DEFM14A 1 d348019ddefm14a.htm DEFM14A DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. )

 

 

Filed by the Registrant                     Filed by a party other than the Registrant  

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Under §240.14a-12

Limelight Networks, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check all boxes that apply)

 

No fee required

 

Fee paid previously with preliminary materials

 

Fee computed on table in exhibit required by Item 25(b) of Schedule 14A (17 CFR 240.14a-101) per Item 1 of this Schedule and Exchange Act Rules 14c-5(g) and 0-11

 

 

 


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LOGO

PROPOSED TRANSACTION—YOUR VOTE IS VERY IMPORTANT

 

 

Dear Stockholders,

You are cordially invited to attend the 2022 annual meeting of stockholders of Limelight Networks, Inc., a Delaware corporation (“Limelight”), which will be held virtually on June 9, 2022 at 12:00 p.m. Eastern time (including any adjournments or postponements thereof, the “annual meeting”). Stockholders will be able to attend the annual meeting by visiting www.virtualshareholdermeeting.com/LLNW2022 and using the 16-digit control number included in your proxy materials. You will not be able to attend the annual meeting physically in person. For purposes of attendance at the annual meeting, all references in the accompanying proxy statement to “present in person” or “in person” shall mean virtually present at the annual meeting.

At the annual meeting, you will be asked to consider and vote, among other things, upon the approval of the issuance of shares of common stock, par value $0.001 per share, of Limelight (“Limelight common stock”) pursuant to the Stock Purchase Agreement, dated as of March 6, 2022 (the “purchase agreement”), providing for the purchase of all of the outstanding shares of common stock of Edgecast Inc. (“Edgecast”), a California corporation and an indirect wholly-owned subsidiary of College Parent, L.P. (together with its wholly-owned subsidiaries other than Edgecast, “College Parent”), and certain assets specified in the purchase agreement. After the completion of the transaction, right, title and interest in and to all of the outstanding shares of common stock of Edgecast and certain subsidiaries of Edgecast will be owned by an indirect, wholly-owned subsidiary of Limelight.

If the transactions contemplated by the purchase agreement (the “transaction”) are completed, Limelight currently anticipates issuing approximately 71.9 million shares of Limelight common stock to either College Parent, the ultimate parent company of Edgecast, or a designated subsidiary of College Parent, representing a value of approximately $300 million at a share price of $4.1168 (which is the 30-day trailing VWAP as of March 4, 2022), which includes approximately $30 million cash investment in Limelight by College Parent or a designated subsidiary. College Parent or a designated subsidiary can also receive up to an additional 12.7 million shares of Limelight representing up to an additional $100 million in consideration, over the period ending on the third anniversary of the closing of the transaction, subject to the achievement of certain share-price targets.

The obligations of Limelight to complete the transaction are subject to the satisfaction or waiver of a number of conditions set forth in the purchase agreement, a copy of which is included as Annex A to this proxy statement, including stockholder approval of the issuance of Limelight common stock in connection with the proposed transaction (the “stock issuance proposal”).

You will also be asked to consider and vote on a proposal to: (i) elect Jeffrey T. Fisher, David C. Peterschmidt and Bob Lyons as Class III directors (the “director election proposal”); (ii) approve the ratification of Ernst & Young LLP as independent registered public accounting firm (the “ratification proposal”); and (iii) vote upon the proposal to adjourn or postpone the annual meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the stock issuance proposal (the “adjournment proposal” and together with the stock issuance proposal, director election proposal and the ratification proposal, the “proposals”). Approval of the proposals to approve: (i) the director election proposal; (ii) ratification proposal; and (iii) if necessary or appropriate, the adjournment proposal, are not conditions to the completion of the transaction.


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Your vote is very important. Please submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the annual meeting. The Limelight board of directors unanimously recommends that Limelight stockholders vote “FOR” each of the proposals being submitted to a vote of Limelight stockholders at the annual meeting.

Your vote is very important regardless of the number of shares that you own. We cannot complete the proposed transaction unless the proposal to approve the stock issuance proposal is approved by a majority of the votes cast by stockholders in person or via proxy with respect to this matter are cast in favor of the stock issuance proposal. The failure of any stockholder to vote in person by ballot at the annual meeting, to submit a signed proxy card or to grant a proxy electronically through the internet or by telephone will have no effect on the vote count for the proposals. If you hold your shares in “street name,” the failure to instruct your bank, broker or other nominee how to vote your shares will be counted as present and entitled to vote for purposes of determining a quorum but will have no effect on the vote count for the proposals.

This proxy statement contains detailed information about Limelight, the annual meeting, the purchase agreement and the transaction. You should read this proxy statement carefully and in its entirety before voting, including the section entitled “Risk Factors” located elsewhere in this proxy statement. We look forward to Limelight’s successful acquisition of Edgecast.

I thank you for your continued support and investment in us. Together, let’s build a great company.

 

LOGO

Bob Lyons

Chief Executive Officer

Neither the United States Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the transaction described in this document or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.

This proxy statement is dated May 4, 2022 and is first being mailed to Limelight stockholders on or about May 4, 2022.


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LOGO

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 9, 2022

Dear Fellow Stockholder:

We are pleased to invite you to attend the annual meeting of stockholders (including any adjournments or postponements thereof, the “annual meeting”) of Limelight Networks, Inc. (“Limelight”), a Delaware corporation, which will be held on June 9, 2022 at 12:00 p.m., Eastern time, for the following purposes:

 

   

to vote on the proposal to issue shares of common stock of Limelight, par value $0.001 per share (“Limelight common stock”) to either College Parent, L.P., a Delaware limited partnership (together with its wholly-owned subsidiaries other than Edgecast, “College Parent”), the ultimate parent company of Edgecast, Inc. (“Edgecast”) or a designated subsidiary of College Parent under the Stock Purchase Agreement, dated as of March 6, 2022, by and between Limelight and College Parent (the “purchase agreement”), a copy of which is included as Annex A to the proxy statement of which this notice is a part (the “stock issuance proposal”);

 

   

to vote upon the election of Jeffrey T. Fisher, David C. Peterschmidt and Bob Lyons as Class III directors (the “director election proposal”);

 

   

to vote upon the ratification of Ernst & Young LLP as independent registered public accounting firm (the “ratification proposal”); and

 

   

to vote upon the proposal to adjourn or postpone the annual meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the stock issuance proposal (the “adjournment proposal” and together with the stock issuance proposal, director election proposal and the ratification proposal, the “proposals”).

Please refer to the proxy statement of which this notice is a part for further information on the business to be transacted at the annual meeting.

Limelight’s board of directors (the “Limelight board”) has unanimously (a) determined that the purchase agreement and the transactions contemplated by the purchase agreement, are advisable, fair to and in the best interest of Limelight’s stockholders, (b) approved and adopted the purchase agreement and the transactions contemplated by the purchase agreement, (c) directed that the approval of the stock issuance proposal be submitted to a vote at a meeting of the stockholders of Limelight entitled to vote on such matters and (d) resolved to recommend to Limelight’s stockholders to vote in favor of the approval of the stock issuance proposal on the terms and subject to the conditions set forth in the purchase agreement. The Limelight board unanimously recommends that Limelight’s stockholders vote “FOR” each of the proposals being submitted to a vote of stockholders at the annual meeting.

The Limelight board has fixed the close of business on April 19, 2022 as the record date (the “record date”) for determining Limelight’s stockholders entitled to receive notice of, and to vote at, the annual meeting. Only holders of record of Limelight common stock at the close of business on the record date are entitled to receive notice of, and to vote at, the annual meeting. The presence of the holders of a majority of the Limelight common stock issued and outstanding and entitled to vote, present in person or represented by proxy, is required to constitute a quorum for the transaction of business at the annual meeting. To ensure that your vote is counted, please provide your voting instructions as soon


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as possible, even if you plan to attend the annual meeting in person. We encourage you to vote via the internet or by telephone. You also have the option of voting by completing, signing, dating and returning the proxy card that accompanied the printed materials. Submitting your vote via the internet or by telephone or proxy card will not affect your right to vote in person if you decide to attend the annual meeting.

The approval of the stock issuance proposal and the ratification proposal requires the affirmative vote of the holders of a majority of the votes cast. For the director election proposal, the nominees receiving the highest number of votes will be elected to the Limelight board. Abstentions and broker non-votes will have no effect on the election of directors. The approval of the adjournment proposal, if necessary or appropriate, requires the affirmative vote of the stockholders of a majority in voting power present if a quorum is not present, or, if a quorum is present, the affirmative vote of the holders of a majority of the votes cast. Abstentions if any, will have the same effect as a vote “AGAINST” the proposals. Broker non-votes will be counted as present and entitled to vote for purposes of determining a quorum but will have no effect on the vote count for the proposals. A list of the names of Limelight’s stockholders of record will be open to the examination by any stockholder for any purpose germane to the annual meeting for ten days before the annual meeting via the Internet at www.virtualshareholdermeeting.com/LLNW2022. Such list will also be available on-line at the annual meeting during the webcast of the meeting. Your vote is very important. Whether or not you expect to attend the annual meeting, we urge you to submit a proxy to vote your shares as promptly as possible by either (1) accessing the internet website specified on your proxy card and following the on-screen instructions; (2) calling the toll-free number specified on your proxy card; or (3) signing, dating and mailing your proxy card in the postage-paid envelope provided as soon as possible, so that your shares may be represented and voted at the annual meeting.

This proxy statement provides a detailed description of the purchase agreement and the transactions contemplated thereby as well as a description of the issuance of shares of Limelight common stock to College Parent under the purchase agreement. We urge you to read this proxy statement, including any documents incorporated by reference, and the Annexes carefully and in their entirety. If you have any questions concerning the purchase agreement, the transactions contemplated thereby or this proxy statement, would like additional copies of this document, or need help voting your shares of Limelight common stock, please contact Limelight’s proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders may call toll-free from the U.S. or Canada: (877) 825-8793

From other locations please dial: +1 (412) 232-3651

Banks and Brokers may call collect: (212) 750-5833

On behalf of the Limelight board, I thank you for your ongoing support and appreciate your consideration of these matters.

 

By Order of the Board of Directors,

LOGO

Michael D. DiSanto

Chief Administrative and Legal Officer & Secretary

Tempe, Arizona

May 4, 2022


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ADDITIONAL INFORMATION

This proxy statement incorporates by reference important business and financial information about Limelight Networks, Inc. (“Limelight”) from other documents that are not included in or delivered with this proxy statement. For a listing of the documents incorporated by reference into this proxy statement, see the section entitled “Where You Can Find Additional Information and Incorporation of Certain Documents by Reference” located elsewhere in this proxy statement. This information is available to you without charge upon your written request. You can obtain the documents incorporated by reference into this document through the United States Securities and Exchange Commission website at www.sec.gov or by requesting them in writing at Limelight Networks, Inc., 2220 W. 14th Street, Tempe, Arizona 85281, Attention: Corporate Secretary.

You may also obtain documents incorporated by reference into this proxy statement by requesting them in writing or by telephone from Innisfree M&A Incorporated, Limelight’s proxy solicitor, at the following addresses and telephone numbers:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders may call toll-free from the U.S. or Canada: (877) 825-8793

From other locations please dial: +1 (412) 232-3651

Banks and Brokers may call collect: (212) 750-5833

To receive timely delivery of the documents in advance of the annual meeting of Limelight stockholders (the “annual meeting”), you should make your request no later than five business days before the date of the annual meeting, or no later than June 2, 2022.


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ABOUT THIS PROXY STATEMENT

This proxy statement constitutes a proxy statement for Limelight Networks, Inc. (“Limelight”) under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting for the annual meeting of Limelight stockholders.

No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement and we take no responsibility for, and cannot provide any assurances as to the reliability of, any other information that others may give you. This proxy statement is dated May 4, 2022. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this proxy statement is accurate as of any date other than the date of the incorporated document. Neither the mailing of this proxy statement to our stockholders nor the issuance by us of shares of common stock of Limelight, par value $0.001 per share, under the Stock Purchase Agreement, dated as of March 6, 2022, by and between Limelight and College Parent, L.P., a Delaware limited partnership (together with its wholly-owned subsidiaries other than Edgecast, “College Parent”) will create any implication to the contrary.

In addition, Yahoo, Inc., a California corporation (“Yahoo”), Edgecast Inc. (“Edgecast”), College Parent and Apollo Management IX, L.P., a Delaware limited partnership (“Apollo Manager”) have supplied all information contained in this proxy statement relating to Yahoo, Edgecast, College Parent and Apollo and their affiliates, including, without limitation, information about their businesses, properties, and risk factors, and various financial statements and accounting information and data that pertain to the Edgecast business. We, Yahoo, Edgecast, College Parent and Apollo Manager all contributed information to this proxy statement relating to the proposed transaction.

All references in this proxy statement to “Limelight,” “we,” “us,” and “our” refer to Limelight Networks, Inc.; all references in this proxy statement to “College Parent” refers to College Parent, L.P. together with its wholly-owned subsidiaries other than Edgecast; all references in this proxy statement to “Yahoo” refers to Yahoo, Inc., the parent company of Edgecast, which is controlled by funds and vehicles managed by affiliates of Apollo Global Management, Inc.; all references in this proxy statement to “Apollo” refers to Apollo Global Management, Inc. and its consolidated subsidiaries; all references in this proxy statement to “Edgecast” refers to Edgecast Inc. together with its subsidiaries, which is an indirect, wholly-owned subsidiary of College Parent but will become a wholly-owned subsidiary of Limelight after the closing of the proposed transaction; and unless otherwise indicated or as the context requires, all references to the “purchase agreement” refer to the Stock Purchase Agreement, dated as of March 6, 2022, by and between Limelight and College Parent, a copy of which is included as Annex A to this proxy statement.

All brand trademarks, service marks or trade names cited in this report are the property of their respective holders, including those of other companies and organizations. Solely for convenience, trademarks, trade names and service marks referred to in this report appear without the ® or symbols, however such references are not intended to indicate in any way that we, College Parent, Edgecast, or the owner, as applicable, will not assert, to the fullest extent under applicable law, all rights to such, trademarks, trade names and service marks.


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SUMMARY TERM SHEET

     1  

QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND THE ANNUAL MEETING

     4  

SUMMARY

     10  

The Parties

     10  

The Transaction

     11  

Recommendation of the Limelight Board and Its Reasons for the Transaction

     12  

Opinion of Limelight’s Financial Advisor

     12  

Overview of the Stock Purchase Agreement

     13  

Interests of Limelight’s Directors and Executive Officers in the Transaction

     13  

Treatment of Long-Term Incentive and Retention Awards

     13  

Regulatory Approvals Required for the Transaction

     14  

Closing of the Transaction

     14  

Conditions to the Completion of the Transaction

     14  

Termination of the Stock Purchase Agreement

     15  

Termination Fees and Expenses

     17  

No Rights of Appraisal for Limelight Stockholders

     17  

Listing of Shares of Limelight’s Common Stock

     17  

Accounting Treatment of the Transaction

     17  

Material United States Federal Income Tax Consequences of the Transaction

     18  

Required Stockholder Approval for the Transaction

     18  

The Annual Meeting

     18  

Summary Unaudited Pro Forma Condensed Combined Financial Information of Limelight and Edgecast

     19  

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

     21  

RISK FACTORS

     24  

Risks Relating to the Transaction

     24  

Risks Related to Edgecast’s Business

     27  

Risks Related to Limelight’s Business

     40  

THE PARTIES

     41  

Limelight

     41  

Edgecast

     41  

College Parent

     41  

Yahoo

     42  

Apollo

     42  

THE ANNUAL MEETING

     43  

PROPOSAL 1: STOCK ISSUANCE PROPOSAL

     48  

THE TRANSACTION

     50  

General Description of the Transaction

     50  

Background of the Transaction

     50  

Recommendation of the Limelight Board and Its Reasons for the Transaction

     55  

Opinion of Limelight’s Financial Advisor

     58  

Certain Unaudited Prospective Financial Information

     64  

Interests of Limelight’s Directors and Executive Officers in the Transaction

     70  

Accounting Treatment

     70  

No Appraisal Rights

     71  

Material United States Federal Income Tax Consequences of the Transaction

     71  

Regulatory Approvals Required for the Transaction

     71  

Nasdaq Listing of Limelight Common Stock

     72  

 

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THE STOCK PURCHASE AGREEMENT

     73  

Structure of the Transaction

     73  

Closing of the Transaction

     73  

Effect of the Closing

     74  

Transaction Consideration

     74  

Treatment of Long-Term Incentive and Retention Awards

     74  

Representations and Warranties

     75  

Conduct of Business Prior to the Completion of the Transaction

     77  

Additional Agreements

     80  

Officers and Directors Following Closing

     82  

Employee Matters

     82  

Conditions to the Completion of the Transaction

     82  

Termination of the Stock Purchase Agreement

     83  

Effect of Termination

     84  

Indemnification

     85  

Amendment and Waiver

     85  

Governing Law

     85  

OTHER AGREEMENTS RELATED TO THE TRANSACTION

     86  

Stockholders Agreement

     86  

Registration Rights Agreement

     88  

Commercial Agreement

     89  

Domain Name Sublicense Agreement

     89  

Patent Cross License Agreement

     89  

Transition Services Agreement

     90  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF EDGECAST

     91  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF LIMELIGHT AND EDGECAST

     106  

LIMELIGHT’S PRINCIPAL STOCKHOLDERS

     121  

PROPOSAL 2: DIRECTOR ELECTION PROPOSAL

     123  

CORPORATE GOVERNANCE

     124  

DIRECTORS

     130  

COMPENSATION COMMITTEE REPORT

     138  

COMPENSATION DISCUSSION AND ANALYSIS

     139  

EXECUTIVE COMPENSATION AND OTHER MATTERS

     156  

EQUITY COMPENSATION PLAN INFORMATION

     162  

AUDIT COMMITTEE REPORT

     163  

PROPOSAL 3: RATIFICATION PROPOSAL

     165  

PROPOSAL 4: ADJOURNMENT PROPOSAL

     167  

FUTURE STOCKHOLDER PROPOSALS

     168  

HOUSEHOLDING

     169  

WHERE YOU CAN FIND ADDITIONAL INFORMATION AND INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     170  

COMBINED FINANCIAL STATEMENTS OF EDGECAST

     F-1  

ANNEX A STOCK PURCHASE AGREEMENT

     A-1  

ANNEX B OPINION OF GOLDMAN SACHS & CO. LLC

     B-1  

 

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SUMMARY TERM SHEET

This Summary Term Sheet, together with the sections entitled “Questions and Answers About the Transactions and Annual Meeting” and “Summary,” summarizes certain information contained in this proxy statement, but does not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the attached Annexes, for a more complete understanding of the matters to be considered at the 2022 annual meeting of stockholders of Limelight Networks, Inc., a Delaware corporation (“Limelight”), which will be held virtually on June 9, 2022 at 12:00 p.m. Eastern time (including any adjournments or postponements thereof, the “annual meeting”).

 

   

Limelight is a leading provider of edge enabled web applications and content delivery solutions. For more information about Limelight, see the section entitled “The Parties” located elsewhere in this proxy statement.

 

   

Edgecast, Inc. (“Edgecast”) is a business unit of Yahoo, Inc. designed to help companies meet the ever-growing expectations of their customers. Edgecast’s leading set of solutions across content delivery, cloud security and video streaming, combined with a team of customer-oriented domain experts, streamlines operations and improves efficiencies, so businesses can redirect their energy into creating value for their customers—not managing multiple vendors and workflows. For more information about Edgecast, see the section entitled “The Parties” and “Management’s Discussion and Analysis of the Financial Condition and Results of Operations of Edgecast” located elsewhere in this proxy statement.

 

   

College Parent, L.P. (together with its wholly-owned subsidiaries, “College Parent”) is a Delaware limited partnership and is the ultimate parent company that controls Yahoo and Edgecast. College Parent is owned by funds managed by affiliates of Apollo Global Management, Inc. (together with its consolidated subsidiaries, “Apollo”), Verizon Communications Inc. and other certain co-investors. For more information about College Parent, see the section entitled “The Parties” located elsewhere in this proxy statement.

 

   

Yahoo, Inc., a Delaware corporation (“Yahoo”), is a global media and tech company that connects people to their passions. Yahoo reaches nearly 900 million people around the world, bringing them closer to what they love—from finance and sports, to shopping, gaming and news—with the trusted products, content and tech that fuel their day. For partners, Yahoo provide a full-stack platform for businesses to amplify growth and drive more meaningful connections across advertising, search and media. Yahoo is the parent company of Edgecast and a wholly owned subsidiary of College Parent, which is controlled by Apollo. For more information about Yahoo, see the section entitled “The Parties” located elsewhere in this proxy statement.

 

   

Apollo is a global, high-growth alternative asset manager. In its asset management business, Apollo seeks to provide its clients excess return at every point along the risk-reward spectrum from investment grade to private equity with a focus on three business strategies: yield, hybrid, and equity. For more than three decades, Apollo’s investing expertise across its fully integrated platform has served the financial return needs of its clients and provided businesses with innovative capital solutions for growth. Through Athene, its retirement services business, Apollo specializes in helping clients achieve financial security by providing a suite of retirement savings products and acting as a solutions provider to institutions. Apollo’s patient, creative, and knowledgeable approach to investing aligns its clients, businesses it invests in, its employees, and the communities it impacts, to expand opportunity and achieve positive outcomes. As of December 31, 2021, Apollo had approximately $498 billion of assets under management. For more information about Apollo, see the section entitled “The Parties” located elsewhere in this proxy statement.

 

   

The Stock Purchase Agreement, dated as of March 6, 2022, by and between Limelight and College Parent, a copy of which is included as Annex A to the proxy statement of which this

 

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notice is a part (the “purchase agreement”) contemplates that, prior to the closing of the transactions contemplated by the purchase agreement (the “transaction,” and the closing of which the “closing”), Edgecast and its subsidiaries will undergo an internal reorganization through a series of inter-company transactions (the “pre-closing restructuring”). For more information about the pre-closing restructuring, see the section entitled “The Transaction—Effect of the Transaction” located elsewhere in this proxy statement.

 

   

At the closing, an indirect, wholly-owned subsidiary of Limelight will acquire all of College Parent’s right, title and interest in and to all of the outstanding shares of common stock of Edgecast, and certain specified assets for an aggregate number of shares of common stock, par value $0.001, of Limelight (the “Limelight common stock”) equal to approximately 71.9 million Limelight common stock (the “aggregate closing consideration”) representing a value of approximately $300 million, subject to the terms and conditions of the purchase agreement. The aggregate closing consideration also includes a $30 million investment in Limelight by College Parent or a designated subsidiary. For more information about the purchase agreement, see the sections entitled “The Transaction” and “Proposal Number 1: Stock Issuance Proposal” located elsewhere in this proxy statement.

 

   

At the closing, Limelight and College Parent (or a designated subsidiary) will enter into a stockholders agreement with respect to certain governance related matters, including College Parent’s right to designate directors (the “stockholders agreement”). For more information about the stockholders agreement, see the section entitled “Other Agreements—Stockholders Agreement” located elsewhere in this proxy statement.

 

   

Following the closing, Limelight’s board of directors (the “Limelight board”) will expand from its current size of eight members to nine members. Two members of the Limelight board prior to the transaction, Jefferey T. Fisher and Marc Debevoise, will resign upon the closing, and, pursuant to the stockholders agreement, three new members designated by College Parent will be appointed to the Limelight board. For more information about our board of directors following the transaction, and for more information about the stockholders agreement, see the sections entitled “The Transaction—Officers and Directors Following Closing” and “Other Agreements—Stockholders Agreement” located elsewhere in this proxy statement.

 

   

Unless waived by the parties to the purchase agreement, the closing is subject to a number of conditions set forth in the purchase agreement, including, among others, (i) the expiration or termination of the applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (ii) the absence of any law or order restraining, enjoining or otherwise prohibiting the consummation of the transaction and (iii) approval by the stockholders of Limelight of the issuance of Limelight common stock in connection with the proposed transaction (the “stock issuance proposal”). For more information about the closing conditions to the transaction, and the requisite stockholder approval required for the transaction to occur, see the sections entitled “The Stock Purchase Agreement—Conditions to Completion of the Transaction” and “Questions and Answers About the Transactions and Annual Meeting—What vote is required to approve each proposal and how are abstentions, failures to vote and broker non-votes treated?” located elsewhere in this proxy statement.

 

   

The purchase agreement may be terminated at any time prior to the consummation of the transactions contemplated by the purchase agreement upon mutual agreement of the parties thereto, or for other reasons in specified circumstances. For more information about the termination rights under the purchase agreement, see the section entitled “The Stock Purchase Agreement—Termination of the Purchase Agreement” located elsewhere in this proxy statement.

 

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The purchase agreement and transactions contemplated thereby involve numerous risks. For more information about these risks, please see the section entitled “Risk Factors” located elsewhere in this proxy statement.

 

   

The Limelight board considered various factors in determining whether to approve the purchase agreement. For more information about the Limelight board’s decision-making process, see the sections entitled “The Transaction—Recommendation of the Limelight Board and Its Reasons for the Transaction” and “The Transaction—Opinion of Limelight’s Financial Advisor” located elsewhere in this proxy statement.

 

   

In addition to voting on the stock issuance proposal, at the annual meeting, Limelight stockholders will also be asked to vote on the approval of (i) the election of Jeffrey T. Fisher, David C. Peterschmidt and Bob Lyons as Class III directors (the “the director election proposal”), (ii) the ratification of Ernst & Young LLP as independent registered public accounting firm (the “ratification proposal”) and (iii) the proposal to adjourn or postpone the annual meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the stock issuance proposal (the “adjournment proposal”). For more information about the director election proposal, the ratification proposal and the adjournment proposal, see the sections entitled “Proposal Number 2: Director Election Proposal”, “Proposal Number 3: Ratification Proposal” and “Proposal Number 4: Adjournment Proposal” located elsewhere in this proxy statement.

