted.
However, we may, at our discretion, take any actions necessary
for us to make the offer to option holders in any of these
jurisdictions. You should not assume that the information
provided in this Offer to Exchange is accurate as of any date
other than the date as of which it is shown, or if no date is
otherwise indicated, the date of this offer. This Offer to
Exchange summarizes various documents and other information.
These summaries are qualified in their entirety by reference to
the documents and information to which they relate.
SUMMARY
TERM SHEET AND QUESTIONS AND ANSWERS
The following are answers to some of the questions that you may
have about this offer. You should carefully read this entire
Offer to Exchange, the accompanying letter from Jeffrey W.
Lunsford, our President, Chief Executive Officer and Chairman,
dated May 15, 2008, and the election and withdrawal forms
together with their associated instructions. This offer is made
subject to the terms and conditions of these documents as they
may be amended. The information in this summary is not complete.
Additional important information is contained in the remainder
of this Offer to Exchange and the other offer documents. We have
included in this summary references to other sections in this
Offer to Exchange to help you find more complete information
with respect to these topics.
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Q1.
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What is the offer?
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A1.
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This offer is a voluntary opportunity for eligible employees to
exchange outstanding eligible options that were granted after
April 1, 2007 and were granted under the Plans (as defined
below) for restricted stock units.
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The following are some terms that are frequently used in this
Offer to Exchange.
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Terms Used in This Offer to Exchange
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cancellation date refers to the same
U.S. business day as the expiration date. This is the date
when exchanged options will be cancelled. We expect that the
cancellation date will be June 16, 2008. If the expiration
date is extended, then the cancellation date will be similarly
delayed.
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common stock refers to the
Companys common stock.
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eligible employee refers to an employee
of Limelight (which, for purposes of this offer, includes all
subsidiaries or affiliates of Limelight) in Japan, the United
Kingdom or the United States as of the commencement of the offer
and the cancellation date. Our executive officers and the
members of our board of directors are not eligible employees and
may not participate in the offer.
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eligible options refers to options that
were granted after April 1, 2007 and were granted under any
of the Plans and remain outstanding and unexercised as of the
expiration date.
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exchanged options refers to all options
that you exchange pursuant to this offer.
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executive officers refers to those
officers of Limelight listed on Schedule A to this Offer to
Exchange.
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expiration date refers to the date that
this offer expires. We expect that the expiration date will be
June 16, 2008 at 5:00 p.m., Pacific Daylight Time. We
may extend the expiration date at our discretion. If we extend
the offer, the term expiration date will refer to
the time and date at which the extended offer expires.
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offer period or offering
period refers to the period from the commencement of this
offer to the expiration date. This period will commence on
May 15, 2008 and we expect it to end at 5:00 p.m.,
Pacific Daylight Time, on June 16, 2008.
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Offer to Exchange refers to this Offer
to Exchange Certain Outstanding Options for Restricted Stock
Units.
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Plans refers to our 2007 Equity
Incentive Plan and Amended and Restated 2003 Incentive
Compensation Plan. Each of the Plans is also referred to as a
Plan.
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restricted stock unit grant date refers
to the date that is the same U.S. business date as the
expiration date and the cancellation date. This is the date when
restricted stock units will be granted. We expect that the
restricted stock unit grant date will be June 16, 2008. If
the expiration date is extended, then the restricted stock unit
grant date will be similarly delayed.
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restricted stock units refers to the
restricted stock units issued pursuant to this offer that
replace your exchanged options. Restricted stock units are
promises by Limelight to issue shares of its common stock in the
future provided the vesting criteria are satisfied. Restricted
stock units granted in connection with the offer will be granted
on the restricted stock unit grant date pursuant to the
Companys 2007 Equity
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Incentive Plan and subject to the terms and conditions of a
restricted stock unit agreement between you and the Company.
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Q2
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Why is Limelight making this offer?
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A2.
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We believe that this offer will foster retention of our valuable
employees and better align the interests of our employees and
stockholders to maximize stockholder value. We issued the
currently outstanding options to attract and retain the best
available personnel and to provide additional incentive to our
employees. Some of our outstanding options, whether or not they
are currently exercisable, have exercise prices that are
significantly higher than the current market price for our
stock. These options are commonly referred to as being out
of the money. By making this offer, we intend to provide
eligible employees with the opportunity to receive restricted
stock units that have a greater retention value because such
restricted stock units are more certain to provide a return than
the out of the money options. (See Section 3, beginning on
page 25)
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Q3
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Are you making any recommendation as to whether I should
exchange my eligible options?
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A3.
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No. We are not making any recommendation as to whether you
should accept this offer. We understand that the decision
whether or not to exchange your eligible options in this offer
will be a challenging one for many employees. The program does
carry risk (see Risks of Participating in the Offer
beginning on page 10 for information regarding some of
these risks), and there are no guarantees that you would not
ultimately receive greater value from your eligible options than
from the restricted stock units you will receive in exchange. As
a result, you must make your own decision as to whether or not
to participate in this offer. For questions regarding personal
tax implications or other investment-related questions, you
should talk to your own legal counsel, accountant, and/or
financial advisor. (See Section 3, beginning on
page 25)
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Q4
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How do I participate in this offer?
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A4.
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If you choose to participate in this offer, you must do the
following before 5:00 p.m., Pacific Daylight Time, on the
expiration date, currently expected to be June 16, 2008.
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1. Properly complete and sign the attached election
form.
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2. Deliver the completed and signed election form via
facsimile,
e-mail
(via
PDF or similar imaged document file) or by hand delivery to the
Companys Human Resources representative, Kate Garcia, at:
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Limelight Networks, Inc.
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2220 W. 14th Street
Tempe, Arizona 85281
Fax:
602-850-5242
E-mail:
kgarcia@llnw.com
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You should note that if you elect to exchange any eligible
option grant in this offer, you must elect to exchange all
shares subject to such eligible option grant. To help you recall
your outstanding eligible options and give you the information
necessary to make an informed decision, please refer to your
Morgan Stanley account
(https://www.msdw-spa.com/login/login.asp) which lists your
outstanding option grants, the grant date of your options, the
exercise price of your options and the number of outstanding
shares subject to your outstanding options.
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This is a one-time offer, and we will strictly enforce the
election period. We reserve the right to reject any options
tendered for exchange that we determine are not in appropriate
form or that we determine are unlawful to accept. Subject to the
terms and conditions of this offer, we will accept all properly
tendered options promptly after the expiration of this offer.
(See Section 4, beginning on page 26)
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We may extend this offer. If we extend this offer, we will issue
a press release,
e-mail
or
other communication disclosing the extension no later than
6:00 a.m., Pacific Daylight Time, on the U.S. business day
following the previously scheduled expiration date.
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The delivery of all documents, including election forms, is
at your risk. We intend to confirm the receipt of your election
form and/or any withdrawal form by
e-mail
within two (2) U.S. business days. If you have not received
an
e-mail
confirmation, it is your responsibility to confirm that we have
received your election form and/or any withdrawal form. Only
responses that are complete, signed and actually received by the
Companys Human Resources representative by the deadline
will be accepted. Responses submitted by any other means,
including interoffice or U.S. mail (or other post) and Federal
Express (or similar delivery service), are not permitted. (See
Section 4, beginning on page 26)
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Q5
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How many restricted stock units will I receive for the
options that I exchange?
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A5.
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You will receive one restricted stock unit for every two
(2) exchanged options. For purposes of this offer,
including the exchange ratio, the term option
generally refers to an option to purchase one (1) share of
our common stock. For purposes of applying the exchange ratio,
fractional restricted stock units will be rounded to the nearest
whole restricted stock unit on a grant by grant basis (with
fractional restricted stock units equal to point five (.5)
rounded up to the nearest whole restricted stock unit).
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Example
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If you exchange 1,001 options, on the restricted stock unit
grant date you will receive 501 restricted stock units. This is
equal to the 1,001 options divided by 2 (the exchange ratio for
exchanged options) and rounded to the nearest whole restricted
stock unit.
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Q6
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Who may participate in this offer?
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A6.
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You may participate in this offer if you are an eligible
employee of Limelight in Japan, the United Kingdom or the United
States, at the time of this offer and you remain an eligible
employee of Limelight or a successor entity through the
restricted stock unit grant date. Our executive officers and the
members of our board of directors may not participate in the
offer. (See Section 1, beginning on page 24)
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Q7
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Which of my options are eligible?
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A7.
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Your eligible options are those options that were granted after
April 1, 2007, were granted under the Plans and remain
outstanding and unexercised as of the expiration date, currently
expected to be June 16, 2008. To help you recall your
outstanding eligible options and give you the information
necessary to make an informed decision, please refer to your
Morgan Stanley account
(
https://www.msdw-spa.com/login/login.asp) which lists
your outstanding option grants, the grant date of your options,
the exercise price of your options and the number of outstanding
shares subject to your outstanding options. (See Section 2,
beginning on page 25)
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Q8
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Are there circumstances under which I would not be granted
restricted stock units?
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A8.
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Yes. If, for any reason, you are no longer an employee of
Limelight on the restricted stock unit grant date, you will not
receive any restricted stock units. Instead, you will keep your
current eligible options and they will vest, if applicable, and
expire in accordance with their terms. Except as provided by
applicable law, your employment with Limelight will remain
at-will regardless of your participation in the
offer and can be terminated by you or your employer at any time
with or without cause or notice. (See Section 1, beginning
on page 24)
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Moreover, even if we accept your eligible options, we will not
grant restricted stock units to you if we are prohibited from
doing so by applicable laws. For example, we could become
prohibited from granting restricted stock units as a result of
changes in the SEC or Nasdaq rules. We do not anticipate any
such prohibitions at this time. (See Section 13, beginning
on page 37)
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In addition, if you hold an option that expires after the
commencement of, but before the cancellation of options under,
this offer, that particular option is not eligible for exchange.
As a result, if you hold options that expire before the
currently scheduled cancellation date or, if we extend the offer
such that the cancellation date is a later date and you hold
options that expire before the rescheduled cancellation date,
those options will not be eligible for exchange and such options
will continue to be governed by their original terms. (See
Section 15, beginning on page 39)
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Q9
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Am I required to participate in this option exchange?
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A9.
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No. Participation in this offer is completely voluntary.
(See Section 2, beginning on page 25)
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Q10
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What will be the purchase price of my restricted stock
units?
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A10.
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The purchase price of a restricted stock unit will be the par
value of our common stock which is equal to $0.001 per share and
the par value will be deemed paid by your past services rendered
to Limelight. As a result, you do not have to make any cash
payment to Limelight to receive your restricted stock units or
the common stock upon vesting. (See Section 9, beginning on
page 31)
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Q11
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I am partially vested in my options; does the vesting of my
options carry over to my restricted stock units?
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A11.
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No. The vesting of your eligible options does not carry
over to your restricted stock units. Each restricted stock unit
will vest in accordance with the vesting schedule described in
Question and Answer 12 below.
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Q12
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When will my restricted stock units vest?
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A12.
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Each restricted stock unit will vest according to the following
vesting schedule, subject to your continuing to be an employee
of Limelight through each relevant vesting date:
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None of the restricted stock units will be vested on
the restricted stock unit grant date.
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1/6
th
of the restricted stock units subject to the restricted stock
unit grant will vest on December 1, 2008, and
1/6
th
of the restricted stock units subject to the restricted stock
unit grant will vest every six (6) months thereafter, such
that all restricted stock units granted in connection with this
offer will be vested no later than June 1, 2011.
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We expect the restricted stock unit grant date will be
June 16, 2008. Vesting of your restricted stock units is
subject to the following conditions:
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Vesting on any given vesting date is subject to your
continued active service to Limelight or one of its subsidiaries
through that vesting date. If your service with us terminates
(for any reason or no reason) before your restricted stock units
vest, your restricted stock units will expire unvested, and you
will not be issued any shares of common stock pursuant to your
restricted stock unit award.
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After the restricted stock units vest, continued
active service is not required to retain the common stock issued
under the restricted stock units.
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We will make minor modifications to the vesting
schedule of any restricted stock units to eliminate fractional
vesting (such that a whole number of restricted stock units will
vest on each vesting date); this will be done by rounding up to
the nearest whole number of restricted stock units that will
vest on the first vesting date and, as necessary, rounding down
on vesting dates thereafter such that all restricted stock units
granted in connection with this offer will be vested no later
than June 1, 2011. (See Section 9, beginning on
page 31)
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U.K. recipients and their employer must execute a
joint election form prior to vesting to shift the
employers national insurance contribution to the employee.
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Restricted stock units which do not vest will be forfeited
to Limelight.
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Q13
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If I participate in this offer, do I have to exchange all of
my eligible options?
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A13.
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No. You may choose which of your outstanding eligible
option grants you wish to exchange. However, please note that if
you decide to exchange an eligible option grant, you must elect
to exchange
all
shares subject to that eligible option
grant. You should note that we are not accepting partial tenders
of options unless that option is covered by a domestic relations
order (or comparable legal document as the result of the end of
a marriage) (See Question and Answer 14 below). This means that
you may
not
elect to exchange only a portion of the
shares covered by any particular option grant. However, you may
elect to exchange the remaining portion of an option grant that
you have partially exercised. (See Section 2, beginning on
page 25)
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Q14
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What happens if I have an option that is subject to a
domestic relations order or comparable legal document as the
result of the end of a marriage?
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A14.
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If you have an eligible option that is subject to a domestic
relations order (or comparable legal document as the result of
the end of a marriage) and a person who is not an eligible
employee beneficially owns a portion of that option, you may
accept this offer with respect to the entire remaining
outstanding portion of the option if so directed by the
beneficial owner as to his or her portion in accordance with the
domestic relations order or comparable legal documents. Because
you are the legal owner of the eligible option, Limelight will
respect an election properly made by you and accepted by
Limelight and will not be responsible to you or the beneficial
owner of the eligible option for any errors made by you with
respect to such an election.
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Q15
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When will I receive restricted stock units?
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A15.
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You will receive restricted stock units when we grant the
restricted stock units on the restricted stock unit grant date,
which we expect will be June 16, 2008. Following the grant,
your Morgan Stanley account will list your restricted stock
units, in addition to your outstanding option grants, if any.
Please refer to your Morgan Stanley account at
https://www.msdw-spa.com/login/login.asp. If the expiration date
is extended, the restricted stock unit grant date will be
similarly delayed. You will receive your restricted stock unit
agreement promptly after the expiration of the offer, which we
expect will be June 16, 2008. You will receive the shares
of common stock subject to the restricted stock unit award when
and if your award vests. (See Section 6, beginning on
page 28)
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Q16
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When will my exchanged options be cancelled?
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A16.
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Your exchanged options will be cancelled on the same U.S.
business day as the expiration date. We refer to this date as
the cancellation date. We expect that the cancellation date will
be June 16, 2008 unless the offer period is extended. (See
Section 6, beginning on page 28)
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Q17
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Once I surrender my exchanged options, is there anything I
must do to receive the restricted stock units?
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A17.
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No. Once your exchanged options have been cancelled, there
is nothing that you must do to receive your restricted stock
units. Your restricted stock units will be granted to you on the
same day that the exchanged options are cancelled. We expect
that the restricted stock unit grant date will be June 16,
2008. In order to receive the shares covered by the restricted
stock unit grant, you will need to remain an employee through
the applicable vesting date, as described in Question and Answer
12. (See Section 1, beginning on page 24)
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Q18
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Do I need to exercise my restricted stock units in order to
receive shares?
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A18.
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Unlike stock options, which you must exercise in order to
receive the shares subject to the option, you do not need to
exercise restricted stock units in order to receive shares. If
your restricted stock units vest in accordance with the vesting
schedule set forth in your restricted stock unit agreement, you
automatically will receive the shares subject to the restricted
stock units promptly thereafter. Restricted stock units that do
not vest will be forfeited to Limelight.
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Q19
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Can I exchange Limelight common stock that I acquired upon a
prior exercise of Limelight options?
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A19.
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No. This offer relates only to outstanding Limelight
options. You may not exchange Limelight common stock in this
offer. (See Section 2, beginning on page 25)
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Q20
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Will I be required to give up all of my rights under the
cancelled options?
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A20.
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Yes. Once we have accepted your exchanged options, your
exchanged options will be cancelled and you will no longer have
any rights under those options. The rights that you will have in
your restricted stock units are reflected in the Form of 2007
Equity Incentive Plan Restricted Stock Unit Agreement, attached
to the Tender Offer Statement on Schedule TO as Exhibit
(a)(1)(I). For employees who are residents of Japan or the
United Kingdom, the rights that you will have in your restricted
stock units are reflected in the Form of 2007 Equity Incentive
Plan Restricted Stock Unit Agreement for
Non-U.S.
Employees, attached to the Tender Offer Statement on
Schedule TO as Exhibit (a)(1)(J). We intend to cancel all
exchanged options on the same U.S.
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business day as the expiration date. We refer to this date as
the cancellation date. We expect that the cancellation date will
be June 16, 2008. (See Section 6, beginning on
page 28)
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Q21
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Will the terms and conditions of my restricted stock units be
the same as my exchanged options?
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A21.
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Restricted stock units are a different type of award than stock
options, and so the terms and conditions of your restricted
stock units will necessarily be different from your stock
options. Further, your restricted stock units will be granted
under the Companys 2007 Equity Incentive Plan, while your
exchanged options may have been granted under a different plan
with different terms and conditions. However, such changes
generally will not substantially and adversely affect your
rights. (See Section 9, beginning on page 31)
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Until your restricted stock units vest and you are issued shares
in payment for the vested restricted stock units, you will not
have any of the rights or privileges of a stockholder of
Limelight. Once you have been issued the shares of common stock,
you will have all of the rights and privileges of a stockholder
with respect to those shares, including the right to vote and to
receive dividends.
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In addition, the tax treatment of the restricted stock units
will differ significantly from the tax treatment of your
options. Please see Question and Answer 25 and the remainder of
this Offer to Exchange for further details.
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Q22
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How do I determine whether my original stock option award
will be more or less valuable than the restricted stock units
being offered in the exchange?
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A22.