 

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QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND THE ANNUAL MEETING

The following are brief answers to certain questions that you may have about the proposals being considered at the annual meeting of our stockholders, which we refer to as the “annual meeting.” We urge you to carefully read this entire proxy statement, including its Annexes, and the other documents to which this proxy statement refers or incorporates by reference, because this section does not provide all of the information that might be important to you. Also see the section entitled “Where You Can Find Additional Information and Incorporation of Certain Documents by Reference” located elsewhere in this proxy statement.

About the Transaction

 

Q:

What is the proposed transaction?

 

A:

On March 6, 2022, Limelight Networks, Inc., a Delaware corporation (“Limelight”) and College Parent, L.P., a Delaware limited partnership (together with its wholly-owned subsidiaries other than Edgecast, “College Parent”) entered into that certain purchase agreement, dated March 6, 2022 (the “purchase agreement,” and the transactions contemplated thereby, collectively, the “transaction”), pursuant to which an indirect, wholly-owned subsidiary of Limelight will acquire from College Parent all of the outstanding shares of common stock of Edgecast, Inc. (“Edgecast common stock”), a California corporation and an indirect, wholly-owned subsidiary of College Parent (“Edgecast”), and certain Edgecast-related businesses and assets as specified in the purchase agreement, a copy of which is included as Annex A to this proxy statement. After the completion of the transaction, Limelight currently anticipates that approximately 71.9 million shares, par value $0.001 per share of its common stock (“Limelight common stock”) will be issued to an indirect, wholly-owned subsidiary of Limelight and delivered to either College Parent, the ultimate parent company of Edgecast, or a designated subsidiary of College Parent, representing a value of approximately $300 million based on a per share price of $4.1168 (which is based on the 30-day trailing VWAP as of March 4, 2022), which includes a $30 million cash purchase of Limelight common stock by College Parent from an indirect, wholly-owned subsidiary of Limelight taking place immediately prior to the closing of the transaction. College Parent or a designated subsidiary can also receive up to an additional 12.7 million shares of Limelight representing up to an additional $100 million in consideration, over the period ending on the third anniversary of the closing of the transaction, subject to the achievement of certain share-price targets (the “Limelight earnout shares”). After the completion of the transaction, Edgecast will become an indirect, wholly owned subsidiary of Limelight.

For a more complete discussion of the transaction and its effects, please see “The Transaction” located elsewhere in this proxy statement.

 

Q:

Why am I receiving this proxy statement?

 

A:

You are receiving this proxy statement because you are a stockholder of record of Limelight on the record date. This proxy statement serves as the proxy statement through which we will solicit proxies to obtain the necessary stockholder approval for the proposal to issue shares of Limelight common stock to College Parent or a designated subsidiary under the purchase agreement (the “stock issuance proposal”).

In addition, we are also soliciting your proxy to vote on proposals to approve (a) the election of Jeffrey T. Fisher, David C. Peterschmidt and Bob Lyons as Class III directors (the “director election proposal”), (b) the ratification of Ernst & Young LLP as independent registered public accounting firm (the “ratification proposal”) and (c) the adjournment or postponement of the annual meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the stock issuance proposal (the “adjournment proposal” and together with the stock issuance proposal, director election proposal and ratification proposal, the “proposals”).

 

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This proxy statement, including its Annexes, contains and incorporates by reference important information about Limelight and Edgecast, the transaction and the annual meeting. You should read all the available information carefully and in its entirety.

 

Q:

How will Limelight stockholders be affected by the transaction?

 

A:

Upon completion of the transaction, each Limelight stockholder will hold the same number of shares of Limelight common stock that such stockholder held immediately prior to closing of the transaction. Limelight will be issuing shares of Limelight common stock to College Parent or a subsidiary thereof in exchange for its shares of Edgecast common stock and certain other specified Edgecast-related businesses and assets. Limelight common stock will continue to be traded on the NASDAQ Global Select Market (“Nasdaq”) following the closing of the transaction.

 

Q:

When does Limelight expect to complete the transaction?

 

A:

We currently expect to complete the transaction in summer 2022. However, we cannot predict the actual date on which the transaction will be completed, nor can we assure you that the transaction will be completed, because completion is subject to conditions beyond either company’s control. See the section entitled “The Stock Purchase Agreement—Conditions to Completion of the Transaction” located elsewhere in this proxy statement.

 

Q:

What happens if the stock issuance is not approved or the transaction is not completed?

 

A:

If the stock issuance proposal is not approved by our stockholders or the transaction is not completed for any other reason, College Parent will not receive any payment for shares of Edgecast common stock and certain specified Edgecast-related businesses and assets owned by College Parent and no shares of Limelight common stock will be issued as contemplated by the purchase agreement. Instead, Limelight will continue to conduct our operations as currently conducted, and Edgecast will remain a subsidiary of College Parent.

Under specified circumstances, we may be required to pay a termination fee upon termination of the purchase agreement, as described under “The Stock Purchase Agreement—Effect of Termination” located elsewhere this proxy statement.

 

Q:

Are there any risks to the transaction that I should consider?

 

A:

Yes. The material risks associated with the transaction that are known to us are discussed in the section entitled “Risk Factors” located elsewhere in this proxy statement.

 

Q:

Who will own Limelight immediately following the transaction?

 

A:

We estimate that, upon the closing of the transaction, Limelight stockholders as of immediately prior to the closing will own approximately 65% of the total outstanding shares of Limelight common stock, or approximately 61% assuming Limelight achieves all share price targets under the purchase agreement and thus triggering the issuance of the Limelight earnout shares, and College Parent (or a designated subsidiary) will own approximately 35% or 39%, respectively.

 

Q:

What is householding and how does it affect Limelight stockholders?

 

A:

The United States Securities and Exchange Commission permits Limelight to deliver a single copy of its proxy statements and annual reports to Limelight stockholders who have the same address and last name, unless Limelight has received contrary instructions from such Limelight

 

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stockholders. Each Limelight stockholder will continue to receive a separate proxy card. This procedure, called “householding”, will reduce the volume of duplicate information Limelight stockholders receive and reduce Limelight’s printing and postage costs. Limelight will promptly deliver a separate copy of this proxy statement to any such Limelight stockholder upon written or oral request. A stockholder wishing to receive a separate proxy statement can notify Limelight at Limelight Networks, Inc., 2220 W. 14th Street, Tempe, AZ 85281, Attention: Corporate Secretary, telephone: (602) 850-5000. Similarly, Limelight stockholders currently receiving multiple copies of these documents can request the elimination of duplicate documents by contacting Limelight as described above.

 

Q:

What are the material U.S. federal income tax consequences of the transaction to Limelight stockholders?

 

A:

Holders of our common stock will not recognize any gain or loss as a result of the transaction related to their ownership of Limelight common stock.

About the Annual Meeting

 

Q:

What proposals will be considered at the annual meeting?

 

A:

At the annual meeting, Limelight stockholders will be asked:

 

   

to vote on the proposal to issue shares of Limelight common stock which will be transferred to an indirect, wholly-owned subsidiary of Limelight to College Parent, the ultimate parent company of Edgecast, Inc. under the purchase agreement;

 

   

to vote upon the election of Jeffrey T. Fisher, David C. Peterschmidt and Bob Lyons as Class III directors (the “director election proposal”);

 

   

to vote upon the ratification of Ernst & Young LLP as independent registered public accounting firm (the “ratification proposal”); and

 

   

to vote upon the proposal to adjourn or postpone the annual meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the stock issuance proposal (the “adjournment proposal” and together with the stock issuance proposal, director election proposal and the ratification proposal, the “proposals”).

 

Q:

When and where will the annual meeting be held?

 

A:

The annual meeting will be held virtually and you will be able to attend the annual meeting by visiting www.virtualshareholdermeeting.com/LLNW2022 and using the 16-digit control number included in your proxy materials. You will not be able to attend the annual meeting physically in person.

 

Q:

Who is entitled to vote at the annual meeting?

 

A:

Only holders of record of Limelight common stock at the close of business on April 19, 2022, the record date for the annual meeting (the “record date”), will be entitled to notice of, and to vote at, the annual meeting, or any adjournment or postponement thereof. At the close of business on the record date, 138,193,658 shares of Limelight common stock were issued and outstanding and held by 266 holders of record.

Holders of record of Limelight common stock on the record date are entitled to one vote per share at the annual meeting on each proposal. A list of the names of our stockholders of record will be open to the examination by any stockholder for any purpose germane to the annual meeting for

 

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ten days before the annual meeting via the Internet at www.virtualshareholdermeeting.com/LLNW2022. Such list will also be available on-line at the annual meeting during the webcast of the meeting.

 

Q:

What constitutes a quorum at the annual meeting?

 

A:

No business may be transacted at the annual meeting unless a quorum is present. The presence of the holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, is required to constitute a quorum for the transaction of business at the annual meeting. If a quorum is not present, or if there are not sufficient votes at the time of the annual meeting to approve the stock issuance proposal, the annual meeting may be adjourned or postponed to allow more time for obtaining additional proxies or votes. At any subsequent reconvening of the annual meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the annual meeting, except for any proxies that have been effectively revoked or withdrawn before the adjourned meeting.

 

Q:

How do I vote my shares of common stock?

 

A:

Whether or not you expect to attend the annual meeting virtually, we urge you to submit a proxy to vote your shares as promptly as possible by either (1) accessing the internet website specified on your proxy card and following the on-screen instructions; (2) calling the toll-free number specified on your proxy card; or (3) signing, dating and mailing your proxy card in the postage-paid envelope provided as soon as possible, so that your shares may be represented and voted at the annual meeting.

 

Q:

How will the votes be tabulated?

 

A:

Limelight will retain an independent party to receive and tabulate the proxies and ballots, and to serve as the inspector of election to certify the results of the annual meeting.

 

Q:

Where can I find the voting results of the annual meeting?

 

A:

Voting results will be disclosed on a Current Report on Form 8-K filed with the SEC within four business days after the annual meeting and will be available on Limelight’s website.

 

Q:

How does the Limelight board recommend that I vote?

 

A:

The Limelight board of directors (the “Limelight board”) unanimously recommends that Limelight stockholders vote “FOR” each of the proposals being submitted to a vote of Limelight stockholders at the annual meeting.

 

Q:

What vote is required to approve each proposal and how are abstentions, failures to vote and broker non-votes treated?

 

A:

The approval of the stock issuance proposal and the ratification proposal requires the affirmative vote of the holders of a majority of the votes cast. For the director election proposal, the nominees receiving the highest number of votes will be elected to the Limelight board. The approval of the adjournment proposal, if necessary or appropriate, requires the affirmative vote of the stockholders of a majority in voting power present if a quorum is not present, or, if a quorum is present, the affirmative vote of the holders of a majority of the votes cast. Abstentions if any, will have the same effect as a vote “AGAINST” the proposals. Broker non-votes will be counted as present and entitled to vote for purposes of determining a quorum but will have no effect on the vote count for the proposals.

 

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Instructions to “ABSTAIN” for each proposal to be voted upon at the annual meeting will be counted for purposes of determining the number of shares present and entitled to vote for purposes of determining a quorum. Abstentions will not be included in the vote totals for each proposal and will have no effect on the outcome of the vote on the stock issuance proposal, the ratification proposal or the adjournment proposal.

 

Q:

My shares are held in “street name” by my bank, broker or other nominee. Will my bank, broker or other nominee automatically vote my shares for me?

 

A:

If your shares of Limelight common stock are held in “street name” in a stock brokerage account or by another nominee, you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your bank, broker or other nominee. You may not vote shares of Limelight common stock held in street name by returning a proxy card directly to Limelight.

 

Q:

What will happen if I return my proxy card without indicating how to vote?

 

A:

The failure of any stockholder to vote in person by ballot at the annual meeting, to submit a signed proxy card or to grant a proxy electronically through the internet or by telephone will have the same effect as a vote “AGAINST” the proposals. If you hold your shares in “street name,” the failure to instruct your bank, broker or other nominee how to vote your shares will have the same effect as a vote “AGAINST” the proposals.

 

Q:

Can I change my vote or revoke my proxy after I have returned a proxy or voting instruction card?

 

A:

You can change your vote or revoke your proxy at any time before your proxy is voted at the annual meeting. If you are a stockholder of record, you can do this in one of three ways:

 

   

you can grant a new, valid proxy bearing a later date, including by telephone or through the internet before the closing of those voting facilities at 11:59 p.m. Eastern Time on June 8, 2022;

 

   

you can send a signed notice of revocation to Limelight Networks, Inc., 2220 W. 14th Street, Tempe, Arizona 85281, Attention: Corporate Secretary, which must be received prior to the start of the annual meeting; or

 

   

you can attend and vote at the annual meeting, which will revoke any proxy previously given. Simply attending the annual meeting without voting will not revoke any proxy that you have previously given or otherwise change your vote.

A registered stockholder may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy.

 

Q:

Do I need to do anything with my shares of common stock other than voting for the proposals at the annual meeting?

 

A:

No. If the transaction is consummated, you are not required to take any action with respect to your shares of Limelight common stock.

 

Q:

Do I have appraisal rights?

 

A:

No, Limelight’s stockholders are not entitled to appraisal or dissenters’ rights in connection with the transaction or any of the other transactions contemplated by the purchase agreement.

 

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Q:

Who can help answer my questions?

 

A:

If you have questions about the transaction, the other matters to be voted on at the annual meeting or how to submit a proxy, or if you desire additional copies of this proxy statement or additional proxy cards, you should contact Innisfree M&A Incorporated, our proxy solicitor, at:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders may call toll-free from the U.S. or Canada: (877) 825-8793

From other locations please dial: +1 (412) 232-3651

Banks and Brokers may call collect: (212) 750-5833

 

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SUMMARY

The Parties

Limelight

Limelight Networks, Inc. (“Limelight”) is a leading provider of edge enabled web applications and content delivery solutions that enable organizations to deliver faster websites, more responsive applications, the highest quality video, and consistent game and software downloads to any device. We assist our clients on serving their global customers with experiences such as livestream sporting events, global movie launches, video games or file downloads for new phone apps. We target media, high tech, software, gaming, enterprise, and other organizations for which the delivery of digital content and apps are critical to the success of their business. As of December 31, 2021, we had approximately 580 active clients worldwide, including many notable brands in the fields of online video, live sports, digital music, news media, games, rich media applications, e-commerce, financial services, travel, and software delivery.

Limelight offers a secure infrastructure with the capacity to support the most onerous digital traffic demands. Our private fiber backbone enables traffic to bypass the congested public internet, resulting in faster, more reliable, and more secure content delivery. Our infrastructure is densely architected with data centers clustered around major metropolitan locations and directly interconnected with thousands of major internet service providers and last-mile networks. Unlike traditional content delivery network vendors which rely on third-party technologies for key components of their content delivery infrastructure, Limelight’s ongoing investment in the development and optimization of every component of our content delivery platform provides a fully-integrated suite of software services that solve clients’ content and application delivery challenges.

Limelight’s network has helped launch and grow many large video properties in the world and is now on the forefront of enabling a new generation of web and application development with Layer0 by Limelight. Layer0 by Limelight is a SaaS-based application acceleration and developer support platform that enables developers to program at the edge and cache dynamic data, thereby delivering faster page loads at lower costs.

This proxy statement incorporates important business and financial information about us from other documents that are incorporated by reference. See the section entitled “Where You Can Find Additional Information and Incorporation by Reference” located elsewhere in this proxy statement.

Edgecast

Edgecast, Inc. (“Edgecast”) is a business unit of Yahoo, Inc. designed to help companies meet the ever-growing expectations of their customers. Edgecast’s leading set of solutions across content delivery, cloud security and video streaming, combined with a team of customer-oriented domain experts, streamlines operations and improves efficiencies, so businesses can redirect their energy into creating value for their customers—not managing multiple vendors and workflows.

College Parent

College Parent, L.P. (together with its wholly-owned subsidiaries, “College Parent”) is a Delaware limited partnership and is the ultimate parent company that controls Yahoo and Edgecast. College Parent is owned by funds managed by affiliates of Apollo Global Management, Inc. (together with its consolidated subsidiaries, “Apollo”), Verizon Communications Inc. and other certain co-investors.

 

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Yahoo

Yahoo, Inc. (“Yahoo”) is a global media and tech company that connects people to their passions. Yahoo reaches nearly 900 million people around the world, bringing them closer to what they love—from finance and sports, to shopping, gaming and news—with the trusted products, content and tech that fuel their day. For partners, Yahoo provides a full-stack platform for businesses to amplify growth and drive more meaningful connections across advertising, search and media.

Apollo

Apollo is a global, high-growth alternative asset manager. In its asset management business, Apollo seeks to provide its clients excess return at every point along the risk-reward spectrum from investment grade to private equity with a focus on three business strategies: yield, hybrid, and equity. For more than three decades, Apollo’s investing expertise across its fully integrated platform has served the financial return needs of its clients and provided businesses with innovative capital solutions for growth. Through Athene, its retirement services business, Apollo specializes in helping clients achieve financial security by providing a suite of retirement savings products and acting as a solutions provider to institutions. Apollo’s patient, creative, and knowledgeable approach to investing aligns its clients, businesses it invests in, its employees, and the communities it impacts, to expand opportunity and achieve positive outcomes. As of December 31, 2021, Apollo had approximately $498 billion of assets under management.

Apollo’s principal executive offices are located at 9 West 57th Street, New York, New York 10019 and its telephone number is (212) 513-3200.

The Transaction

The Stock Purchase Agreement, dated as of March 6, 2022, by and between Limelight and College Parent, a copy of which is included as Annex A to this proxy statement of which this summary is a part (the “purchase agreement”) provides that, on the terms and subject to the conditions set forth in the purchase agreement, at the closing of the transactions (the “closing”) contemplated by the purchase agreement (the “transaction”), Limelight will, through an indirect, wholly-owned subsidiary, issue approximately 71.9 million shares of its common stock (the “aggregate closing consideration”), par value $0.001 per share (the “Limelight common stock”), to either College Parent, the ultimate parent company of Edgecast, or a designated subsidiary of College Parent, representing a value of approximately $300 million at a share price of $4.1168 (which is the 30-day trailing VWAP as of March 4, 2022), in exchange for (i) all of the right, title and interest to the outstanding shares of common stock of Edgecast (“Edgecast common stock”), (ii) certain Edgecast-related businesses and assets from College Parent or its applicable subsidiary (the “local transfers”) and (iii) approximately $30 million cash investment in Limelight by College Parent or a designated subsidiary (the “primary issuance purchase price”).

As a result of the transactions contemplated by the purchase agreement, Edgecast will become an indirect, wholly owned subsidiary of Limelight and Limelight, or an indirect, wholly-owned subsidiary thereof will acquire the Edgecast-related business and assets transferred in the local transfers. We anticipate changing the name of Limelight to Edgio, Inc. prior to or at the closing. A copy of the purchase agreement is attached as Annex A to this proxy statement and is incorporated by reference herein. Please carefully read the purchase agreement as it is the legal document that governs the foregoing transactions. For more information on the transactions contemplated by the purchase agreement and the purchase agreement, see the section entitled “The Stock Purchase Agreement” located elsewhere in this proxy statement.

 

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Recommendation of the Limelight Board and Its Reasons for the Transaction

The Limelight board of directors (the “Limelight board”), after careful consideration of the various factors described under “The Transaction—Recommendation of the Limelight Board and Its Reasons for the Transaction” located elsewhere in this proxy statement, at a meeting held on March 6, 2022, unanimously (a) determined that the purchase agreement and the transactions contemplated by the purchase agreement, are advisable, fair to and in the best interest of Limelight’s stockholders, (b) approved and adopted the purchase agreement and the transactions contemplated by the purchase agreement, (c) directed that the approval of the proposal to issue shares of Limelight common stock to College Parent or a designated subsidiary under the purchase agreement (the “stock issuance proposal”) be submitted to a vote at a meeting of the stockholders of Limelight entitled to vote on such matters and (d) resolved to recommend to Limelight’s stockholders to vote in favor of the approval of the stock issuance proposal on the terms and subject to the conditions set forth in the purchase agreement.

In evaluating the transaction, the Limelight board consulted with and received the advice of its outside legal and financial advisors, held discussions with its management and considered a number of factors that it believed supported its decision to approve it entering into the purchase agreement and the issuance of shares of Limelight common stock in the transaction. These factors included, but were not limited to, those listed in “The Transaction—Recommendation of the Limelight Board and Its Reasons for the Transaction” located elsewhere in this proxy statement.

Accordingly, the Limelight board recommends that Limelight’s stockholders vote “FOR” each of the proposals being submitted to a vote of stockholders at the annual meeting of Limelight’s stockholders.

Opinion of Limelight’s Financial Advisor

Goldman Sachs & Co. LLC (“Goldman Sachs”) delivered its opinion to Limelight board that, as of March 6, 2022 and based upon and subject to the factors and assumptions set forth therein, the aggregate consideration, to be paid by Limelight in the transaction pursuant to the purchase agreement was fair from a financial point of view to Limelight. The “aggregate consideration” consists of the aggregate closing consideration, as adjusted pursuant to the terms of the purchase agreement, the Limelight earnout shares and the primary issuance purchase price. The full text of the written opinion of Goldman Sachs, dated March 6, 2022 (the “Goldman Sachs opinion”), which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the Goldman Sachs opinion, is attached as Annex B. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Limelight board in connection with its consideration of the transaction pursuant to the purchase agreement. The Goldman Sachs opinion is not a recommendation as to how any holder of Limelight common stock should vote with respect to the transaction or any other matter. Pursuant to an engagement letter between Limelight and Goldman Sachs, Limelight has agreed to pay Goldman Sachs a transaction fee consisting of $6,000,000 plus a discretionary amount of up to $4,000,000, $750,000 of which transaction fee became payable at announcement of the transaction, and the reminder of which is contingent upon consummation of the transaction.

For a more information, see the section entitled “The Transaction—Opinion of Limelight’s Financial Advisor” and Annex B located elsewhere in this proxy statement.

 

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Overview of the Stock Purchase Agreement

Pursuant and subject to the terms and conditions set forth in the purchase agreement, at the closing Limelight will issue to its indirect, wholly-owned subsidiary, and Limelight’s indirect, wholly-owned subsidiary will deliver to College Parent, (i) in exchange for Edgecast common stock and in consideration of the consummation of the local transfers by College Parent, $270,000,000 worth of Limelight common stock (subject to customary closing adjustments) and (ii) in exchange for a one-time payment by College Parent of $30,000,000, an additional $30,000,000 worth of Limelight common stock, in each case at the share price of $4.1168 (which is the 30-day trailing VWAP as of March 4, 2022). In the event that the sale price of Limelight common stock exceeds certain thresholds during the period commencing on the date of the execution of the purchase agreement and ending on the third anniversary of the closing, Limelight will be required to issue up to an additional $100,000,000 of Limelight common stock at certain trigger prices to be delivered by Limelight’s indirect, wholly-owned subsidiary to College Parent in order to satisfy earnout obligations pursuant to the purchase agreement.

Interests of Limelight’s Directors and Executive Officers in the Transaction

In considering the recommendation of the Limelight board of directors (the “Limelight board”) to vote “FOR” the proposal to issue shares of Limelight common stock to College Parent (the “stock issuance proposal”), you should be aware that certain members of the Limelight board and certain of our executive officers may have interests in the transaction that may be in addition to, or different from, your interests as a Limelight stockholder. These interests may create the appearance of conflicts of interest. The Limelight board was aware of these potential conflicts of interest during its deliberations on the merits of the purchase and in making its decision to approve the purchase agreement and the issuance of Limelight common stock to College Parent.

Each of the current members of our senior management team will continue as an executive officer following the completion of the transaction, and will hold office from and after the completion of the transaction until his or her successor is duly elected and qualified or until his or her earlier death, resignation, retirement or removal.

At the closing, the Limelight board will expand from its current size of eight members to nine members. Two members of the Limelight board prior to the transaction, Jefferey T. Fisher and Marc Debevoise, will resign upon the closing, and, pursuant to the stockholders agreement between Limelight and College Parent (the “stockholders agreement”), three new members designated by College Parent will be appointed to the Limelight board at closing.

For a more complete discussion of the interests of our directors and executive officers in the transaction, see the section entitled “The Transaction—Interests of Limelight’s Directors and Executive Officers in the Transaction” located elsewhere in this proxy statement.

Treatment of Long-Term Incentive and Retention Awards

Pursuant to the purchase agreement, College Parent shall retain all liabilities in respect of each long-term cash or equity-based incentive or retention award granted to any transferred business employee (as defined in the purchase agreement) that is outstanding as of closing. Each such long-term incentive award will be treated as though the transferred business employee is involuntarily terminated by College Parent without cause (or as a result of retirement, as applicable) upon the closing with respect to the accelerated vesting provisions of such award. With respect to the portions of certain of the incentive awards that are forfeited at the closing under the terms of such awards, Limelight will grant to each transferred business employee who previously held such an award a replacement long-term cash award.

 

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Please see the section entitled “The Stock Purchase Agreement—Treatment of Long-Term Incentive and Retention Awards” located elsewhere in this proxy statement for more information.

Regulatory Approvals Required for the Transaction

The transaction is subject to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), which prevents us and College Parent from completing the transaction until the applicable waiting period under the HSR Act is terminated or expires. We and College Parent filed (or caused to be filed) the Notification and Report Forms with the Antitrust Division of the Department of Justice (“Antitrust Division”) and the Federal Trade Commission (“FTC”) on March 18, 2022. Filing an HSR Notification and Report Form initiated a 30-day waiting period, during which the parties were not permitted to close the acquisition. The relevant waiting period under the HSR Act expired at 11:59 p.m. EST on April 18, 2022 and satisfied one of the conditions to the completion of the transaction.

We cannot assure you that a challenge to the transaction will not be made or that, if a challenge is made, it will not succeed.

Closing of the Transaction

The closing will take place remotely by conference call and electronic exchange and delivery of signatures and documents, on the second business day following the satisfaction or waiver of the conditions to closing described below under “Conditions to the Completion of the Transaction” (other than those conditions that by their nature are to be satisfied, or waived, on the date of the closing, but subject to the satisfaction or waiver of those conditions) or at such other place, time or date as may be mutually agreed upon in writing by Limelight and College Parent.

Conditions to the Completion of the Transaction

The respective obligations of each party to the purchase agreement to consummate the transactions contemplated by the purchase agreement are subject to the satisfaction or waiver of the following conditions:

 

   

the termination or expiration of any applicable waiting period under the HSR Act;

 

   

no governmental entity of competent authority will have issued an order, enacted a law or issued any other legal restraint that remains in effect and makes illegal or prohibits the consummation of the transactions contemplated by the purchase agreement; and

 

   

the stock issuance proposal will have been approved by Limelight stockholders (the “Limelight stockholder approval”).

The obligations of Limelight to consummate the transactions contemplated by the purchase agreement are subject to the satisfaction or waiver of the following conditions:

 

   

the representations and warranties of College Parent relating to its organization and qualification, authority, conflicts with organizational documents, ownership, organization of Edgecast Inc., Edgecast Limited, Edgecast Services Limited and Edgecast Canada ULC (each a “transferred entity,” and collectively, the “transferred entities”) and broker’s fees being true and correct in all material respects as of the date of the purchase agreement and as of the date of the closing (the “closing date”) as if made on and as of the closing date;

 

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the representations and warranties of College Parent relating to capitalization and the absence of a business material adverse effect (as defined in the purchase agreement) being true and correct as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date;

 

   

each other representation and warranty of College Parent being true and correct in all respects as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date, except where the failure of such representations and warranties to be true and correct would not reasonably be expected to have a business material adverse effect;

 

   

College Parent will have complied with the covenants and agreements of College Parent required to be performed or complied with on or before the closing date in accordance with the terms of the purchase agreement in all material respects;

 

   

Limelight will have received a certificate of College Parent certifying that certain conditions have been satisfied;

 

   

Limelight will have received the audited financial statements of the Edgecast business for the years ended December 31, 2020 and 2021; and

 

   

Limelight will have received from College Parent a Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) certificate according to the terms of the purchase agreement.

The obligations of College Parent to consummate the transactions contemplated by the purchase agreement are subject to the satisfaction or waiver of the following conditions:

 

   

the representations and warranties of Limelight relating to its organization and qualification, authority, conflicts with organizational documents, capitalization and broker’s fees being true and correct in all material respects as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date;

 

   

the representations and warranties of Limelight relating to absence of a purchaser material adverse effect and solvency being true and correct as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date;

 

   

the representations and warranties of Limelight relating to capitalization being true and correct other than de minimis inaccuracies as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date;

 

   

each other representation and warranty of Limelight being true and correct in all respects as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date, except where the failure of such representations and warranties to be true and correct would not reasonably be expected to have a purchaser material adverse effect;

 

   

Limelight will have complied with the covenants and agreements of Limelight required to be performed or complied with on or before the closing date in accordance with the terms of the purchase agreement in all material respects; and

 

   

College Parent will have received a certificate of Limelight certifying that certain conditions have been satisfied.

Termination of the Stock Purchase Agreement

The purchase agreement contains certain customary termination rights for Limelight and College Parent. The parties may mutually agree to terminate the purchase agreement before the closing.

 

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In addition, Limelight or College Parent may terminate the purchase agreement:

 

   

if the closing has not occurred on or before the date that is nine months after the date of the purchase agreement, subject to extension to 12 months after the date of the purchase agreement under certain circumstances where the required antitrust approvals have not been obtained;

 

   

if any legal restraint permanently preventing or prohibiting the consummation of the transactions contemplated by the purchase agreement has become final and non-appealable; or

 

   

if the Limelight stockholder approval will not have been obtained following a vote taken at the annual meeting of Limelight stockholders (the “annual meeting”).

In addition, College Parent may terminate the purchase agreement:

 

   

at any time prior to the obtainment of the Limelight stockholder approval, if the Limelight board will have made a recommendation change (as defined in the purchase agreement); or

 

   

if Limelight will have breached or failed to perform in any material respect any of its respective representations, warranties, covenants or other agreements in the purchase agreement, which breach or failure to perform would give rise to the failure of the applicable condition to consummate the transactions contemplated by the purchase agreement and is either incapable of being cured by the applicable outside date of the purchase agreement or has not been cured prior to the date that is the earlier of (i) the business day immediately preceding such outside date and (ii) 30 days from the date that Limelight is notified of such breach. College Parent will not have the right to terminate the purchase agreement in the foregoing way if it is then in breach of any of its respective representations, warranties, covenants or other agreements contained in the purchase agreement and such breach would give rise to the failure of the applicable condition to consummate the transactions contemplated by the purchase agreement.

In addition, Limelight may terminate the purchase agreement:

 

   

at any time prior to obtaining the Limelight stockholder approval, in order to accept a superior proposal (as defined in the purchase agreement and described further under “Effect of Termination” below), subject to (i) the payment of $9,000,000 and (ii) the entry into a definitive agreement with respect to such superior proposal concurrently with such termination; or

 

   

if College Parent has breached or failed to perform in any material respect any of its respective representations, warranties, covenants or other agreements in the purchase agreement, which breach or failure to perform would give rise to the failure of the applicable condition to consummate the transactions contemplated by the purchase agreement and is either incapable of being cured by the applicable outside date of the purchase agreement or has not been cured prior to the date that is the earlier of (x) the business day immediately preceding such outside date and (ii) 30 days from the date that Limelight is notified of such breach. Limelight will not have the right to terminate the purchase agreement in the foregoing way if it is then in breach of any of its respective representations, warranties, covenants or other agreements contained in the purchase agreement and such breach would give rise to the failure of the applicable condition to consummate the transactions contemplated by the purchase agreement.

 

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Termination Fees and Expenses

Generally, costs and expenses incurred in connection with the purchase agreement and the transactions contemplated by the purchase agreement shall be paid by the party incurring such costs and expenses, unless expressly otherwise contemplated in the purchase agreement.

Limelight may be obligated to pay (or cause to be paid) a termination fee of $9,000,000 to College Parent in the following circumstances:

 

   

if College Parent terminates the purchase agreement at any time prior to obtaining the Limelight stockholder approval, if the Limelight board has made a recommendation change;

 

   

if Limelight terminates the purchase agreement at any time prior to obtaining the Limelight stockholder approval, in order to accept a superior proposal;

 

   

if Limelight terminates the purchase agreement at any time prior to obtaining the Limelight stockholder approval if the Limelight stockholder approval will not have been obtained following a vote taken at the annual meeting and if at the time of such termination College Parent was entitled to terminate the purchase agreement due to the Limelight board having made a recommendation change; or

 

   

If the purchase agreement is validly terminated by Limelight or College Parent due to the expiration of the applicable outside date or due to the failure to obtain the Limelight stockholder approval and following the date of the purchase agreement and prior to such termination, an alternative proposal will have been publicly disclosed or will have otherwise become publicly known and within 12 months after such termination Limelight enters into a definitive agreement with respect to an acquisition proposal (as defined in the purchase agreement) and consummates such acquisition proposal or another acquisition proposal.

No Rights of Appraisal for Limelight Stockholders

Current holders of Limelight common stock will not have any rights of appraisal as a result of the transaction.

Listing of Shares of Limelight’s Common Stock

Application will be made to the NASDAQ Global Select Market (“Nasdaq”) to have the shares of Limelight common stock issued in connection with the transaction approved for listing on the Nasdaq, where shares of Limelight common stock are currently traded under the symbol “LLNW.” For more information on the listing of shares of Limelight common stock, see the section entitled “The Transaction—Nasdaq Listing of Limelight Common Stock” located elsewhere in this proxy statement.

Accounting Treatment of the Transaction

Limelight and Edgecast prepare their financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Under GAAP, the transaction will be accounted in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations with Limelight treated as the accounting acquirer.

See the section entitled “The Transaction—Accounting Treatment” located elsewhere in this proxy statement.

 

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Material United States Federal Income Tax Consequences of the Transaction

Limelight stockholders will not recognize any gain or loss as a result of the transaction related to their ownership of our common stock. Accordingly, there are no material U.S. federal income tax consequences to you as a result of the transaction.

Required Stockholder Approval for the Transaction

The approval of the stock issuance proposal and the ratification of Ernst & Young LLP as independent registered public accounting firm (the “ratification proposal”) requires the affirmative vote of the holders of a majority of the votes cast. For the election of Jeffrey T. Fisher, David C. Peterschmidt and Bob Lyons as Class III directors (the “director election proposal”), the nominees receiving the highest number of votes will be elected to the Limelight board. Abstentions and broker non-votes will have no effect on the election of directors. The approval of the adjournment of the annual meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the stock issuance proposal (the “adjournment proposal” and together with the stock issuance proposal, director election proposal and ratification proposal, the “proposals”), requires the affirmative vote of the stockholders of a majority in voting power present if a quorum is not present, or, if a quorum is present, the affirmative vote of the holders of a majority of the votes cast. Failures to vote and broker non-votes, if any, will have no effect on the proposals.

The Annual Meeting

Date, Time and Place

The annual meeting will be held virtually by visiting www.virtualshareholdermeeting.com/LLNW2022 and using the 16-digit control number included in your proxy materials. You will not be able to attend the annual meeting physically in person.

Purpose

At the annual meeting, and any adjournments or postponements thereof, you will be asked to consider and vote on:

 

   

the stock issuance proposal;

 

   

the director election proposal;

 

   

the ratification proposal; and

 

   

the adjournment proposal, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the stock issuance proposal.

Record Date; Stockholders Entitled to Vote

Only holders of record of Limelight common stock at the close of business on April 19, 2022, the record date for the annual meeting (the “record date”), will be entitled to notice of, and to vote at, the annual meeting, or any adjournment or postponement thereof. At the close of business on the record date, 138,193,658 shares of Limelight common stock were issued and outstanding and held by 266 holders of record.

Holders of record of Limelight common stock on the record date are entitled to one vote per share at the annual meeting on each proposal. A list of the names of our stockholders of record will be open to the examination by any stockholder for any purpose germane to the annual meeting for ten days

 

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before the annual meeting via the Internet at www.virtualshareholdermeeting.com/LLNW2022. Such list will also be available on-line at the annual meeting during the webcast of the meeting. Our stockholder list will also be available at the annual meeting for examination by any stockholder present at such meeting.

Quorum

No business may be transacted at the annual meeting unless a quorum is present. The presence of the holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, is required to constitute a quorum for the transaction of business at the annual meeting. If a quorum is not present, or if there are not sufficient votes at the time of the annual meeting to approve the stock issuance proposal, the annual meeting may be adjourned or postponed to allow more time for obtaining additional proxies or votes. At any subsequent reconvening of the annual meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the annual meeting, except for any proxies that have been effectively revoked or withdrawn before the adjourned meeting.

Abstentions (shares of Limelight common stock for which proxies have been received but for which the holders have abstained from voting) will be included in the calculation of the number of shares of Limelight common stock represented at the annual meeting for purposes of determining whether a quorum has been achieved and for purposes of determining the number of votes cast. Broker non-votes will be counted as present and entitled to vote for purposes of determining a quorum but will have no effect on the vote count for the proposals.

Voting by Limelight Directors and Executive Officers

As of the close of business on the record date, directors and executive officers of Limelight and their affiliates were entitled to vote 3,589,746 shares of Limelight common stock, or approximately 2.6% of the Limelight common stock outstanding. Limelight currently expects that our directors and executive officers will vote their shares in favor of each proposal being submitted to a vote of our stockholders at the annual meeting, although none of them has entered into any agreement obligating them to do so.

For additional information about the annual meeting, see the section entitled “The Annual Meeting” located elsewhere in this proxy statement.

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF LIMELIGHT AND EDGECAST

The following summary unaudited pro forma condensed combined financial information of Limelight and Edgecast is being presented for informational purposes only and is not necessarily indicative of the financial position or results that would have occurred had the events been consummated as of the dates indicated, nor is it indicative of any future results. See the section entitled “Risk Factors” located elsewhere in this proxy statement for additional discussion of risk factors associated with the unaudited pro forma condensed combined financial statements.

This information is only a summary and has been derived from and should be read in conjunction with Limelight’s audited consolidated financial statements and the notes thereto contained in Limelight’s Annual Report on Form 10-K, as amended as of and for the year ended December 31, 2021, which is incorporated by reference into this proxy statement, Edgecast’s audited combined financial statements

 

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and the notes thereto as of and for the year ended December 31, 2021 included elsewhere in this proxy statement, and the more detailed unaudited pro forma condensed combined financial statements of Limelight and Edgecast and the notes thereto included elsewhere in this proxy statement. See sections entitled “Where You Can Find Additional Information and Incorporation of Certain Documents by Reference”, “Combined Financial Statements of Edgecast, and “Unaudited Pro Forma Condensed Combined Financial Information of Limelight and Edgecast” located elsewhere in this proxy statement for more information.

Summary Unaudited Pro Forma Condensed Combined Statement of Operations Data

 

(In thousands, except per share data)

   Year Ended
December 31,
2021
 

Revenue

   $ 541,052  

Operating loss

   $ (154,815

Net loss

   $ (155,246

Net loss per share, basic

   $ (0.78

Net loss per share, diluted

   $ (0.78

Summary Unaudited Pro Forma Condensed Combined Balance Sheet Data

 

(In thousands)

   As of
December 31,
2021
 

Total assets

   $ 679,495  

Total liabilities

   $ 292,482  

Total stockholders’ equity

   $ 387,013  

 

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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This proxy statement and the documents that are incorporated into this proxy statement by reference contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the current expectations, estimates and projections of Limelight Networks, Inc., (“Limelight”) about its industry, the respective beliefs of the management of Limelight and certain assumptions made by the management of Limelight. Words such as “anticipates,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “target,” “goal,” “budget,” “should,” “continue,” “could,” “forecast,” “may,” “might,” “potential,” “strategy,” “will,” “would,” variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, except for historical information, any statements made in this proxy statement or any of the documents that are incorporated into this proxy statement by reference about the financial condition of Limelight or expected financial results of the transaction contemplated by the Stock Purchase Agreement, dated as of March 6, 2022, by and between Limelight and College Parent, L.P. (together with its wholly-owned subsidiaries other than Edgecast, “College Parent”) a copy of which is included as Annex A to the proxy statement of which this notice is a part (the “purchase agreement”), including any projections or pro forma financial statements also are forward-looking statements. Many factors could affect the actual financial results of Limelight and cause them to vary materially from the expectations contained in the forward-looking statements, including those set forth in, or incorporated by reference into, this proxy statement. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events, including the completion of the transactions contemplated by the purchase agreement (the “transaction”), and are subject to risks, uncertainties and other factors. Many of these factors are outside our control and could cause actual results to differ materially from the results expressed or implied by these forward-looking statements. In addition to the risk factors described in the section entitled “Risk Factors” located elsewhere in this proxy statement, these factors include:

 

   

those that we have identified and disclosed in our filings with the United States Securities and Exchange Commission (the “SEC”);

 

   

failing to obtain our stockholder approval of the proposal to issue approximately 71.9 million shares of Limelight common stock (the “aggregate closing consideration”) to either College Parent, the ultimate parent company of Edgecast, or a designated subsidiary of College Parent, representing a value of approximately $300 million at a share price of $4.1168 (which is the 30-day trailing VWAP as of March 4, 2022) (the “stock issuance proposal”), which includes approximately $30 million cash investment in Limelight by College Parent or a designated subsidiary (the “primary issuance purchase price” and the related issuance of Limelight common stock in exchange for the primary issuance purchase price the “primary issuance,” and the shares of Limelight common stock issued in the primary issuance the “primary issuance purchaser shares”), and to issue an additional 12.7 million shares of Limelight common stock, representing up to an additional $100 million in value, to College Parent over the period ending on the third anniversary of the closing of the transaction, subject to the achievement of certain share-price targets (the “Limelight earnout shares”); the possibility that the closing conditions to the transaction may not be satisfied or may be waived, including that a governmental entity may prohibit, delay or refuse to grant a necessary regulatory approval and any conditions imposed in connection with consummation of the transaction;

 

   

delay in closing the transaction or the possibility of non-consummation of the transaction;

 

   

the occurrence of any event that could give rise to termination of the purchase agreement;

 

   

the risk that litigation in connection with the transaction may affect the timing or occurrence of the transaction or result in significant costs of defense, indemnification and liability;

 

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risks related to the disruption of the transaction to Limelight and its management;

 

   

the effect of the announcement of the transaction on the ability of Limelight to retain and hire key personnel and maintain relationships with customers, suppliers, third-party distributors and other third parties;

 

   

successfully integrating our and Edgecast’s businesses, and avoiding problems which may result in us not operating as effectively and efficiently as expected following the completion of the transaction;

 

   

the incurrence of significant costs, expenses and fees for professional services and other transaction costs associated with the transaction;

 

   

the risk that certain Limelight directors and executive officers may have interests in the transaction different from the interests of Limelight stockholders;

 

   

the effect and timing of changes in laws or in governmental regulations;

 

   

the cost and availability of capital and any restrictions imposed by lenders or creditors;

 

   

the possibility that the expected benefits of the transaction will not be realized within the expected time frame or at all;

 

   

prevailing economic, market and business conditions;

 

   

changes in the industry in which Limelight and Edgecast operate;

 

   

conditions beyond Limelight or Edgecast’s control, such as disaster, pandemics, epidemics, acts of war or terrorism, the weather and other natural phenomena, including the economic, operational and other effects of severe weather or climate events, such as tornadoes, hurricanes, volcanos, ice, sleet, or snowstorms;

 

   

the failure to renew, or the revocation of, any license or other required permits;

 

   

unexpected charges or unexpected liabilities arising from a change in accounting policies, or the effects of acquisition accounting varying from the Limelight or Edgecast’s expectations;

 

   

the risk that our and our subsidiaries’ credit ratings following the completion of the transaction may be different from what we expect, which may increase borrowing costs and/or make it more difficult for us to pay or refinance our and our subsidiaries’ debts and require us to borrow or divert cash flow from operations in order to service debt payments;

 

   

fluctuations in interest rates;

 

   

variations between the stated assumptions on which forward-looking statements are based and our and Edgecast’s actual experience; and

 

   

general worldwide economic conditions and related uncertainties.

For any forward-looking statements made in this proxy statement or in any documents incorporated by reference, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. All subsequent written and oral forward-looking statements concerning the transaction or other matters addressed in this proxy statement and attributable to us or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this proxy statement.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this proxy statement and should be read in conjunction with the risk factors and other disclosures contained or incorporated by reference into this proxy statement. The areas of risk and uncertainty described above, which are not exhaustive, should be considered in connection with any

 

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written or oral forward-looking statements that may be made in this proxy statement or on, before or after the date of this proxy statement by us or anyone acting for us. We undertake no obligation to release publicly or otherwise make any revisions to any forward-looking statements, to report events or circumstances after the date of this proxy statement or to report the occurrence of unanticipated events, unless, and only to the extent, required by law.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports we have filed with the SEC. For a list of the documents incorporated by reference, see the section entitled “Where You Can Find Additional Information and Incorporation of Certain Documents by Reference” located elsewhere in this proxy statement.

 

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RISK FACTORS

In addition to the other information contained in this proxy statement, you should carefully consider the following risk factors in determining whether to vote for the approval of the proposal for Limelight Networks Inc. (“Limelight”) to issue its common stock, par value $0.001 per share (“Limelight common stock”), to College Parent, L.P. (together with its wholly-owned subsidiaries other than Edgecast, “College Parent”), the ultimate parent company of Edgecast Inc. (“Edgecast”), pursuant to the Stock Purchase Agreement, dated as of March 6, 2022, by and between Limelight and College Parent, a copy of which is included as Annex A to the proxy statement (the “purchase agreement”), at the annual meeting of Limelight stockholders (the “stock issuance proposal”) and the other proposals described in this proxy statement. You should also read and consider the risk factors associated with the business of Limelight because these risk factors may affect the operations and financial results of Limelight regardless of whether the transaction is consummated. These risk factors may be found under Part I, Item 1A, “Risk Factors” in Limelight’s Annual Report on Form 10-K, as amended for the year ended December 31, 2021, as updated by Limelight’s future Quarterly Reports on Form 10-Q and other future filings with the United States Securities and Exchange Commission (the “SEC”), each of which is on file or will be filed with the SEC. See the section entitled “Where You Can Find Additional Information and Incorporation of Certain Documents by Reference” for information on where you can find the documents filed by Limelight with the SEC.

Risks Relating to the Transaction

The pendency of the transaction may adversely affect the business, financial condition and results of operations of Limelight.

Uncertainty about the effect of the transaction on employees, customers, suppliers, third-party distributors and other parties, may have an adverse effect on each of the business, financial condition and results of operations of Limelight, regardless of whether the transaction is completed, and may have an adverse effect on the business, financial condition and results of operations of Limelight if the transaction is completed. These risks include the following, all of which could be exacerbated by a delay in the completion of the transaction:

 

   

the impairment of Limelight’s ability to attract, retain and motivate current and prospective employees, including key personnel;

 

   

the diversion of significant time and resources of Limelight’s management;

 

   

difficulties maintaining relationships with Limelight’s customers, suppliers, third-party distributors and other business partners;

 

   

delays or deferments of certain business decisions by Limelight’s customers, suppliers, third-party distributors and other business partners;

 

   

Limelight’s inability to pursue alternative business opportunities or make appropriate changes to the business (as defined in the purchase agreement) because of requirements in the purchase agreement that it conduct the business in all material respects in the ordinary course of business consistent with past practice and not engage in certain activities prior to the completion of the transactions contemplated by the purchase agreement;

 

   

any litigation concerning the transaction and related costs; and

 

   

the incurrence of significant costs, expenses and fees for professional services and other transaction costs in connection with the transaction.

 

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Failure to consummate the transaction contemplated by the purchase agreement within the expected timeframe or at all could have a material adverse impact on the business, financial condition and results of operations of Limelight.

There can be no assurance that the transaction will occur within the expected timeframe or at all. Consummation of the transaction is subject to specified conditions, including:

 

   

the accuracy of the representations and warranties of the parties to the purchase agreement (the “parties”) and compliance by the parties with their respective obligations under the purchase agreement, in each case subject to certain materiality qualifiers;

 

   

the receipt of Limelight stockholder approval;

 

   

the absence of any law or order in effect that prevents, makes unlawful or prohibits the consummation of the transaction; and

 

   

the absence of any material adverse effect on Limelight since December 31, 2021.

For additional information regarding the specified conditions to the closing of the transaction (the “closing”), see the section entitled “The Stock Purchase Agreement—Conditions to the Completion of the Transaction.

We cannot provide any assurances that these conditions will be satisfied in a timely manner or at all or that the transaction will occur.

In addition, the purchase agreement contains certain termination rights. For additional information regarding the circumstances under which Limelight and College Parent are able to terminate the purchase agreement, see the section entitled “The Stock Purchase Agreement—Termination of the Stock Purchase Agreement.” The occurrence of any event that could give rise to termination of the purchase agreement could delay or prevent the transaction from occurring at all. In addition, if the purchase agreement is terminated under certain specified circumstances, we will be required to pay College Parent a termination fee of $9.0 million.

Our executive officers and directors may have interests in the transaction other than, or in addition to, the interests of certain of our stockholders generally.

Certain members of the Limelight board of directors (the “Limelight board”) and certain of our executive officers may have interests in the transaction that are different from, or are in addition to, the interests of our stockholders generally, including as discussed under the section entitled “The Transaction—Interests of Limelight’s Directors and Executive Officers in the Transaction.” The Limelight board was aware of these interests and considered them, among other matters, in approving the purchase agreement and the transaction.

We may be unable to attract and retain key personnel and management, which could adversely impact our ability to successfully implement and execute our growth strategy.

The successful implementation of our growth strategy post-closing of the transaction will depend in large part upon the ability and experience of members of our senior management and other personnel. In addition, our performance will be dependent on our ability to identify, hire, train, motivate and retain qualified management and personnel with experience in our industry. We may be unable to attract and retain such personnel on acceptable terms, or at all. If we lose the service of qualified management or other personnel or are unable to attract and retain the necessary members of senior management or personnel post-closing of the transaction, we may not be able to successfully execute on our business strategy, which could have an adverse effect on our business.

 

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Limelight may be the target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the transaction from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into agreements similar to the transaction involving a sale of a line of business or other business combinations. In addition, we may be subject to private actions, collective actions, investigations, and various other legal proceedings by stockholders, customers, employees, suppliers, competitors, government agencies, or others. Even if the lawsuits are without merit, defending against these claims can result in substantial costs, damage to our reputation, and divert significant amounts of management time and resources. If any of these legal proceedings were to be determined adversely to us, or we were to enter into a settlement arrangement, we could be exposed to monetary damages or limits on our ability to operate our business, which could have an adverse effect on our business, liquidity financial condition, and operating results. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting the closing, then that injunction may delay or prevent the transaction from being consummated, which may adversely affect Limelight’s business, financial position and results of operation. As of the date of this proxy statement, Limelight is not aware of any securities class action lawsuits or derivative lawsuits having been filed in connection with the transaction.

We have incurred and will continue to incur significant expenses in connection with the transaction, regardless of whether the transaction is completed.

We have incurred and will continue to incur significant expenses related to the transaction. These expenses include, but are not limited to, financial advisory and opinion fees and expenses, legal fees, accounting fees and expenses, certain employee expenses, consulting fees, filing fees, printing expenses and other related fees and expenses. Many of these expenses will be payable by us regardless of whether the transaction is completed.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and may not be an indication of Limelight’s financial condition or results of operations following the completion of the transaction.

The unaudited pro forma condensed combined financial information contained elsewhere in this proxy statement is presented for illustrative purposes only and may not be an indication of Limelight’s financial condition or results of operations following the completion of the transaction for several reasons. The unaudited pro forma condensed combined financial information has been derived from the historical financial statements of Limelight and Edgecast and adjustments and assumptions have been made regarding Limelight after giving effect to the transaction. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. As a result, the actual financial condition and results of operations of Limelight following the completion of the transaction may not be consistent with, or evident from, the unaudited pro forma condensed combined financial information. The assumptions used in preparing the unaudited pro forma condensed combined financial information may not prove to be accurate, and other factors may affect Limelight’s financial condition or results of operations following the transaction. Any decline or potential decline in Limelight’s financial condition or results of operations may cause significant variations in the market price of the Limelight common stock.