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The potential value of both stock option awards and restricted
stock unit awards are dependent upon Limelights stock
price. If the stock price appreciates enough, your original
stock option award could ultimately be more valuable than the
restricted stock units being offered. The degree of appreciation
required for this to occur depends on the strike price of the
stock options being exchanged. We have developed the table below
as an example of the potential intrinsic values of sample stock
option awards and the corresponding restricted stock unit awards
under various stock price appreciation scenarios. The stock
price appreciation scenarios in the example below are included
solely for the purpose of comparing potential intrinsic values
of stock option awards and corresponding restricted stock unit
awards, and do not represent any projection, estimate, or
expectation regarding Limelights stock price appreciation
in the future. (See Risks of Participating in the Offer on
page 10)
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Potential Intrinsic Value of the Awards Under Stock Price
Appreciation Scenarios:
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Stock Price = $3.00
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Stock Price = $8.00
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Stock Price = $12.00
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Stock Price = $18.00
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Value
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Value
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Value
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Value
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Number of
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Value
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of
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Value
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of
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Value
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of
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Value
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of
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Example
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Restricted
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of
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Restricted
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of
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Restricted
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of
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Restricted
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of
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Restricted
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Stock Option
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Number of
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Stock
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Stock
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Stock
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Stock
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Stock
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Stock
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Stock
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Stock
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Stock
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Strike Price
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Stock Options
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Units Offered
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Options
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Options
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Options
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Options
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Options
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Options
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Options
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Options
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$ 6.39
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1,000
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500
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$
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0
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$
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1,500
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$
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1,610
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$
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4,000
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$
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5,610
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$
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6,000
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$
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11,610
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$
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9,000
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$ 7.79
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1,000
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500
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$
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0
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$
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1,500
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$
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210
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$
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4,000
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$
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4,210
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$
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6,000
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$
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10,210
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$
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9,000
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$11.00
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1,000
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500
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$
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0
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$
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1,500
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$
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0
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$
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4,000
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$
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1,000
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$
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6,000
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|
$
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7,000
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|
$
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9,000
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$13.20
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1,000
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500
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|
$
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0
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$
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1,500
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|
$
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0
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$
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4,000
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|
|
$
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0
|
|
|
$
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6,000
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|
|
$
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4,800
|
|
|
$
|
9,000
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|
$15.00
|
|
|
1,000
|
|
|
|
500
|
|
|
$
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0
|
|
|
$
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1,500
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|
|
$
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0
|
|
|
$
|
4,000
|
|
|
$
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0
|
|
|
$
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6,000
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|
|
$
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3,000
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|
$
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9,000
|
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Q23
.
|
|
What happens to my options if I choose not to participate or
if my options are not accepted for exchange?
|
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A23.
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If you choose not to participate or your options are not
accepted for exchange, your existing options will
(i) remain outstanding until they expire by their terms,
(ii) retain their current exercise price, (iii) retain
their current vesting schedule and (iv) retain all of the
other terms and conditions as set forth in the relevant
agreement related to such stock option grant. (See
Section 6, beginning on page 28)
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Q24
.
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How does Limelight determine whether an option has been
properly tendered?
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A24.
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We will determine, in our discretion, all questions about the
validity, form, eligibility (including time of receipt) and
acceptance of any options. Our determination of these matters
will be final and binding on all parties. We reserve the right
to reject any election form or any options tendered for exchange
that we
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6
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determine are not in an appropriate form or that we determine
are unlawful to accept. We will accept all properly tendered
options that are not validly withdrawn, subject to the terms of
this offer. No tender of options will be deemed to have been
properly made until all defects or irregularities have been
cured or waived by us. We have no obligation to give notice of
any defects or irregularities in any election form and we will
not incur any liability for failure to give any notice. (See
Section 4, beginning on page 26)
|
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Q25
.
|
|
Will I have to pay taxes if I participate in the offer?
|
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A25.
|
|
If you participate in the offer and are a U.S. taxpayer, you
generally will not be required under current U.S. law to
recognize income for U.S. federal income tax purposes at the
time of the exchange or the restricted stock unit grant date.
However, you normally will have taxable income when your
restricted stock units vest, at which time Limelight typically
will also have a tax withholding obligation. In order for you to
be issued shares of common stock when your restricted stock
units vest, you must make satisfactory arrangements with respect
to the payment of income, employment and other taxes which
Limelight determines must be withheld with respect to such
shares. Although not obligated to do so, Morgan Stanley shall
automatically sell a sufficient number of shares of our common
stock issued when restricted stock units vest to satisfy the
withholding obligation and transfer the proceeds from such sale
to the Company to satisfy the withholding obligation. In
addition, Limelight reserves the right to automatically redeem a
sufficient number of shares of our common stock issued when
restricted stock units vest to satisfy the withholding
obligation. Limelight may also permit you to satisfy the tax
withholding obligation by your payment of cash to us. You may
also have taxable capital gain when you sell the shares
underlying the restricted stock units. Note that the tax
treatment of restricted stock units is significantly different
from the tax treatment of your options and as a result of
participating in the offer your tax liability could be higher
than if you had kept your eligible options. (see Risks of
Participating in the Offer on page 10) Please see
Section 14 beginning on page 37 for a reminder of the
general tax consequences associated with options.
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|
If you participate in the offer and are a taxpayer in Japan
or the United Kingdom, please refer to Schedule C or D of
this Offer to Exchange for a description of the tax and social
insurance consequences that may apply to you. If you are a U.K.
taxpayer, you will be liable to pay income tax and
employers and employees national insurance
contributions at the time the restricted stock units vest, and
although not obligated to do so, Morgan Stanley shall
automatically sell a sufficient number of shares of our common
stock issued when restricted stock units vest to satisfy the
withholding obligation and transfer the proceeds from such sale
to the Company to satisfy the withholding obligation. In
addition, Limelight reserves the right to automatically redeem a
sufficient number of shares of our common stock issued when
restricted stock units vest to satisfy the withholding
obligation.
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|
You should consult with your own tax advisor to determine the
personal tax consequences to you of participating in this offer.
If you are a resident of or subject to the tax laws in more than
one country, you should be aware that there may be additional
tax and social insurance consequences that may apply to you.
|
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Q26
.
|
|
What if Limelight is acquired by another company?
|
|
A26.
|
|
Although we are not currently anticipating any such merger or
acquisition, in the ordinary course of business we evaluate
acquisition opportunities, and if we merge or consolidate with
or are acquired by another entity, prior to the expiration of
the offer, you may choose to withdraw any options which you
tendered for exchange and your options will be treated in
accordance with the option plan under which they were granted
and your option agreement. Further, if Limelight is acquired
prior to the expiration of the offer, we reserve the right to
withdraw the offer, in which case your options and your rights
under them will remain intact and exercisable for the time
period set forth in your option agreement and you will receive
no restricted stock units in exchange for them. If Limelight is
acquired prior to the expiration of the offer but does not
withdraw the offer, we (or the successor entity) will notify you
of any material changes to the terms of the offer or the
restricted stock units, including any adjustments to the
purchase price or number of shares that will be subject to the
restricted stock units. Under such circumstances, the type of
security and the number of shares covered by your restricted
stock unit award would be adjusted based on the consideration
per share given to holders of our common stock in connection
with the acquisition. As a result of this adjustment, you may
receive
|
7
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|
|
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|
restricted stock units covering more or fewer shares of the
acquirors common stock than the number of shares subject
to the eligible options that you tendered for exchange or than
the number you would have received pursuant to the restricted
stock units if no acquisition had occurred.
|
|
|
|
If we are acquired by or merge with another company, your
exchanged options might be worth more than the restricted stock
units that you receive in exchange for them.
|
|
|
|
A transaction involving us, such as a merger or other
acquisition, could have a substantial effect on our stock price,
including significantly increasing the price of our common
stock. Depending on the structure and terms of this type of
transaction, option holders who elect to participate in the
offer might be deprived of the benefit of the appreciation in
the price of our common stock resulting from the merger or
acquisition. This could result in a greater financial benefit
for those option holders who did not participate in this offer
and retained their original options. (See Risks of Participating
in the Offer on page 10)
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|
Finally, if another company acquires us, that company may, as
part of the transaction or otherwise, decide to terminate some
or all of our employees before the completion of this option
exchange program. Termination of your active service to the
Company for this or any other reason before the restricted stock
unit grant date means that the tender of your eligible options
will not be accepted, you will keep your tendered options in
accordance with their original terms, and you will not receive
any restricted stock units or other benefit for your tendered
options.
|
|
|
|
If we are acquired after your tendered options have been
accepted, cancelled, and exchanged for restricted stock units,
your restricted stock units will be treated in the acquisition
transaction in accordance with the terms of the transaction
agreement or the terms of the Companys 2007 Equity
Incentive Plan and your new restricted stock unit agreement.
(See Section 9, beginning on page 31)
|
|
Q27
.
|
|
Will I receive a restricted stock unit agreement?
|
|
A27.
|
|
Yes. All restricted stock units will be subject to a restricted
stock unit agreement between you and Limelight, as well as to
the terms and conditions of the Companys 2007 Equity
Incentive Plan and any country-specific terms and conditions. A
copy of the Companys 2007 Equity Incentive Plan and the
form of the restricted stock unit agreement under the
Companys 2007 Equity Incentive Plan is attached to the
filing of this Offer to Exchange and is available on the SEC
website at www.sec.gov. (See Section 9, beginning on
page 31)
|
|
Q28
.
|
|
Are there any conditions to this offer?
|
|
A28.
|
|
Yes. The completion of this offer is subject to a number of
customary conditions that are described in Section 7 of
this Offer to Exchange. If any of these conditions are not
satisfied, we will not be obligated to accept and exchange
properly tendered eligible options, though we may do so at our
discretion. (See Sections 2, beginning on page 25
and 7, beginning on page 29)
|
|
Q29
.
|
|
If you extend the offer, how will you notify me?
|
|
A29.
|
|
If we extend this offer, we will issue a press release,
e-mail
or
other form of communication disclosing the extension no later
than 6:00 a.m., Pacific Daylight Time, on the next U.S.
business day following the previously scheduled expiration date.
(See Sections 2, beginning on page 25 and 16,
beginning on page 39)
|
|
Q30
.
|
|
How will you notify me if the offer is changed?
|
|
A30.
|
|
If we change the offer, we will issue a press release,
e-mail
or
other form of communication disclosing the change no later than
6:00 a.m., Pacific Daylight Time, on the next U.S. business
day following the date on which we change the offer. (See
Sections 2, beginning on page 25 and 16, beginning on
page 39)
|
|
Q31
.
|
|
Can I change my mind and withdraw from this offer?
|
|
A31.
|
|
Yes. You may change your mind after you have submitted an
election form and withdraw some or all of your elected options
from the offer at any time before the expiration date (expected
to be June 16, 2008). If we extend the expiration date, you
may withdraw your election at any time until the extended offer
expires. You may change your mind as many times as you wish, but
you will be bound by the last properly submitted election or
withdrawal form we receive before the expiration date. The
exception to this rule is that if we have
|
8
|
|
|
|
|
not accepted your properly tendered options by 9:00 p.m.,
Pacific Daylight Time, on July 14, 2008, you may withdraw
your options at any time thereafter. (See Section 5,
beginning on page 27)
|
|
Q32
.
|
|
Can I change my mind about which options I want to
exchange?
|
|
A32.
|
|
Yes. You may change your mind after you have submitted an
election form and change the options you elect to exchange at
any time before the expiration date by completing and submitting
a withdrawal form to the Companys Human Resources
representative. If we extend the expiration date, you may change
your election at any time until the extended offer expires. You
may elect to exchange additional options, or you may choose to
exchange fewer options. You may change your mind as many times
as you wish, but you will be bound by the last properly
submitted election or withdrawal form we receive before the
expiration date. Please be sure that any new election form you
submit includes all the options with respect to which you want
to accept this offer and is clearly dated after your
last-submitted election or withdrawal form.
|
|
Q33
.
|
|
How do I withdraw my election?
|
|
A33.
|
|
To withdraw your election, you must do the following before the
expiration date:
|
|
|
|
1. Properly complete and sign the attached withdrawal
form.
|
|
|
|
2. Deliver the completed and attached withdrawal form
via facsimile,
e-mail
(via
PDF or similar imaged document file) or by hand delivery to the
Companys Human Resources representative, Kate Garcia, at:
|
|
|
|
Limelight Networks, Inc.
|
2220 W. 14th Street
Tempe, Arizona 85281
Fax:
602-850-5242
E-mail:
kgarcia@llnw.com
|
|
|
|
|
(See Section 5, beginning on page 27)
|
|
Q34
.
|
|
What if I withdraw my election and then decide again that I
want to participate in this offer?
|
|
A34.
|
|
If you have withdrawn your election to participate and then
decide again that you would like to participate in this offer,
you may re-elect to participate by submitting a new properly
completed election form before the expiration date that is
signed and dated after the date of your withdrawal form. (See
Question and Answer 4 and Section 5, beginning on
page 27)
|
|
Q35
.
|
|
Whom can I talk to if I have questions about the offer, or if
I need additional copies of the offer documents?
|
|
A35.
|
|
You should direct questions about this offer and requests for
additional copies of this Offer to Exchange and the other option
exchange program documents to the Companys Human Resources
representative, Kate Garcia, at:
|
|
|
|
Limelight Networks, Inc.
2220 W. 14th Street
Tempe, Arizona 85281
Fax:
602-850-5242
E-mail:
kgarcia@llnw.com
|
|
|
|
(See Section 10, beginning on page 34)
|
9
RISKS OF
PARTICIPATING IN THE OFFER
Participating in the offer involves a number of risks and
uncertainties, including those described below. This description
and the risk factors in our quarterly report on
Form 10-Q
for the three months ended March 31, 2008 filed with the
SEC highlight the material risks of participating in this offer.
You should carefully consider these risks and are encouraged to
speak with an investment and tax advisor as necessary before
deciding to participate in the offer. In addition, we strongly
urge you to read the sections in this Offer to Exchange
discussing the tax consequences in the United States and the
non-U.S. tax
schedules if you reside outside the U.S., as well as the rest of
this Offer to Exchange for a more in-depth discussion of the
risks that may apply to you before deciding to participate in
the exchange offer.
In addition, this offer and our SEC reports referred to above
include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended, including statements regarding anticipated
revenues and unit shipments, gross margins, operating expenses,
inventory levels, tax rates, amortization of intangibles and
stock-based compensation, liquidity and cash flow, business
strategy, demand for our products, average selling prices,
regional market growth, amount of sales to distributors and
future competition. When used in this Offer to Exchange, the
words anticipate, believe,
estimate, expect, intend,
seek and plan as they relate to us are
intended to identify these forward-looking statements. All
statements by us regarding our expected future financial
position and operating results, our business strategy, our
financing plans and expected capital requirements, forecasted
trends relating to our services or the markets in which we
operate and similar matters are forward-looking statements, and
are dependent upon certain risks and uncertainties, including
those set forth in this section and other factors elsewhere in
this Offer to Exchange. You should carefully consider these
risks, in addition to the other information in this Offer to
Exchange and in our other filings with the SEC. The documents we
file with the SEC, including the reports referred to above,
discuss some of the risks that could cause our actual results to
differ from those contained or implied in the forward-looking
statements. The safe harbor afforded by the Private Securities
Litigation Reform Act of 1995 to certain forward-looking
statements does not extend to forward-looking statements made by
us in connection with the offer.
The following discussion should be read in conjunction with
the financial statements attached as Schedule B, as well as
our financial statements and notes to the financial statements
included on our most recent annual report on
Form 10-K
and quarterly report on
Form 10-Q.
We caution you not to place undue reliance on the
forward-looking statements contained in this offer, which speak
only as of the date hereof.
Risks
that are Specific to this Offer
If the
price of our common stock increases after the date on which your
options are cancelled, your cancelled options might be worth
more than the restricted stock units that you receive in
exchange for them.
Because the exchange ratio of this offer is one restricted stock
unit for every two (2) exchanged options, it is possible
that, at some point in the future, your old options would have
been economically more valuable than the restricted stock units
granted pursuant to this offer. For example, if you exchange an
option for 1,000 shares with an exercise price of $8.79,
you would receive 500 restricted stock units. Assume, for
illustrative purposes only that the price of our common stock
increases to $20.00 per share. Under this example, if you had
kept your exchanged options and sold them at $20.00 per share,
you would have realized pre-tax gain of $11,210, but if you
exchanged your options and sold the shares subject to the
restricted stock unit grant, you would only realize a pre-tax
gain of $10,000.
If we
are acquired by or merge with another company, your cancelled
options might be worth more than the restricted stock units that
you receive in exchange for them.
A transaction involving us, such as a merger or other
acquisition, could have a substantial effect on our stock price,
including significantly increasing the price of our common
stock. Depending on the structure and terms of this type of
transaction, option holders who elect to participate in the
offer might receive less of a benefit from the
10
appreciation in the price of our common stock resulting from the
merger or acquisition. This could result in a greater financial
benefit for those option holders who did not participate in this
offer and retained their original options.
Furthermore, a transaction involving us, such as a merger or
other acquisition, could result in a reduction in our workforce.
If your employment terminates for any reason before your
restricted stock units vest, you will not receive any value from
your restricted stock units.
Your
restricted stock units will not be vested on the restricted
stock unit grant date.
The restricted stock units will be subject to a vesting
schedule. If you do not remain a service provider through the
date your restricted stock units vest, you will not receive
those restricted stock units. Instead, your restricted stock
units will expire immediately upon your termination. As a
result, you will not receive full value from your restricted
stock units.
Also, if you exchange eligible options that are vested in whole
or in part, the vesting of your eligible options does not carry
over to your restricted stock units. For example, if you
exchanged a fully vested option grant for restricted stock
units, and your employment with Limelight terminated prior to
the first vesting date of your restricted stock units, your
restricted stock units would expire immediately. If you did not
exchange your fully vested option grant for restricted stock
units in the offer, your option grant would continue to be
governed by its terms and would be exercisable for a period
following the termination of your employment with Limelight as
provided in your option agreement.
Tax-Related
Risks
Tax
effects of restricted stock units for United States
Taxpayers.
If you participate in the offer and are a U.S. taxpayer,
you generally will not be required under current U.S. law
to recognize income for U.S. federal income tax purposes at
the time of the exchange and on the restricted stock unit grant
date. However, you generally will have taxable ordinary income
when your restricted stock units vest, at which time Limelight
will also generally have a tax withholding obligation. Although
not obligated to do so, Morgan Stanley shall automatically sell
a sufficient number of shares of our common stock issued when
restricted stock units vest to satisfy the withholding
obligation and transfer the proceeds from such sale to the
Company to satisfy the withholding obligation. In addition,
Limelight reserves the right to automatically redeem a
sufficient number of shares of our common stock issued when
restricted stock units vest to satisfy the withholding
obligation. You may also have taxable capital gains when you
sell the shares underlying the restricted stock unit. Note that
the tax treatment of restricted stock units is significantly
different from the tax treatment of your options and as a result
of your participating in this offer, your tax liability could be
higher than if you had kept your eligible options. Please see
Section 14, beginning on page 37 of the Offer to
Exchange for a reminder of the general tax consequences
associated with options.
Tax
effects of the exchange of options for restricted stock units
for Japan Taxpayers.
If you participate in the offer and are a Japan taxpayer, the
tax treatment of the cancellation of your options in exchange
for restricted stock units is uncertain because there are no
specific tax provisions related to such exchange. The tax
authorities may consider the option cancellation a taxable
event. Although not certain, under the current practice of the
tax authorities, you will likely not be taxed with respect to
the restricted stock unit. You likely will have taxable income
when your restricted stock units vest and the shares are issued
to you. It is your responsibility to report the income on your
tax return and pay any tax liability in relation to the exchange
or the restricted stock units. You also will have taxable income
on any gain from the sale of shares underlying the restricted
stock unit. Please see Schedule C of the Offer to Exchange
for further details.