The unaudited prospective financial information included in this proxy statement may not prove to be accurate and is not necessarily indicative of current values or future performance.

The unaudited prospective financial information of Limelight contained in this proxy statement involves risks, uncertainties and assumptions and is not a guarantee of future performance. The assumptions used in preparing the unaudited prospective financial information may not prove to be accurate, and

 

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other factors may affect the business’s financial condition or results of operations following the transaction. Limelight cannot provide any assurance that the results indicated in Limelight’s unaudited prospective financial information will be realized or that the Limelight’s future financial results will not materially vary from the unaudited prospective financial information. See “Certain Unaudited Prospective Financial Information.”

Holders of our voting stock will not have appraisal or dissenters’ rights in connection with the transaction.

Neither Delaware law nor Limelight’s Amended and Restated Certificate of Incorporation provides Limelight stockholders with appraisal or dissenters’ rights in connection with the transaction.

Failure to complete the transaction could cause Limelight’s stock price to decline.

The failure to complete the transaction may create doubt as to the value of Limelight’s ability to effectively implement its current business strategies and/or a strategic transaction, which may result in a decline in Limelight’s stock price.

Risks Related to Edgecast’s Business

Edgecast’s historical financial results may not be representative of Edgecast’s results as a separate company.

Edgecast’s historical financial information included in the section entitled “Combined Financial Statements of Edgecast” located elsewhere in this proxy statement (the “Edgecast financial statements”) has been derived on a carve-out basis from the consolidated financial statements and accounting records of Verizon Media Group (“VMG”) and College Parent and does not necessarily reflect what Edgecast’s financial position, results of operations or cash flows would have been had it been a separate company during the periods presented. Edgecast operated as part of VMG and College Parent, respectively, and consisted of several entities for which separate financial statements had not historically been prepared.

The Edgecast financial statements include an allocated share of costs related to VMG or College Parent corporate functions for certain services provided to Edgecast. Expenses were allocated to Edgecast based on utilization, percentage of revenue, or other metrics deemed reasonable and appropriate by Edgecast management. The historical information does not necessarily reflect what the cost to Edgecast of these functions will be in the future, pursuant to the transition services agreement that Limelight and College Parent will enter into at the closing or otherwise.

Before September 1, 2021, Edgecast also participated in cash pooling arrangements for its domestic operations, which is reflected within financing activities in the Edgecast financial statements. Edgecast’s due to related party balances were decreased through daily cash deposits by Edgecast to VMG and increased by cash distributions and disbursements made by VMG on behalf of Edgecast for operating expenses, fees, and services provided by VMG, including information system services and other operating expenses, such as personnel costs, legal costs, marketing production, facilities costs, and insurance. This arrangement was not reflective of the manner in which Edgecast would have financed its domestic operations had it been a stand-alone business separate from VMG.

For additional information in relation to materially significant related party transactions during the years ended December 31, 2021, 2020 and 2019, see “Combined Financial Statements of EdgecastNote 6. Corporate Allocations and Related Party Transactions” located elsewhere in this proxy statement. Any further related party transactions in the fiscal years ended December 31, 2021, 2020 and 2019 were both immaterial and no more than incidental in nature.

 

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Risks Related to Customers

If Edgecast is unable to attract new customers and broaden its customer base, its business will likely be harmed.

To grow its business, Edgecast must continue to attract new customers and broaden its customer base, and generate revenue from new customers. To do so, Edgecast must successfully convince potential customers of the benefits and the value of its network, platform and products. This may require significant and costly sales efforts that are targeted at larger enterprises and senior management of these potential customers. Sales to enterprise customers may involve longer sales cycles as a result of customers requiring considerable time to evaluate Edgecast’s network, platform and products, requiring participation in a competitive purchasing process, having more formal processes for approval of purchases, and more complex requirements. Sales to mid-market businesses and small and medium businesses may involve additional challenges associated with ensuring that these customers have the necessary infrastructure and third-party relationships in place to support Edgecast’s offerings. These factors significantly impact Edgecast’s ability to add new customers and increase the time and resources, required to do so. In addition, numerous other factors, some of which are out of Edgecast’s control, may now or in the future impact its ability to acquire new customers, including potential customers’ commitments to other providers, real or perceived costs of switching to its network, platform and products, its failure to expand, retain, and motivate its sales and marketing personnel, its failure to develop or expand relationships with potential customers and channel partners, failure by Edgecast to help its customers to successfully deploy its offerings, negative media or industry or financial analyst commentary regarding Edgecast or its offerings, litigation, and deteriorating general economic conditions. If Edgecast fails to attract new customers, and fails to broaden its customer base, as a result of these and other factors its business will likely be harmed.

If Edgecast is unable to have existing customers continue and increase their use of its network, platform and products, its business will likely be harmed.

Edgecast’s ability to grow and generate incremental revenue depends on its ability to maintain and grow its relationships with its existing customers so that they continue and increase their usage of its network, platform and products. If these customers do not maintain and increase their usage of Edgecast’s network, platform and products, its revenue may decline and its results of operations will likely be harmed. In order for Edgecast to maintain or improve its results of operations, it is important that Edgecast’s customers, in particular, its enterprise customers, use Edgecast’s network, platform or products in excess of their commitment levels, if any, and continue to use Edgecast’s network, platform and products on the same or more favorable terms. Edgecast’s ability to retain its largest customers and expand their usage could be impaired for a variety of reasons, including customer budget constraints, customer satisfaction, changes in Edgecast’s customers’ underlying businesses, changes in the type and size of Edgecast’s customers, pricing changes, competitive conditions, the acquisition of its customers by other companies, governmental actions, or the possibility thereof, and general economic conditions.

Edgecast’s future success also depends in part on its ability to expand its existing customer relationships, in particular, with enterprise customers, by increasing their usage of Edgecast’s network, platform and products and selling them additional products. The rate at which Edgecast’s customers increase their usage of Edgecast’s network and platform, and purchase products from Edgecast, depends on a number of factors, including Edgecast’s ability to grow its network and platform, maintain the security and availability of its network and platform, develop and deliver new features and products, maintain customer satisfaction, general economic conditions and pricing and services offered by Edgecast’s competitors. If Edgecast’s efforts to increase usage of its network and platform by, or sell additional products to, its enterprise customers are not successful, Edgecast’s business would be

 

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harmed. In addition, even if Edgecast’s largest customers increase their usage of Edgecast’s network and platform, Edgecast cannot guarantee that they will maintain those usage levels for any meaningful period of time. In addition, because many of Edgecast’s offerings endeavor to deliver increased efficiency and functionality, the successful sale of an additional products and features to an existing customer could result in a reduction of the customer’s overall usage of Edgecast’s network and platform.

Edgecast receives a substantial portion of its revenues from a limited number of customers, and the loss of, or a significant reduction in usage by, one or more of its major customers would result in lower revenues and could harm its business.

Edgecast’s future success is dependent on establishing and maintaining successful relationships with a diverse set of customers. However, Edgecast currently receives a substantial portion of its revenues from a limited number of customers. For the year ended December 31, 2020, Edgecast’s top three customers accounted for approximately 46.4% of its revenue. For the period from January 1, 2021 to August 31, 2021, Edgecast’s top three customers accounted for approximately 45.4% of its revenue and, for the period from September 1, 2021 to December 31, 2021, Edgecast’s top three customers accounted for approximately 41% of its revenue. It is likely that Edgecast will continue to be dependent upon a limited number of customers for a significant portion of its revenues for the foreseeable future and, in some cases, the portion of its revenues attributable to individual customers may increase in the future. In addition, changes to Edgecast’s customers’ business may cause Edgecast’s revenues attributable to individual customers to increase, including any impact from merger and acquisition activities, internal business reorganizations leading to operational and decision making changes, and corporate structure changes such as subsidiary consolidation and reorganization that may arise in the future. The loss of one or more key customers or a reduction in usage by any major customers would significantly reduce Edgecast’s revenues.

If current and potential large customers shift to hardware-based or other DIY internal solutions, Edgecast’s business will be negatively impacted.

Edgecast is reliant on large customers to direct traffic to its network for a significant part of its revenues. In the past, some of those customers have determined that it is better for them to employ a “do-it-yourself” or “DIY” strategy by putting in place equipment, software and other technology solutions for content and application delivery and security protection within their internal systems instead of using Edgecast’s products for some or all of their needs. Essentially, this is another form of competition for Edgecast. As the amount of money a customer spends with Edgecast increases, the risk that they will seek alternative products such as DIY or a multi-vendor policy likewise increases. If additional large customers shift to this model, traffic on Edgecast’s network and its contracted revenue commitments would decrease, which would negatively impact Edgecast’s business, profitability, financial condition, results of operations and cash flows.

Edgecast provides service level commitments under its customer agreements. If Edgecast fails to meet these contractual commitments, Edgecast could be obligated to provide credits, or face contract termination with refunds, which could harm its business.

Most of Edgecast’s customer agreements contain service level commitments. If Edgecast is unable to meet the stated service level commitments, Edgecast may be contractually obligated to provide the affected customers with service credits, which could significantly affect its revenues. Edgecast could also face customer terminations with refunds, which could significantly affect both its current and future revenues. Any service level failures could harm Edgecast’s business.

 

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Edgecast’s ability to maintain customer satisfaction depends in part on the quality of its customer support. Failure to maintain high-quality customer support could have an adverse effect on Edgecast’s business, results of operation, and financial condition.

Edgecast believes that the successful use of its network, platform and products requires a high level of support and engagement for many of its customers, particularly its enterprise customers. In order to deliver appropriate customer support and engagement, Edgecast must successfully assist its customers in deploying and continuing to use its network, platform and products, resolving performance issues, addressing interoperability challenges with the customers’ existing IT infrastructure, and responding to security threats and cyber-attacks and performance and reliability problems that may arise from time to time. The IT architecture of Edgecast’s contracted customers, particularly enterprise customers, is very complex and may require high levels of focused support to effectively utilize Edgecast’s network, platform and products. Increased demand for customer support, without corresponding increases in revenue, could increase Edgecast’s costs and adversely affect its business, results of operations, and financial condition.

Edgecast also relies on channel partners in order to provide frontline support to some of its customers, including in regions where Edgecast does not have a significant physical presence or the customers primarily speak languages other than English. If Edgecast’s channel partners do not provide support to the satisfaction of Edgecast’s customers, Edgecast may be required to hire additional personnel and to invest in additional resources in order to provide an adequate level of support, generally at a higher cost than that associated with Edgecast’s channel partners. There can be no assurance that Edgecast will be able to hire sufficient support personnel as and when needed, particularly if its sales exceed its internal forecasts. To the extent that Edgecast is unsuccessful in hiring, training, and retaining adequate support resources, its ability to provide high-quality and timely support to its customers will be negatively impacted, and its customers’ satisfaction with its network, platform and products could be adversely affected. Any failure to maintain high-quality customer support, or a market perception that Edgecast does not maintain high-quality customer support, could adversely affect Edgecast’s reputation, business, results of operations, and financial condition, particularly with respect to its large customers.

If Edgecast cannot maintain compatibility with its customers’ IT infrastructure, including their chosen third-party applications, its business will be harmed.

Edgecast’s network, platform and products interoperate with its customers’ IT infrastructure, that often has different specifications, utilizes diverse technology, and requires compatibility with multiple communication protocols. Therefore, the functionality of Edgecast’s technology often needs to have, and maintain, compatibility with its customers’ technology environment, including their chosen third-party technology. Customers, and in particular these chosen third-party applications, may change features, restrict Edgecast’s access to, or alter their applications in a manner that causes incompatibilities or causes Edgecast significant costs to maintain compatibility, and as a result Edgecast’s business could be adversely affected. Such changes could functionally limit or prevent the compatibility of Edgecast’s network, platform and products with its customers’ IT infrastructure, which would negatively affect adoption of Edgecast’s network, platform and products and harm Edgecast’s business. If Edgecast fails to update its offerings to achieve compatibility with new third-party applications that its customers use, Edgecast may not be able to offer the functionality that its customers need, which could harm Edgecast’s business.

 

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Risks Related to Market Dynamics

Edgecast operates in emerging and evolving markets, which may develop more slowly or differently than expected. If Edgecast’s markets do not grow as expected, or if Edgecast cannot expand its network, platform and products to meet the demands of these markets, its revenue may decline, or fail to grow.

The markets for Edgecast’s network, platform and products are constantly evolving and characterized by rapid changes in technology, customer requirements, industry standards, and frequent introductions of new, and improvements of existing, products, making its business and prospects difficult to evaluate. For example, the number of people who access the internet through devices other than PCs, including mobile devices, game consoles, and television set-top devices continues to increase dramatically. The capabilities of these devices are advancing exponentially, and the increasing need to provide a high-quality video experience will present Edgecast with significant challenges. If Edgecast is unable to deliver its offerings to a substantial number of alternative device users and at a high quality, or if Edgecast is slow to develop services and technologies that are more compatible with these devices, Edgecast may fail to capture a significant share of an important portion of the growing market. Such a failure could limit Edgecast’s ability to compete effectively in an industry that is rapidly growing and evolving, which, in turn, could harm its business.

Similarly, the market for edge computing is in an early stage of development. There is considerable uncertainty over the size and rate at which this market will grow, as well as whether Edgecast’s platform will be widely adopted. Edgecast’s success will depend, to a substantial extent, on the widespread adoption of its platform. Some organizations may be reluctant or unwilling to use Edgecast’s platform for a number of reasons, including concerns about additional costs, uncertainty regarding the reliability, and security or lack of awareness of the benefits of Edgecast’s platform. Moreover, many organizations have invested substantial personnel and financial resources to integrate traditional on-premise services into their businesses, and therefore may be reluctant or unwilling to migrate to Edgecast’s services.

Edgecast’s ability to expand sales of its network, platform and products into new and existing markets depends on several factors, including potential customer awareness of its offerings; introduction and market acceptance of enhancements to its network, platform or new products that Edgecast may introduce; its ability to attract, retain and effectively train sales and marketing personnel; its ability to develop relationships with partners; the effectiveness of its marketing programs; the pricing of its services; and the success of its competitors. If Edgecast is unsuccessful in developing and marketing its network, platform or products into new and existing markets, or if organizations do not perceive or value the benefits of its network, platform or products, the market for these offerings might not continue to develop or might develop more slowly than Edgecast expects, either of which may harm its business.

Edgecast faces significant competition and may be unsuccessful against current and future competitors. If Edgecast does not compete effectively, its operating results and future growth could be harmed.

Competition is intense in the markets that Edgecast operates in and with the introduction of new technologies and market entrants, Edgecast expects competition to further intensify in the future. In addition, some of Edgecast’s competitors may make acquisitions, be acquired, or enter into strategic relationships to offer a more comprehensive service than Edgecast does. These combinations may make it more difficult for Edgecast to compete effectively. Edgecast expects these trends to continue as competitors attempt to strengthen or maintain their market positions.

Demand for many of Edgecast’s offerings is sensitive to price. Many factors, including Edgecast’s marketing, customer acquisition and technology costs, commoditization of its products and services

 

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and its current and future competitors’ pricing and marketing strategies, can significantly affect Edgecast’s pricing strategies. There can be no assurance that it will not be forced to engage in price-cutting initiatives, or to increase its marketing and other expenses to attract and retain customers in response to competitive pressures, either of which could have a material adverse effect on Edgecast’s revenue, operating results and resources.

Edgecast may have difficulty scaling and adapting its existing infrastructure to accommodate increased traffic and storage, technology advances or customer requirements.

In the future, advances in technology, increases in traffic and storage, and new customer requirements may require Edgecast to change its infrastructure, expand its infrastructure or replace its infrastructure entirely. Scaling and adapting Edgecast’s infrastructure is likely to be complex and require additional technical expertise. If Edgecast is required to make any changes to its infrastructure, it may incur substantial costs and experience delays or interruptions in its service. These delays or interruptions may cause customers and partners to become dissatisfied with Edgecast’s service and move to competing service providers. Edgecast’s failure to accommodate increased traffic and storage, increased costs, inefficiencies or failures to adapt to new technologies or customer requirements and the associated adjustments to its infrastructure could harm its business, financial condition and results of operations.

Edgecast faces risks associated with global operations and will face increased risks as Edgecast expands its presence outside the United States.

Edgecast’s operations in foreign countries subject Edgecast to risks that may increase its costs, disrupt its operations or make its operations less efficient and require significant management attention. These risks include:

 

   

uncertainty regarding liability for content or services, including uncertainty as a result of local laws and lack of legal precedent;

 

   

loss of revenues if the U.S. or foreign governments impose limitations on doing business with significant current or potential customers;

 

   

adjusting to different employee/employer relationships and different regulations governing such relationships;

 

   

being subject to regulatory oversight;

 

   

corporate and personal liability for alleged or actual violations of laws and regulations;

 

   

difficulty in staffing, training, developing and managing foreign operations as a result of distance, language, cultural differences or regulations;

 

   

theft of intellectual property in high-risk countries where Edgecast operates;

 

   

difficulties in enforcing contracts, collecting accounts and longer payment cycles in certain countries;

 

   

difficulties in transferring funds from, or converting currencies in, certain countries;

 

   

managing the costs and processes necessary to comply with export control, sanctions, anti-corruption, data protection and competition laws and regulations or other regulatory or contractual limitations on Edgecast’s ability to sell or develop its offerings in certain foreign markets;

 

   

geopolitical developments, including any that impact Edgecast or its customers’ ability to operate or deliver content to a country;

 

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other circumstances outside of Edgecast’s control such as trade disputes, political unrest, the imposition of sanctions, export controls, warfare, military or armed conflict, such as the Russian invasion of Ukraine, terrorist attacks, public health emergencies such as the ongoing COVID-19 pandemic and natural disasters that could disrupt Edgecast’s ability to provide services or limit customer purchases of them;

 

   

reliance on one or more channel partners over which Edgecast has limited control or influence on a day-to-day basis; and

 

   

potentially adverse tax consequences.

Edgecast’s foreign operations subject Edgecast to laws and regulations worldwide that differ among jurisdictions, affecting its operations in areas such as intellectual property ownership and infringement; tax; anti-corruption; internet and technology regulations; foreign exchange controls and cash repatriation; data privacy; competition; and employment. Compliance with such requirements can be onerous and expensive and may otherwise impact Edgecast’s business operations negatively. Although Edgecast has, and will continue to develop, policies, controls, and procedures designed to help ensure compliance with applicable laws, there can be no assurance that its employees, contractors, suppliers or agents will not violate such laws or Edgecast’s policies. Violations of these laws and regulations can result in fines; criminal sanctions against Edgecast, its officers or its employees; prohibitions on the conduct of Edgecast’s business; and damage to Edgecast’s reputation. As Edgecast continues to grow its foreign operations, it will face increased exposure to the risks discussed above.

Risks Related to Third Parties

Edgecast’s business strategy depends on the ability to source adequate network capacity and the equipment it needs to operate its network; failure to have access to those resources could lead to loss of revenue and service disruptions.

To operate Edgecast’s network, Edgecast is dependent in part upon network capacity provided by third-party telecommunications network providers, the availability of co-location facilities to house its servers and equipment to support its operations. Edgecast may be unable to purchase the bandwidth and space it needs from these providers due to limitations on their resources or other reasons outside of Edgecast’s control. Inability to access facilities where Edgecast would like to install servers, or perform maintenance on existing servers, because of governmental restrictions on access due to stay-at-home orders or social distancing requirements due to the ongoing COVID-19 pandemic or other events impedes Edgecast’s ability to expand or maintain capacity. As a result, there can be no assurance that Edgecast is adequately prepared for unexpected increases in bandwidth demands by its customers, particularly those under cyber-attack or impacted by pandemic-related events. Failure to put in place the capacity Edgecast requires to operate its business effectively could result in a reduction in, or disruption of, service to its customers and ultimately a loss of those customers.

Edgecast’s network, platform and products rely on hardware equipment, including servers deployed around the world. Global supply chain constraints in the wake of the COVID-19 pandemic continue to increase lead times for equipment components, which adds risk to Edgecast’s ability to flex to meet future business needs. Disruptions in Edgecast’s supply chain could prevent Edgecast from purchasing needed equipment at attractive prices or at all. For example, from time to time, it has been, and may continue to be, more difficult to purchase equipment that is manufactured in areas that face disruptions to operations due to unrest or other political activity, public health issues (such as the ongoing COVID-19 pandemic), safety issues, natural disasters or general economic conditions. Failure to have adequate equipment, including server equipment, could harm the quality of Edgecast’s services, which could lead to the loss of customers and revenue.

 

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Edgecast utilizes third-party technology in its business, and failures or vulnerabilities, and/or litigation, related to these technologies may adversely affect its business.

Edgecast utilizes third party technology software, services, and other technology in order to operate critical functions of its business, including the integration of certain of these technologies into its network, platform and products. If these software, services, or other technology become unavailable or contain vulnerabilities, Edgecast’s expenses could increase and its ability to operate its network, provide its products, and its results of operations could be impaired until equivalent software, technology, or services are purchased or developed or any identified vulnerabilities are remedied. If Edgecast is unable to procure the necessary third-party technology it may need to acquire or develop alternative technology, it may have to resort to utilizing alternative technology of lower quality. This could limit and delay Edgecast’s ability to offer new or competitive products and increase its costs of providing services. As a result, Edgecast’s business could be significantly harmed. In addition, the use of third-party technology may expose Edgecast to third-party claims of intellectual property infringement which could cause Edgecast to incur significant costs in defense or alternative sourcing.

Edgecast’s growth depends, in part, on the success of its strategic relationships with third parties, and if Edgecast fails to continue to expand, grow, and retain these relationships then its business, results of operations, and financial condition may be adversely impacted.

To grow its business, Edgecast anticipates that it will continue to depend on relationships with third parties, such as value-added channel partners, resellers, referral partners, systems integrators, global platform providers, telecommunications companies, and managed security service providers. Developing, expanding, and retaining these strategic relationships has played, and will continue to play, an increasingly greater role in Edgecast’s sales efforts to its enterprise customers. However, identifying these types of strategic partners, negotiating and documenting business and contractual relationships with them, and monitoring the actions of Edgecast’s partners and their relationships with Edgecast’s end-customers, each require significant time and resources. Edgecast’s competitors also may be effective in providing incentives to third parties to favor their offerings over Edgecast’s offerings. In addition, acquisitions of such partners by Edgecast’s competitors could result in a decrease in the number of Edgecast’s current and potential customers, as these partners may no longer facilitate the adoption of Edgecast’s offerings by potential customers. Further, some of Edgecast’s partners are or may become competitive with certain of Edgecast’s offerings and may elect to no longer integrate with Edgecast’s network, platform and products. If Edgecast is unsuccessful in establishing, expanding, or maintaining its relationships with these third parties, its ability to compete in the marketplace or to grow its revenue could be impaired, and its business, results of operations, and financial condition may suffer. Even if Edgecast is successful, it cannot guarantee that these relationships will result in increased customer usage of its network, platform and products by, or increased revenue from, its customers.

Edgecast relies on certain “open-source” software, the use of which could result in it having to distribute its proprietary software, including its source code, to third parties on unfavorable terms, which could materially affect its business.

Certain of Edgecast’s offerings use software that is subject to open-source licenses. Open-source code is software that is freely accessible, usable and modifiable; however, certain open-source code is governed by license agreements, the terms of which could require users of such software to make any derivative works of the software available to others on unfavorable terms or at no cost. Because Edgecast uses open-source code, it may be required to take remedial action in order to protect its proprietary software. Such action could include replacing certain source code used in Edgecast’s software, discontinuing certain of Edgecast’s offerings or taking other actions that could be expensive and divert resources away from Edgecast’s development efforts. In addition, the terms relating to

 

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disclosure of derivative works in many open-source licenses are unclear and have not been interpreted by U.S. courts. If a court interprets one or more such open-source licenses in a manner that is unfavorable to Edgecast, Edgecast could be required to make certain of its key software available at no cost. Edgecast could also be subject to similar conditions or restrictions should there be any changes in the licensing terms of the open source software incorporated into its network, platform or products. In either event, Edgecast could be required to seek licenses from third parties in order to continue offering its offerings, to re-engineer its offerings or to discontinue the sale of its offerings in the event re-engineering cannot be accomplished on a timely or successful basis, any of which could adversely affect Edgecast’s business, operating results and financial condition. Furthermore, open-source software may have security flaws and other deficiencies that could make Edgecast’s offerings less reliable and damage its business.

Risks Related To Cybersecurity And Defects

Actual or perceived breaches or failures of Edgecast’s internal systems, networks, or data could cause its network, platform or products to be perceived as insecure, underperforming, or unreliable, Edgecast’s customers to lose trust in its network, platform and products, its reputation to be damaged, and its financial results to be negatively impacted.

Edgecast faces security threats from malicious third parties that could obtain unauthorized access to its internal systems, networks, and data. It is virtually impossible for Edgecast to entirely mitigate the risk of these security threats and the security, performance, and reliability of its network, platform and products may be disrupted by third parties, including nation-states, competitors, hackers, disgruntled employees, former employees, or contractors. Edgecast also faces the possibility of security threats from other sources, such as employee or contractor errors, or malfeasance. For example, hostile third parties, including nation-states, may seek to bribe, extort, or otherwise manipulate Edgecast’s employees or contractors to compromise its network, platform and products. In addition, as Edgecast’s business grows and it employs more employees in more countries around the world, its ability to supervise the actions of its employees will decrease and the risk of an employee or contractor error or act of malfeasance will increase. These security threats from third parties are also likely to increase as the numbers, sizes, and types of customers using Edgecast’s network, platform and products increases, particularly those customers that are involved in particularly sensitive industries or activities, such as banking and finance companies and governmental entities. While Edgecast has implemented security measures internally and has integrated security measures into its network, platform and products, these measures may not function as expected and may not detect or prevent all unauthorized activity, prevent all security breaches or incidents, mitigate all security breaches or incidents, or protect against all attacks or incidents.