Tax
effects of the exchange of options for restricted stock units
for the United Kingdom Taxpayers.
If you are resident and ordinarily resident U.K. and you
participate in the offer, you generally will not be required to
recognize income for income tax or national insurance
contribution purposes at the time of the cancellation of the
option in exchange for the restricted stock unit grant. However,
you will have taxable income on
11
the value of the shares when your restricted stock units vest.
In addition, you will be responsible for paying employees
and employers national insurance contributions on the
value of the shares at the time of vesting and will need to
execute a joint election form with respect to the liability to
pay your employers national insurance contributions.
Although not obligated to do so, Morgan Stanley shall
automatically sell a sufficient number of shares of our common
stock issued when restricted stock units vest to satisfy the
withholding obligation and transfer the proceeds from such sale
to the Company to satisfy the withholding obligation. In
addition, Limelight reserves the right to automatically redeem a
sufficient number of shares of our common stock issued when
restricted stock units vest to satisfy the withholding
obligation. Limelight also reserves to right to, alternatively,
withhold from your salary or from the proceeds of the sale of
the shares to satisfy the withholding obligation. You also may
have taxable income when you sell the shares underlying the
restricted stock unit. Please see Schedule D of the Offer
to Exchange for further details.
Risks
Relating to Our Business, Generally
A jury
has determined that we are infringing a competitors
patent, and an injunction may be entered against us that could
force us to cease providing our CDN services.
In February 2008, a jury returned a verdict in a patent
infringement lawsuit filed by Akamai Technologies, Inc., or
Akamai, and the Massachusetts Institute of Technology, or MIT,
against us, finding that we infringed four claims of the patent
at issue and rejecting our invalidity defenses. The jury awarded
Akamai an aggregate of approximately $45.5 million in lost
profits, reasonable royalties and price erosion damages, plus
pre-judgment interest estimated to be $2.6 million that we
have recorded in 2007. An additional provision of approximately
$7.1 million for potential additional infringement damages
and interest was recorded during the three-month period ended
March 31, 2008, and additional accruals for future periods
are expected. A final judgment has not yet been entered. We are
still pursuing a number of equitable defenses, and we recently
filed several motions seeking relief from the Court. Akamai has
filed motions for summary judgment on our remaining equitable
defenses and for a permanent injunction, which we have opposed.
We continue to believe that the claims of infringement asserted
against us by Akamai and MIT in the present litigation are
without merit and that the jurys verdict is incorrect, and
we will continue to defend the case vigorously; however, we
cannot assure you that this lawsuit ultimately will be resolved
in our favor. An adverse judgment or injunction could seriously
impact our ability to conduct our business and to offer our
products and services to our customers. A permanent injunction
could prevent us from operating our CDN to deliver certain types
of traffic, which could impact the viability of our business.
These adverse outcomes, in turn, would harm our revenue, market
share, reputation, liquidity and overall financial position.
Whether or not we prevail in this case, we expect that the
litigation will continue to be expensive, time consuming and a
distraction to our management in operating our business.
We may
need to defend our intellectual property and processes against
patent or copyright infringement claims, which would cause us to
incur substantial costs and threaten our ability to do
business.
Companies, organizations or individuals, including our
competitors, may hold or obtain patents or other proprietary
rights that would prevent, limit or interfere with our ability
to make, use or sell our services or develop new services, which
could make it more difficult for us to operate our business.
From time to time, we may receive inquiries from holders of
patents inquiring whether we infringe their proprietary rights.
Companies holding Internet-related patents or other intellectual
property rights are increasingly bringing suits alleging
infringement of such rights or otherwise asserting their rights
and seeking licenses. For example, in June 2006, we were sued by
Akamai and MIT alleging we infringed patents licensed to Akamai,
and in February 2008 a jury returned a verdict in this case,
finding that we infringed four claims of the patent at issue and
rejecting our invalidity defenses. The jury awarded Akamai an
aggregate of approximately $45.5 million in lost profits,
reasonable royalties and price erosion damages, plus
pre-judgment interest estimated to be $2.6 million that we
have recorded in 2007. An additional provision of approximately
$7.1 million for additional infringement damages and
interest was recorded as of March 31, 2008, and additional
accruals for future periods are expected. Although a final
judgment has not yet been entered, an adverse judgment or
injunction could seriously impact our ability to conduct our
business and to offer our products and services to our
customers. A permanent injunction could prevent us from
operating our CDN to deliver certain types of traffic, which
could impact the viability of our business. In addition, in
December 2007,
12
Level 3 Communications, or Level 3, filed a lawsuit
against us alleging that we are infringing three patents
Level 3 allegedly acquired from Savvis Communications Corp.
In addition to monetary relief, including treble damages,
interest, fees and costs, the complaint seeks an order
permanently enjoining us from conducting our business in a
manner that infringes the relevant patents. Further, in April
2008, Two-Way Media LLC, or TWM, filed a lawsuit against us and
several other defendants alleging that we are infringing four
patents owned by TWM. TWM is seeking monetary damages and
injunctive relief. Any litigation or claims, whether or not
valid, could result in substantial costs and diversion of
resources. In addition, if we are determined to have infringed
upon a third partys intellectual property rights, we may
be required to do one or more of the following:
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cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
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pay substantial damages;
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obtain a license from the holder of the infringed intellectual
property right, which license may or may not be available on
reasonable terms or at all; or
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redesign products or services.
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If we are forced to take any of these actions, our business may
be seriously harmed. In the event of a successful claim of
infringement against us and our failure or inability to obtain a
license to the infringed technology, our business and operating
results could be harmed. The expense of defending these lawsuits
and other lawsuits to which we may be a party, particularly fees
paid to our lawyers and expert consultants, has been and will
continue to be significant and will continue to adversely affect
our operating results during the pendency of the lawsuits.
Our
limited operating history makes evaluating our business and
future prospects difficult, and may increase the risk of your
investment.
Our company has only been in existence since
2001.
A significant amount of our growth, in
terms of employees, operations and revenue, has occurred since
2004. For example, our revenue has grown from $5.0 million in
2003 to $65.2 million in 2006 and to $103.1 million in
2007. For the three-month period ended March 31, 2008 our
revenue was $30.2 million. As a consequence, we have a
limited operating history which makes it difficult to evaluate
our business and our future prospects. We have encountered and
will continue to encounter risks and difficulties frequently
experienced by growing companies in rapidly changing industries.
If we do not address these risks successfully, our business will
be harmed.
If we
fail to manage future growth effectively, we may not be able to
market and sell our services successfully.
We have recently expanded our operations significantly,
increasing our total number of employees from 29 at
December 31, 2004 to 244 at March 31, 2008, and we
anticipate that further significant expansion will be required.
Our future operating results depend to a large extent on our
ability to manage this expansion and growth successfully. Risks
that we face in undertaking this expansion include: training new
sales personnel to become productive and generate revenue;
forecasting revenue; controlling expenses and investments in
anticipation of expanded operations; implementing and enhancing
our content delivery network, or CDN, and administrative
infrastructure, systems and processes; addressing new markets;
and expanding international operations. A failure to manage our
growth effectively could materially and adversely affect our
ability to market and sell our products and services.
We
currently face competition from established competitors and may
face competition from others in the future.
We compete in markets that are intensely competitive, rapidly
changing and characterized by constantly declining prices and
vendors offering a wide range of content delivery solutions. We
have experienced and expect to continue to experience increased
competition, and particularly aggressive price competition. Many
of our current competitors, as well as a number of our potential
competitors, have longer operating histories, greater name
recognition, broader customer relationships and industry
alliances and substantially greater financial, technical and
13
marketing resources than we do. As a consequence of the
competitive dynamics in our market we have experienced
reductions in our prices, which in turn adversely affect our
revenue, gross margin and operating results.
Our primary competitors include content delivery service
providers such as Akamai, Level 3 Communications and
Internap Network Services Corporation, which acquired
VitalStream. Also, as a result of the growth of the content
delivery market, a number of companies are currently attempting
to enter our market, either directly or indirectly, some of
which may become significant competitors in the future. Our
competitors may be able to respond more quickly than we can to
new or emerging technologies and changes in customer
requirements. Given the relative ease by which customers
typically can switch among CDN providers, differentiated
offerings or pricing by competitors could lead to a rapid loss
of customers. Some of our current or potential competitors may
bundle their offerings with other services, software or hardware
in a manner that may discourage content providers from
purchasing the services that we offer. In addition, as we expand
internationally, we face different market characteristics and
competition with local content delivery service providers, many
of which are very well positioned within their local markets.
Increased competition could result in price reductions and
revenue shortfalls, loss of customers and loss of market share,
which could harm our business, financial condition and results
of operations.
We may
lose customers if they elect to develop content delivery
solutions internally.
Our customers and potential customers may decide to develop
their own content delivery solutions rather than outsource these
solutions to CDN services providers like us. This is
particularly true as our customers increase their operations and
begin expending greater resources on delivering their content
using third-party solutions. For example, in 2006, one customer
within our top 10 customers, MySpace.com, which was contracted
through a reseller of our services, CDN Consulting, accounted
for approximately 21% of our total revenue for that period. At
the end of 2006, MySpace became a direct customer of ours.
During 2007, sales to the MySpace.com were approximately 3% of
our total revenue. For the year ended December 31, 2007,
sales to the reseller CDN Consulting were less than 1% of
revenue after this change. For the three-month period ended
March 31, 2008, revenue from MySpace.com was
approximately 2% of our total revenue and revenue from CDN
Consulting was less than 1% of our total revenue. If we fail to
offer CDN services that are competitive to in-sourced solutions,
we may lose additional customers or fail to attract customers
that may consider pursuing this in-sourced approach, and our
business and financial results would suffer.
We may
lose customers if they are unable to build business models that
effectively monetize delivery of their content.
Our customers may not be successful in selling advertising or
otherwise monetizing the content we delivery on their behalf and
consequently may not be successful in creating a profitable
business model. This may result in some of our customers
discontinuing their internet or web-based business operations
and discontinuing use of our services and products. For example,
during the
three-month
period ended March 31, 2008, a significant customer
discontinued it website business and ceased using our CDN
services. We expect further customers may similarly discontinue
operations. Further loss of customers may adversely affect our
financial results.
Rapidly
evolving technologies or new business models could cause demand
for our CDN services to decline or could cause these services to
become obsolete.
Customers or third parties may develop technological or business
model innovations that address content delivery requirements in
a manner that is, or is perceived to be, equivalent or superior
to our CDN services. If competitors introduce new products or
services that compete with or surpass the quality or the
price/performance of our services, we may be unable to renew our
agreements with existing customers or attract new customers at
the prices and levels that allow us to generate attractive rates
of return on our investment. For example, one or more third
parties might develop improvements to current peer-to-peer
technology, which is a technology that relies upon the computing
power and bandwidth of its participants, such that this
technological approach is better able to deliver content in a
way that is competitive to our CDN services, or even that makes
CDN services obsolete. We may not anticipate such developments
and may be unable to adequately compete with these potential
solutions. In addition, our customers business models may
change in ways that we do not anticipate and these changes could
reduce or eliminate our customers needs for CDN services.
If this occurred, we could lose customers or potential
customers,
14
and our business and financial results would suffer. As a result
of these or similar potential developments, in the future it is
possible that competitive dynamics in our market may require us
to reduce our prices, which could harm our revenue, gross margin
and operating results.
If we
are unable to sell our services at acceptable prices relative to
our costs, our revenue and gross margins will decrease, and our
business and financial results will suffer.
Prices for content delivery services have fallen in recent years
and are likely to fall further in the future. We have invested
significant amounts in purchasing capital equipment to increase
the capacity of our content delivery services. For example, in
2006 we invested $40.6 million in capital expenditures and
invested $22.7 million in capital expenditures during 2007,
primarily for computer equipment associated with the build-out
and expansion of our CDN. For the
three-month
period ended March 31, 2008, we invested $2.4 million.
Our investments in our infrastructure are based upon our
assumptions regarding future demand and also prices that we will
be able to charge for our services. These assumptions may prove
to be wrong. If the price that we are able to charge customers
to deliver their content falls to a greater extent than we
anticipate, if we over-estimate future demand for our services
or if our costs to deliver our services do not fall commensurate
with any future price declines, we may not be able to achieve
acceptable rates of return on our infrastructure investments and
our gross profit and results of operations may suffer
dramatically.
In addition, during 2008 and beyond, we expect to increase our
expenses, in absolute dollars, in substantially all areas of our
business, including sales and marketing, general and
administrative, and research and development. During 2008 and
2009, as we further expand our CDN, and we begin to refresh our
network equipment, we also expect our capital expenditures to be
generally consistent with the high level of expenditures we made
in this area in 2006 and 2007. As a consequence, we are
dependent on significant future growth in demand for our
services to provide the necessary gross profit to pay these
additional expenses. If we fail to generate significant
additional demand for our services, our results of operations
will suffer and we may fail to achieve planned or expected
financial results. There are numerous factors that could, alone
or in combination with other factors, impede our ability to
increase revenue, moderate expenses or maintain gross margins,
including:
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failure to increase sales of our core services;
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significant increases in bandwidth and rack space costs or other
operating expenses;
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inability to maintain our prices relative to our costs;
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failure of our current and planned services and software to
operate as expected;
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loss of any significant customers or loss of existing customers
at a rate greater than our increase in new customers or our
sales to existing customers;
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failure to increase sales of our services to current customers
as a result of their ability to reduce their monthly usage of
our services to their minimum monthly contractual commitment;
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failure of a significant number of customers to pay our fees on
a timely basis or at all or failure to continue to purchase our
services in accordance with their contractual
commitments; and
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inability to attract high-quality customers to purchase and
implement our current and planned services.
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If we
are unable to develop new services and enhancements to existing
services or fail to predict and respond to emerging
technological trends and customers changing needs, our
operating results may suffer.
The market for our CDN services is characterized by rapidly
changing technology, evolving industry standards and new product
and service introductions. Our operating results depend on our
ability to develop and introduce new services into existing and
emerging markets. The process of developing new technologies is
complex and uncertain. We must commit significant resources to
developing new services or enhancements to our existing services
before knowing whether our investments will result in services
the market will accept. For example, during 2007 we introduced
our Geo-Compliance paid service option, and we do not yet know
whether our customers will adopt this offering in sufficient
numbers to justify our development costs. Furthermore, we may
not execute
15
successfully our technology initiatives because of errors in
planning or timing, technical hurdles that we fail to overcome
in a timely fashion, misunderstandings about market demand or a
lack of appropriate resources. Failures in execution or market
acceptance of new services we introduce could result in
competitors providing those solutions before we do, which could
lead to loss of market share, revenue and earnings.
We
depend on a limited number of customers for a substantial
portion of our revenue in any fiscal period, and the loss of, or
a significant shortfall in demand from, these customers could
significantly harm our results of operations.
During any given fiscal period, a relatively small number of
customers typically account for a significant percentage of our
revenue. For example, in 2007, sales to our top 10 customers, in
terms of revenue, accounted for approximately 45% of our total
revenue. For the three-month period ended March 31, 2008,
sales to our top 10 customers, in terms of revenue, accounted
for approximately 45% of our total revenue. During 2007 one of
these top 10 customers, Microsoft, represented approximately 12%
of our total revenue for that period. For the three-month period
ended March 31, 2008, one of these top 10 customers,
Microsoft, represented approximately 15% of our total revenue
for that period. In the past, the customers that comprised our
top 10 customers have continually changed, and we also have
experienced significant fluctuations in our individual
customers usage of our services. As a consequence, we may
not be able to adjust our expenses in the short term to address
the unanticipated loss of a large customer during any particular
period. As such, we may experience significant, unanticipated
fluctuations in our operating results which may cause us to not
meet our expectations or those of stock market analysts, which
could cause our stock price to decline.
If we
are unable to attract new customers or to retain our existing
customers, our revenue could be lower than expected and our
operating results may suffer.
In addition to adding new customers, to increase our revenue, we
must sell additional services to existing customers and
encourage existing customers to increase their usage levels. If
our existing and prospective customers do not perceive our
services to be of sufficiently high value and quality, we may
not be able to retain our current customers or attract new
customers. We sell our services pursuant to service agreements
that are generally one year in length. Our customers have no
obligation to renew their contracts for our services after the
expiration of their initial commitment period, and these service
agreements may not be renewed at the same or higher level of
service, if at all. Moreover, under some circumstances, some of
our customers have the right to cancel their service agreements
prior to the expiration of the terms of their agreements.
Because of our limited operating history, we have limited
historical data with respect to rates of customer service
agreement renewals. This fact, in addition to the changing
competitive landscape in our market, means that we cannot
accurately predict future customer renewal rates. Our
customers renewal rates may decline or fluctuate as a
result of a number of factors, including:
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their satisfaction or dissatisfaction with our services;
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the prices of our services;
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the prices of services offered by our competitors;
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discontinuation by our customers of their internet or web-based
content distribution businesses;
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mergers and acquisitions affecting our customer base; and
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reductions in our customers spending levels.
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If our customers do not renew their service agreements with us
or if they renew on less favorable terms, our revenue may
decline and our business will suffer. Similarly, our customer
agreements often provide for minimum commitments that are often
significantly below our customers historical usage levels.
Consequently, even if we have agreements with our customers to
use our services, these customers could significantly curtail
their usage without incurring any penalties under our
agreements. In this event, our revenue would be lower than
expected and our operating results could suffer.
It also is an important component of our growth strategy to
market our CDN services to industries, such as enterprise and
the government. As an organization, we do not have significant
experience in selling our services into these markets. We have
only recently begun a number of these initiatives, and our
ability to successfully sell our
16
services into these markets to a meaningful extent remains
unproven. If we are unsuccessful in such efforts, our business,
financial condition and results of operations could suffer.
Our
results of operations may fluctuate in the future. As a result,
we may fail to meet or exceed the expectations of securities
analysts or investors, which could cause our stock price to
decline.
Our results of operations may fluctuate as a result of a variety
of factors, many of which are outside of our control. If our
results of operations fall below the expectations of securities
analysts or investors, the price of our common stock could
decline substantially. Fluctuations in our results of operations
may be due to a number of factors, including:
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our ability to increase sales to existing customers and attract
new customers to our CDN services;
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the addition or loss of large customers, or significant
variation in their use of our CDN services;
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costs associated with current or future intellectual property
lawsuits and other lawsuits;
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service outages or security breaches;
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the amount and timing of operating costs and capital
expenditures related to the maintenance and expansion of our
business, operations and infrastructure;
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the timing and success of new product and service introductions
by us or our competitors;
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the occurrence of significant events in a particular period that
result in an increase in the use of our CDN services, such as a
major media event or a customers online release of a new
or updated video game;
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changes in our pricing policies or those of our competitors;
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the timing of recognizing revenue;
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share-based compensation expenses associated with attracting and
retaining key personnel;
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limitations of the capacity of our content delivery network and
related systems;
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the timing of costs related to the development or acquisition of
technologies, services or businesses;
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seasonality affecting our customers business that impacts
demand for our CDN services;
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general economic, industry and market conditions and those
conditions specific to Internet usage and online businesses;
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limitations on usage imposed by our customers in order to limit
their online expenses; and
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geopolitical events such as war, threat of war or terrorist
actions.