The global network that Edgecast uses to provide its offerings to its customers is made up of equipment at co-location facilities located worldwide and Edgecast expects to continue to increase the size of its network in the future. As Edgecast grows the size and scope of its network, the number of its employees and third party contractors that have access to its equipment at these facilities will continue to increase, which will also increase the risk of potential errors or malfeasance such as potential equipment theft or potential attempts to interfere with, or intercept, network and customer data that is held in, or flows through, this equipment. In addition, local government officials may attempt to, or successfully take control of, Edgecast’s equipment in an attempt to interfere with its services or intercept data. Edgecast may also experience security breaches and other incidents that may remain undetected for an extended period and, therefore, may have a greater impact on Edgecast’s offerings and the networks and systems used in its business, and the proprietary and other confidential data contained on its network or otherwise stored or processed in its operations, and ultimately on its business. Edgecast expects to incur significant costs in its efforts to detect and prevent security breaches and other security-related incidents, and Edgecast may face increased costs in the event of

 

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an actual or perceived security breach or other security related incident. Edgecast’s internal systems are exposed to the same cybersecurity risks and consequences of a breach as the systems of Edgecast’s customers and other enterprises, any of which could have an adverse effect on Edgecast’s business or reputation. These cybersecurity risks pose a particularly significant risk to a business like Edgecast that is focused on providing highly secure products to customers. With the increase in remote work during the ongoing COVID-19 pandemic, Edgecast and its customers face increased risks to the security of infrastructure and data, and Edgecast cannot guarantee that its security measures will prevent security breaches or incidents. Edgecast also may face increased costs relating to maintaining and securing its infrastructure and data that Edgecast maintains and otherwise processes.

There can be no assurance that any security measures that Edgecast or its third-party service providers have implemented will be effective against current or future security threats, and Edgecast cannot guarantee that its systems and networks or those of its third-party service providers have not been breached or otherwise compromised, or that they and any software in Edgecast or Edgecast’s supply chains do not contain bugs, vulnerabilities, or compromised code that could result in a breach of or disruption to Edgecast’s systems and networks or the systems and networks of third parties that support Edgecast and its services. Unauthorized access to, other security breaches of, or security incidents affecting, systems, networks, and data used in Edgecast’s business, including those of its vendors, contractors, or those with which Edgecast has strategic relationships, even if not resulting in an actual or perceived introduction of ransomware, malware, or other malicious code or other actual or perceived breach of its customers’ networks, systems, or data, could result in the loss, compromise, corruption or other unavailability of data, disruptions to Edgecast’s and its customers’ products, systems, networks, and operations, loss of business, reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation, and other liabilities.

Actual or perceived problems with Edgecast’s network, platform or products, or those of its vendors, contractors, or those with which Edgecast has strategic relationships, could result in actual or perceived breaches of Edgecast’s or its customers’ networks and systems or data. Actual or perceived breaches or other security incidents from these or other causes could lead to claims and litigation, indemnity obligations, regulatory audits, proceedings, and investigations and significant legal fees, significant costs for remediation, the expenditure of significant financial resources in efforts to analyze, correct, eliminate, remediate, or work around errors or defects, to address and eliminate vulnerabilities, and to address any applicable legal or contractual obligations relating to any actual or perceived security breach or incident. They also could damage Edgecast’s relationships with its existing customers and have a negative impact on Edgecast’s ability to attract and retain new customers. Because Edgecast’s business is focused on providing secure and high performing network services to its customers, Edgecast believes that its products and the networks and systems it uses in its business could be targets for hackers and others, and that an actual or perceived breach of, or security incident affecting, its networks, systems, or data, could be especially detrimental to its reputation, customer and channel partner confidence in its solution, and its business. Additionally, Edgecast’s offerings are designed to operate without interruption. If a breach or security incident were to impact the availability of Edgecast’s network, platform and products, its business, results of operations, and financial condition, as well as its reputation, could be adversely affected. Any cybersecurity insurance that Edgecast carries may be insufficient to cover all liabilities incurred by Edgecast in connection with any privacy or cybersecurity incidents or may not cover the kinds of incidents for which Edgecast submits claims.

 

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Real or perceived errors, failures or bugs in Edgecast’s customer solutions, software or technology could adversely affect its business, financial condition and results of operations.

Edgecast’s network, platform and products may experience errors, failures, vulnerabilities, or bugs that cause its offerings not to perform as intended and the likelihood of these problems may increase as Edgecast continues to expand the number and complexity of products that it offer to its customers through its global network. Although events like this are outside Edgecast’s control, they could materially harm its reputation and diminish the confidence of its current and potential customers in its network, platform and products. In addition, deployment of Edgecast’s network, platform and products into other computing environments may expose these errors, failures, vulnerabilities, or bugs in its offerings. Any such errors, failures, vulnerabilities, or bugs may not be found until after they are deployed to Edgecast’s customers and may create the perception that Edgecast’s network, platform and products are insecure, underperforming, or unreliable. In addition, in the event network outages or similar events occur, these events can require additional capital expenditures to lessen the chance that similar events will occur in the future. Edgecast also provides frequent updates and enhancements to its network, platform and products, which increase the possibility of errors. Edgecast’s quality assurance procedures and efforts to report, track, and monitor issues with its network may not be sufficient to ensure it detects any such defects in a timely manner.

Risks Related to Edgecast’s Operations

If Edgecast is unable to sell its services at acceptable prices relative to its costs, its revenue and gross margins will decrease and its business and financial results will suffer.

Edgecast operates in a multi-content delivery network supplier environment, where customers can route traffic to Edgecast, or away from it, within seconds. This results in on-going price compression. Simultaneously, Edgecast invests significant amounts in purchasing capital equipment as part of its effort to increase the capacity of its global network. The investments in Edgecast’s infrastructure are based upon assumptions regarding future demand, anticipated network utilization, as well as prices that Edgecast will be able to charge for its services. These assumptions may prove to be wrong. If the price that Edgecast is able to charge customers to deliver their content falls to a greater extent than anticipated, if Edgecast over-estimates future demand for its services, is unable to achieve an acceptable rate of network utilization, or if costs to deliver services do not fall commensurate with any future price declines, Edgecast may not be able to achieve acceptable rates of return on its infrastructure investments, and its gross profit and results of operations may suffer dramatically.

As Edgecast further expands its global network and services, and refresh its network equipment, Edgecast is dependent on significant future growth in demand for its services to justify additional capital expenditures. If Edgecast fails to generate significant additional demand for its services, its results of operations will suffer, and Edgecast may fail to achieve planned or expected financial results.

A significant portion of Edgecast’s revenue is derived collectively from its streaming, security, edge computing and support services. These services tend to have higher gross margins than Edgecast’s network services. Edgecast may not be able to achieve the growth rates in revenue from such services that it expects or has experienced in the past. If Edgecast is unable to achieve the expected growth rates in revenue for these service offerings, Edgecast’s revenue and operating results could be significantly and negatively affected.

If Edgecast is unable to recruit and retain key employees and qualified sales, research and development, technical, marketing and support personnel, its ability to compete could be harmed.

Edgecast’s future success depends upon the services of its key technology, sales, research and development, marketing and support personnel. Like other companies in Edgecast’s industries,

 

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Edgecast has experienced, and expects to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications, and, if Edgecast fails to attract new personnel or fails to retain and motivate its current personnel, its business and future growth prospects could suffer.

In addition, Edgecast’s future success will depend upon its ability to attract and retain employees. Such efforts will require time, expense and attention by Edgecast’s employees as there is significant competition for talented individuals, which affects both Edgecast’s ability to retain key employees and hire new ones and new hires require significant training. This competition may result in increased costs in the form of cash and stock-based compensation. The loss of the services of a significant number of Edgecast’s employees or any of its key employees or its inability to attract and retain new talent in a timely fashion may be disruptive to Edgecast’s operations and overall business.

Risks Related to Edgecast’s Reputation

Edgecast could be harmed if its reputation is damaged.

Edgecast’s corporate reputation is susceptible to material damage by events such as disputes with customers or competitors, cyber-attacks or service outages, internal control deficiencies, delivery failures, compliance violations, government investigations or legal proceedings. Similar events impacting one of Edgecast’s competitors could result in negative publicity for entire industry in which Edgecast operates, indirectly harming Edgecast’s business. Edgecast may also experience reputational damage if customers, vendors, employees, advocacy groups, regulators, investors, the media, social media influencers or others criticize its services, operations or public positions.

There is a risk that negative or inaccurate information about Edgecast’s business, even if based on rumor or misunderstanding, could adversely affect its business. Damage to Edgecast’s reputation could be difficult, expensive and time-consuming to repair. Damage to Edgecast’s reputation could also reduce the value and effectiveness of its brand name and could reduce investor confidence in Edgecast.

Edgecast’s dedication to its values may negatively influence its financial results.

Edgecast has taken, and may continue to take, actions that Edgecast believes are in the best interests of its customers, its employees, and its business, even if those actions do not maximize financial results in the short term. For instance, Edgecast has decided in the past, and may decide in the future, not to work with certain customers that do not align with Edgecast’s values or strategy. However, this approach may not result in the benefits that Edgecast expects, and its employees or third parties may disagree with these decisions, and Edgecast’s business could be adversely affected.

Legal and Regulatory Risks

Evolving privacy regulations could negatively impact Edgecast’s profitability and business operations.

Laws and regulations that apply to the internet related to privacy and data localization could pose risks to Edgecast’s revenues, intellectual property and customer relationships, as well as increase expenses or create other disadvantages to Edgecast’s business.

Privacy laws are rapidly proliferating, changing and evolving globally. Governments, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. Laws, such as the European Union General Data Protection Regulation (“GDPR”), and the California Consumer Privacy Act of 2018 (“CCPA”), and industry self-regulatory codes have been enacted, and more laws are being considered that may affect how

 

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Edgecast uses data generated from its network, platform and products as well as its ability to reach current and prospective customers, understand how its offerings are being used and respond to customer requests allowed under the laws. Any perception that Edgecast’s business practices, its data collection activities or how its offerings operate represent an invasion of privacy, whether or not consistent with current regulations and industry practices, may subject Edgecast to public criticism or boycotts, class action lawsuits, reputational harm or actions by regulators, or claims by industry groups or other third parties, all of which could disrupt its business and expose Edgecast to liability.

Engineering efforts to build new capabilities to facilitate compliance with increasing data localization requirements and new and changing privacy laws could require Edgecast to take on substantial expense and divert engineering resources from other projects. Edgecast might experience reduced demand for its offerings if Edgecast is unable to engineer products that meet its legal duties or help its customers meet their obligations under the GDPR, the CCPA or other data regulations, or if the changes Edgecast implements to comply with such laws and regulations make its offerings less attractive.

Edgecast’s ability to leverage the data generated by its global network of servers is important to the value of many of its offerings, its operational efficiency and future product development opportunities. Edgecast’s ability to use data in this way may be constrained by regulatory developments. Compliance with applicable laws and regulations regarding personal data may require changes in services, business practices or internal systems that result in increased costs, lower revenue, reduced efficiency or greater difficulty in competing with other firms. Compliance with data regulations might limit Edgecast’s ability to innovate or offer certain features and functionality in some jurisdictions where Edgecast operates. Failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged non-compliant activity, as well as negative publicity and diversion of management time and effort.

Although Edgecast takes steps intended to improve the security controls across its business groups and geographies, Edgecast’s security controls over personal data, its training of employees and third parties on data security and other practices Edgecast follows may not prevent the improper disclosure or misuse of customer or end-user data Edgecast stores and manages. Improper disclosure or misuse of personal data could harm Edgecast’s reputation, lead to legal exposure to customers or end users, or subject Edgecast to liability under laws that protect personal data, resulting in increased costs or loss of revenue.

Other regulatory developments could negatively impact Edgecast’s business.

Local and foreign laws and regulations that apply to the internet related to, among other things, content liability, security requirements, law enforcement access to information, critical infrastructure, data localization requirements and restrictions on social media or other content could pose risks to Edgecast’s revenues, intellectual property and customer relationships as well as increase expenses or create other disadvantages to its business. Section 230 of the U.S. Communications Decency Act, often referred to as Section 230, gives websites that host user-generated content broad protection from legal liability for content posted on their sites. Proposals to repeal or amend Section 230 could expose Edgecast to greater legal liability in the conduct of its business. Regulations have been enacted or proposed in a number of countries that limit the delivery of certain types of content into those countries. Enactment and expansion of such laws and regulations would negatively impact Edgecast’s revenues. In addition, such laws and regulations could cause internet service providers, or others, to block Edgecast’s offerings in order to enforce content blocking efforts. In addition, efforts to block a single product or domain name may end up blocking a number of other products or domain names in an overbroad manner that could affect Edgecast’s business. Interpretations of laws or regulations that would subject Edgecast to regulatory supervision or, in the alternative, require Edgecast to exit a line of

 

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business or a country, could lead to loss of significant revenues and have a negative impact on the quality of Edgecast’s network, platform and products. As noted with privacy compliance above, engineering efforts to build new capabilities to facilitate compliance with law enforcement access requirements, content access restrictions, or other regulations could require Edgecast to take on substantial expense and divert engineering resources from other projects. These circumstances could harm Edgecast’s profitability.

Edgecast may not be successful in protecting and enforcing its intellectual property rights.

Edgecast relies on various patents, copyrights, trade names, trademarks, service marks, trade secrets and other similar intellectual property rights, as well as confidentiality agreements and procedures, to establish and protect its proprietary rights. For a variety of reasons, however, these steps may not fully protect Edgecast, including due to inherent limitations on the ability to enforce these rights. Furthermore, Edgecast may from time to time be subject to intellectual property infringement and other claims and related litigation. Edgecast has also agreed to indemnify its customers and certain strategic partners if its offerings infringe or misappropriate specified intellectual property rights. As a result, Edgecast may become involved in litigation or claims brought against customers or strategic partners if its offerings or technology are the subject of such allegations. If Edgecast is unsuccessful in protecting or enforcing its intellectual property rights, its business, competitive position, results of operations and financial condition could be adversely affected.

Risks Related to Limelight’s Business

For risks related to our business, please refer to the section entitled “Item 1A. Risk Factors” set forth in our Annual Report on Form 10-K, as amended for the year ended December 31, 2021 as filed with the SEC on February 17, 2022, as updated by any subsequent quarterly reports on Form 10-Q.

 

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THE PARTIES

Limelight

Limelight is a leading provider of edge enabled web applications and content delivery solutions that enable organizations to deliver faster websites, more responsive applications, the highest quality video, and consistent game and software downloads to any device. We assist our clients on serving their global customers with experiences such as livestream sporting events, global movie launches, video games or file downloads for new phone apps. We target media, high tech, software, gaming, enterprise, and other organizations for which the delivery of digital content and apps are critical to the success of their business. As of December 31, 2021, we had approximately 580 active clients worldwide, including many notable brands in the fields of online video, live sports, digital music, news media, games, rich media applications, e-commerce, financial services, travel, and software delivery.

Limelight offers a secure infrastructure with the capacity to support the most onerous digital traffic demands. Our private fiber backbone enables traffic to bypass the congested public internet, resulting in faster, more reliable, and more secure content delivery. Our infrastructure is densely architected with data centers clustered around major metropolitan locations and directly interconnected with thousands of major internet service providers (“ISPs”) and last-mile networks. Unlike traditional content delivery network vendors which rely on third-party technologies for key components of their content delivery infrastructure, Limelight’s ongoing investment in the development and optimization of every component of our content delivery platform provides a fully-integrated suite of software services that solve clients’ content and application delivery challenges.

Limelight’s network has helped launch and grow many large video properties in the world and is now on the forefront of enabling a new generation of web and application development with Layer0 by Limelight. Layer0 by Limelight is a SaaS-based application acceleration and developer support platform that enables developers to program at the edge and cache dynamic data, thereby delivering faster page loads at lower costs.

Our principal executive offices are located at 2220 W. 14th Street, Tempe, AZ 85281 and our telephone number is (602) 850-5000.

This proxy statement incorporates important business and financial information about us from other documents that are incorporated by reference; see the section entitled “Where You Can Find Additional Information and Incorporation of Certain Documents by Reference” located elsewhere in this proxy statement.

Edgecast

Edgecast is a business unit of Yahoo, Inc. (“Yahoo”) designed to help companies meet the ever-growing expectations of their customers. Edgecast’s leading set of solutions across content delivery, cloud security and video streaming, combined with a team of customer-oriented domain experts, streamlines operations and improves efficiencies, so businesses can redirect their energy into creating value for their customers—not managing multiple vendors and workflows.

College Parent

College Parent, L.P. is a Delaware limited partnership and is the ultimate parent company that controls Yahoo and Edgecast. College Parent is owned by funds managed by affiliates of Apollo Global Management, Inc. (together with its consolidated subsidiaries, “Apollo”), Verizon Communications Inc. (“Verizon”) and other certain co-investors.

 

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Yahoo

Yahoo is a global media and tech company that connects people to their passions. Yahoo reaches nearly 900 million people around the world, bringing them closer to what they love—from finance and sports, to shopping, gaming and news—with the trusted products, content and tech that fuel their day. For partners, Yahoo provide a full-stack platform for businesses to amplify growth and drive more meaningful connections across advertising, search and media.

Apollo

Apollo is a global, high-growth alternative asset manager. In its asset management business, Apollo seeks to provide its clients excess return at every point along the risk-reward spectrum from investment grade to private equity with a focus on three business strategies: yield, hybrid, and equity. For more than three decades, Apollo’s investing expertise across its fully integrated platform has served the financial return needs of its clients and provided businesses with innovative capital solutions for growth. Through Athene, its retirement services business, Apollo specializes in helping clients achieve financial security by providing a suite of retirement savings products and acting as a solutions provider to institutions. Apollo’s patient, creative, and knowledgeable approach to investing aligns its clients, businesses it invests in, its employees, and the communities it impacts, to expand opportunity and achieve positive outcomes. As of December 31, 2021, Apollo had approximately $498 billion of assets under management.

 

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THE ANNUAL MEETING

This proxy statement is being provided to Limelight stockholders as part of a solicitation of proxies by the Limelight board for use at the annual meeting of Limelight stockholders (the “annual meeting”) to be held at the time and place specified below, and at any properly convened meeting following an adjournment or postponement thereof. This proxy statement and the information incorporated by reference herein provides our stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the annual meeting.

Date, Time and Place

The annual meeting will be held on June 9, 2022, at 12:00 p.m., Eastern Time, virtually via www.virtualshareholdermeeting.com/LLNW2022, where you, or your proxy, will be able to attend the annual meeting and vote electronically. Please note that you will not be able to attend the annual meeting in person. The annual meeting will begin online promptly at 12:00 p.m., Eastern Time.

Stockholders will be able to listen, vote, and submit questions from their home or from any remote location that has Internet connectivity.

A list of stockholders entitled to vote at the annual meeting will be available for examination by any stockholder for any purpose germane to the annual meeting beginning ten days prior to the annual meeting, and ending on the date of the annual meeting via the Internet at www.virtualshareholdermeeting.com/LLNW2022, subject to the satisfactory verification of stockholder status. Such list will also be available on-line at the annual meeting during the webcast of the meeting.

Purpose of the Annual Meeting

At the annual meeting, and any adjournments or postponements thereof, you will be asked to consider and vote on:

 

   

the stock issuance proposal;

 

   

the proposal to elect Jeffrey T. Fisher, David C. Peterschmidt and Bob Lyons as Class III directors (the “director election proposal”);

 

   

the proposal to ratify Ernst & Young LLP as independent registered public accounting firm (the “ratification proposal”);

 

   

the proposal to adjourn or postpone the annual meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the stock issuance proposal (the “adjournment proposal” and together with the stock issuance proposal, director election proposal and the ratification proposal, the “proposals”).

Recommendation of the Limelight Board

The Limelight board, after careful consideration of the various factors described under “The Transaction—Recommendation of the Limelight Board and Its Reasons for the Transaction” located elsewhere in this proxy statement, at a meeting held on March 6, 2022, unanimously determined that the purchase agreement and the transactions contemplated by the purchase agreement and the issuance of shares of Limelight common stock in the transaction are advisable, fair to and in the best interests of Limelight stockholders; approved and adopted the purchase agreement and the transactions contemplated by the purchase agreement, including the issuance of shares of Limelight common stock pursuant to the purchase agreement, directed that the approval of the issuance of shares of Limelight common stock be submitted to a vote at a meeting of Limelight stockholders entitled to vote on such matters and resolved to recommend to Limelight stockholders to vote in favor of the approval of the stock issuance proposal.

 

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In evaluating the transaction, the Limelight board consulted with and received the advice of Limelight’s outside legal and financial advisors, held discussions with Limelight’s management and considered a number of factors that it believed supported its decision to enter into the purchase agreement. These factors included, but were not limited to, those listed in “The Transaction—Recommendation of the Limelight Board and Its Reasons for the Transaction” located elsewhere in this proxy statement.

Accordingly, the Limelight board unanimously recommends that you vote “FOR” the stock issuance proposal, “FOR” the director election proposal, “FOR” the ratification proposal and “FOR” the adjournment proposal.

Record Date; Stockholders Entitled to Vote

Only holders of record of Limelight common stock at the close of business on April 19, 2022, the record date for the annual meeting (the “record date”), will be entitled to notice of, and to vote at, the annual meeting, or any adjournment or postponement thereof. At the close of business on the record date, 138,193,658 shares of Limelight common stock were issued and outstanding and held by 266 holders of record.

Holders of record of Limelight common stock on the record date are entitled to one vote per share at the annual meeting on each proposal. A list of the names of our stockholders of record will be open to the examination by any stockholder for any purpose germane to the annual meeting for ten days before the annual meeting via the Internet at www.virtualshareholdermeeting.com/LLNW2022. Such list will also be available on-line at the annual meeting during the webcast of the meeting. Our stockholder list will also be available at the annual meeting for examination by any stockholder present at such meeting.

Voting by our Directors and Executive Officers

At the close of business on the record date, our directors and executive officers were entitled to vote 3,589,746 shares of Limelight common stock, or approximately 2.6% of the shares of Limelight common stock outstanding on that date. We currently expect that all of our directors and executive officers will vote their shares in favor of each proposal being submitted to a vote of our stockholders at the annual meeting, although none of them has entered into any agreement obligating them to do so.

Quorum

No business may be transacted at the annual meeting unless a quorum is present. The presence of the holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, is required to constitute a quorum for the transaction of business at the annual meeting. If a quorum is not present, or if there are not sufficient votes at the time of the annual meeting to approve the stock issuance proposal, the annual meeting may be adjourned to allow more time for obtaining additional proxies or votes. At any subsequent reconvening of the annual meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the annual meeting, except for any proxies that have been effectively revoked or withdrawn before the adjourned meeting.

Abstentions (shares of Limelight common stock for which proxies have been received but for which the holders have abstained from voting) will be included in the calculation of the number of shares of Limelight common stock represented at the annual meeting for purposes of determining whether a quorum has been achieved. Broker non-votes will be counted as present and entitled to vote for purposes of determining a quorum but will have no effect on the vote count for the proposals.

 

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Required Vote

The approval of the stock issuance proposal and the ratification proposal requires the affirmative vote of the holders of a majority of the votes cast. For the director election proposal, the nominees receiving the highest number of votes will be elected to the Limelight board. The approval of the adjournment proposal, if necessary or appropriate, requires the affirmative vote of the stockholders of a majority in voting power present if a quorum is not present, or, if a quorum is present, the affirmative vote of the holders of a majority of the votes cast.

Failure to Vote, Broker Non-Votes and Abstentions

If your shares of Limelight common stock are held in “street name” in a stock brokerage account or by another nominee, you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your bank, broker or other nominee. You may not vote shares of Limelight common stock held in street name by returning a proxy card directly to Limelight.

Banks, brokers or other nominees who hold shares of Limelight common stock in street name for a beneficial owner typically have the authority to vote in their discretion on “routine” proposals, even when they have not received instructions from beneficial owners. However, banks, brokers or other nominees are not allowed to exercise their voting discretion on matters that are determined to be “non-routine” without specific instructions from the beneficial owner. A “broker non-vote” is a vote that, in accordance with stock exchange rules, is not cast by a broker on a non-routine matter because the bank, broker or other nominee has not received instructions from the beneficial owner of such shares to vote on the particular proposal and the bank, broker or other nominee does not have discretionary voting power on such proposal.

Under the written rules of the NASDAQ Global Select Market (“Nasdaq”), banks, brokers or other nominees do not have discretionary authority to vote on any of the proposals to be voted upon at this annual meeting. Therefore, if you are a Limelight stockholder who holds shares in “street name” and you do not instruct your bank, broker or other nominee on how to vote your shares, your bank, broker or other nominee may not vote your shares on any of these proposals, and the resulting broker non-vote will have no effect on these proposals.

Instructions to “ABSTAIN” for each proposal to be voted upon at the annual meeting will be counted for purposes of determining the number of shares present and entitled to vote for purposes of determining a quorum. Abstentions will not be included in the vote totals for each proposal and will have no effect on the outcome of the vote on the stock issuance proposal, the ratification proposal or the adjournment proposal. If you return your signed proxy card but do not mark the boxes indicating how you wish to vote, your shares will be voted “FOR” the stock issuance proposal, “FOR” the director election proposal, “FOR” the ratification proposal and “FOR” the adjournment proposal.

Voting at the Annual Meeting

Whether or not you plan to attend the annual meeting virtually, please vote your shares. If you are a registered or “record” holder, which means your shares are registered in your name with American Stock Transfer & Trust Company, LLC, our transfer agent, you may vote in person at the annual meeting or be represented by proxy. If your shares are held in “street name,” which means your shares are held of record in an account with a bank, broker or other nominee, you must follow the instructions from your bank, broker or other nominee in order to vote. If you do not plan to attend the annual meeting or do not wish to vote at the annual meeting, you may authorize proxies to vote your shares by written proxy, by telephone or over the internet.

 

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Voting by Proxy

You should vote your proxy in advance of the meeting even if you plan to attend the annual meeting. If you are a Limelight stockholder of record, a proxy card is enclosed for your use., we recommend that you promptly submit your proxy, even if you plan to attend the annual meeting virtually, using one of the following four methods:

 

   

through the Internet by logging onto the website specified on your proxy card and following the prompts using the control number located on the proxy card;

 

   

by calling using the toll-free telephone number listed on your proxy card;

 

   

by completing, signing, dating and returning your proxy card in the postage-paid return envelope provided; or

 

   

by attending the virtual annual meeting and voting online at www.virtualshareholdermeeting.com/LLNW2022 on June 9, 2022, at 12:00 p.m., Eastern Time. We encourage you to allow reasonable time for online check-in, which begins at 11:45 a.m., Eastern Time. In order to attend the virtual annual meeting and vote online, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials. The control number is designed to verify your identity and allow you to vote your shares of common stock at the annual meeting or to vote by proxy prior to the annual meeting.

If you vote via the Internet or by telephone, please do not return a signed proxy card.

If you hold your shares of Limelight common stock in street name (i.e., through a bank, broker or other nominee), you will find enclosed instructions from your bank, broker or other nominee that you must follow in order to vote your shares. You may authorize proxies to vote your shares by telephone or over the internet if your bank, broker or other nominee makes these methods available, as detailed on the enclosed voting instruction form. You may also return your voting instructions by signing, dating and returning the enclosed voting instruction form in the postage-paid envelope provided.

YOUR VOTE IS IMPORTANT. ACCORDINGLY, PLEASE SUBMIT YOUR PROXY PROMPTLY, BY TELEPHONE, INTERNET OR MAIL WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.

How Proxies are Counted

All shares represented by properly executed proxies received in time for the annual meeting will be voted at the meeting in the manner specified by the stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” each of the proposals covered by this proxy statement.

Only shares affirmatively voted for the proposals, and properly executed proxies that do not contain voting instructions, will be counted as “FOR” the proposals submitted by us as described in this proxy statement. Abstentions will not be included in the vote totals for each proposal and will have no effect on the outcome of the vote on any of the proposals. Failures to vote and broker non-votes, if any, will have no effect on the outcome of any of the proposals.

Revocation of Proxies

You can change your vote or revoke your proxy at any time before your proxy is voted at the annual meeting. If you are a stockholder of record, you can do this in one of three ways:

 

   

you can grant a new, valid proxy bearing a later date, including by telephone or through the internet before the closing of those voting facilities at 11:59 p.m. Eastern Time on June 8, 2022;

 

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you can send a signed notice of revocation to Limelight Networks, Inc., 2220 W. 14th Street, Tempe, AZ 85281, Attention: Corporate Secretary, which must be received prior to the start of the annual meeting; or

 

   

you can attend and vote at the annual meeting, which will revoke any proxy previously given. Simply attending the annual meeting without voting will not revoke any proxy that you have previously given or otherwise change your vote.

A registered stockholder may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy.

If you are a “beneficial holder” who holds shares of Limelight common stock in “street name,” you must contact your bank, broker or other nominee to change your vote.

Tabulation of Votes

Limelight will retain an independent party to receive and tabulate the proxies and ballots, and to serve as the inspector of election to certify the results of the annual meeting.

Solicitation of Proxies

We are soliciting proxies for the annual meeting from our stockholders. We will pay our own cost of soliciting proxies, including the cost of mailing this proxy statement, from our stockholders. In addition to solicitation by use of the mails, proxies may be solicited by each of our directors and certain members of our management team, each of whom may be deemed a participant in this solicitation, in person or by telephone or other means of communication. These persons will not receive additional compensation, but may be reimbursed for reasonable out-of-pocket expenses in connection with this solicitation.

We have retained Innisfree M&A Incorporated to provide investor response services and assist in the solicitation of proxies at a solicitation fee of up to $30,000 plus related reasonable out-of-pocket expenses. We will make arrangements with brokerage houses, custodians, nominees and fiduciaries to forward proxy solicitation materials to beneficial owners of shares held of record by them. We will also reimburse these brokerage houses, custodians, nominees and fiduciaries for their reasonable expenses incurred in forwarding the proxy materials.

Adjournments

If quorum is not present, any adjournment or postponement of the annual meeting may be made by the chairperson of the meeting or a majority in voting power of the stockholders present; provided, however, that if the adjournment is for more than thirty days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Limelight board shall fix a new record date for notice of such adjourned meeting and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date for notice of such adjourned meeting. If a quorum is not present at the annual meeting, or if there are not sufficient votes at the time of the annual meeting to approve the stock issuance proposal, then our stockholders may be asked to vote on a proposal to adjourn the annual meeting so as to permit the further solicitation of proxies.

 

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PROPOSAL 1: STOCK ISSUANCE PROPOSAL

General

On March 6, 2022, we entered into the purchase agreement with College Parent, pursuant to which we agreed to acquire all of the issued and outstanding shares of Edgecast common stock and certain Edgecast-related businesses and assets held by each of Yahoo India Private Limited, Edgecast Digital do Brasil Ltda, and Oath (Israel) Ltd. (such acquisition of Edgecast-related businesses and assets, the “local transfers”). The purchase price consists of approximately 71.9 million shares of Limelight common stock, representing a value of approximately $300 million based on the 30-day trailing VWAP (as of March 4, 2022) of $4.1168, which includes a $30 million cash investment in Limelight by College Parent. College Parent can also receive up to an additional 12.7 million shares of Limelight common stock, representing up to an additional $100 million in value, over the period ending on the third anniversary of the closing, subject to the achievement of certain share-price targets. For more information, see “The Transaction” located elsewhere in this proxy statement.

Upon closing of the transaction, current Limelight stockholders will own approximately 65% of Limelight, or approximately 61% assuming Limelight achieves all share price targets under the purchase agreement and thus triggering the issuance of the Limelight earnout shares, and College Parent will own approximately 35% or 39%, respectively.

Nasdaq Capital Market Stockholder Approval Requirements

Limelight common stock is listed on, and Limelight is subject to the rules and regulations of Nasdaq. Rule 5635(a) of the Nasdaq rules requires stockholder approval with respect to issuances of Limelight common stock, among other instances, when the shares to be issued are being issued in connection with the acquisition of the stock or assets of another company and are equal to 20% or more of the outstanding shares of Limelight common stock before the issuance. Rule 5635(b) of the Nasdaq rules also requires stockholder approval when any issuance or potential issuance will result in a “change of control” of the issuer. Although Nasdaq has not adopted any rule on what constitutes a “change of control” for purposes of Rule 5635(b), Nasdaq has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the common stock (or securities convertible into or exercisable for common stock) or voting power of an issuer could constitute a change of control. Rule 5635(d) of the Nasdaq rules also requires stockholder approval for a transaction other than a public offering involving the sale, issuance or potential issuance by an issuer of common equity securities (or securities convertible into or exercisable for common equity securities) at a price that is less than market value of the stock if the number of equity securities to be issued is or may be equal to 20% or more of the common equity securities, or 20% or more of the voting power, outstanding before the issuance.

As described above, we are proposing to issue approximately 71.9 million shares of Limelight common stock upon closing of the transaction, and up to an additional 12.7 million shares over the period ending on the third anniversary of the closing of the transaction, pursuant to the terms of the purchase agreement. The number of shares we will issue will exceed 20% of both the voting power and the number of shares of Limelight common stock outstanding before the issuance. Accordingly, at the annual meeting, we are asking holders of shares of Limelight common stock to consider and vote on the stock issuance proposal to satisfy Nasdaq rules.

Recommendation of the Board

Stockholder approval of the stock issuance proposal is a condition to completion of the transaction pursuant to the purchase agreement. If our stockholders do not approve the stock issuance proposal,

 

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we will be unable to consummate the transaction and the purchase agreement may be terminated by us or College Parent. For more information, see “The Stock Purchase Agreement—Termination of the Stock Purchase Agreement” located elsewhere in this proxy statement.

Vote Required for Approval

The stock issuance proposal will be approved if a majority of the votes cast by stockholders in person or via proxy with respect to this matter are cast in favor of the proposal. The stock issuance proposal is a “non-discretionary” or “non-routine” item, meaning that brokerage firms cannot vote shares in their discretion on behalf of a client if the client has not provided the brokerage firm voting instructions. Accordingly, if you hold your shares in “street name” and fail to instruct your broker to vote your shares for the proposal, your shares will not be counted as votes cast for the proposal and will have no effect on the outcome of the stock issuance proposal.

THE LIMELIGHT BOARD UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE STOCK ISSUANCE PROPOSAL. IF NOT OTHERWISE SPECIFIED, PROXIES WILL BE VOTED “FOR” THE APPROVAL OF THIS PROPOSAL.

 

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THE TRANSACTION

General Description of the Transaction

On March 6, 2022, Limelight entered into the purchase agreement pursuant to which indirect, wholly-owned subsidiaries of Limelight will (i) purchase all of the issued and outstanding shares of Edgecast common stock (“Edgecast common stock”) and (ii) certain Edgecast-related businesses and assets held by each of Yahoo India Private Limited, Edgecast Digital do Brasil Ltda, and Oath (Israel) Ltd. will be transferred to wholly-owned subsidiaries of Limelight (such transactions, collectively, the “sale”). If the transaction is completed, Limelight currently anticipates issuing approximately 71.9 million shares of Limelight common stock to its indirect, wholly-owned subsidiaries, which will be transferred to College Parent (or a designated subsidiary), in connection with the transaction. The Limelight common stock to be transferred to College Parent represents a value of approximately $300 million based on the 30-day trailing VWAP (as of March 4, 2022) of $4.1168, which includes a $30 million cash investment in Limelight by College Parent (or a designated subsidiary). College Parent (or a designated subsidiary) can also receive up to an additional 12.7 million shares of Limelight representing up to an additional $100 million in consideration, over the period ending on the third anniversary of the closing of the transaction, subject to the achievement of certain share-price targets.

The purchase agreement contemplates that, prior to the closing, Edgecast and its subsidiaries will effect certain inter-company transactions (the “pre-closing restructuring”), which will result in Edgecast and its subsidiaries, Edgecast Limited, Edgecast Services Limited and Edgecast Canada ULC (together with Edgecast, each a “transferred entity,” and collectively, the “transferred entities”) owning the assets of the Edgecast business, other than certain components of the Edgecast-related business and assets held by College Parent that will be separately transferred pursuant to the purchase agreement.

We anticipate changing the name of Limelight to Edgio, Inc. prior to or at the closing. At the closing, Limelight and College Parent (and/or their designated subsidiaries) will enter into: (a) a stockholders agreement (the “stockholders agreement”) pursuant to which, among other things, Limelight will grant College Parent certain board and governance rights; (b) a registration rights agreement (the “registration rights agreement”) pursuant to which, among other things, Limelight must use commercially reasonably efforts to file with the SEC a registration statement on Form S-3 on or before (i) a 24 month lock-up period following closing, with respect to Limelight common stock issued at closing and (ii) for Limelight common stock issued in connection with a triggering event (as such term is defined in the stockholders agreement), the period ending on the later of (x) the date that is 24 months from the closing and (y) the date that is six months after the date Limelight common stock is issued to College Parent (the “relevant restricted period”); (c) one or more commercial agreements to reflect the service terms and obligations applicable to and governing certain service orders (collectively, the “commercial agreements”); (d) a domain name sublicense agreement (the “domain name sublicense agreement”) and a patent cross license agreement (the “patent cross license agreement”), each relating to the licensing of domain names and patents, respectively and (e) a transition services agreement (the “transition services agreement”) whereby College Parent will provide various services to Limelight following the closing.

Background of the Transaction

From time to time the Limelight board, together with Limelight management, has considered various strategic business initiatives intended to strengthen its business and enhance stockholder value. These have included licensing or acquiring rights to complementary technologies, or acquisitions of, or mergers with, other companies that have complementary products or technologies.

 

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On May 3, 2021, Apollo announced that funds managed by affiliates of Apollo (the “Apollo Funds”) entered into an agreement to acquire Verizon Media Group for $5 billion. At the closing of the acquisition on September 1, 2021, Verizon Media Group was renamed “Yahoo” and Verizon Communications Inc. retained 10% ownership of the company.

On June 27, 2021, representatives of RBC Capital Markets, LLC (“RBC”), financial advisor to the Apollo Funds, contacted Bob Lyons, Chief Executive Officer of Limelight, to convey the Apollo Funds’ interest in exploring a potential business combination of Limelight and Edgecast. Yahoo is the parent company of Edgecast and College Parent is the ultimate parent company that controls Yahoo and Edgecast. Following this discussion, Reed Rayman, a Partner at Apollo, contacted Mr. Lyons and the parties discussed in general terms the potential advantages of such a business combination. The parties viewed these potential advantages as warranting further discussion following the exchange of certain non-public information concerning Edgecast and its business.

One June 30, 2021, Limelight entered into a joinder to an existing non-disclosure agreement, dated November 24, 2020, with Verizon and Apollo Funds to allow the parties to share non-public information in connection with a mutual evaluation of a potential business combination transaction.

On July 6, 2021, RBC provided to Limelight preliminary diligence information regarding Edgecast, including historical financial statements provided by Edgecast management.

Following the execution of the joinder to the non-disclosure agreement on July 12, 2021, Limelight discussed the potential transaction with representatives of Goldman Sachs & Co. LLC (“Goldman Sachs”), Limelight’s financial advisor, who had previously provided strategic financial advice to Limelight on other occasions, regarding the potential opportunity to acquire Edgecast.

Also on July 12, 2021, Limelight, RBC and Goldman Sachs held a phone call to discuss Limelight’s due diligence information request list. Following the call, Goldman Sachs provided RBC with Limelight’s initial due diligence request list.

On September 14, 2021, representatives from RBC and Evercore Group LLC (“Evercore” and together with RBC, “Edgecast’s financial advisors”) communicated to Goldman Sachs that Apollo Funds was launching a sale process for Edgecast, and provided Limelight’s management with access to a virtual data room and shared a confidential information presentation and the Yahoo Management Edgecast Projections concerning the Edgecast business. See the section entitled “The TransactionCertain Unaudited Prospective Financial Information” located elsewhere in this proxy statement for more information.

On September 24, 2021, Limelight engaged in a discussion with a representative of a private investment firm we refer to as Company A, to discuss Company A’s participation in a potential transaction through the form of either an equity or debt investment in the combined company.

On September 27, 2021, Edgecast’s financial advisors sent a process letter to Goldman Sachs requesting that initial proposals for the acquisition of Edgecast be submitted by October 13, 2021.

On September 28, 2021, Company A entered into a joinder agreement to the existing non-disclosure agreement between Limelight, Verizon and Apollo Funds.

Also on September 28, 2021, Edgecast’s senior management hosted a meeting with Limelight’s senior management and representatives of Company A and Goldman Sachs to make a presentation on the Edgecast business and financial performance.

 

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At a meeting held on October 14, 2021, the Limelight board discussed the potential transaction, including, among other matters, the potential advantages and disadvantages, its alignment with Limelight’s strategy and the potential terms of the transaction, and reviewed a proposed draft of a non-binding proposal to acquire Edgecast. Following this discussion, the Limelight board directed management to submit a non-binding proposal consistent with the discussion.

On October 15, 2021, acting on the instruction of and on behalf of Limelight, Goldman Sachs sent a written non-binding proposal to RBC and Evercore indicating a valuation for Edgecast of $400 million to $500 million, with proposing that the parties explore a structure involving a mix of cash and stock consideration, with College Parent owning between approximately 17% and 41% in the combined company post-closing.

On the basis of the October 15 proposal, on October 18, 2021, Edgecast invited Limelight to continue in the sale process and provided access to more comprehensive diligence items in the virtual data room. Edgecast also shared a reverse due diligence request list for information regarding Limelight. Edgecast’s management communicated to Limelight’s management that it believed there were alternative sources of financing for the transaction which could lead to more accretive outcomes for the stockholders of the combined company than Company A.

On November 3, 2021, Limelight and Edgecast held an in-person meeting in New York City, New York to discuss, among other matters, detailed diligence questions and potential synergies between the two businesses. The meeting was attended by Limelight’s senior management, Edgecast’s management and representatives of Apollo Funds, RBC, Evercore and Goldman Sachs. Following this meeting, the parties believed that further discussions were warranted and scheduled another meeting for November 18, 2021.

On November 18, 2021, Limelight and Edgecast held an in-person meeting at Edgecast’s offices in Los Angeles, California to discuss further potential synergies between the two businesses. The meeting was attended by Limelight’s senior management, Edgecast’s management and representatives of Apollo Funds, RBC, Evercore and Goldman Sachs.

On November 24, 2021, Edgecast submitted a written non-binding counterproposal to Limelight, which valued Edgecast at $500 million and proposed that the consideration be paid $100 million in upfront cash, $150 million in convertible preferred equity of Limelight, and $250 million in Limelight common stock.

On December 6, 2021, the Limelight board held a meeting, which was attended by members of Limelight’s management and representatives of Goldman Sachs, to discuss the counterproposal received from Edgecast and to discuss Edgecast’s financial results and Limelight Management Synergies Projections (see the section entitled “The Transaction—Certain Unaudited Prospective Financial Information” located elsewhere in this proxy statement for more information), which Limelight management had prepared following the prior meetings with Edgecast management and its review of Edgecast financial information. Following this discussion, the Limelight board directed Limelight management to prepare a revised term sheet reflecting the board discussions that would be further discussed at a later meeting.

On December 21, 2021, the Limelight board held a meeting, which was attended by members of Limelight’s management, representatives of Goldman Sachs and representatives of Goodwin Procter LLP (“Goodwin”), outside legal counsel to Limelight, to discuss a proposed non-binding term sheet, which included a valuation of Edgecast of $300 million to be paid with Limelight common stock and the possibility for additional earnout consideration of $100 million to be paid with Limelight common stock and a 60-day exclusivity agreement. Among other matters, the Limelight board discussed the results of Limelight’s business and financial diligence review of Edgecast and its business and the reasons for

 

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revising the up-front payment to $300 million. After discussion, the Limelight board approved the proposed terms and directed Limelight’s management to send a non-binding term sheet with the discussed terms to Edgecast.

Later on December 21, 2021, Goodwin provided Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”), College Parent’s outside legal counsel, with the proposed non-binding term sheet.

On December 24, 2021, Paul Weiss provided Goodwin with a revised draft of the term sheet, which included changes to the proposed structure of the consideration and Yahoo’s corporate governance rights in the combined company following the closing.

On December 28, 2021, Goodwin provided Paul Weiss with a revised draft of the term sheet, which included further changes to the proposed structure of the consideration and Yahoo’s corporate governance rights in the combined company following the closing.

On December 30, 2021, Paul Weiss provided Goodwin with a revised draft of the term sheet, which included changes to the calculation of the exchange ratio and the triggering events for the Limelight earnout shares.

On January 2, 2022, Goodwin provided Paul Weiss with a revised draft of the term sheet, which included clarification that the exclusivity agreement did not pertain to a proposal for the acquisition of Limelight as well as further changes to the calculation of the exchange ratio, the triggering events for the Limelight earnout shares and the restrictions on transfer of the aggregate closing consideration.

On January 3, 2022, Mr. Lyons and Mr. Rayman had a phone call to discuss at a high level the progress of negotiations and material open items in the term sheet. Following this phone call, Paul Weiss sent Goodwin a revised draft of the term sheet, which extended the proposed period for triggering events for the Limelight earnout shares to 36 months and updated the targeted signing date among other minor changes.

On January 3, 2022, Goodwin provided Paul Weiss with a revised draft of the term sheet, which accepted the 36-month period for triggering events for the Limelight earnout shares.

On January 4, 2022, Limelight’s senior management held an organizational meeting with its various advisors including Goldman Sachs, Goodwin, Macula Systems, LLC (“Macula”), a technology consulting firm, and EY’s financial and tax due diligence teams, to discuss timeline, workplan and each party’s responsibilities.

Also on January 6, 2022, the Limelight board held a meeting, which was attended by members of Limelight’s management and representatives of Goldman Sachs and Goodwin, to discuss the term sheet negotiations. Limelight’s management and representatives of Goldman Sachs and Goodwin updated the Limelight board on then-current version of the term sheet, and the Limelight board approved the execution of a non-binding term sheet.

On January 6, 2022, Limelight and College Parent executed a non-binding term sheet, which valued Edgecast at $300 million to be paid with Limelight common stock and included the possibility for additional contingent earnout consideration of $100 million to be paid with Limelight common stock upon the occurrence of triggering events over a 36-month period following the closing of the transaction, and entered into a 60-day exclusivity agreement (the “January 6 Term Sheet”).

On January 7, 2022, Limelight entered into an engagement letter with Macula to engage Macula to advise Limelight on commercial and technical diligence as well as to evaluate the potential synergy opportunity following an acquisition of Edgecast.

 

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On January 8, 2022 Paul Weiss provided Goodwin with the initial draft of the purchase agreement and the form of stockholders agreement.

On January 9, 2022, Paul Weiss provided Goodwin with the initial draft of the form of registration rights agreement.

During January 2022 and into early February 2022, each of Limelight and Edgecast continued to conduct due diligence regarding the other party and began negotiating the transaction documents. During this period, representatives of the two companies and their advisors held multiple calls to discuss a variety of diligence items, including matters related to Edgecast employees, compensation and benefits, corporate, global trade, intellectual property and privacy matters, cybersecurity, litigation, real estate, environmental, antitrust, and finance.

From January 31, 2022 to March 5, 2022, the parties exchanged drafts of the purchase agreement and the ancillary agreements, including the forms of stockholders agreement and registration rights agreement, and negotiated terms, including the representations and warranties, covenants and indemnification obligations of the parties, labor and employee benefits matters, composition of the Limelight board following the closing of the transaction, and the allocation of insurance costs between the parties.

On February 10, 2022 and February 11, 2022, Limelight’s management and Edgecast’s management held in-person diligence sessions in Austin, Texas, which were attended by RBC, Evercore, Apollo Funds, Goldman Sachs, Goodwin and Paul Weiss via Zoom at which the parties engaged in detailed discussions of diligence topics regarding the companies, their business, their assets and their finances.

On February 14, 2022, Yahoo provided to Limelight results for Edgecast’s fourth quarter 2021 financial results, lower than Limelight management originally expected. See the section entitled “The TransactionCertain Unaudited Prospective Financial Information” located elsewhere in this proxy statement for more information.

On February 15, 2022, Mr. Lyons and Mr. Rayman had a phone call to discuss Edgecast’s fourth quarter 2021 financial results and potential adjustments to the pricing and other terms of the transaction. As part of the update on financial results, during the call Mr. Rayman indicated that Apollo Funds might be willing to invest $30 million of primary equity capital into the combined company given its positive outlook regarding the combined company’s prospects and to help the combined company accelerate various anticipated growth initiatives.

On February 23, 2022, the Limelight board held a meeting, which was attended by members of management and representatives of Goldman Sachs, Goodwin, and Macula, to discuss diligence, synergy analysis, and transaction documentation progress. Additionally, representatives of Goldman Sachs provided the Limelight board with financial analysis based on Limelight’s share price performance and a comparison of Edgecast’s fourth quarter 2021 financial results and the Yahoo Management Edgecast Projections. See the section entitled “The TransactionCertain Unaudited Prospective Financial Information” located elsewhere in this proxy statement for more information.

On February 25, 2022, the Limelight board held a meeting, which was attended by members of management and representatives of Goldman Sachs and Goodwin to discuss Goldman Sachs’ financial analysis of the potential offer prices for Edgecast and potential ownership structure of Limelight based on different offer structures, Following this discussion, the Limelight board directed management to submit a revised offer price for the acquisition of Edgecast consistent with the discussion.

 

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On February 26, 2022, as directed by the Limelight board and Limelight management, Goldman Sachs communicated a revised offer for the Edgecast business, which consisted of $270 million for the Edgecast business and a primary investment of $30 million by Yahoo in Limelight in exchange for shares of Limelight common stock, as well as the possibility for additional contingent earnout consideration of $100 million to be paid with Limelight common stock upon the occurrence of triggering events over a 36-month period following the closing of the transaction. The material terms of the offer remained the same as those set forth in the January 6 Term Sheet.

On March 2, 2022, the Limelight board held a meeting, which was attended by members of Limelight’s management and representatives of Goldman Sachs and Goodwin, to discuss the transaction, updated documentation and the planned re-branding of the Company relating to its planned change of name to Edgio, Inc. following the closing of the transaction. Representatives of Goodwin provided an overview of the role and fiduciary duties of the Limelight board, and representatives of Goldman Sachs reviewed preliminary financial analyses on Limelight and Edgecast.

Also on March 3, 2022, Paul Weiss and Goodwin had a phone call to discuss and resolve outstanding items in the draft of the purchase agreement.

On March 6, 2022, the Limelight board held a meeting, at which members of senior management and representatives of each of Goldman Sachs and Goodwin were present, to consider approval of the proposed transaction with College Parent. At the meeting, representatives of Goldman Sachs, Goodwin and senior management updated the Limelight board regarding the recent interactions with College Parent, Yahoo and Apollo Funds and the status of the definitive transaction documentation. Goldman Sachs reviewed with the Limelight board Goldman Sachs’ financial analyses of the Aggregate Consideration (as defined in Goldman Sachs’ written opinion, dated March 6, 2022 the “written opinion”) to be paid by Limelight. The representatives of Goodwin reviewed the fiduciary duties of the directors in this context and, thereafter, reviewed the terms of the proposed purchase agreement and the related documentation. Goldman Sachs then delivered to the Limelight board its oral opinion, which was subsequently confirmed by delivery of the written opinion to the effect that, as of March 6, 2022, and based upon and subject to the factors and assumptions set forth therein, the Aggregate Consideration to be paid by Limelight in the transaction pursuant to the stock purchase agreement was fair from a financial point of view to Limelight. Following discussion and consideration of the purchase agreement and the other transactions contemplated by the purchase agreement (including the factors described in the section entitled “The Transaction—Recommendation of the Limelight Board and Its Reasons for the Transaction”), the members of the Limelight board unanimously adopted resolutions (i) determining that the purchase agreement and the transactions contemplated thereby, including the sale and the primary issuance, were advisable, fair to and in the best interests of Limelight and Limelight’s stockholders and (ii) approving and adopting the purchase agreement and the transactions contemplated thereby, including the issuance of shares of Limelight common stock pursuant to the purchase agreement, including the issuance of (a) Limelight common stock in connection with the sale, (b) the primary issuance purchaser shares and (c) the Limelight earnout shares upon the occurrence of a triggering event (as such term is defined in the purchase agreement).