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We believe that our revenue and results of operations may vary
significantly in the future and that period-to-period
comparisons of our operating results may not be meaningful. You
should not rely on the results of one period as an indication of
future performance.
After
being profitable in 2004 and 2005, we were unprofitable in 2006
and 2007 primarily due in part to increased stock-based
compensation expense and litigation costs, which could affect
our ability to achieve and maintain profitability in the
future.
Our adoption of SFAS 123R in 2006 substantially increased
the amount of share-based compensation expense we record and has
had a significant impact on our results of operations. After
being profitable in 2004 and 2005, we were unprofitable in 2006
and 2007; and for the three-month period ended March 31,
2008; partially due to an increase in our share-based
compensation expense, which increased from $0.1 million in
2005 to $9.2 million in 2006 and further increased to
$18.9 million in 2007. For the three-month period ended
March 31, 2008 our share-based compensation expense was
$4.0 million. This significant increase in share-based
compensation expense reflects an increase in the level of option
and restricted stock grants coupled with a significant increase
in the fair market value per share at the date of grant. Our
unrecognized share-based compensation expense totaled
$55.3 million at March 31, 2008, of which we expect to
amortize $13.7 million during the remainder of 2008,
17
$18.4 million in 2009 and the remainder thereafter based
upon the scheduled vesting of the options outstanding at that
time. We further expect our share-based compensation expense to
increase in 2008 and potentially to increase thereafter as we
grant additional options or restricted stock awards. The
increased share-based compensation expense could adversely
affect our ability to achieve and maintain profitability in the
future. In 2006, we were sued by Akamai and MIT alleging
infringement of certain patents. We have incurred, and will
continue to incur, significant costs associated with litigation.
These costs were $6.8 million and $3.2 million in 2007
and 2006, respectively. For the three-month period ended
March 31, 2008 we incurred $5.4 million in litigation
costs. We expect these costs will continue to increase during
the remainder of 2008.
We
generate our revenue almost entirely from the sale of CDN
services, and the failure of the market for these services to
expand as we expect or the reduction in spending on those
services by our current or potential customers would seriously
harm our business.
While we offer our customers a number of services associated
with our CDN, we generated nearly 100% of our revenue in 2007
and for the three months ended March 31, 2008, from
charging our customers for the content delivered on their behalf
through our CDN. As we do not currently have other meaningful
sources of revenue, we are subject to an elevated risk of
reduced demand for these services. Furthermore, if the market
for delivery of rich media content in particular does not
continue to grow as we expect or grows more slowly, then we may
fail to achieve a return on the significant investment we are
making to prepare for this growth. Our success, therefore,
depends on the continued and increasing reliance on the Internet
for delivery of media content and our ability to
cost-effectively deliver these services. Factors that may have a
general tendency to limit or reduce the number of users relying
on the Internet for media content or the number of providers
making this content available online include a general decline
in Internet usage, litigation involving our customers and
third-party restrictions on online content, including copyright
restrictions, digital rights management and restrictions in
certain geographic regions, as well as a significant increase in
the quality or fidelity of offline media content beyond that
available online to the point where users prefer the offline
experience. The influence of any of these factors may cause our
current or potential customers to reduce their spending on CDN
services, which would seriously harm our operating results and
financial condition.
Many
of our significant current and potential customers are pursuing
emerging or unproven business models which, if unsuccessful,
could lead to a substantial decline in demand for our CDN
services.
Because the proliferation of broadband Internet connections and
the subsequent monetization of content libraries for
distribution to Internet users are relatively recent phenomena,
many of our customers business models that center on the
delivery of rich media and other content to users remain
unproven. For example, social media companies have been among
our top recent customers and are pursuing emerging strategies
for monetizing the user content and traffic on their web sites.
Our customers will not continue to purchase our CDN services if
their investment in providing access to the media stored on or
deliverable through our CDN does not generate a sufficient
return on their investment. A reduction in spending on CDN
services by our current or potential customers would seriously
harm our operating results and financial condition.
Our
business will be adversely affected if we are unable to protect
our intellectual property rights from unauthorized use or
infringement by third parties.
We rely on a combination of patent, copyright, trademark and
trade secret laws and restrictions on disclosure to protect our
intellectual property rights. These legal protections afford
only limited protection, and we have only one currently issued
patent. Monitoring infringement of our intellectual property
rights is difficult, and we cannot be certain that the steps we
have taken will prevent unauthorized use of our intellectual
property rights. We have applied for patent protection in a
number of foreign countries, but the laws in these jurisdictions
may not protect our proprietary rights as fully as in the United
States. Furthermore, we cannot be certain that any pending or
future patent applications will be granted, that any future
patent will not be challenged, invalidated or circumvented, or
that rights granted under any patent that may be issued will
provide competitive advantages to us.
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Any
unplanned interruption in the functioning of our network or
services could lead to significant costs and disruptions that
could reduce our revenue and harm our business, financial
results and reputation.
Our business is dependent on providing our customers with fast,
efficient and reliable distribution of application and content
delivery services over the Internet. Many of our customers
depend primarily or exclusively on our services to operate their
businesses. Consequently, any disruption of our services could
have a material impact on our customers businesses. Our
network or services could be disrupted by numerous events,
including natural disasters, failure or refusal of our
third-party network providers to provide the necessary capacity,
failure of our software or CDN delivery infrastructure and power
losses. In addition, we deploy our servers in approximately 62
third-party co-location facilities, and these third-party
co-location providers could experience system outages or other
disruptions that could constrain our ability to deliver our
services. We may also experience disruptions caused by software
viruses or other attacks by unauthorized users.
While we have not experienced any significant, unplanned
disruption of our services to date, our CDN may fail in the
future. Despite our significant infrastructure investments, we
may have insufficient communications and server capacity to
address these or other disruptions, which could result in
interruptions in our services. Any widespread interruption of
the functioning of our CDN and related services for any reason
would reduce our revenue and could harm our business and
financial results. If such a widespread interruption occurred or
if we failed to deliver content to users as expected during a
high-profile media event, game release or other well-publicized
circumstance, our reputation could be damaged severely.
Moreover, any disruptions could undermine confidence in our
services and cause us to lose customers or make it more
difficult to attract new ones, either of which could harm our
business and results of operations.
We may
have difficulty scaling and adapting our existing architecture
to accommodate increased traffic and technology advances or
changing business requirements, which could lead to the loss of
customers and cause us to incur unexpected expenses to make
network improvements.
Our CDN services are highly complex and are designed to be
deployed in and across numerous large and complex networks. Our
network infrastructure has to perform well and be reliable for
us to be successful. The greater the user traffic and the
greater the complexity of our products and services, the more
resources we will need to invest in additional infrastructure
and support. We have spent and expect to continue to spend
substantial amounts on the purchase and lease of equipment and
data centers and the upgrade of our technology and network
infrastructure to handle increased traffic over our network and
to roll out new products and services. This expansion is
expensive and complex and could result in inefficiencies,
operational failures or defects in our network and related
software. If we do not expand successfully, or if we experience
inefficiencies and operational failures, the quality of our
products and services and user experience could decline. From
time to time, we have needed to correct errors and defects in
our software or in other aspects of our CDN. In the future,
there may be additional errors and defects that may harm our
ability to deliver our services, including errors and defects
originating with third party networks or software on which we
rely. These occurrences could damage our reputation and lead us
to lose current and potential customers. We must continuously
upgrade our infrastructure in order to keep pace with our
customers evolving demands. Cost increases or the failure
to accommodate increased traffic or these evolving business
demands without disruption could harm our operating results and
financial condition.
Our
operations are dependent in part upon communications capacity
provided by third-party telecommunications providers. A material
disruption of the communications capacity we have leased could
harm our results of operations, reputation and customer
relations.
We lease private line capacity for our backbone from a third
party provider, Global Crossing Ltd. Our contracts for private
line capacity with Global Crossing generally have terms of three
years. The communications capacity we have leased may become
unavailable for a variety of reasons, such as physical
interruption, technical difficulties, contractual disputes, or
the financial health of our third party provider. As it would be
time consuming and expensive to identify and obtain alternative
third-party connectivity, we are dependent on Global Crossing in
the near term. Additionally, as we grow, we anticipate requiring
greater private line capacity than we currently have in place.
If we are unable to obtain such capacity on terms commercially
acceptable to us or at all, our business and
19
financial results would suffer. We may not be able to deploy on
a timely basis enough network capacity to meet the needs of our
customer base or effectively manage demand for our services.
Our
business depends on continued and unimpeded access to
third-party controlled end-user access networks.
Our content delivery services depend on our ability to access
certain end-user access networks in order to complete the
delivery of rich media and other online content to end-users.
Some operators of these networks may take measures, such as the
deployment of a variety of filters, that could degrade, disrupt
or increase the cost of our or our customers access to
certain of these end-user access networks by restricting or
prohibiting the use of their networks to support or facilitate
our services, or by charging increased fees to us, our customers
or end-users in connection with our services. This or other
types of interference could result in a loss of existing
customers, increased costs and impairment of our ability to
attract new customers, thereby harming our revenue and growth.
In addition, the performance of our infrastructure depends in
part on the direct connection of our CDN to a large number of
end-user access networks, known as peering, which we achieve
through mutually beneficial cooperation with these networks. If
in the future a significant percentage of these network
operators elected to no longer peer with our CDN, the
performance of our infrastructure could be diminished and our
business could suffer.
If our
ability to deliver media files in popular proprietary content
formats was restricted or became
cost-prohibitive,
demand for our content delivery services could decline, we could
lose customers and our financial results could
suffer.
Our business depends on our ability to deliver media content in
all major formats. If our legal right or technical ability to
store and deliver content in one or more popular proprietary
content formats, such as Adobe Flash or Windows Media, was
limited, our ability to serve our customers in these formats
would be impaired and the demand for our content delivery
services would decline by customers using these formats. Owners
of propriety content formats may be able to block, restrict or
impose fees or other costs on our use of such formats, which
could lead to additional expenses for us and for our customers,
or which could prevent our delivery of this type of content
altogether. Such interference could result in a loss of existing
customers, increased costs and impairment of our ability to
attract new customers, which would harm our revenue, operating
results and growth.
If we
are unable to retain our key employees and hire qualified sales
and technical personnel, our ability to compete could be
harmed.
Our future success depends upon the continued services of our
executive officers and other key technology, sales, marketing
and support personnel who have critical industry experience and
relationships that they rely on in implementing our business
plan. In particular, we are dependent on the services of our
Chief Executive Officer, Jeffrey W. Lunsford and also our Chief
Technical Officer, Nathan F. Raciborski. Neither of these
officers nor any of our other key employees is bound by an
employment agreement for any specific term. In addition, we do
not have key person life insurance policies covering
any of our officers or other key employees, and we therefore
have no way of mitigating our financial loss were we to lose
their services. There is increasing competition for talented
individuals with the specialized knowledge to deliver content
delivery services and this competition affects both our ability
to retain key employees and hire new ones. The loss of the
services of any of our key employees could disrupt our
operations, delay the development and introduction of our
services, and negatively impact our ability to sell our services.
Our
senior management team has limited experience working together
as a group, and may not be able to manage our business
effectively.
Four members of our senior management team, our President and
Chief Executive Officer, Jeffrey W. Lunsford, our Chief
Financial Officer, Matthew Hale, our Senior Vice President of
Worldwide Sales, Marketing and Services, David M. Hatfield, and
our Senior Vice President and Chief Legal Officer, Philip C.
Maynard, have been hired since November 2006. As a result, our
senior management team has limited experience working together
as a
20
group. This lack of shared experience could harm our senior
management teams ability to quickly and efficiently
respond to problems and effectively manage our business.
We
face risks associated with international operations that could
harm our business.
We have operations and personnel in the United States, Japan and
the United Kingdom, and we currently maintain network equipment
in Australia, Canada, France, Germany, Hong Kong, Ireland,
Japan, the Netherlands, Singapore and the United Kingdom. As
part of our growth strategy, we intend to expand our sales and
support organizations internationally, as well as to further
expand our international network infrastructure. We have limited
experience in providing our services internationally and such
expansion could require us to make significant expenditures,
including the hiring of local employees, in advance of
generating any revenue. As a consequence, we may fail to achieve
profitable operations that will compensate our investment in
international locations. We are subject to a number of risks
associated with international business activities that may
increase our costs, lengthen our sales cycle and require
significant management attention.
These risks include:
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increased expenses associated with sales and marketing,
deploying services and maintaining our infrastructure in foreign
countries;
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competition from local content delivery service providers, many
of which are very well positioned within their local markets;
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unexpected changes in regulatory requirements resulting in
unanticipated costs and delays;
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interpretations of laws or regulations that would subject us to
regulatory supervision or, in the alternative, require us to
exit a country, which could have a negative impact on the
quality of our services or our results of operations;
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longer accounts receivable payment cycles and difficulties in
collecting accounts receivable;
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corporate and personal liability for violations of local laws
and regulations;
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currency exchange rate fluctuations; and
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potentially adverse tax consequences.
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Internet-related
and other laws relating to taxation issues, privacy and consumer
protection and liability for content distributed over our
network, could harm our business.
Laws and regulations that apply to communications and commerce
conducted over the Internet are becoming more prevalent, both in
the United States and internationally, and may impose additional
burdens on companies conducting business online or providing
Internet-related services such as ours. Increased regulation
could negatively affect our business directly, as well as the
businesses of our customers, which could reduce their demand for
our services. For example, tax authorities abroad may impose
taxes on the Internet-related revenue we generate based on where
our internationally deployed servers are located. In addition,
domestic and international taxation laws are subject to change.
Our services, or the businesses of our customers, may become
subject to increased taxation, which could harm our financial
results either directly or by forcing our customers to scale
back their operations and use of our services in order to
maintain their operations. In addition, the laws relating to the
liability of private network operators for information carried
on or disseminated through their networks are unsettled, both in
the United States and abroad. Network operators have been sued
in the past, sometimes successfully, based on the content of
material disseminated through their networks. We may become
subject to legal claims such as defamation, invasion of privacy
and copyright infringement in connection with content stored on
or distributed through our network. In addition, our reputation
could suffer as a result of our perceived association with the
type of content that some of our customers deliver. If we need
to take costly measures to reduce our exposure to these risks,
or are required to defend ourselves against such claims, our
financial results could be negatively affected.
21
If we
are required to seek additional funding, such funding may not be
available on acceptable terms or at all.
We may need to obtain additional funding due to a number of
factors beyond our control, including a shortfall in revenue,
increased expenses, final adverse judgments in litigation
matters, increase investment in capital equipment or the
acquisition of significant businesses or technologies. We
believe that our cash, plus cash from operations will be
sufficient to fund our operations and proposed capital
expenditures for at least the next 12 months. However, we
may need funding before such time. If we do need to obtain
funding, it may not be available on commercially reasonable
terms or at all. If we are unable to obtain sufficient funding,
our business would be harmed. Even if we were able to find
outside funding sources, we might be required to issue
securities in a transaction that could be highly dilutive to our
investors or we may be required to issue securities with greater
rights than the securities we have outstanding today. We might
also be required to take other actions that could lessen the
value of our common stock, including borrowing money on terms
that are not favorable to us. If we are unable to generate or
raise capital that is sufficient to fund our operations, we may
be required to curtail operations, reduce our capabilities or
cease operations in certain jurisdictions or completely.
Further, the availability of our current cash will be adversely
affected if we are required to provide security for the recent
jury verdict in the Akamai trial in connection with an appeal or
a stay of injunction, should an appeal of a final judgment in
favor of Akamai be required or an injunction and stay thereof be
issued.
Our
business requires the continued development of effective
business support systems to support our customer growth and
related services.
The growth of our business depends on our ability to continue to
develop effective business support systems. This is a
complicated undertaking requiring significant resources and
expertise. Business support systems are needed for:
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implementing customer orders for services;
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delivering these services; and
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timely billing for these services.
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Because our business plan provides for continued growth in the
number of customers that we serve and services offered, there is
a need to continue to develop our business support systems on a
schedule sufficient to meet proposed service rollout dates. The
failure to continue to develop effective business support
systems could harm our ability to implement our business plans
and meet our financial goals and objectives.
If we
fail to maintain proper and effective internal controls, our
ability to produce accurate financial statements could be
impaired, which could adversely affect our operating results,
our ability to operate our business and investors views of
us.
We must ensure that we have adequate internal financial and
accounting controls and procedures in place so that we can
produce accurate financial statements on a timely basis. We are
required to spend considerable effort on establishing and
maintaining our internal controls, which is costly and
time-consuming and needs to be re-evaluated frequently. We have
very limited experience in designing and testing our internal
controls. For example, during the third quarter of 2007, we
discovered material weaknesses in our system of internal
controls over our revenue recognition and stock-based
compensation processes that required us to restate our
previously reported consolidated financial statements for the
three and nine months ended September 30, 2006, the three
months and year ended December 31, 2006, the three months
ended March 31, 2007, and the three and six months ended
June 30, 2007. We are in the process of documenting,
reviewing and, where appropriate, improving our internal
controls and procedures. As a newly public company, we will be
required to comply with the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002, which will require annual
management assessments of the effectiveness of our internal
control over financial reporting beginning with the year ended
December 31, 2008. In addition, we will be required to file
a report by our independent registered public accounting firm
addressing these assessments beginning with our Annual Report on
Form 10-K
for the year ended December 31, 2008. Both we and our
independent auditors will be testing our internal controls in
anticipation of being subject to Section 404
22
requirements and, as part of that documentation and testing, may
identify areas for further attention and improvement.
Implementing any appropriate changes to our internal controls
may entail substantial costs to modify our existing financial
and accounting systems, take a significant period of time to
complete, and distract our officers, directors and employees
from the operation of our business. These changes may not,
however, be effective in maintaining the adequacy of our
internal controls, and any failure to maintain that adequacy, or
a consequent inability to produce accurate financial statements
on a timely basis, could increase our operating costs and could
materially impair our ability to operate our business. In
addition, investors perceptions that our internal controls
are inadequate or that we are unable to produce accurate
financial statements may seriously affect our stock price.
Changes
in financial accounting standards or practices may cause
adverse, unexpected financial reporting fluctuations and affect
our reported results of operations.
A change in accounting standards or practices can have a
significant effect on our operating results and may affect our
reporting of transactions completed before the change is
effective. New accounting pronouncements and varying
interpretations of existing accounting pronouncements have
occurred and may occur in the future. Changes to existing rules
or the questioning of current practices may adversely affect our
reported financial results or the way we conduct our business.
For example, our recent adoption of SFAS 123R in 2006 has
increased the amount of stock-based compensation expense we
record. This, in turn, has impacted our results of operations
for the periods since this adoption and has made it more
difficult to evaluate our recent financial results relative to
prior periods.
We
have incurred, and will continue to incur significantly
increased costs as a result of operating as a public company,
and our management is required to devote substantial time to
compliance initiatives.
As a newly public company, we have incurred, and will continue
to incur, significant accounting and other expenses that we did
not incur as a private company. These expenses include increased
accounting, legal and other professional fees, insurance
premiums, investor relations costs, and costs associated with
compensating our independent directors. In addition, the
Sarbanes-Oxley Act of 2002, as well as rules subsequently
implemented by the Securities and Exchange Commission and the
Nasdaq Global Market, impose additional requirements on public
companies, including requiring changes in corporate governance
practices. For example, the listing requirements of the Nasdaq
Global Market require that we 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 conduct. Our management and other personnel need to
devote a substantial amount of time to these compliance
initiatives. Moreover, these rules and regulations have
increased our legal and financial compliance costs and make some
activities more time-consuming and costly. For example, these
rules and regulations make it more difficult and more expensive
for us to obtain director and officer liability insurance. These
rules and regulations could also make it more difficult for us
to identify and retain qualified persons to serve on our board
of directors, our board committees or as executive officers.
Failure
to effectively expand our sales and marketing capabilities could
harm our ability to increase our customer base and achieve
broader market acceptance of our services.
Increasing our customer base and achieving broader market
acceptance of our services will depend to a significant extent
on our ability to expand our sales and marketing operations.
Historically, we have concentrated our sales force at our
headquarters in Tempe, Arizona. However, we have recently begun
building a field sales force to augment our sales efforts and to
bring our sales personnel closer to our current and potential
customers. Developing such a field sales force will be expensive
and we have limited knowledge in developing and operating a
widely dispersed sales force. As a result, we may not be
successful in developing an effective sales force, which could
cause our results of operations to suffer.
We believe that there is significant competition for direct
sales personnel with the sales skills and technical knowledge
that we require. Our ability to achieve significant growth in
revenue in the future will depend, in large part, on our success
in recruiting, training and retaining sufficient numbers of
direct sales personnel. We have expanded our sales and marketing
personnel from a total of 13 at December 31, 2004 to 121 at
December 31, 2007. As of March 31, 2008, we had 124
sales and marketing personnel. New hires require significant
training and, in
23
most cases, take a significant period of time before they
achieve full productivity. Our recent hires and planned hires
may not become as productive as we would like, and we may be
unable to hire or retain sufficient numbers of qualified
individuals in the future in the markets where we do business.
Our business will be seriously harmed if these expansion efforts
do not generate a corresponding significant increase in revenue.
If the
estimates we make, and the assumptions on which we rely, in
preparing our financial statements prove inaccurate, our actual
results may be adversely affected.
Our financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments about, among other things, taxes,
revenue recognition, share-based compensation costs, contingent
obligations and doubtful accounts. These estimates and judgments
affect the reported amounts of our assets, liabilities, revenue
and expenses, the amounts of charges accrued by us, and related
disclosure of contingent assets and liabilities. We base our
estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances and at the time they are made. If our estimates or
the assumptions underlying them are not correct, we may need to
accrue additional charges that could adversely affect our
results of operations, investors may lose confidence in our
ability to manage our business and our stock price could decline.
As
part of our business strategy, we may acquire businesses or
technologies and may have difficulty integrating these
operations.
We may seek to acquire businesses or technologies that are
complementary to our business. Acquisitions involve a number of
risks to our business, including the difficulty of integrating
the operations and personnel of the acquired companies, the
potential disruption of our ongoing business, the potential
distraction of management, expenses related to the acquisition
and potential unknown liabilities associated with acquired
businesses. Any inability to integrate operations or personnel
in an efficient and timely manner could harm our results of
operations. We do not have prior experience as a company in this
complex process of acquiring and integrating businesses. If we
are not successful in completing acquisitions that we may pursue
in the future, we may be required to reevaluate our business
strategy, and we may incur substantial expenses and devote
significant management time and resources without a productive
result. In addition, future acquisitions will require the use of
our available cash or dilutive issuances of securities. Future
acquisitions or attempted acquisitions could also harm our
ability to achieve profitability. We may also experience
significant turnover from the acquired operations or from our
current operations as we integrate businesses.
THE
OFFER
You are an eligible employee if you are an employee
of Limelight in Japan, the United Kingdom or the United States
and you remain employed by Limelight or a successor entity
through the date on which the exchanged options are cancelled.
However, none of our executive officers or the members of our
board of directors are eligible to participate in the offer. Our
directors and executive officers are listed on Schedule A
to this Offer to Exchange.
To receive a grant of restricted stock units, you must remain
employed by Limelight or a successor entity through the
restricted stock unit grant date, which will be the same
U.S. business day as the cancellation date. If you do not
remain employed by Limelight or a successor entity through the
restricted stock unit grant date, you will keep your current
eligible options and they will vest and expire in accordance
with their terms. If we do not extend the offer, the restricted
stock unit grant date will be June 16, 2008. Except as
provided by applicable law
and/or
any
employment agreement between you and Limelight, your employment
with Limelight will remain at-will and can be
terminated by you or Limelight at any time, with or without
cause or notice. In order to vest in your restricted stock units
and receive the shares subject to the award, you must continue
to provide services through each relevant vesting date.
24
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2.
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Number
of options; expiration date.
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Subject to the terms and conditions of this offer, we will
accept for exchange options granted under the Plans that were
granted after April 1, 2007, and are held by eligible
employees and are outstanding and unexercised as of the
expiration date of the offer, and that are properly elected to
be exchanged, and are not validly withdrawn, before the
expiration date of the offer. In order to be eligible, options
must be outstanding on the expiration date of the offer. For
example, if a particular option grant expires during the
offering period, that particular option grant is not eligible
for exchange.
You may decide which of your eligible options you wish to
exchange. If you elect to participate in this offer, you must
exchange all of the shares subject to any eligible option grant
that you choose to exchange. Except for options that are subject
to a domestic relations order (or comparable legal document as
the result of the end of a marriage), we are not accepting
partial tenders of options. However, if you elect to participate
in this offer, you must exchange the remaining portion of any
option grant, including those you have partially exercised.
For example and except as otherwise described below, if you hold
(1) an eligible option to purchase 1,000 shares, 700
of which you have already exercised, (2) an eligible option
grant to purchase 1,000 shares, and (3) an eligible
option grant to purchase 3,000 shares, you may choose to
exchange all three option grants, or only two of the three
option grants, or only one of the three grants, or none at all.
You may not elect to exchange your first option with respect to
options to purchase only 150 shares (or any other partial
amount) under that option grant.
If you have an eligible option that is subject to a domestic
relations order (or comparable legal document as the result of
the end of a marriage) and a person who is not an eligible
employee beneficially owns a portion of that option, you may
accept this offer with respect to the entire remaining
outstanding portion of the option if so directed by the
beneficial owner as to his or her portion in accordance with the
domestic relations order or comparable legal documents. Because
you are the legal owner of the eligible option, Limelight will
respect an election properly made by you and accepted by
Limelight and will not be responsible to you or the beneficial
owner of the eligible option for any errors made by you with
respect to such an election.
Subject to the terms of this offer and upon our acceptance of
your properly tendered options, your exchanged options will be
cancelled and you will be granted one restricted stock unit for
every two (2) exchanged options. For purposes of this
offer, including the exchange ratio, the term option
generally refers to an option to purchase one (1) share of
our common stock. For purposes of applying the exchange ratios,
fractional restricted stock units will be rounded to the nearest
whole restricted stock unit on a grant by grant basis (with
fractional restricted stock units equal to point five (.5)
rounded up to the nearest whole restricted stock unit).
The exchange ratio applies to each of your option grants
separately. This means that the various options you have
received may be subject to different exchange ratios.
Example 1
If you exchange 5,000 options, you will receive 2,500 restricted
stock units.
Example 2
If you exchange 5,001 options, you will receive 2,501 restricted
stock units.
All restricted stock units will be subject to the terms of our
2007 Equity Incentive Plan and the restricted stock unit
agreement. The current form of restricted stock unit agreement
under the 2007 Equity Incentive Plan is attached as an exhibit
to the Schedule TO with which this Offer to Exchange has
been filed.
The expiration date for this offer will be 5:00 p.m.,
Pacific Daylight Time, on June 16, 2008 unless we extend
the offer. We may, in our discretion, extend the offer, in which
event the expiration date will refer to the latest time and date
at which the extended offer expires. See Section 15 of this
Offer to Exchange beginning on page 39 for a description of
our rights to extend, terminate, and amend the offer.
3. Purposes
of the offer.
The primary purpose of this offer is to foster retention of our
valuable employees and better align the interests of our
employees and stockholders to maximize stockholder value. We
issued the currently outstanding options to attract and retain
the best available personnel and to provide additional incentive
to our employees. Some of our outstanding options, whether or
not they are currently exercisable, have exercise prices that
are significantly higher
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than the current market price for our stock. These options
commonly are referred to as being out of the money.
The restricted stock units may have greater employee retention
value than the exchanged options and therefore benefit Limelight
in its efforts to retain valuable employees.
Except as otherwise disclosed in this offer or in our SEC
filings, we presently have no plans, proposals, or negotiations
that relate to or would result in:
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Any extraordinary transaction, such as a merger, reorganization
or liquidation, involving Limelight;
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Any purchase, sale or transfer of a material amount of our
assets;
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Any material change in our present dividend rate or policy, or
our indebtedness or capitalization;
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Any change in our present board of directors or management,
including, but not limited to, any plans or proposals to change
the number or term of directors or to fill any existing board
vacancies or to change any executive officers material
terms of employment;
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Any other material change in our corporate structure or business;
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Our common stock being delisted from the Nasdaq Global Market or
not being authorized for quotation in an automated quotation
system operated by a national securities association;
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Our common stock becoming eligible for termination of
registration pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the Exchange Act);
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The suspension of our obligation to file reports pursuant to
Section 15(d) of the Exchange Act;
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The acquisition by any person of an additional amount of our
securities or the disposition of an amount of any of our
securities; or
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Any change in our certificate of incorporation or bylaws, or any
actions that may impede the acquisition of control of us by any
person.
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In the ordinary course of business, from time to time, Limelight
evaluates acquisition or investment opportunities. At the
present time, we are reviewing a number of opportunities. These
transactions may be announced or completed in the ordinary
course of business during the pendency of this offer, but there
can be no assurance that an opportunity will be available to us
or that we will choose to take advantage of an opportunity.
In the ordinary course of business, Limelight makes changes in
the composition and structure of its board of directors
and/or
management. Limelight expects that it will continue to make
changes in this regard.
Neither we nor our board of directors makes any recommendation
as to whether you should accept this offer, nor have we
authorized any person to make any such recommendation. You
should evaluate carefully all of the information in this offer
and consult your own investment and tax advisors. You must make
your own decision about whether to participate in this offer.
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4.
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Procedures
for electing to exchange options.
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Proper
election to exchange options.
Participation in this offer is voluntary. If you choose to
participate in the offer, you must deliver the completed
election form via facsimile,
e-mail
(via
PDF or similar imaged document file) or by hand delivery before
5:00 p.m., Pacific Daylight Time, on June 16, 2008 to
the Companys Human Resources representative, Kate Garcia,
at:
Limelight Networks, Inc.
2220 W. 14th Street
Tempe, Arizona 85281
Fax:
602-850-5242
E-mail:
kgarcia@llnw.com
The Companys Human Resources representative must receive
your properly completed and signed election form before the
expiration date. The expiration date will be 5:00 p.m.,
Pacific Daylight Time, on June 16, 2008 unless we extend
the offer.
If you participate in this offer, you can decide which of your
eligible option grants you wish to exchange. To help you recall
your outstanding eligible options and give you the information
necessary to make an informed
26
decision, please refer to your Morgan Stanley account
(https://www.msdw-spa.com/login/login.asp) which lists your
outstanding option grants, the grant date of your options, the
exercise price of your options and the number of outstanding
shares subject to your outstanding options.
Your election to participate becomes irrevocable after
5:00 p.m., Pacific Daylight Time, on June 16, 2008
unless the offer is extended past that time, in which case your
election will become irrevocable after the new expiration date.
The exception to this rule is that if we have not accepted your
properly tendered options by 9:00 p.m., Pacific Daylight
Time, on July 14, 2008, you may withdraw your options at
any time thereafter. You may change your mind after you have
submitted an election form and withdraw from the offer at any
time before the expiration date, as described in Section 5.
You may change your mind as many times as you wish, but you will
be bound by the last properly submitted election or withdrawal
form we receive before the expiration date.
The delivery of all documents, including election forms, is
at your risk. We intend to confirm the receipt of your election
form
and/or
any withdrawal form by
e-mail
within two (2) U.S. business days. If you have not
received an
e-mail
confirmation, it is your responsibility to confirm that we have
received your election form
and/or
any
withdrawal form. Only responses that are complete, signed and
actually received by the Companys Human Resources
representative by the deadline will be accepted. Responses
submitted by any other means, including interoffice or
U.S. mail (or other post) and Federal Express (or similar
delivery service), are not permitted.
This is a one-time offer, and we will strictly enforce the
election period. We reserve the right to reject any options
tendered for exchange that we determine are not in appropriate
form or that we determine are unlawful to accept. Subject to the
terms and conditions of this offer, we will accept all properly
tendered options promptly after the expiration of this offer.
Our receipt of your election form is not by itself an acceptance
of your options for exchange. For purposes of this offer, we
will be deemed to have accepted options for exchange that are
validly elected to be exchanged and are not properly withdrawn
as of the time when we give oral or written notice to the option
holders generally of our acceptance of options for exchange. We
may issue this notice of acceptance by press release,
e-mail
or
other form of communication. Options accepted for exchange will
be cancelled on the cancellation date, which we presently expect
will be June 16, 2008.
Determination
of validity; rejection of options; waiver of defects; no
obligation to give notice of defects.
We will determine, in our discretion, all questions as to the
validity, form, eligibility (including time of receipt) and
acceptance of any options. Our determination of these matters
will be final and binding on all parties. We reserve the right
to reject any election form or any options elected to be
exchanged that we determine are not in appropriate form or that
we determine are unlawful to accept. We will accept all properly
tendered options that are not validly withdrawn. We also reserve
the right to waive any of the conditions of the offer or any
defect or irregularity in any tender of any particular options
or for any particular option holder, provided that if we grant
any such waiver, it will be granted with respect to all option
holders and tendered options. No tender of options will be
deemed to have been properly made until all defects or
irregularities have been cured by the tendering option holder or
waived by us. Neither we nor any other person is obligated to
give notice of any defects or irregularities in tenders, nor
will anyone incur any liability for failure to give any notice.
This is a one-time offer. We will strictly enforce the election
period, subject only to an extension that we may grant in our
discretion.
Our
acceptance constitutes an agreement.
Your election to exchange options through the procedures
described above constitutes your acceptance of the terms and
conditions of this offer.
Our acceptance of your options for
exchange will constitute a binding agreement between Limelight
and you upon the terms and subject to the conditions of this
offer.
5. Withdrawal
rights and change of election.
You may withdraw all of the options that you previously elected
to exchange only in accordance with the provisions of this
section.
27
You may withdraw all of the options that you previously elected
to exchange at any time before the expiration date, which is
expected to be 5:00 p.m., Pacific Daylight Time, on
June 16, 2008. If we extend the offer, you may withdraw
your options at any time until the extended expiration date.
In addition, although we intend to accept all validly tendered
options promptly after the expiration of this offer, if we have
not accepted your options by 9:00 p.m., Pacific Daylight
Time, on July 14, 2008, you may withdraw your options at
any time thereafter.
To validly withdraw some or all of the options that you
previously elected to exchange, you must deliver a valid
withdrawal form for some or all of the options you wish to
withdraw from the offer while you still have the right to
withdraw the options.
To withdraw your election, you must do the following before the
expiration date:
1. Properly complete and sign the attached withdrawal form.
2. Deliver the completed and attached withdrawal form via
facsimile,
e-mail
(via
PDF or similar imaged document file) or by hand delivery to the
Companys Human Resources representative, Kate Garcia, at:
Limelight Networks, Inc.
2220 W. 14th Street
Tempe, Arizona 85281
Fax:
602-850-5242
E-mail:
kgarcia@llnw.com
You may change your mind as many times as you wish, but you will
be bound by the last properly submitted election or withdrawal
form we receive before the expiration date. Any options that you
do not withdraw will be bound pursuant to your prior election
form.
If you withdraw some or all of your eligible options, you may
again elect to exchange the withdrawn options at any time before
the expiration date. All options that you withdraw will be
deemed not properly tendered for purposes of the offer, unless
you properly re-elect to exchange such eligible options before
the expiration date. To re-elect to exchange some or all of your
eligible options, you must submit a new election form to the
Companys Human Resources representative before the
expiration date by following the procedures described in
Section 4 of this Offer to Exchange. This new election form
must be properly completed, signed and dated after your original
election form and after your withdrawal form and must list all
eligible options you wish to exchange. Any prior election form
will be disregarded.
Neither we nor any other person is obligated to give you notice
of any defects or irregularities in any withdrawal form or any
new election form, nor will anyone incur any liability for
failure to give any notice. We will determine, in our
discretion, all questions as to the form and validity, including
time of receipt, of withdrawal forms and new election forms. Our
determination of these matters will be final and binding.
The delivery of all documents, including any withdrawal forms
and any new election forms, is at your risk. We intend to
confirm the receipt of your withdrawal form
and/or
any
election form by
e-mail
within two (2) U.S. business days. If you have not
received an
e-mail
confirmation, it is your responsibility to confirm that we have
received your withdrawal form
and/or
any
election form. Only responses that are complete, signed and
actually received by the Companys Human Resources
representative by the deadline will be accepted. Responses
submitted by any other means, including interoffice or
U.S. mail (or other post) and Federal Express (or similar
delivery service), are not permitted.
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6.
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Acceptance
of options for exchange and issuance of restricted stock
units.
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Upon the terms and conditions of this offer and promptly
following the expiration date, we will accept for exchange and
cancel all eligible options properly elected for exchange and
not validly withdrawn before the expiration date. Once the
options are cancelled, you no longer will have any rights with
respect to those options. Subject to the terms and conditions of
this offer, if your options are properly tendered by you for
exchange and accepted by us, these options will be cancelled as
of the cancellation date, which we anticipate to be
June 16, 2008.
28
Subject to our rights to terminate the offer, discussed in
Section 15 of this Offer to Exchange, we will accept
promptly after the expiration date all properly tendered options
that are not validly withdrawn. We will give oral or written
notice to the option holders generally of our acceptance for
exchange of the options. This notice may be made by press
release,
e-mail
or
other method of communication.