Also on March 6, 2022, the parties executed the purchase agreement. Prior to the opening of the U.S. stock markets on the morning of March 7, 2022, the parties issued a joint press release announcing the transaction.

Recommendation of the Limelight Board and Its Reasons for the Transaction

The Limelight board carefully reviewed and considered the proposed transaction in consultation with Limelight’s senior management and legal and financial advisors and the Limelight board (i) determined that the purchase agreement and the transactions contemplated thereby, including the sale and the

 

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primary issuance, are advisable, fair to and in the best interests of Limelight and Limelight’s stockholders and (ii) approved and adopted the purchase agreement and the transactions contemplated thereby, including the issuance of shares of Limelight common stock pursuant to the purchase agreement, including the issuance of (a) Limelight common stock in connection with the sale, (b) the primary issuance purchaser shares and (c) the Limelight earnout shares upon the occurrence of a triggering event (as such term is defined in the purchase agreement). Accordingly, the Limelight board recommends that stockholders vote FOR the approval of the share issuance proposal at the annual meeting.

In reaching their decision to approve the stock purchase agreement, and to recommend that Limelight stockholders approve the stock issuance proposal at the annual meeting, the Limelight board considered the following positive reasons to support the purchase agreement:

 

   

combining Limelight and Edgecast will create a globally scaled, edge enabled software solutions provider with pro forma 2021 revenue of more than $500 million across cloud security and web applications, content delivery and edge video platform;

 

   

Limelight and Edgecast have historically focused on different customer pools, and acquiring Edgecast will allow Limelight to dramatically expand its potential customer base;

 

   

the current and prospective business environment in which Limelight operates, including international, national and local economic conditions, the competitive environment and the likely effect of these factors on Limelight and the execution of Limelight’s plans without the acquisition of Edgecast;

 

   

the belief that, after negotiations with Apollo Funds, Yahoo and College Parent and their respective representatives (as described in more detail under the section entitled “The TransactionBackground of the Transaction” located elsewhere in this proxy agreement) that the terms of the purchase agreement include the most favorable terms to Limelight, in the aggregate, to which Apollo Funds, Yahoo and College Parent were willing to agree;

 

   

the continuity of the Limelight board and its familiarity with, and understanding of, Limelight and the timeshare industry, as augmented by the expected addition of three members designated by College Parent, which will only add to the Limelight board’s understanding and knowledge of the combined company and add additional experience with the industry;

 

   

the oral opinion of Goldman Sachs, subsequently confirmed in writing, to the effect that, as of March 6, 2022 and based upon and subject to the factors and assumptions set forth therein, the Aggregate Consideration to be paid by Limelight in the transaction pursuant to the purchase agreement was fair from a financial point of view to Limelight, as more fully described under the section entitled “The TransactionOpinion of Limelight’s Financial Advisor” located elsewhere in this proxy statement, which full text of the written opinion is attached as Annex B to this proxy statement and is incorporated by reference in this proxy statement in its entirety;

 

   

the fact that Limelight has sufficient operating flexibility to conduct its business in the ordinary course prior to the consummation of the transaction;

 

   

the high degree of certainty that the transaction will close, and that will close in a timely manner, in light of the parties and the conditions and other terms set forth in the purchase agreement;

 

   

the conditions to closing contained in the purchase agreement, which are limited in number and scope, and which, in the case of the condition related to the accuracy of Limelight’s representations and warranties, is generally subject to a Purchaser Material Adverse Effect (as defined in the section of this proxy statement entitled “The Stock Purchase Agreement—Representations and Warranties”) qualification;

 

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the end date of December 7, 2022 (subject to extension under certain circumstances), which is expected to allow for sufficient time to complete the transaction;

 

   

the fact that Apollo Funds is a sophisticated investor and Apollo Funds’ willingness to invest in the combined company by taking stock consideration, which the Limelight board viewed as validation of the combined company’s prospect;

 

   

Apollo Funds agreed to certain company favorable governance terms under the stockholders agreement, including (a) limited approval rights and (b) a standstill and our ability to adopt a poison pill that would prevent the Apollo Funds from acquiring control of the combined company without negotiating with the full board of directors of the combined company;

 

   

Apollo Funds agreed to certain restrictions in the stockholders agreement on the manner and timing of the Apollo Funds’ ability to exit Limelight common stock, and such restrictions could be favorable to our stockholders;

 

   

Limelight’s rights to specific performance under the terms of the purchase agreement; and

 

   

the likelihood that the transaction would be consummated, in light of the experience, reputation and financial capabilities of Apollo Funds, Yahoo and College Parent.

In the course of its deliberations, the Limelight board also considered, among other things, the following negative factors:

 

   

the possibility that the transaction will not be consummated and the potential negative effects on Limelight’s business, operations, financial results and stock price;

 

   

the potential negative effects of the public announcement of the transaction on Limelight’s sales, operating results, business model transition, and stock price, its ability to retain key management, sales, engineering and other personnel, and its relationships with customers, suppliers and partners;

 

   

the restrictions on the conduct of Limelight’s business prior to the completion of the transaction, requiring Limelight to conduct its business in the ordinary course and preventing Limelight from taking certain specified actions, subject to specific limitations, all of which may delay or prevent Limelight from undertaking business opportunities pending completion of the transaction;

 

   

the significant costs involved in connection with entering into the purchase agreement and completing the transaction (many of which are payable whether or not the transaction is consummated) and the substantial time and effort of Limelight management required to complete the transaction, which may disrupt its business operations and have a negative effect on its financial results;

 

   

the potential earnings dilution to our stockholders following the closing of the transaction if synergies are not achieved;

 

   

our stockholders, who currently own all of the equity interests in Limelight, will own approximately 65% of the equity interest in the combined company on a fully diluted basis (see section entitled “Unaudited Pro Forma Condensed Combined Financial Information of Limelight and Edgecast” located elsewhere in this proxy statement for more information);

 

   

the conditions to the obligations of College Parent to complete the transaction and the right of College Parent to terminate the purchase agreement under certain circumstances;

 

   

the possibility that Limelight may be obligated to pay College Parent a termination fee of $9 million in the event that Limelight terminates the purchase agreement under certain circumstances;

 

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the fact that completion of the transaction requires certain regulatory clearances and consents, including under applicable antitrust laws;

 

   

the risk of significant decline in value of Edgecast’s business during the period between signing and closing;

 

   

the risk that the Apollo Funds exit the stock of the combined company which could drive down the share price of the stock of the combined company;

 

   

the risk that adding three members to the board of directors of the combined company could alter the dynamics of the board of directors in unproductive ways;

 

   

the risk that Edgecast employees may not successfully integrate into our culture;

 

   

the risk of litigation; and

 

   

the interests that certain Limelight directors and executive officers may have with respect to the transaction, in addition to their interests as Limelight stockholders generally, as described in the section entitled “The TransactionInterests of the Limelight’s Directors and Executive Officers in the Transaction” located elsewhere in this proxy statement

The preceding discussion of the information and factors considered by the Limelight board is not, and is not intended to be, exhaustive. In light of the variety of factors considered in connection with their evaluation of the transaction and the complexity of these matters, the Limelight board did not find it practicable to, and did not, quantify or otherwise attempt to rank or assign relative weights to the various factors considered in reaching their respective determinations. In considering the factors described above and any other factors, individual members of the Limelight board may have viewed factors differently or given different weight, merit or consideration to different factors. In addition, the Limelight board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the Limelight board, but rather the Limelight board conducted an overall review of the factors described above, including discussions with Limelight’s senior management and legal and financial advisors.

The foregoing discussion of the reasoning of the Limelight board and certain information presented in this section is forward-looking in nature and, therefore, the information should be read in light of the factors discussed in the section entitled “Special Note About Forward-Looking Statements.” located elsewhere in this proxy statement.

Opinion of Limelight’s Financial Advisor

Goldman Sachs & Co. LLC (“Goldman Sachs”) rendered its written opinion, dated March 6, 2022 (the “Goldman Sachs opinion”) to the Limelight board that, as of March 6, 2022 and based upon and subject to the factors and assumptions set forth therein, the aggregate consideration to be paid by Limelight in the transaction pursuant to the purchase agreement was fair from a financial point of view to Limelight. The “aggregate consideration” consists of the aggregate closing consideration, as adjusted pursuant to the terms of the purchase agreement, the Limelight earnout shares and the primary issuance purchase price.

The full text of the Goldman Sachs opinion, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the Goldman Sachs opinion, is attached as Annex B. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Limelight board in connection with its consideration of the transaction. The Goldman Sachs opinion is not a recommendation as to how any holder of Limelight common stock should vote with respect to the transaction, or any other matter.

 

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In connection with rendering the Goldman Sachs opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

   

the purchase agreement;

 

   

annual reports to stockholders and Annual Reports on Form 10-K of Limelight for the five fiscal years ended December 31, 2021;

 

   

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Limelight;

 

   

certain other communications from Limelight to its stockholders;

 

   

certain publicly available research analyst reports for Limelight;

 

   

the Edgecast financial statements for the years ended December 31, 2021, December 31, 2020 and December 31, 2019;

 

   

the Yahoo Management Edgecast Projections (summarized in the section entitled “Certain Unaudited Prospective Financial Information” located elsewhere in this proxy statement);

 

   

the Limelight Management Edgecast Projections, the Limelight Management Limelight Projections and the Limelight Management Combined Company Projections (summarized in the section entitled “Certain Unaudited Prospective Financial Information” located elsewhere in this proxy statement), in each case as prepared by management of Limelight and as approved for Goldman Sachs’ use by Limelight, which are referred to as the “forecasts” in this section, including the Limelight Management Synergies Projections (summarized in the section entitled “Certain Unaudited Prospective Financial Information” located elsewhere in this proxy statement), as approved for Goldman Sachs’ use by Limelight, which are referred to as the “synergies” in this section; and

 

   

certain internal estimates of the adjustments to the purchase price (as defined in the purchase agreement) pursuant to Sections 2.4 through 2.7 of the purchase agreement and of the number and timing of the Limelight earnout shares to be issued under Section 2.8 of the purchase agreement, in each case as prepared by management of Limelight and approved for Goldman Sachs’ use by Limelight, which are referred to as the “adjustment estimates”.

Goldman Sachs also held discussions with members of the senior managements of Limelight, Edgecast and Yahoo regarding their assessment of the strategic rationale for, and the potential benefits of, the transaction and the past and current business operations, financial condition, and future prospects of Edgecast and Limelight; reviewed the reported price and trading activity for Limelight common stock; compared certain financial information for Edgecast and certain financial and stock market information for Limelight with similar financial and stock market information for certain other companies the securities of which are publicly traded; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

For purposes of rendering this opinion, Goldman Sachs, with Limelight’s consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with Limelight’s consent that the forecasts, including the synergies, and the adjustment estimates were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Limelight. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Limelight, any of its subsidiaries or Edgecast and it was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transaction will be obtained without any adverse effect on Limelight or Edgecast or on the expected benefits of the transaction in any way meaningful to its analysis. Goldman Sachs

 

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has also assumed that the transaction will be consummated on the terms set forth in the purchase agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

Goldman Sachs’ opinion does not address the underlying business decision of Limelight to engage in the transaction or the relative merits of the transaction as compared to any strategic alternatives that may be available to Limelight; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view, as of the date of the Goldman Sachs opinion, of the aggregate consideration to be paid by Limelight in the transaction pursuant to the purchase agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the purchase agreement or the transaction or any term or aspect of any other agreement or instrument contemplated by the purchase agreement or entered into or amended in connection with the transaction, including the fairness of any ongoing obligations of Limelight, any allocation of the aggregate consideration, the ancillary agreements, and the fairness of the transaction to, or any consideration received in connection therewith by, the holders of any class of securities, creditors, or other constituencies of Limelight; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Limelight, or any class of such persons in connection with the transaction, whether relative to the aggregate consideration to be paid by Limelight in the transaction pursuant to the purchase agreement or otherwise. Goldman Sachs’ opinion was necessarily based on economic, monetary market and other conditions, as in effect on, and the information made available to it as of the date of the Goldman Sachs opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of the Goldman Sachs opinion. In addition, Goldman Sachs does not express any opinion as to the prices at which shares of Limelight common stock will trade at any time, as to the potential effects of volatility in the credit, financial and stock markets on Limelight, Yahoo or Edgecast or the transaction, or as to the impact of the transaction on the solvency or viability of Limelight, Yahoo or Edgecast or the ability of Limelight, Yahoo or Edgecast to pay their respective obligations when they come due. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Limelight board in connection with rendering the Goldman Sachs opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before March 4, 2022, the last trading day before the public announcement of the transaction, and is not necessarily indicative of current market conditions.

Illustrative Present Value of Future Share Price Analysis.

Goldman Sachs performed an illustrative analysis of the implied present value of an illustrative future value per share of Limelight common stock, based on theoretical future values, as a function of the company’s financial multiples, calculated by Goldman Sachs for the shares of Limelight common stock on a stand-alone basis and on pro forma bases giving effect to the transaction with synergies and without synergies. For this analysis, Goldman Sachs used the forecasts. Goldman Sachs first calculated the implied enterprise value, as of the end of each of fiscal years 2022 to 2024, by applying enterprise value to next twelve months (“NTM”) revenue multiples (which is referred to for the purpose of this section of this proxy statement as “EV/NTM revenue”) of 1.5x to 3.5x (in the case of the analysis on a stand-alone basis) and 2.0x to 4.0x (in the case of the analyses on a pro forma basis with the

 

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synergies and without the synergies) to revenue estimates from the forecasts for each of fiscal years of 2023 to 2025. These illustrative EV/NTM revenue multiples were derived by Goldman Sachs utilizing its professional judgment and experience, and taking into account current and historical EV/NTM revenue multiples for Limelight and Akamai Technologies, Inc. (“Akamai”). Although Akamai is not directly comparable to Limelight, Akamai was chosen because it is a publicly traded company with operations that, for purposes of analysis, may be considered similar to certain operations of Limelight. Goldman Sachs then subtracted the net debt of Limelight as of the applicable fiscal year ends, as set forth in the forecasts, from such implied enterprise values to obtain implied equity values of Limelight as of such fiscal year ends. Goldman Sachs then divided these implied present equity values by the number of fully diluted shares, including the impact of any Limelight earnout shares estimated by the management of Limelight to be issued as of such fiscal year ends, as provided by management of Limelight to Goldman Sachs. Goldman Sachs then discounted these implied future equity value per share amounts as of the fiscal year ends 2022 to 2024 back to December 31, 2021 to obtain implied present equity value per share amounts for Limelight, using an illustrative discount rate of 9.3%, reflecting an estimate of Limelight’s cost of equity. Goldman Sachs derived such discount rate by application of the capital asset pricing model (“CAPM”), which requires certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States financial markets generally. These analyses indicated ranges of illustrative implied present values of:

 

   

$2.18 to $5.96 per share of Limelight common stock (in the case of the analysis of Limelight on a stand-alone basis),

 

   

$4.40 to $8.82 per share of Limelight common stock (in the case of the analysis of Limelight on a pro forma basis giving effect to the transaction with the synergies), and

 

   

$4.30 to $8.44 per share of Limelight common stock (in the case of the analysis of Limelight on a pro forma basis giving effect to the transaction without the synergies).

Illustrative Discounted Cash Flow Analysis.

Using the forecasts, including the estimates for future usage of net operating losses included in the forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on Limelight on a stand-alone basis and on a pro forma basis giving effect to the transaction with the synergies and without the synergies, to derive ranges of illustrative present values per share of Limelight common stock.

Using discount rates ranging from 8.5% to 10.0%, reflecting estimates of Limelight’s weighted average cost of capital, Goldman Sachs discounted to present value as of December 31, 2021 (i) estimates of unlevered free cash flow for Limelight for the years 2022 through 2028 as reflected in the forecasts and (ii) a range of illustrative terminal values for Limelight, which were calculated by applying exit terminal year multiples, ranging from 12.0x to 16.0x, to the last twelve month adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) for the terminal year as reflected in the forecasts (which analysis implied perpetuity growth rates ranging from 6.0% to 8.1% on a stand-alone basis). Goldman Sachs derived such discount rates by application of the CAPM, which requires certain company-specific inputs, including the company’s target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the United States financial markets generally. The range of exit terminal year multiples was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account current and historical NTM Adjusted EBITDA multiples for Limelight and Akamai. Although Akamai is not directly comparable to Limelight, the company was chosen because it is a publicly traded company with operations that for purposes of analysis may be considered similar to certain operations of Limelight. Goldman Sachs derived ranges of illustrative enterprise values for Limelight by adding (i) the ranges of present values it derived above and (ii) the estimated aggregate present value of the benefits of Limelight’s net operating losses, or

 

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“NOLs,” for the years 2022 through 2028, as reflected in the forecasts, which Goldman Sachs calculated by discounting the estimated values of such NOLs for such years to present value as of December 31, 2021 using a discount rate of 9.25%, reflecting an estimate of Limelight’s weighted average cost of capital. Goldman Sachs then subtracted the net debt of Limelight of $33,330,579, as of December 31, 2021, as provided by management of Limelight to Goldman Sachs, from the ranges of illustrative enterprise values to derive ranges of illustrative equity values. Goldman Sachs then divided the ranges of illustrative equity values it derived by 136,099,530 shares of Limelight common stock plus the implied dilutive effect of options and restricted stock units (“RSUs”) based on 15,124,539 RSUs and 12,221,870 options outstanding as of March 4, 2022, including the impact of any Limelight earnout shares estimated by the management of Limelight to be issued, as provided by Limelight management to Goldman Sachs, to derive ranges of illustrative present values of:

 

   

$4.80 to $7.02 per share of Limelight common stock (in the case of the analysis of Limelight on a stand-alone basis),

 

   

$7.31 to $10.24 per share of Limelight common stock (in the case of the analysis of Limelight on a pro forma basis giving effect to the transaction with the synergies), and

 

   

$5.36 to $7.72 per share of Limelight common stock (in the case of the analysis of Limelight on a pro forma basis giving effect to the transaction without the synergies).

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Limelight, Yahoo or Edgecast or the transaction.

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Limelight board as to the fairness from a financial point of view of the aggregate consideration to be paid by Limelight in the transaction pursuant to the purchase agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Limelight, Yahoo, Edgecast, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

The aggregate consideration to be paid by Limelight in the transaction pursuant to the purchase agreement was determined through arm’s-length negotiations between Limelight and Yahoo and was approved by the Limelight board. Goldman Sachs provided advice to Limelight during these negotiations. Goldman Sachs did not recommend any specific amount of consideration to Limelight or the Limelight board or that any specific amount of consideration constituted the only appropriate consideration for the transaction.

As described in the section entitled “Recommendation of the Limelight Board and Its Reasons for the Transaction” located elsewhere in this proxy statement, Goldman Sachs’ opinion to the Limelight board was one of many factors taken into consideration by the Limelight board in making its determination to approve the purchase agreement. The foregoing summary does not purport to be a complete description

 

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of the analyses performed by Goldman Sachs in connection with the Goldman Sachs opinion and is qualified in its entirety by reference to the Goldman Sachs opinion of attached as Annex B.

Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Limelight, Yahoo, Edgecast and any of their respective affiliates and third parties, including Apollo Global Management, Inc. (“Apollo”) and Verizon Communications, Inc. (“Verizon”), both significant shareholders of Yahoo and their respective affiliates (collectively, the “significant shareholders”) and, as applicable, portfolio companies, or any currency or commodity that may be involved in the transaction. Goldman Sachs acted as financial advisor to Limelight in connection with, and participated in certain of the negotiations leading to, the transaction.

Goldman Sachs has provided certain financial advisory and/or underwriting services to Limelight and its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including the matters set forth in Annex B of this proxy statement.

Goldman Sachs also has provided certain financial advisory and/or underwriting services to Apollo and/or its affiliates and portfolio companies from time to time for which our Investment Banking Division has received, and may receive, compensation, including the matters set forth in Annex B of this proxy statement.

Goldman Sachs also has provided certain financial advisory and/or underwriting services to Verizon and/or its affiliates from time to time for which its Investment Banking Division has received, and may receive, compensation, including the matters set forth in Annex B to this proxy statement.

During the two-year period ended March 6, 2022, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to Limelight and/or its affiliates of approximately $2,379,753. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to Limelight, Yahoo, Apollo, Verizon and their respective affiliates and, as applicable, portfolio companies for which the Investment Banking Division of Goldman Sachs may receive compensation. Affiliates of Goldman Sachs also may have co-invested with Apollo and its affiliates from time to time and may have invested in limited partnership units of affiliates of Apollo from time to time and may do so in the future.

The Limelight board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transaction. Pursuant to that certain Letter Agreement, dated January 25, 2022, by and between Limelight and Goldman Sachs (the “engagement letter”), Limelight engaged Goldman Sachs to act as its financial advisor in connection with the transaction. The engagement letter between Limelight and Goldman Sachs provides for a transaction fee of $6,000,000 plus a discretionary amount of up to $4,000,000, $750,000 of which transaction fee became payable at announcement of the transaction, and the remainder of which is contingent upon consummation of the transaction. In addition, Limelight has agreed to reimburse Goldman Sachs for certain of its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

For further discussion on significant shareholders, see Annex B of this proxy statement.

 

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Certain Unaudited Prospective Financial Information

Limelight does not, as a matter of course, make public projections as to future performance or earnings beyond the current fiscal year. Limelight generally does not make public financial projections for extended periods given, among other things, the inherent difficulty of predicting financial performance for future periods and the likelihood that the underlying assumptions and estimates may not be realized. However, included below are certain unaudited financial forecasts that, as described below, were furnished to the Limelight board in connection with discussions concerning the transaction and were considered by the Limelight board in connection with its evaluation of the transaction, and were furnished to Goldman Sachs in connection with its financial analyses and in connection with its role as financial advisor as described in the section entitled “The Transaction—Opinion of Limelight’s Financial Advisor” located elsewhere in this proxy statement.

For internal purposes and in connection with the process leading to the purchase agreement, Limelight management prepared certain unaudited prospective financial information of Limelight on a stand-alone basis for the remainder of fiscal year 2021 and fiscal years 2022 through 2028 (the “Limelight Management Limelight Projections”). The estimates of Limelight’s future financial performance set forth in the section below entitled “Summary of the Limelight Management Limelight Projections” were prepared by Limelight management based on Limelight management’s reasonable best estimates, judgments and assumptions with respect to Limelight’s future financial performance at the time such estimates were prepared. The Limelight Management Limelight Projections were provided to the Limelight board and Goldman Sachs.

In connection with the transaction with Limelight, Yahoo management prepared certain unaudited prospective financial information for Edgecast for the remainder of fiscal year 2021 and fiscal year 2022 (the “Yahoo Management Edgecast Projections”). The estimates of Edgecast future financial performance set forth in the section entitled “Certain Unaudited Prospective Financial InformationSummary of the Yahoo Management Edgecast Projections” located elsewhere in this proxy statement were prepared by Yahoo management based on Yahoo management’s reasonable best estimates, judgments and assumptions with respect to Edgecast’s future financial performance at the time such estimates were prepared. The Yahoo Management Edgecast Projections were prepared by Yahoo management in connection with the transaction and were provided to the Limelight board, Limelight management and Goldman Sachs.

In order to have projections that would cover a longer period and would reflect certain differing assumptions with respect to future financial performance, Limelight management developed certain unaudited, prospective financial information with respect to Edgecast for the remainder of fiscal year 2021 and fiscal years 2022 through 2028 (the “Limelight Management Edgecast Projections”) based on its review of the Yahoo Management Edgecast Projections, discussions with Yahoo management, materials provided by Yahoo to Limelight management, industry data, and Limelight management’s judgment. The estimates of Edgecast future financial performance set forth in the section below entitled “Summary of the Limelight Management Edgecast Projections” were prepared by Limelight management based on Limelight management’s reasonable best estimates, judgments and assumptions with respect to Edgecast’s future financial performance at the time such estimates were prepared. None of Apollo, Yahoo or College Parent reviewed, commented on, or had any input on the Limelight Management Edgecast Projections. The Limelight Management Edgecast Projections were prepared by Limelight management at the direction of the Limelight board and were provided to the Limelight board and Goldman Sachs.

Limelight management, after discussions with Apollo and Yahoo, also estimated that the projected realization of (i) cost synergies would be $26 million and $44 million for each of fiscal years 2022 and 2023, respectively, and $49 million for each of fiscal years 2024, 2025, 2026, 2027 and 2028 and (ii) capital expenditures synergies would be $2 million for fiscal year 2022 and $3 million for each of

 

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fiscal years 2023, 2024, 2025, 2026, 2027 and 2028 (the “Limelight Management Synergies Projections”). Such synergies are not reflected in the Limelight Management Limelight Projections or the Limelight Management Edgecast Projections.

In addition, Limelight management prepared certain unaudited prospective financial information for the combined company for the remainder of fiscal year 2021 and for the fiscal years 2022 through 2028 by combining the Limelight Management Limelight Projections and the Limelight Management Edgecast Projections (the “Limelight Management Combined Company Projections” and together with the Limelight Management Limelight Projections, the Yahoo Management Edgecast Projections, the Limelight Management Edgecast Projections and the Limelight Management Synergies Projections and the other forward looking information summarized below, the “Financial Projections”). The Limelight Management Combined Company Projections were provided to the Limelight board and Goldman Sachs.

The Financial Projections were not prepared with a view toward public disclosure and, accordingly, do not necessarily comply with published guidelines of the SEC or established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or generally accepted accounting principles (“GAAP”). Limelight’s independent registered public accounting firm has not compiled, examined, audited or performed any procedures with respect to the Financial Projections, and has not expressed any opinion or any other form of assurance regarding this information or its achievability. Edgecast’s independent auditor has not compiled, examined, audited or performed any procedures with respect to the Financial Projections, and has not expressed any opinion or any other form of assurance regarding this information or its achievability.