We will grant the restricted stock units on the restricted stock
unit grant date, which is the same U.S. business day as the
cancellation date. We expect the restricted stock unit grant
date to be June 16, 2008. All restricted stock units will
be granted under our 2007 Equity Incentive Plan, and will be
subject to a restricted stock unit agreement between you and
Limelight. The number of restricted stock units you will receive
will be determined in accordance with the exchange ratio as
described in Section 2 of this Offer to Exchange. Promptly
after the expiration date, we will send you your restricted
stock unit grant agreement. You will receive the shares subject
to the restricted stock unit award when and if your award vests,
in accordance with the vesting schedule described in
Section 9 of this Offer to Exchange.
Options that we do not accept for exchange will remain
outstanding until they expire by their terms and will retain
their current exercise price and current vesting schedule.
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7.
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Conditions
of the offer.
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Notwithstanding any other provision of this offer, we will not
be required to accept any options tendered for exchange, and we
may terminate the offer, or postpone our acceptance and
cancellation of any options tendered for exchange, in each case,
subject to
Rule 13e-4(f)(5)
under the Exchange Act, if at any time on or after the date this
offer begins, and before the expiration date, any of the
following events has occurred, or has been determined by us, in
our reasonable judgment, to have occurred:
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There will have been threatened in writing or instituted or be
pending any action, proceeding or litigation seeking to enjoin,
make illegal or delay completion of the offer or otherwise
relating in any manner, to the offer;
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Any order, stay, judgment or decree is issued by any court,
government, governmental authority or other regulatory or
administrative authority and is in effect, or any statute, rule,
regulation, governmental order or injunction will have been
proposed, enacted, enforced or deemed applicable to the offer,
any of which might restrain, prohibit or delay completion of the
offer or impair the contemplated benefits of the offer to us
(see Section 3 of this Offer to Exchange beginning on
page 25 for a description of the contemplated benefits of
the offer to us);
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There will have occurred:
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any general suspension of trading in, or limitation on prices
for, our securities on any national securities exchange or in an
over-the-counter market in the United States,
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the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States,
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any limitation, whether or not mandatory, by any governmental,
regulatory or administrative agency or authority on, or any
event that, in our reasonable judgment, might affect the
extension of credit to us by banks or other lending institutions
in the United States,
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in our reasonable judgment, any extraordinary or material
adverse change in U.S. financial markets generally,
including, a decline of at least 10% in either the Dow Jones
Industrial Average, the Nasdaq Index or the Standard &
Poors 500 Index from the date of the commencement of the
offer,
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the commencement, continuation, or escalation of a war or other
national or international calamity directly or indirectly
involving the United States, which could reasonably be expected
to affect materially or adversely, or to delay materially, the
completion of the offer, or
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if any of the situations described above existed at the time of
commencement of the offer and that situation, in our reasonable
judgment, deteriorates materially after commencement of the
offer;
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29
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A tender or exchange offer, other than this offer by us, for
some or all of our shares of outstanding common stock, or a
merger, acquisition or other business combination proposal
involving us, will have been proposed, announced or made by
another person or entity or will have been publicly disclosed or
we will have learned that:
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any person, entity or group within the meaning of
Section 13(d)(3) of the Exchange Act acquires more than 5%
of our outstanding common stock, other than a person, entity or
group which had publicly disclosed such ownership with the SEC
prior to the date of commencement of the offer,
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any such person, entity or group which had publicly disclosed
such ownership prior to such date will acquire additional common
stock constituting more than 1% of our outstanding
shares, or
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any new group will have been formed that beneficially owns more
than 5% of our outstanding common stock that in our judgment in
any such case, and regardless of the circumstances, makes it
inadvisable to proceed with the offer or with such acceptance
for exchange of eligible options;
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There will have occurred any change, development, clarification
or position taken in generally accepted accounting principles
that could or would require us to record for financial reporting
purposes compensation expense against our earnings in connection
with the offer, other than as contemplated as of the
commencement date of this offer (as described in Section 12
of this Offer to Exchange);
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Any event or events occur that have resulted or is reasonably
likely to result, in our reasonable judgment, in a material
adverse change in our business or financial condition;
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Any event or events occur that have resulted or may result, in
our reasonable judgment, in a material impairment of the
contemplated benefits of the offer to us (see Section 3 of
this Offer to Exchange beginning on page 25 for a
description of the contemplated benefits of the offer to
us); or
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Any rules or regulations by any governmental authority, the
National Association of Securities Dealers, the Nasdaq Global
Market, or other regulatory or administrative authority or any
national securities exchange have been enacted, enforced, or
deemed applicable to Limelight.
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If any of the above events occur, we may:
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Terminate the offer and promptly return all tendered eligible
options to tendering holders;
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Complete
and/or
extend the offer and, subject to your withdrawal rights, retain
all tendered eligible options until the extended offer expires;
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Amend the terms of the offer; or
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Waive any unsatisfied condition and, subject to any requirement
to extend the period of time during which the offer is open,
complete the offer.
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The conditions to this offer are for our benefit. We may assert
them in our discretion regardless of the circumstances giving
rise to them before the expiration date. We may waive any
condition, in whole or in part, at any time and from time to
time before the expiration date, in our discretion, whether or
not we waive any other condition to the offer. Our failure at
any time to exercise any of these rights will not be deemed a
waiver of any such rights, but will be deemed a waiver of our
ability to assert the condition that was triggered with respect
to the particular circumstances under which we failed to
exercise our rights. Any determination we make concerning the
events described in this Section 7 will be final and
binding upon all persons.
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8.
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Price
range of shares underlying the options.
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Our common stock, par value $0.001 per share, has traded on The
Nasdaq Global Market under the symbol LLNW since
June 8, 2007. Prior to June 8, 2007, we were a
privately held company and our common stock was not traded on a
principal U.S. Market or Exchange.
30
The following table sets forth, for the periods indicated, the
high and low sale price per share of the common stock on The
Nasdaq Global Market:
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High
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Low
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2007:
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Second Quarter (beginning June 8, 2007)
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$
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24.33
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$
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15.13
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Third Quarter
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$
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23.82
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$
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6.72
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Fourth Quarter
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$
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13.68
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$
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6.70
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2008:
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First Quarter
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$
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8.50
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$
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3.21
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Second Quarter (through May 14, 2008)
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$
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3.48
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$
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2.62
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On May 14, 2008, the last reported sale price of our common
stock, as reported by the Nasdaq Global Market, was $2.85 per
share.
You should evaluate current market quotes for our common
stock, among other factors, before deciding whether or not to
accept this offer.
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9.
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Source
and amount of consideration; terms of restricted stock
units.
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Consideration.
We will issue restricted stock units in exchange for eligible
options properly elected to be exchanged by you and accepted by
us for such exchange. Restricted stock units are awards under
which Limelight promises to issue common stock in the future,
provided the vesting criteria are satisfied. Subject to the
terms and conditions of this offer, upon our acceptance of your
properly tendered options, you will be entitled to receive
restricted stock units based on the exchange ratio described in
Section 2 of this Offer to Exchange. Fractional restricted
stock units will be rounded to the nearest whole restricted
stock unit on a grant by grant basis (with fractional restricted
stock units equal to point five (.5) rounded up to the nearest
whole restricted stock unit).
The purchase price of a restricted stock unit will be the par
value of our common stock which is equal to $0.001 per share and
the par value will be deemed paid by your past services rendered
to Limelight. As a result, you do not have to make any cash
payment to Limelight to receive your restricted stock units or
the common stock upon vesting.
If we receive and accept tenders from eligible employees of all
options eligible to be tendered (a total of options to purchase
3,667,097
s
hares subject to the terms and conditions of
this offer, we will grant restricted stock units to purchase a
total of approximately 1,833,549 shares of our common
stock, or approximately 2.21% of the total shares of our common
stock outstanding as of May 12, 2008.
General
terms of restricted stock units.
Restricted stock units will be granted under our 2007 Equity
Incentive Plan, and subject to a restricted stock unit agreement
between the recipient and Limelight. Restricted stock units are
a different type of award than stock options, therefore, the
terms and conditions of the restricted stock units will vary
from the terms and conditions of the options that you tendered
for exchange, but such changes generally will not substantially
and adversely affect your rights. However, you should note that
the vesting schedule of your restricted stock unit will differ
from your exchanged option.
The following description summarizes the material terms of our
2007 Equity Incentive Plan. Our statements in this Offer to
Exchange concerning the 2007 Equity Incentive Plan and the
restricted stock units are merely summaries and do not purport
to be complete. The statements are subject to, and are qualified
in their entirety by reference to, the 2007 Equity Incentive
Plan and the form of restricted stock unit agreement under such
plan, which have been filed as exhibits to the Schedule TO
of which this Offer to Exchange is a part. Please contact the
Companys Human Resources representative to receive a copy
of the 2007 Equity Incentive Plan and the form of
31
restricted stock unit agreement thereunder. We will promptly
furnish to you copies of these documents upon request at our
expense.
2007
Equity Incentive Plan
The 2007 Equity Incentive Plan permits the granting of options,
restricted stock, restricted stock units, stock appreciation
rights, performance shares, or performance units. The number of
shares of common stock subject to options outstanding under our
2007 Equity Incentive Plan was 4,124,888 shares on
May 15, 2008. The 2007 Equity Incentive Plan is
administered by our board of directors or a committee appointed
by our board of directors, which we refer to as the
Administrator. Subject to the other provisions of
the 2007 Equity Incentive Plan, the Administrator has the power
to determine the terms, conditions, and restrictions of the
restricted stock units granted, including the number of
restricted stock units and the vesting criteria.
Purchase
price.
The purchase price, if any, of a restricted stock unit granted
under the 2007 Equity Incentive Plan generally is determined by
the Administrator. For purposes of this offer, the purchase
price of a restricted stock unit will be the par value of our
common stock which is equal to $0.001 per share and the par
value will be deemed paid by your past services rendered to
Limelight. As a result, you do not have to make any cash payment
to Limelight to receive your restricted stock units or the
common stock upon vesting.
Vesting.
The vesting applicable to a restricted stock unit granted under
the 2007 Equity Incentive Plan generally is determined by the
Administrator in accordance with the terms of the plan. The
restricted stock units granted under this offer will be subject
to a set vesting schedule. Each restricted stock unit will vest
as follows:
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None of the restricted stock units will be vested on the
restricted stock unit grant date.
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1/6
th
of
the restricted stock units subject to the restricted stock unit
grant will vest on December 1, 2008, and
1/6
th
of
the restricted stock units subject to the restricted stock unit
grant will vest every six (6) months thereafter, such that
all restricted stock units granted in connection with this offer
will be vested no later than June 1, 2011.
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We expect the restricted stock unit grant date will be
June 16, 2008. If the expiration date is extended, the
restricted stock unit grant date will be similarly delayed.
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Vesting on any date is subject to your continued active service
to Limelight or one of its subsidiaries through each relevant
vesting date.
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After the restricted stock units vest, continued active service
is not required to retain the common stock issued under the
restricted stock units.
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We will make minor modifications to the vesting schedule of any
restricted stock units to eliminate fractional vesting (such
that a whole number of restricted stock units will vest on each
vesting date); this will be done by rounding up to the nearest
whole number of restricted stock units that will vest on the
first vesting date and, as necessary, rounding down on vesting
dates thereafter, such that all restricted stock units granted
in connection with this offer will be vested no later than
June 1, 2011.
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U.K. recipients and their employer must execute a joint election
form prior to vesting to shift the employers national
insurance contribution to the employee.
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Restricted
stock units which do not vest will be forfeited to
Limelight.
Form
of payout.
Restricted stock units granted under this offer and subsequently
earned by a recipient will be paid out in shares of our common
stock. Although not obligated to do so, Morgan Stanley shall
automatically sell a sufficient number of shares of our common
stock issued when restricted stock units vest to satisfy the
withholding obligation and
32
transfer the proceeds from such sale to the Company to satisfy
the withholding obligation. In addition, Limelight reserves the
right to automatically redeem a sufficient number of shares of
our common stock issued when restricted stock units vest to
satisfy the withholding obligation. For recipients in the U.K.,
Limelight intends to redeem shares at vesting sufficient to
satisfy any income tax withholding and employees and
employers national insurance contribution obligations.
Adjustments
upon certain events.
Events Occurring Before the Restricted Stock Unit Grant
Date.
Although we are not anticipating any such
merger or acquisition, if we merge or consolidate with or are
acquired by another entity, prior to the expiration of the
offer, you may choose to withdraw any options which you tendered
for exchange and your options will be treated in accordance with
the option plan under which they were granted and your option
agreement. Further, if Limelight is acquired prior to the
expiration of the offer, we reserve the right to withdraw the
offer, in which case your options and your rights under them
will remain intact and exercisable for the time period set forth
in your option agreement and you will receive no restricted
stock units in exchange for them. If Limelight is acquired prior
to the expiration of the offer but does not withdraw the offer,
we (or the successor entity) will notify you of any material
changes to the terms of the offer or the new restricted stock
units, including any adjustments to the purchase price and
number of shares that will be subject to the restricted stock
units. Under such circumstances, the type of security and the
number of shares covered by your restricted stock unit award
would be adjusted based on the consideration per share given to
holders of our common stock in connection with the acquisition.
As a result of this adjustment, you may receive restricted stock
units covering more or fewer shares of the acquirors
common stock than the number of shares subject to the eligible
options that you tendered for exchange or than the number you
would have received pursuant to the restricted stock units if no
acquisition had occurred.
A transaction involving us, such as a merger or other
acquisition, could have a substantial effect on our stock price,
including significantly increasing the price of our common
stock. Depending on the structure and terms of this type of
transaction, option holders who elect to participate in the
offer might be deprived of the benefit of the appreciation in
the price of our common stock resulting from the merger or
acquisition. This could result in a greater financial benefit
for those option holders who did not participate in this offer
and retained their original options.
Finally, if another company acquires us, that company may, as
part of the transaction or otherwise, decide to terminate some
or all of our employees before the completion of this option
exchange program. Termination of your employment for this or any
other reason before the restricted stock unit grant date means
that the tender of your eligible options will not be accepted,
you will keep your tendered options in accordance with their
original terms, and you will not receive any restricted stock
units or other benefit for your tendered options.
Events Occurring After the Restricted Stock Unit Grant
Date.
If a change in our capitalization, such as
a recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, combination or other
similar event, occurs after the restricted stock unit grant
date, an appropriate adjustment will be made to the number,
class and purchase price of shares subject to each restricted
stock unit.
In the event of a merger or change in control of the Company,
each outstanding award will be treated as the Administrator
determines, including that each award be assumed or substituted
for. The Administrator will not be required to treat all awards
similarly in the transaction. In the event that the successor
corporation, or the parent or subsidiary of the successor
corporation, refuses to assume or substitute for the award, the
participant will fully vest in and have the right to exercise
all of his or her outstanding options or stock appreciation
rights, including shares as to which such Awards would not
otherwise be vested or exercisable, all restrictions on
restricted stock and restricted stock units will lapse, and,
with respect to awards with performance-based vesting, all
performance goals or other vesting criteria will be deemed
achieved at target levels and all other terms and conditions met.
Transferability
of restricted stock units.
Restricted stock units generally may not be transferred, other
than by will or the laws of descent and distribution, unless the
Administrator indicates otherwise in your restricted stock unit
agreement. In the event of your death, any person who acquires
the restricted stock units by bequest or inheritance may be
issued the shares subject to the restricted stock units.
33
Registration
and sale of shares underlying restricted stock
units.
All of Limelights shares of common stock issuable upon the
vesting of the restricted stock units has been registered under
the U.S. Securities Act of 1933, as amended (the
Securities Act) on registration statements on
Form S-8
filed with the SEC. Unless you are an employee who is considered
an affiliate of Limelight for purposes of the Securities Act,
you will be able to sell the shares issuable upon receipt of
your restricted stock units free of any transfer restrictions
under applicable U.S. securities laws.
U.S.
federal income tax consequences.
You should refer to Section 14 of this Offer to Exchange
for a discussion of the U.S. federal income tax
consequences of the restricted stock units and exchanged
options, as well as the consequences of accepting or rejecting
this offer. If you are a taxpayer of the United States, but are
also subject to the tax laws of another
non-U.S. jurisdiction,
you should be aware that there might be other tax and social
insurance consequences that may apply to you. We strongly
recommend that you consult with your own advisors to discuss the
consequences to you of this transaction.
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10.
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Information
concerning Limelight.
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Our principal executive offices are located
2220 W. 14th Street, Tempe, Arizona 85281, and
our telephone number is
(602) 850-5000.
Questions regarding this option exchange should be directed to
the Companys Human Resources representative, Kate Garcia,
at:
Limelight Networks, Inc.
2220 W. 14th Street
Tempe, Arizona 85281
Tel:
602-850-5042
Fax:
602-850-5242
E-mail:
kgarcia@llnw.com
Limelight is a provider of high-performance content delivery
network services. We deliver content for traditional and
emerging media companies, or content providers, including
businesses operating in the television, music, radio, newspaper,
magazine, movie, videogame and software industries. Using
Limelights content delivery network, or CDN, content
providers are able to provide their end-users with a
high-quality media experience for rich media content including
video, music, games, software and social media. As consumer
demands for media content over the Internet has increased, and
as enabling technologies such as broadband access to the
Internet have proliferated, consumption of rich media content
has become increasingly important to Internet end-users and
therefore to the content providers that serve them. We developed
our services and architected our network specifically to meet
the unique demands content providers face in delivering rich
media content to large audiences of demanding Internet
end-users. Our comprehensive solution delivers content providers
a high-quality, highly scalable, highly reliable offering at a
low cost. We primarily derive income from the sale of services
to customers executing contracts with terms of one year or
longer, which we refer to as recurring revenue contracts or
long-term contracts. These contracts generally commit the
customer to a minimum monthly level of usage with additional
charges applicable for actual usage above the monthly minimum.
The financial information included in our annual report on
Form 10-K
for the fiscal year ended December 31, 2007 is incorporated
herein by reference. Please see Section 17 of this Offer to
Exchange entitled, Additional information, beginning
on page 39 for instructions on how you can obtain copies of
our SEC filings, including filings that contain our financial
statements.
We had a book value per share of $2.17 on March 31, 2008.
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11.
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Interests
of directors and executive officers; transactions and
arrangements concerning the options.
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A list of our directors and executive officers is attached to
this Offer to Exchange as Schedule A. Our executive
officers and members of our board of directors may not
participate in this offer. As of May 15, 2008 our executive
officers and directors (thirteen (13) persons) as a group
held options unexercised and outstanding under our Plans to
34
purchase a total of 4,052,500 of our shares, which represented
approximately 37.9% of the shares subject to all options
outstanding under our Plans as of that date.
The following table sets forth the beneficial ownership of each
of our executive officers and directors of options under the
Plans outstanding as of May 15, 2008. The percentages in
the tables below are based on the total number of outstanding
options (
i.e.
, whether or not eligible for exchange) to
purchase our common stock under our Amended and Restated 2003
Incentive Compensation Plan, which was 6,576,712 as of
May 15, 2008, and our 2007 Equity Incentive Plan, which was
4,124,888 as of May 15, 2008. Our executive officers and
the members of our board of directors are not eligible to
participate in the offer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
Number of
|
|
Total
|
|
|
|
|
Options
|
|
Outstanding
|
|
|
|
|
Outstanding
|
|
Options
|
|
|
|
|
Under
|
|
Under
|
Name
|
|
Position
|
|
the Plans
|
|
the Plans
|
|
Jeffrey W. Lunsford
|
|
President, Chief Executive Officer and Chairman
|
|
|
1,500,000
|
|
|
|
14.0
|
%
|
Nathan F. Raciborski
|
|
Co-Founder, Chief Technical Officer and Director
|
|
|
650,000
|
|
|
|
6.1
|
%
|
Michael M. Gordon
|
|
Co-Founder and Chief Strategy Officer
|
|
|
450,000
|
|
|
|
4.2
|
%
|
Matthew Hale
|
|
Chief Financial Officer
|
|
|
105,000
|
|
|
|
*
|
|
David M. Hatfield
|
|
Senior Vice President of Worldwide Sales,
Marketing and Services
|
|
|
925,000
|
|
|
|
8.6
|
%
|
Philip C. Maynard
|
|
Senior Vice President,
Chief Legal Officer and Secretary
|
|
|
250,000
|
|
|
|
2.3
|
%
|
Walter D. Amaral
|
|
Director
|
|
|
67,500
|
|
|
|
*
|
|
Joseph H. Gleberman
|
|
Director
|
|
|
0
|
|
|
|
*
|
|
Fredric W. Harman
|
|
Director
|
|
|
0
|
|
|
|
*
|
|
Allan M. Kaplan
|
|
Co-Founder and Director
|
|
|
0
|
|
|
|
*
|
|
Douglas Lindroth
|
|
Director
|
|
|
52,500
|
|
|
|
*
|
|
Peter J. Perrone
|
|
Director
|
|
|
0
|
|
|
|
*
|
|
David C. Peterschmidt
|
|
Director
|
|
|
52,500
|
|
|
|
*
|
|
35
Although our directors and executive officers are not eligible
to participate in this exchange offer, on May 13, 2008 the
compensation committee of our board of directors approved
certain new equity incentives for several of our executive
officers in connection with the committees annual review
of executive officer compensation. These incentives involved
either the award of new restricted stock units or the exchange
of a portion of such officers outstanding options for
restricted stock units on terms similar to those of the employee
exchange offer. The two executive officers who were given the
opportunity to exchange a portion of their outstanding options
for restricted stock units, Messrs. Hatfield and Maynard,
elected to exchange all of their eligible options for restricted
stock units. These individuals were not permitted to exchange
the most recent options they received in February 2008. The
beneficial ownership table above reflects aggregate option
holdings prior to the effectiveness of these exchange
transactions.
The following table summarizes these recent equity awards and
exchange transactions involving our executive officers:
|
|
|
Name
|
|
Equity Compensation
|
|
Jeffrey W. Lunsford
President, Chief Executive Officer and Chairman
|
|
No new equity awards were granted to Mr. Lunsford at this time.
|
Nathan F. Raciborski
Co-Founder, Chief Technical Officer and Director
|
|
Mr. Raciborski received a grant of 337,500 restricted stock
units with vesting terms substantially similar to the restricted
stock units to be granted to employees pursuant to the exchange
offer.
|
Michael M. Gordon
Co-Founder and Chief Strategy Officer
|
|
Mr. Gordon received a grant of 200,000 restricted stock units
with vesting terms substantially similar to the restricted stock
units to be granted to employees pursuant to the exchange offer.
|
Matthew Hale
Chief Financial Officer
|
|
No new equity awards were granted to Mr. Hale at this time.
|
David M. Hatfield
Senior Vice President of Worldwide Sales, Marketing and
Services
|
|
Mr. Hatfield exchanged 675,000 of his outstanding options for
restricted stock units, whereby Mr. Hatfield received one
restricted stock unit for every two exchanged options. Mr.
Hatfields restricted stock unit award has vesting terms
substantially similar to the restricted stock units to be
granted to employees pursuant to the exchange offer with respect
to 318,750 restricted stock units, and the remainder of his
award vests according to the achievement of certain sales
milestones.
|
Philip C. Maynard
Senior Vice President, Chief Legal Officer and Secretary
|
|
Mr. Maynard exchanged 200,000 of his outstanding options for
restricted stock units, whereby Mr. Maynard received one
restricted stock unit for every two exchanged options, with
vesting terms substantially similar to the restricted stock
units to be granted to employees pursuant to the exchange offer.
|
To the best of our knowledge, no other directors or executive
officers, nor any affiliates of ours, were engaged in
transactions involving options, restricted stock or other equity
awards under our Amended and Restated 2003 Incentive
Compensation Plan or our 2007 Equity Incentive Plan, or in
transactions involving our common stock during the past sixty
(60) days before and including May 15, 2008.
|
|
12.
|
Status
of options acquired by us in the offer; accounting consequences
of the offer.
|
Options that we acquire through the offer and that were granted
under the Plans will be cancelled and the shares subject to
those options will be returned to the pool of shares available
for grants of new awards under our 2007 Equity Incentive Plan.
To the extent shares returning to these plans are not fully
reserved for issuance upon receipt of the restricted stock units
to be granted in connection with the offer, the shares will be
available for future awards to employees and other eligible plan
participants, respectively, without further stockholder action,
except as required by applicable law or the rules of the Nasdaq
Global Market or any other securities quotation system or any
stock exchange on which our shares are then quoted or listed.
As of January 1, 2006, we have adopted the provisions of
Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123 (Revised), or SFAS 123R,
on accounting for share-based payments. Under SFAS 123R, we
will recognize the incremental compensation cost of the
restricted stock units granted in the offer. The incremental
compensation cost will be measured as the excess, if any, of the
fair value of each award of restricted stock
36
units granted to employees in exchange for exchanged options,
measured as of the date the restricted stock units are granted,
over the fair value of the exchanged options, measured
immediately prior to the cancellation. This incremental
compensation cost will be recognized ratably over the vesting
period of the restricted stock units. SFAS No. 123R
requires us to develop an estimate of the number of share-based
awards which will be forfeited due to employee turnover.
Quarterly changes in the estimated forfeiture rate may have a
significant effect on share-based payments expense, as the
effect of adjusting the rate for all expense amortization is
recognized in the period the forfeiture estimate is changed. If
the actual forfeiture rate is higher than the estimated
forfeiture rate, then an adjustment is made to increase the
estimated forfeiture rate, which will result in a decrease to
the expense recognized in the financial statements. If the
actual forfeiture rate is lower than the estimated forfeiture
rate, then an adjustment is made to decrease the estimated
forfeiture rate, which will result in an increase to the expense
recognized in the financial statements.
|
|
13.
|
Legal
matters; regulatory approvals.
|
We are not aware of any license or regulatory permit that
appears to be material to our business that might be adversely
affected by our exchange of options and issuance of restricted
stock units as contemplated by the offer, or of any approval or
other action by any government or governmental, administrative
or regulatory authority or agency or any Nasdaq listing
requirements that would be required for the acquisition or
ownership of our options as contemplated herein. Should any
additional approval or other action be required, we presently
contemplate that we will seek such approval or take such other
action. We cannot assure you that any such approval or other
action, if needed, could be obtained or what the conditions
imposed in connection with such approvals would entail or
whether the failure to obtain any such approval or other action
would result in adverse consequences to our business. Our
obligation under the offer to accept tendered options for
exchange and to issue restricted stock units for tendered
options is subject to the conditions described in Section 7
of this Offer to Exchange.
If we are prohibited by applicable laws or regulations from
granting restricted stock units on the restricted stock unit
grant date, we will not grant any restricted stock units. We are
unaware of any such prohibition at this time, and we will use
reasonable efforts to effect the grant, but if the grant is
prohibited on the restricted stock unit grant date we will not
grant any restricted stock units and you will not receive any
other benefit for the options you tendered and your eligible
options will not be accepted for exchange.
|
|
14.
|
Material
income tax consequences.
|
Material
U.S. federal income tax consequences.
The following is a summary of the material U.S. federal
income tax consequences of the exchange of options for
restricted stock units pursuant to the offer for those eligible
employees subject to U.S. federal income tax. This
discussion is based on the United States Internal Revenue Code,
its legislative history, treasury regulations promulgated
thereunder, and administrative and judicial interpretations as
of the date of this offering circular, all of which are subject
to change, possibly on a retroactive basis. This summary does
not discuss all of the tax consequences that may be relevant to
you in light of your particular circumstances, nor is it
intended to be applicable in all respects to all categories of
option holders. If you are a citizen or a resident of the United
States, but are also subject to the tax laws of another country,
you should be aware that there might be other tax and social
security consequences that may apply to you. We strongly
recommend that you consult with your own advisors to discuss the
consequences to you of this transaction.
We recommend that you consult your own tax advisor with
respect to the federal, state and local tax consequences of
participating in the offer, as the tax consequences to you are
dependent on your individual tax situation.
Option holders who exchange outstanding options for restricted
stock units generally will not be required to recognize income
for U.S. federal income tax purposes at the time of the
exchange. We believe that the exchange will be treated as a
non-taxable exchange.
Restricted
stock units.
If you are a U.S. taxpayer, you generally will not have
taxable income at the time you are granted a restricted stock
unit. Instead, you will recognize ordinary income as the shares
subject to the restricted stock units vest and no longer can be
forfeited, at which time Limelight will also generally have a
tax withholding obligation. The amount of ordinary income you
recognize will equal the fair market value of the shares on the
vesting date, less the amount,
37
if any, you paid for the shares. With regard to the shares
issued pursuant to the restricted stock units granted under the
offer, you will not have paid any amount for the shares as such
amounts will be satisfied by your past services to Limelight.
Although not obligated to do so, Morgan Stanley shall
automatically sell a sufficient number of shares of our common
stock issued when restricted stock units vest to satisfy the
withholding obligation and transfer the proceeds from such sale
to the Company to satisfy the withholding obligation. In
addition, Limelight reserves the right to automatically redeem a
sufficient number of shares of our common stock issued when
restricted stock units vest to satisfy the withholding
obligation. Any gain or loss you recognize upon the sale or
exchange of shares that you acquire through a grant of
restricted stock units generally will be treated as capital gain
or loss and will be long-term or short-term depending upon how
long you hold the shares.
We recommend that you consult your own tax advisor with
respect to the federal, state, and local tax consequences of
participating in the offer.
Nonstatutory
stock options.
If you participate in this offer, your eligible options will be
exchanged for restricted stock units. So that you are able to
compare the tax consequences of new restricted stock units to
that of your eligible options, we have included the following
summary as a reminder of the tax consequences generally
applicable to options under U.S. federal tax law.
Under current law, an option holder generally will not realize
taxable income upon the grant of a nonstatutory stock option.
However, when an option holder exercises the option, the
difference between the exercise price of the option and the fair
market value of the shares subject to the option on the date of
exercise generally will be compensation income taxable to the
option holder.
We generally will be entitled to a deduction equal to the amount
of compensation income taxable to the option holder if we comply
with eligible reporting requirements.
Upon disposition of the shares, any gain or loss is treated as
capital gain or loss. If you were an employee at the time of the
grant of the option, any income recognized upon exercise of a
nonstatutory stock option generally will constitute wages for
which withholding will be required.
Note that as a result of the American Jobs Creation Act of 2004
(referred to below as Section 409A) options amended in a
certain manner or granted with an exercise price that was lower
than the fair market value of the underlying shares at the time
of grant (discount options) may be taxable to you
before you exercise your option. The Treasury Department and the
Internal Revenue Service have issued final regulations with
respect to Section 409A, but the regulations do not provide
final guidance with respect to the tax consequences of discount
options. Based on currently available guidance, we believe that,
in the tax year in which an option vests, eligible employees
will have income recognition equal to the difference between the
fair market value of the shares and the exercise price (the
spread) and will be subject to the 20% penalty tax
on the spread, plus interest charges. In addition, we believe
that during each subsequent tax year (until the option is
exercised or expires), eligible employees will be subject to
additional annual income, penalty taxes, plus interest charges
on any increase in value of the underlying stock. Finally,
certain states have also adopted laws similar to
Section 409A. Consequently, eligible employees also may
incur additional taxes and penalties under state law provisions.
For example, California has adopted a provision similar to
Section 409A and thereby imposes a 20% tax with regard to
discounted options (in addition to the federal 20% tax and any
federal and state income taxes.
We recommend that you consult your own tax advisor with
respect to the federal, state, and local tax consequences of
participating in the offer.
If you participate in the offer and are subject to tax or
social insurance contributions in Japan or the
United Kingdom, please refer to Schedule C or D of
this Offer to Exchange for a description of the tax and social
insurance consequences that may apply to you.
In addition, if you are a resident of more than one
country, you should be aware that there might be tax and social
insurance consequences for more than one country that may apply
to you. We strongly recommend that you consult with your own
advisors to discuss the consequences to you of this
transaction.
38
|
|
15.
|
Extension
of offer; termination; amendment.
|
We reserve the right, in our discretion, at any time and
regardless of whether or not any event listed in Section 7
of this Offer to Exchange has occurred or is deemed by us to
have occurred, to extend the period of time during which the
offer is open and delay the acceptance for exchange of any
options. If we elect to extend the period of time during which
this offer is open, we will give you oral or written notice of
the extension and delay, as described below. If we extend the
expiration date, we will also extend your right to withdraw
tenders of eligible options until such extended expiration date.
In the case of an extension, we will issue a press release,
e-mail
or
other form of communication no later than 6:00 a.m.,
Pacific Daylight Time, on the next U.S. business day after
the previously scheduled expiration date.
We also reserve the right, in our reasonable judgment, before
the expiration date to terminate or amend the offer and to
postpone our acceptance and cancellation of any options elected
to be exchanged if any of the events listed in Section 7 of
this Offer to Exchange occurs, by giving oral or written notice
of the termination or postponement to you or by making a public
announcement of the termination. Our reservation of the right to
delay our acceptance and cancellation of options elected to be
exchanged is limited by
Rule 13e-4(f)(5)
under the Exchange Act which requires that we must pay the
consideration offered or return the options promptly after
termination or withdrawal of a tender offer.
Subject to compliance with applicable law, we further reserve
the right, before the expiration date, in our discretion, and
regardless of whether any event listed in Section 7 of this
Offer to Exchange has occurred or is deemed by us to have
occurred, to amend the offer in any respect, including by
decreasing or increasing the consideration offered in this offer
to option holders or by decreasing or increasing the number of
options being sought in this offer. As a reminder, if a
particular option expires after commencement, but before
cancellation under the offer, that particular option is not
eligible for exchange. Therefore, if we extend the offer for any
reason and if a particular option that was tendered before the
originally scheduled expiration of the offer expires after such
originally scheduled expiration date but before the actual
cancellation date under the extended offer, that option would
not be eligible for exchange.
The minimum period during which the offer will remain open
following material changes in the terms of the offer or in the
information concerning the offer, other than a change in the
consideration being offered by us or a change in amount of
existing options sought, will depend on the facts and
circumstances of such change, including the relative materiality
of the terms or information changes. If we modify the number of
eligible options being sought in this offer or the consideration
being offered by us for the eligible options in this offer, the
offer will remain open for at least ten
(10) U.S. business days from the date of notice of
such modification. If any term of the offer is amended in a
manner that we determine constitutes a material change adversely
affecting any holder of eligible options, we will promptly
disclose the amendments in a manner reasonably calculated to
inform holders of eligible options of such amendment, and we
will extend the offers period so that at least five
(5) U.S. business days, or such longer period as may
be required by the tender offer rules, remain after such change.
For purposes of the offer, a business day means any
day other than a Saturday, Sunday or a U.S. federal holiday
and consists of the time period from 12:01 a.m. through
12:00 midnight, Pacific Daylight Time.
We will not pay any fees or commissions to any broker, dealer or
other person for soliciting options to be exchanged through this
offer.
|
|
17.
|
Additional
information.
|
This Offer to Exchange is part of a Tender Offer Statement on
Schedule TO that we have filed with the SEC. This Offer to
Exchange does not contain all of the information contained in
the Schedule TO and the exhibits to the Schedule TO.
We recommend that you review the Schedule TO, including its
exhibits, and the following materials that we have filed, or
expect to soon file, with the SEC before making a decision on
whether to elect to exchange your options:
1. Our quarterly report on
Form 10-Q
for our quarter ended March 31, 2008, filed with the SEC on
May 14, 2008;
2. Our annual report on
Form 10-K
for our fiscal year ended December 31, 2007, filed with the
SEC on March 25, 2008;
39
3. The description of our common stock contained in our
Registration Statement on
Form 8-A
filed with the SEC on May 30, 2007 and any further
amendment or report filed thereafter for the purpose of updating
such description; and
4. The description of our common stock contained in our
Registration Statement on
Form S-1
filed with the SEC on March 22, 2007, as amended by our
Registration Statements on
Forms S-1/A
filed on April 27, 2007, May 21, 2007, May 31,
2007 and June 6, 2007, and any further amendment or report
filed thereunder for the purpose of updating such description.
These filings, our other annual, quarterly, and current reports,
our proxy statement and our other SEC filings may be examined,
and copies may be obtained, at the SECs public reference
room at 100 F Street, N.E., Washington, D.C.
20549. You may obtain information on the operation of the public
reference room by calling the SEC at
1-800-SEC-0330.
Our SEC filings are also available to the public on the
SECs Internet site at
http://www.sec.gov.
Each person to whom a copy of this Offer to Exchange is
delivered may obtain a copy of any or all of the documents to
which we have referred you, other than exhibits to such
documents, unless such exhibits are specifically incorporated by
reference into such documents, at no cost, by writing to us at
Limelight Networks, Inc., 2220 W. 14th Street,
Tempe, Arizona 85281, Attention: Kate Garcia, Director of Human
Resources or by telephoning her at
602-850-5042.
As you read the documents listed above, you may find some
inconsistencies in information from one document to another. If
you find inconsistencies between the documents, or between a
document and this Offer to Exchange, you should rely on the
statements made in the most recent document.
The information contained in this Offer to Exchange about us
should be read together with the information contained in the
documents to which we have referred you, in making your decision
as to whether or not to participate in this offer.
|
|
18.
|
Financial
statements.
|
The financial information, including financial statements and
the notes thereto, included in our annual report on
Form 10-K
for the fiscal year ended December 31, 2007 and our
quarterly report on
Form 10-Q
for the three months ended March 31, 2008 are incorporated
herein by reference. Attached as Schedule B to this Offer
to Exchange is a summary of our financial information from our
annual report on
Form 10-K
for our fiscal year ended December 31, 2007 and our
quarterly report on
Form 10-Q
for the three months ended March 31, 2008. Additional
financial information may be obtained by accessing our public
filings with the SEC by following the instructions in
Section 17 of this Offer to Exchange.
We are not aware of any jurisdiction where the making of the
offer is not in compliance with applicable law. If we become
aware of any jurisdiction where the making of the offer is not
in compliance with any valid applicable law, we will make a good
faith effort to comply with such law. If, after such good faith
effort, we cannot comply with such law, the offer will not be
made to, nor will options be accepted from the option holders
residing in such jurisdiction.
We have not authorized any person to make any recommendation
on our behalf as to whether you should elect to exchange your
options through the offer. You should rely only on the
information in this document or documents to which we have
referred you. We have not authorized anyone to give you any
information or to make any representations in connection with
the offer other than the information and representations
contained in this Offer to Exchange and in the related option
exchange program documents. If anyone makes any recommendation
or representation to you or gives you any information, you must
not rely upon that recommendation, representation, or
information as having been authorized by us.
Limelight Networks, Inc.
May 15, 2008
40
SCHEDULE A
INFORMATION
CONCERNING THE EXECUTIVE OFFICERS
AND DIRECTORS OF LIMELIGHT NETWORKS, INC.
The directors and executive officers of Limelight Networks, Inc.
are set forth in the following table:
|
|
|
Name
|
|
Position
|
|
Jeffrey W. Lunsford
|
|
President, Chief Executive Officer and Chairman
|
Nathan F. Raciborski
|
|
Co-Founder, Chief Technical Officer and Director
|
Michael M. Gordon
|
|
Co-Founder and Chief Strategy Officer
|
Matthew Hale
|
|
Chief Financial Officer
|
David M. Hatfield
|
|
Senior Vice President of Worldwide Sales, Marketing and Services
|
Philip C. Maynard
|
|
Senior Vice President, Chief Legal Officer and Secretary
|
Walter D. Amaral
|
|
Director
|
Joseph H. Gleberman
|
|
Director
|
Fredric W. Harman
|
|
Director
|
Allan M. Kaplan
|
|
Co-Founder and Director
|
Douglas Lindroth
|
|
Director
|
Peter J. Perrone
|
|
Director
|
David C. Peterschmidt
|
|
Director
|
The address of each executive officer and director is:
Limelight Networks, Inc.
2220 W. 14th Street
Tempe, Arizona 85281
Our executive officers and members of our board of directors are
not eligible to participate in this offer.
A-1
SCHEDULE B
SUMMARY
FINANCIAL INFORMATION OF LIMELIGHT NETWORKS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limelight
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Networks,
|
|
|
|
Limelight Networks, Inc.
|
|
|
LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Four
|
|
|
Eight
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
Months
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
August 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2003
|
|
|
|
In thousands, except per share amounts
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
30,202
|
|
|
$
|
23,353
|
|
|
$
|
103,111
|
|
|
$
|
65,243
|
|
|
$
|
21,303
|
|
|
$
|
11,192
|
|
|
$
|
1,677
|
|
|
$
|
3,353
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services(1)
|
|
|
14,659
|
|
|
|
9,809
|
|
|
|
44,802
|
|
|
|
25,662
|
|
|
|
9,037
|
|
|
|
4,834
|
|
|
|
954
|
|
|
|
1,909
|
|
Depreciation network
|
|
|
6,013
|
|
|
|
4,688
|
|
|
|
20,739
|
|
|
|
10,316
|
|
|
|
2,851
|
|
|
|
775
|
|
|
|
84
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
20,672
|
|
|
|
14,497
|
|
|
|
65,541
|
|
|
|
35,978
|
|
|
|
11,888
|
|
|
|
5,609
|
|
|
|
1,038
|
|
|
|
2,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9,530
|
|
|
|
8,856
|
|
|
|
37,570
|
|
|
|
29,265
|
|
|
|
9,415
|
|
|
|
5,583
|
|
|
|
638
|
|
|
|
1,277
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative(1)
|
|
|
13,082
|
|
|
|
7,637
|
|
|
|
31,827
|
|
|
|
18,388
|
|
|
|
4,107
|
|
|
|
2,147
|
|
|
|
432
|
|
|
|
866
|
|
Sales and marketing(1)
|
|
|
8,142
|
|
|
|
3,018
|
|
|
|
25,462
|
|
|
|
6,841
|
|
|
|
3,078
|
|
|
|
2,078
|
|
|
|
345
|
|
|
|
689
|
|
Research and development(1)
|
|
|
1,590
|
|
|
|
1,285
|
|
|
|
5,504
|
|
|
|
3,151
|
|
|
|
462
|
|
|
|
231
|
|
|
|
51
|
|
|
|
101
|
|
Depreciation and amortization
|
|
|
247
|
|
|
|
137
|
|
|
|
857
|
|
|
|
226
|
|
|
|
100
|
|
|
|
69
|
|
|
|
13
|
|
|
|
25
|
|
Provision for litigation(3)
|
|
|
7,134
|
|
|
|
|
|
|
|
48,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
30,195
|
|
|
|
12,077
|
|
|
|
111,780
|
|
|
|
28,606
|
|
|
|
7,747
|
|
|
|
4,525
|
|
|
|
840
|
|
|
|
1,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(20,665
|
)
|
|
|
(3,221
|
)
|
|
|
(74,210
|
)
|
|
|
659
|
|
|
|
1,668
|
|
|
|
1,058
|
|
|
|
(202
|
)
|
|
|
(404
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(21
|
)
|
|
|
(573
|
)
|
|
|
(1,418
|
)
|
|
|
(1,828
|
)
|
|
|
(955
|
)
|
|
|
(189
|
)
|
|
|
(23
|
)
|
|
|
(46
|
)
|
Interest income
|
|
|
1,891
|
|
|
|
89
|
|
|
|
5,153
|
|
|
|
208
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
170
|
|
|
|
|
|
|
|
(144
|
)
|
|
|
175
|
|
|
|
(16
|
)
|
|
|
(48
|
)
|
|
|
6
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
2,040
|
|
|
|
(484
|
)
|
|
|
3,591
|
|
|
|
(1,445
|
)
|
|
|
(971
|
)
|
|
|
(236
|
)
|
|
|
(17
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(18,625
|
)
|
|
|
(3,705
|
)
|
|
|
(70,619
|
)
|
|
|
(786
|
)
|
|
|
697
|
|
|
|
822
|
|
|
|
(219
|
)
|
|
|
(439
|
)
|
Income tax expense (benefit)(2)
|
|
|
(183
|
)
|
|
|
200
|
|
|
|
2,401
|
|
|
|
2,591
|
|
|
|
300
|
|
|
|
306
|
|
|
|
(17
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(18,442
|
)
|
|
$
|
(3,905
|
)
|
|
$
|
(73,020
|
)
|
|
$
|
(3,377
|
)
|
|
$
|
397
|
|
|
$
|
516
|
|
|
$
|
(202
|
)
|
|
$
|
(405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to common stockholders
|
|
$
|
(18,442
|
)
|
|
$
|
(3,905
|
)
|
|
$
|
(73,020
|
)
|
|
$
|
(3,377
|
)
|
|
$
|
240
|
|
|
$
|
317
|
|
|
$
|
(607
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share basic
|
|
$
|
(0.22
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share diluted
|
|
$
|
(0.22
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(1.26
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in calculating net income (loss)
per common share-basic
|
|
|
82,623
|
|
|
|
21,945
|
|
|
|
57,982
|
|
|
|
25,597
|
|
|
|
34,737
|
|
|
|
34,688
|
|
|
|
34,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in calculating net income (loss)
per common share-diluted
|
|
|
82,623
|
|
|
|
21,945
|
|
|
|
57,982
|
|
|
|
25,597
|
|
|
|
40,526
|
|
|
|
38,957
|
|
|
|
38,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes stock-based compensation as follows:
|
B-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limelight
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Networks,
|
|
|
Limelight Networks, Inc.
|
|
LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
Four
|
|
Eight
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
Months
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
Ended
|
|
Ended
|
|
|
March 31,
|
|
Year Ended December 31,
|
|
December 31,
|
|
August 31,
|
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2003
|
|
|
In thousands, except per share amounts
|
|
Cost of revenue
|
|
$
|
507
|
|
|
$
|
242
|
|
|
$
|
1,489
|
|
|
$
|
459
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
General and administrative
|
|
|
1,665
|
|
|
|
3,743
|
|
|
|
10,653
|
|
|
|
6,794
|
|
|
|
94
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,306
|
|
|
|
235
|
|
|
|
3,948
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development
|
|
|
482
|
|
|
|
851
|
|
|
|
2,820
|
|
|
|
1,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,960
|
|
|
$
|
5,071
|
|
|
$
|
18,910
|
|
|
$
|
9,248
|
|
|
$
|
94
|
|
|
$
|
14
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
In 2007 and 2006, approximately $10.5 million and
$7.6 million, respectively, in stock-based compensation
expense was not deductible for tax purposes by Limelight, which
resulted in Limelight incurring income tax expense despite
having generated a loss before income taxes in this period.
Limelight expects to continue to incur non-deductible
stock-based compensation expense in the future.
|
|
(3)
|
|
In February 2008, a jury returned a verdict in a patent
infringement lawsuit filed by Akamai Technologies, Inc., or
Akamai, and the Massachusetts Institute of Technology, or MIT,
against Limelight, finding that Limelight infringed four claims
of the patent at issue and rejecting Limelights invalidity
defenses. The jury awarded Akamai an aggregate of approximately
$45.5 million in lost profits, reasonable royalties and
price erosion damages, plus pre-judgment interest estimated to
be $2.6 million that the Company recorded in 2007. A final
judgment has not yet been entered. Limelight is still pursuing a
number of equitable defenses, and Limelight recently filed
several motions seeking relief from the Court. For the three
months ended March 31, 2008, the Company estimated its
revenue from alleged infringing methods totaled approximately
54% of its total revenue. Applying the damage metric of
approximately 43% to alleged infringing revenue, the Company
recorded a potential additional damage liability totaling
$6.9 million, plus additional interest of $0.2 million
for the three month period ended March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limelight Networks, Inc.
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and marketable securities, current
|
|
$
|
194,677
|
|
|
$
|
197,097
|
|
|
$
|
7,611
|
|
|
$
|
1,536
|
|
|
$
|
536
|
|
|
$
|
97
|
|
Non-current marketable securities
|
|
|
32
|
|
|
|
87
|
|
|
|
285
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
Working capital (deficit)
|
|
|
142,672
|
|
|
|
154,501
|
|
|
|
14,596
|
|
|
|
(1,827
|
)
|
|
|
(695
|
)
|
|
|
(636
|
)
|
Property and equipment, net
|
|
|
43,963
|
|
|
|
46,968
|
|
|
|
41,784
|
|
|
|
11,986
|
|
|
|
3,018
|
|
|
|
1,080
|
|
Total assets
|
|
|
268,037
|
|
|
|
273,428
|
|
|
|
74,424
|
|
|
|
19,583
|
|
|
|
5,718
|
|
|
|
2,127
|
|
Long-term debt, less current portion
|
|
|
|
|
|
|
|
|
|
|
20,461
|
|
|
|
8,809
|
|
|
|
461
|
|
|
|
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
7
|
|
|
|
7
|
|
|
|
3
|
|
Total stockholders equity
|
|
|
179,444
|
|
|
|
194,037
|
|
|
|
37,039
|
|
|
|
1,823
|
|
|
|
1,239
|
|
|
|
174
|
|
B-2
SCHEDULE C
GUIDE TO
TAX ISSUES IN JAPAN
The following is a general summary of the material tax
consequences of the voluntary cancellation of eligible options
in exchange for the grant of restricted stock units for eligible
employees
subject
to tax in Japan. This summary is based
on the law in effect in Japan as of May 2008. This summary is
general in nature and does not discuss all of the tax
consequences that may be relevant to you in light of your
particular circumstances, nor is it intended to be applicable in
all respects to all categories of eligible employees. Please
note that tax laws change frequently and occasionally on a
retroactive basis. As a result, the information contained in
this summary may be out of date at the time the restricted stock
units are granted, the restricted stock units vest or you sell
shares acquired upon vesting of the restricted stock units.
If you are a citizen or resident of another country for local
law purposes, the information contained in
this
summary
may not be applicable to you. You are strongly advised to seek
appropriate professional advice as to how the tax or other laws
in your country apply to your specific situation.
Tax
Information
Option
Cancellation
The Japanese tax treatment of the cancellation of an outstanding
option in exchange for restricted stock units is uncertain
because there are no specific tax provisions related to such a
cancellation. Tax authorities may assert that the voluntary
exchange of options for restricted stock units is a taxable
event and impose tax with respect to the exchange. Therefore, we
recommend that you check with your personal tax advisor on the
potential tax consequences of the offer.
Grant of
Restricted Stock Units
As noted above, the cancellation of existing options in exchange
for restricted stock units may be treated as a taxable exchange.
If the authorities do not assert a taxable exchange, although
the tax treatment of restricted stock units is uncertain in
Japan, under the current practice of the tax authorities with
respect to the grant of restricted stock units, you likely will
not be subject to tax when the restricted stock units are
granted to you.
Vesting
of Restricted Stock Units
You will likely be subject to income tax when the restricted
stock units vest and shares are issued to you. You will be taxed
on the fair market value of the shares issued to you on the date
of vesting. If tax was imposed on the cancellation of options in
exchange for restricted stock units, this tax assessment would
affect the amount of income, if any, recognizable upon vesting
of restricted stock units and issuance of shares, and you should
consult your personal tax advisor regarding this issue.
Based on a recent decision of the Supreme Court of Japan on the
taxation of stock options, this income will likely be
characterized as remuneration income and taxed at
your marginal tax rate. However, as there is a chance that this
Supreme Court decision may not be applicable to the taxation of
income realized under other employee equity awards, we recommend
that you consult with your personal tax advisor to obtain more
information on the income classification issue.
You likely will not be subject to social insurance contributions
upon vesting of your restricted stock units.
Sale of
Shares
When you subsequently sell any shares acquired under the Plan,
you will be subject to capital gains tax. The taxable amount
will be the difference between the sale price and the fair
market value of the shares issued to you at vesting. You may be
eligible for a reduced tax rate if certain conditions are met.
Please consult your personal tax advisor to find out if you are
eligible for a reduced rate.
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Dividends
If a dividend is declared on Limelight common stock after you
acquire shares under the Plan, you will be subject to tax in
Japan on any dividends you receive. In addition, you will be
subject to U.S. federal income tax withheld at source. You
may be entitled to a tax credit in Japan for the
U.S. federal income tax withheld.
Withholding
and Reporting
Your employer is not required to withhold or report income tax
on the income arising from the cancellation of the option or the
grant or vesting of the restricted stock unit. You are
responsible for reporting and paying any tax resulting from the
cancellation of the option, grant and vesting of the restricted
stock units, the sale of your shares and the receipt of any
dividends and dividend equivalents.
Please note that the Japanese tax authorities are aware that
employees of Japanese affiliates of U.S. companies may earn
substantial income as a result of their participation in an
equity incentive plan, and they are systematically auditing the
tax returns of such employees to confirm that they have
correctly reported the resulting income.
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SCHEDULE D
GUIDE TO
TAX ISSUES IN THE UNITED KINGDOM
The following is a general summary of the material tax
consequences of the voluntary cancellation of eligible options
in exchange for the grant of restricted stock units for eligible
employees subject to tax in the U.K. This summary is based on
the law in effect in the U.K. as of May 2008. This summary is
general in nature and does not discuss all of the tax
consequences that may be relevant to you in light of your
particular circumstances, nor is it intended to be applicable in
all respects to all categories of eligible employees. Please
note that tax laws change frequently and occasionally on a
retroactive basis. As a result, the information contained in
this summary may be out of date at the time the restricted stock
units are granted, the restricted stock units vest or you sell
shares acquired upon vesting of the restricted stock
units.
Importantly, this information is given as a general guide
to employees who are resident and ordinarily resident in the
U.K. and is not intended as a substitute for you obtaining
professional tax advice from your personal tax adviser. If you
are resident but not ordinarily resident U.K. or are neither
resident nor ordinarily resident U.K., the tax consequences to
you may vary. Further, this information assumes that the
restricted stock units you will receive may be settled in shares
of common stock only. Tax laws and their interpretation may
change and tax consequences may vary depending on your personal
circumstances.
Option
Cancellation
You will not be subject to tax as a result of the cancellation
of existing options in exchange for the grant of restricted
stock units.
Grant of
Restricted Stock Units
You will not be subject to tax when the restricted stock units
are granted to you.
Vesting
of Restricted Stock Units
You will subject to tax on the fair market value of the shares
received at the time the restricted stock units vest. You also
will be liable to pay employees and employers
National Insurance Contributions (NICs) on the
vested portion of the restricted stock units and will need to
execute a joint election form with respect to the
employers national insurance contributions.
Please note
that your agreement to pay the employers NICs is a term
and condition of the restricted stock unit award which was not a
term and condition to your option grant. This difference should
be considered and discussed with your tax advisor when making
the election to exchange your options
.
Sale of
Shares
When you subsequently sell any shares acquired under the Plan,
you may be subject to capital gains tax. The gain will be the
difference between the sale price and the fair market value of
the shares at vesting. You will only subject to capital gains
tax in any tax year if your capital gain exceeds the annual
exemption amount (£9,600 for the tax year 6 April 2008
to 5 April 2009).
For shares sold on or after 6 April 2008, any capital gain
will be subject to tax at a flat rate of 18% (as taper relief no
longer applies).
Dividends
If a dividend is declared on Limelight common stock after you
acquire shares under the Plan, you will be subject to tax in the
UK on any dividends you receive. In addition, you will be
subject to U.S. federal income tax withheld at source. You
may be entitled to a tax credit in the UK for the
U.S. federal income tax withheld.
Withholding
and Reporting
Your employer is required to calculate income tax and
employees and employers NICs and account for these
amounts to Her Majestys Revenue & Customs
(HMRC) when the restricted stock units vest and
shares are issued
D-1
to you. Your employer will withhold any applicable income tax
and NICs by redeeming a sufficient number of shares of common
stock issued at vesting to satisfy the obligation or by
withholding from salary or from the proceeds of the sale of
shares.
You must reimburse your employer for any income tax due (in
excess of the amount withheld from redeemed shares, the proceeds
of any shares sold at vesting or from your salary) within
90 days of vesting. If you do not reimburse your employer
for the income tax paid on your behalf within 90 days of
vesting, you will be deemed to have received a benefit in kind
equal to the amount of income tax due which will give rise to
further income tax and NICs liability. Your employer is not
required to withhold income tax on the benefit in kind, and you
must report the benefit in your self-assessment tax return for
the tax year in which the liability occurs and pay any
applicable tax.
Your employer is also required to report the grant and vesting
of the restricted stock units, the acquisition of shares, the
receipt of any dividend equivalents and the tax withheld on its
annual tax returns filed with HMRC.
In addition to your employers reporting obligations, you
are responsible for reporting any income resulting from the
vesting of the restricted stock units, the sale of your shares
and the receipt of any dividends or dividend equivalents on your
annual tax return. You are also responsible for paying any tax
resulting from the sale of your shares and the receipt of any
dividends.
D-2