The tables below present summaries of the Financial Projections as prepared by Limelight management and, in the case of the Yahoo Management Edgecast Projections, prepared by Yahoo management, and provided by Limelight management to the Limelight board. The Financial Projections also were provided to Goldman Sachs for use and reliance by Goldman Sachs in connection with its financial analyses and in connection with its opinion to the Limelight board as described in the section entitled “The Transaction—Opinion of Limelight’s Financial Advisor” located elsewhere in this proxy statement.

The Financial Projections summarized below are included solely to provide Limelight stockholders access to financial projections that were made available to the Limelight board in connection with the proposed transaction, and are not included in this proxy statement to influence a Limelight stockholder’s decision whether to vote to approve the share issuance proposal or for any other purpose.

The Financial Projections summarized below, while presented with numerical specificity, were based on numerous variables and assumptions that necessarily involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions, all of which are difficult or impossible to predict and many of which are beyond Limelight’s control. The Financial Projections also reflect assumptions that are subject to change, including, but not limited to, assumptions regarding: the revenue growth rate of Limelight and Edgecast, the capital expenditures of Limelight and Edgecast remaining constant, a 21% tax rate, in the case of Limelight, the change in Net Working Capital being between (4)% and 3% of revenue through 2028, in the case of Edgecast, the change in Net Working Capital remaining (1)% of revenue, and the standalone costs of Edgecast of $7 million in 2022 and 2023 decreasing to $5 million thereafter. The Financial Projections cover multiple years, and thus, by their nature, they become subject to greater uncertainty with each successive year. Important factors that may affect actual results and the achievability of the Financial Projections include, but are not limited to: general economic conditions and disruptions in the financial, debt, capital, credit or securities markets; industry and market dynamics; the risks and uncertainties

 

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described in the section entitled “Risk Factors—Risks Related to Edgecast’s Business” in this proxy statement; and those risks and uncertainties described in Limelight’s Annual Report on Form 10-K, as amended for the fiscal year ended December 31, 2021 and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. See also the section entitled “Special Note About Forward-Looking Statements” located elsewhere in this proxy statement.

In addition, the Financial Projections reflect assumptions that are subject to change and are susceptible to multiple interpretations based on actual results, revised prospects for Limelight’s and/or Edgecast’s business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated when the Financial Projections were prepared. In addition, the Financial Projections may be affected by Limelight’s ability to achieve strategic goals, objectives and targets over the applicable period. Accordingly, actual results will differ, and may differ materially, from those contained in the Financial Projections. The Financial Projections assume organic company growth without business expansions from mergers and acquisitions or alternative business or licensing models. In addition, the Financial Projections do not take into account any circumstances, transactions or events occurring after the date on which the Financial Projections were prepared and do not give effect to any changes or expenses as a result of the transaction or any effects of the transaction. There can be no assurance that the financial results in the Financial Projections will be realized, or that future actual financial results will not materially vary from those estimated in the Financial Projections.

Certain of the measures included in the Financial Projections, including adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), are financial measures that are not calculated in accordance with GAAP. Such non-GAAP financial measures should not be viewed as a substitute for GAAP financial measures, and may be different from non-GAAP financial measures used by other companies. Furthermore, there are limitations inherent in non-GAAP financial measures, because they exclude charges and credits that are required to be included in a GAAP presentation. Accordingly, non-GAAP financial measures should be considered together with, and not as an alternative to, financial measures prepared in accordance with GAAP. Financial measures provided to a financial advisor are excluded from the SEC’s rules concerning non-GAAP financial measures and, therefore, are not subject to SEC rules regarding disclosures of non-GAAP financial measures in disclosures relating to a proposed business combination such as the transaction if the disclosure is included in a document such as this proxy statement, which would otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure. Reconciliations of non-GAAP financial measures were not prepared or relied upon by the Limelight board in connection with their consideration of the purchase agreement or by Goldman Sachs for purposes of its financial analyses. Accordingly, Limelight has not provided a reconciliation of every non-GAAP financial measure included in the Financial Projections.

 

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Summary of the Limelight Management Limelight Projections

Set forth below is a summary of the Limelight Management Limelight Projections, which were based on information as prepared by Limelight management in connection with Limelight’s evaluation of the transaction. The Limelight Management Limelight Projections were presented to the Limelight board for the purposes of considering and evaluating the transaction and were approved for use by Goldman Sachs for purposes of its financial analysis and fairness opinion (summarized in the section entitled “The Transaction—Opinion of Limelight’s Financial Advisor” located elsewhere in this proxy statement).

 

($ in millions)

 
     Fiscal Year Ending December 31,  
     2021     2022     2023     2024     2025     2026     2027     2028  

Total Revenue

   $ 218     $ 255     $ 291     $ 329     $ 379     $ 435     $ 491     $ 547  

% Growth

     (5 )%      17     14     13     15     15     13     11

Adj. EBITDA

   $ 13     $ 24     $ 40     $ 47     $ 58     $ 76     $ 98     $ 123  

% Margin

     6     9     14     14     15     18     20     23

(-) Stock Based Compensation

     (16     (16     (16     (16     (16     (16     (16     (16

(-) Taxes (1)

     —         —         —         —         (0     (3     (6     (10

(-) Capex

     (16     (24     (29     (33     (38     (44     (49     (55

(-) Change in Net Working Capital

     6       (10     (6     9       (6     (7     (7     (8

Unlevered Free Cash Flow(2)

   $ (14   $ (26   $ (12   $ 7     $ (3   $ 7     $ 19     $ 35  

 

(1) 

Assumes marginal tax rate of 21% and that Limelight is a full cash taxpayer. NOLs valued separately (See the section entitled “The TransactionOpinion of Limelight’s Financial Advisor” located elsewhere in this proxy statement).

(2)

Certain total amounts do not sum due to rounding.

In addition, Limelight estimates that its net debt will be $59 million as of December 31, 2022, $57 million as of December 31, 2023, and $37 million as of December 31, 2024.

Summary of the Yahoo Management Edgecast Projections

Set forth below is a summary of the Yahoo Management Edgecast Projections, which were provided by Yahoo management to Limelight management and Goldman Sachs and were not adjusted by Limelight management. The Yahoo Management Edgecast Projections were based upon certain financial, operating and commercial assumptions developed solely using the information available to Yahoo management.

 

($ in millions)

 
     Fiscal Year Ending
December 31,
 
     2021     2022  

Total Revenue(1)

   $ 285     $ 341  

% Growth

     4     20

Adj. EBITDA (excl. standalone costs)

   $ (1   $ 27  

% Margin

     (0 )%      8

Adj. EBITDA – Capex (excl. standalone costs)

   $ (19   $ 9  

% Margin

     (7 )%      3

 

(1) 

Calculation of the total revenue excludes any barter transactions.

 

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Summary of the Limelight Management Edgecast Projections

Set forth below is a summary of the Limelight Management Edgecast Projections prepared by Limelight management. The Limelight Management Edgecast Projections were presented to the Limelight board for the purposes of considering and evaluating the transaction and were approved to be provided to Goldman Sachs for purposes of its financial analysis and fairness opinion (summarized in the section entitled “The Transaction—Opinion of Limelight’s Financial Advisor” located elsewhere in this proxy statement).

 

($ in millions)

 
     Fiscal Year Ending December 31,  
     2021     2022     2023     2024  

Total Revenue(1)

   $ 285     $ 275     $ 300     $ 317  

% Growth

     4     (3 )%      9     6

Adj. EBITDA

   $ (1   $ (6   $ 10     $ 38  

% Margin

     (0 )%      (2 )%      3     12

Adj. EBITDA – Capex

   $ (19   $ (27   $ (9   $ 19  

% Margin

     (7 )%      (10 )%      (3 )%      6

 

(1) 

Calculation of the total revenue excludes any barter transactions.

Summary of the Limelight Management Synergies Projections

Set forth below is a summary of the Limelight Management Synergies Projections prepared by Limelight management. The Limelight Management Synergies Projections were presented to the Limelight board for the purposes of considering and evaluating the transaction and were approved to be provided to Goldman Sachs for purposes of its financial analysis and fairness opinion (summarized in the section entitled “The Transaction—Opinion of Limelight’s Financial Advisor” located elsewhere in this proxy statement).

 

($ in millions)

 
     Fiscal Year Ending December 31,  
     2022     2023     2024      2025      2026      2027      2028  

Cost Synergies

               

Post-Tax Cost

   $ 26     $ 44     $ 49      $ 49      $ 49      $ 49      $ 49  

Post-Tax Cost Synergies

   $ 20     $ 35     $ 38      $ 38      $ 38      $ 38      $ 38  

Synergy-Related Costs

                  

Costs to Achieve

   $ (3     —         —          —          —          —          —    

One-Time Separation Costs

   $ (6   $ (2     —          —          —          —          —    

Post-Tax Synergy-Related Costs

   $ (7   $ (2   $ 0      $ 0      $ 0      $ 0      $ 0  

Capex Synergies

   $ 2     $ 3     $ 3      $ 3      $ 3      $ 3      $ 3  

Total Post-Tax Synergies(1)

   $ 16     $ 35     $ 41      $ 41      $ 41      $ 41      $ 41  

 

(1) 

Certain total amounts do not sum due to rounding.

 

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Summary of the Limelight Management Combined Company Projections

Set forth below is a summary of Limelight Management Combined Company Projections prepared by Limelight management, which were reviewed by the Limelight board. The Limelight Management Combined Company Projections were presented to the Limelight board for the purposes of considering and evaluating the transaction and were approved to be provided to Goldman Sachs for purposes of its financial analysis and fairness opinion (summarized in the section entitled “The Transaction—Opinion of Limelight’s Financial Advisor” located elsewhere in this proxy statement).

 

($ in millions)

 
     Fiscal Year Ending December 31,  
     2021     2022     2023     2024     2025     2026     2027     2028  

Combined Company Revenue

   $ 502     $ 530     $ 591     $ 646     $ 720     $ 802     $ 888     $ 978  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Growth

       6     11     9     11     11     11     10

Adjusted EBITDA (excluding Stock Based Compensation, Including Standalone Costs)

   $ 11     $ 46     $ 97     $ 139     $ 167     $ 192     $ 221     $ 254  

% Margin

     2     9     16     22     23     24     25     26

(-) Stock Based Compensation (including Edgecast Cash to Stock Conversion)

     (29     (39     (40     (41     (42     (43     (45     (46

(-) Taxes

     —         —         (1     (9     (13     (17     (21     (26

(-) Capex

     (34     (44     (48     (52     (59     (66     (74     (82

(-) Costs to Achieve

     —         (3     —         —         —         —         —         —    

(-) One Time Separation Costs

     —         (6     (2     —         —         —         —         —    

(+) Capex Savings

     —         2       3       3       3       3       3       3  

(-) Change in Net Working Capital

     (5     (5     (6     (6     (7     (8     (9     (10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unlevered Free Cash Flow(1)

   $ (57   $ (49   $ 2     $ 33     $ 48     $ 61     $ 75     $ 93  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Certain total amounts do not sum due to rounding.

In addition, Limelight estimates that the combined company’s net debt will be $46 million as of December 31, 2022, $5 million as of December 31, 2023, and $(77) million as of December 31, 2024.

Reconciliation of the Limelight Management-Determined Adjusted EBITDA for Edgecast

Set forth below is reconciled to the Adjusted EBITDA for Edgecast for the year ended December 31, 2021 as calculated by Limelight management to Edgecast’s net loss for the year ended December 31, 2021 (see the section entitled “Combined Financial Statements of Edgecast” located elsewhere in this proxy statement). In connection with considering and evaluating the transaction, the Limelight board and management took into account, among other matters, Edgecast’s Adjusted EBITDA, as calculated by Limelight management.

 

($ in millions)

 
     Year Ended
December 31, 2021
 

Carve-out net loss

   $ (89

Depreciation and amortization

     57  

Interest expense

     4  

Income tax expense

     (5

Share-based compensation

     9  

Transaction, transition, and other expenses

     22  
  

 

 

 

Adj. EBITDA

   $ (2
  

 

 

 

 

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The inclusion of selected elements of the Financial Projections in the tables and accompanying narrative above should not be regarded as an indication that Limelight and/or any of Limelight’s affiliates, officers, directors, advisors or other representatives consider the Financial Projections to be necessarily predictive of actual future events, and this information should not be relied upon as such. The Financial Projections were based upon certain financial, operating and commercial assumptions developed solely using the information available to Limelight management at the time the Financial Projections were created. None of Limelight and/or its affiliates, officers, directors, advisors or other representatives gives any Limelight stockholder or any other person any assurance that actual results will not differ materially from the Financial Projections and, except as otherwise required by law, Limelight and/or its affiliates, officers, directors, advisors or other representatives undertake no obligation to update or otherwise revise or reconcile the Financial Projections to reflect circumstances existing after the date on which the Financial Projections were prepared or to reflect the occurrence of future events, even in the event that any or all of the assumptions and estimates underlying the Financial Projections are shown to be in error. Limelight has made no representation to College Parent, Yahoo or Apollo concerning the Financial Projections in the purchase agreement or otherwise.

In light of the foregoing factors and the uncertainties inherent in the Financial Projections, Limelight stockholders are cautioned not to place undue, if any, reliance on such Financial Projections.

Interests of Limelight’s Directors and Executive Officers in the Transaction

In considering the recommendation of the Limelight board to vote “FOR” the stock issuance proposal, you should be aware that certain members of the Limelight board and certain of Limelight’s executive officers may have interests in the transaction that may be in addition to, or different from, your interests as a Limelight stockholder. These interests may create the appearance of conflicts of interest. The Limelight board was aware of these potential conflicts of interest during its deliberations on the merits of the transaction and in making its decision to approve the purchase agreement and the issuance of Limelight common stock to College Parent. These interests include the appointment of certain directors to competitors of Edgecast.

Effective as of closing of the transaction, the Limelight board will expand from its current size of eight members to nine members. Two members of the Limelight board prior to the transaction, Jefferey T. Fisher and Marc Debevoise, will resign upon the closing, and, pursuant to the stockholders agreement, three new members designated by College Parent will be appointed to the Limelight board at closing.

The transaction will not constitute a “change in control” for purposes of our currently outstanding equity-based awards and current executive severance agreements and we do not anticipate any payments, accelerated vesting or benefit enhancements to be triggered for our executive officers by the transaction.

Accounting Treatment

Limelight and Edgecast prepare their financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The transaction will be accounted for in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations, with Limelight being considered the accounting acquiror. Accordingly, Limelight will measure the assets acquired and liabilities assumed of Edgecast based on their estimated fair values as of the closing date of the transaction, with any excess aggregate closing consideration being allocated to goodwill. For more information, see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information of Limelight and Edgecast” located elsewhere in this proxy statement.

 

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No Appraisal Rights

Limelight’s stockholders are not entitled to appraisal or dissenters’ rights in connection with the transaction or any of the other transactions contemplated by the purchase agreement.

Material United States Federal Income Tax Consequences of the Transaction

Limelight stockholders will not recognize any gain or loss as a result of the transaction related to their ownership of Limelight common stock. Accordingly, there are no material U.S. federal income tax consequences to you as a result of the transaction.

Regulatory Approvals Required for the Transaction

We and College Parent have agreed to use each of our reasonable best efforts to obtain all governmental and regulatory clearances and approvals required to complete the transactions contemplated by the purchase agreement, including our reasonable best efforts to: (i) resolve such objections, if any, as may be asserted by any governmental authority with respect to the transactions contemplated by the purchase agreement, provided, that neither us nor College Parent shall be under any obligation to: (a) litigate or contest any administrative or judicial action or proceeding or any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, or (b) make proposals, execute or carry out agreements or submit to orders providing for (1) the sale, divestiture or other disposition or holding separate (through the establishment of a trust or otherwise) of any assets or categories of assets of Limelight, any of its affiliates or Edgecast, or the holding separate of shares of capital stock of Edgecast, (2) the imposition of any limitation on the ability of Limelight or any of its affiliates to freely conduct their business or own such assets or to acquire, hold or exercise full rights of ownership of shares of capital stock of Edgecast, or (3) any modification or waiver of the terms and conditions of the purchase agreement, (c) otherwise agree to any course of conduct (or refrain from taking any action) with respect to, any assets, rights, product lines, businesses, properties, divisions or operations, or, in each case, any interests therein, of Limelight or such affiliates, or the business of Edgecast; and (ii) file or cause to be filed, as promptly as practicable, but in any event no later than ten Business Days after the date of the Purchase Agreement, notifications under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”).

Under the HSR Act, certain transactions, including the transaction, may not be completed until notifications have been given and information furnished to the Antitrust Division of the Department of Justice (“Antitrust Division”) and the Federal Trade Commission (“FTC”) and all statutory waiting period requirements have been satisfied. We and College Parent filed (or caused to be filed) the Notification and Report Forms with the Antitrust Division and the FTC on March 18, 2022. Filing an HSR Notification and Report Form initiated a 30-day waiting period, during which the parties were not permitted to close the acquisition. The relevant waiting period under the HSR Act expired at 11:59 p.m. EST on April 18, 2022 and satisfied one of the conditions to the completion of the transaction.

At any time before or after the completion of the transaction, and notwithstanding the expiration or termination of the waiting period under the HSR Act, the FTC, Antitrust Division, any U.S. state or any other governmental authority could take action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the transaction or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. While there can be no assurance that a challenge to the transaction on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful, we do not expect any regulatory authority, state or private party to take legal action under the antitrust laws.

Limelight is not aware of any other material regulatory approvals or actions that are required for completion of the transaction that have not been obtained. It is presently contemplated that if any such

 

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additional regulatory approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Nasdaq Listing of Limelight Common Stock

We have agreed to cause the shares of Limelight common stock to be issued in connection with the transaction to be approved for listing on Nasdaq.

 

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THE STOCK PURCHASE AGREEMENT

The following is a summary of the material provisions of the purchase agreement, a copy of which is attached as Annex A to this proxy statement and is incorporated into this proxy statement by reference. We urge you to carefully read this entire proxy statement, including the annexes and the other documents to which we have referred you. You should also review the section titled “Where You Can Find Additional Information and Incorporation of Certain Documents by Reference.

The purchase agreement has been included to provide you with information regarding its terms, and we recommend that you read it in its entirety. The purchase agreement is a contractual document that establishes and governs the legal relations between the parties with respect to the transaction, the other agreements contemplated by the purchase agreement, and the transactions contemplated by the purchase agreement.

The purchase agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of the purchase agreement or other specific dates specified in the purchase agreement. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract between the respective parties and are subject to representations, warranties, covenants and agreements contained in the purchase agreement, which were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the purchase agreement, may be subject to limitations agreed upon by the contracting parties (including being qualified by a confidential disclosure schedule made for the purposes of allocating contractual risk between the parties to the purchase agreement instead of establishing these matters as facts), and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors, security holders, or securities laws. Investors and security holders are not third-party beneficiaries under the purchase agreement and should not rely on the representations, warranties, covenants and agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any party to the purchase agreement. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the purchase agreement, which subsequent information may or may not be fully reflected in Limelight’s public disclosures.

The representations and warranties in the purchase agreement and the description of them in this proxy statement should not be read alone but instead should be read in conjunction with the other information contained in the reports, statements and filings Limelight publicly files with the SEC. Such information can be found elsewhere in this proxy statement and in the public filings Limelight makes with the SEC, as described in the section titled “Where You Can Find Additional Information and Incorporation of Certain Documents by Reference.

Structure of the Transaction

Upon the terms and subject to the conditions set forth in the purchase agreement, at the closing, Limelight will cause its indirect, wholly-owned subsidiary to (i) purchase all of the right, title and interest to the outstanding shares of Edgecast common stock and (ii) acquire certain Edgecast-related businesses and assets from College Parent or its applicable subsidiary. Additionally, Limelight will, prior to the closing, issue a number of shares of Limelight common stock to its indirect, wholly-owned subsidiary, which will sell those shares of Limelight common stock to College Parent in exchange for the primary issuance purchase price.

Closing of the Transaction

The closing will take place remotely by conference call and electronic exchange and delivery of signatures and documents, on the second business day following the satisfaction or waiver of the

 

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conditions to closing described below under “Conditions to the Completion of the Transaction” (other than those conditions that by their nature are to be satisfied, or waived, on the date of the closing, but subject to the satisfaction or waiver of those conditions) or at such other place, time or date as may be mutually agreed upon in writing by Limelight and College Parent.

Effect of the Closing

Pursuant and subject to the terms and conditions set forth in the purchase agreement, at the closing, among other things:

 

   

College Parent will deliver to Limelight: (i) evidence of book-entry transfer of the Edgecast common stock, (ii) duly executed counterpart signature pages to the ancillary agreements and other agreements required by the terms of the purchase agreement, (iii) by wire transfer, the primary issuance purchase price and (iv) a duly executed IRS Form W-9.

 

   

Limelight will (i) deliver to College Parent: (A) evidence of book-entry transfer of the purchaser common share closing consideration (as defined in the purchase agreement), (B) evidence of book-entry transfer of the primary issuance purchaser shares, (C) evidence of book-entry transfer of any Limelight earnout shares to the extent required by the terms of the purchase agreement and (D) duly executed counterpart signature pages to the ancillary agreements and other agreements required by the terms of the purchase agreement and (ii) pay any transaction expenses that College Parent so requests in writing that Limelight pay pursuant to the estimated closing statement (as defined in the purchase agreement).

Transaction Consideration

Pursuant and subject to the terms and conditions set forth in the purchase agreement, at the closing Limelight will issue to its indirect, wholly-owned subsidiary, and its indirect, wholly-owned subsidiary will transfer to College Parent, (i) in exchange for the Edgecast common stock and in consideration of the consummation of the local transfers by College Parent, $270,000,000 worth of its common stock and (ii) in exchange for a one-time payment by College Parent of $30,000,000, an additional $30,000,000 worth of Limelight common stock, in each case at the share price of $4.1168 (which is the 30-day trailing VWAP as of March 4, 2022). In the event that the sale price of Limelight common stock exceeds certain thresholds during the period beginning on March 6, 2022 and ending on the third anniversary of the closing of the transaction, Limelight will be required to issue up to an additional $100,000,000 of Limelight common stock at certain trigger prices for delivery by its indirect, wholly-owned subsidiary to College Parent in order to satisfy earnout obligations pursuant to the purchase agreement.

Treatment of Long-Term Incentive and Retention Awards

Pursuant to the purchase agreement, College Parent shall retain all liabilities in respect of each long-term cash or equity-based incentive (each an “incentive award”) or retention award granted to any transferred business employee (as defined in the purchase agreement) that is outstanding as of closing. Each such incentive award will be treated as though the transferred business employee is involuntarily terminated by College Parent without cause (or as a result of retirement, as applicable) upon the closing with respect to the accelerated vesting provisions of such award.

With respect to the portions of certain of the incentive awards that are forfeited at the closing under the terms of such awards, Limelight will grant to each transferred business employee who previously held such an award a replacement long-term cash award (each a “replacement award”). Each replacement award will be subject to the same vesting (including accelerated vesting on termination of employment), payment and forfeiture provisions as applied to the corresponding forfeited incentive award. If a replacement award is earned by a transferred business employee in accordance with the

 

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terms of such replacement award, Limelight shall pay the applicable cash amount to such transferred business employee and College Parent will reimburse Limelight for such payment promptly, but in any event no later than ten business days following notice thereof from Limelight. With respect to any annual bonus that is accrued by College Parent with respect to a transferred business employee for the portion of the 2022 calendar year ending on the date of the closing, if such transferred business employee remains employed with Limelight (or its applicable subsidiary) through December 31, 2022, Limelight (or its applicable subsidiary) will pay the amount of such accrued annual bonus to such transferred business employee following December 31, 2022 concurrently when Limelight otherwise makes annual bonus payments to its employees, and College Parent will reimburse Limelight for such payment promptly, but in any event no later than ten business days following notice thereof from Limelight.

Representations and Warranties

The purchase agreement contains representations and warranties made by Limelight to College Parent, on the one hand, and by Edgecast Inc., Edgecast Limited, Edgecast Services Limited and Edgecast Canada ULC and College Parent to Limelight, on the other hand. Such representations and warranties (i) were made solely for the benefit of the parties, (ii) are subject to limitations agreed upon by the parties, (iii) are not intended to be treated as categorical statements of fact, but rather as a way of allocating contractual risk among the parties, (iv) may be subject to standards of materiality applicable to the parties that differ from what might be viewed as material to stockholders, (v) are qualified by information in confidential disclosure schedules delivered to Limelight by College Parent, on the one hand, and College Parent and the transferred entities to Limelight, on the other hand, concurrently with the execution and delivery of the purchase agreement, which contain information that modify, qualify and create exceptions to the representations and warranties set forth in the purchase agreement and (vi) were made only as of the date of the purchase agreement or such other date or dates as may be specified in the purchase agreement. Accordingly, investors and others should not rely on the representations and warranties, or any descriptions thereof, as characterizations of the actual state of facts or condition of Limelight, College Parent, the transferred entities or any of their respective subsidiaries or affiliates.

College Parent’s representations and warranties relate to, among other things:

 

   

organization and qualification;

 

   

authority with respect to the execution and delivery of the purchase agreement and the due and valid execution and delivery of the purchase agreement;

 

   

no conflicts with or violations of College Parent’s organizational documents, other contracts and applicable law;

 

   

ownership and title to assets;

 

   

litigation;

 

   

absence of untrue statements of material fact in information provided by College Parent;

 

   

College Parent having conducting its own independent investigation of Limelight.

The transferred entities’ representations and warranties relate to, among other things:

 

   

organization and qualification;

 

   

authority with respect to the execution and delivery of the purchase agreement and the due and valid execution and delivery of the purchase agreement;

 

   

no conflicts with or violations of such entities’ organizational documents, other contracts and applicable law;

 

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ownership and title to assets;

 

   

litigation;

 

   

capitalization;

 

   

financial statements;

 

   

undisclosed liabilities;

 

   

litigation;

 

   

compliance with laws;

 

   

material contracts;

 

   

transferred entity and College Parent benefit plans;

 

   

employees and labor matters;

 

   

taxes;

 

   

sufficiency of assets;

 

   

insurance;

 

   

licenses, permits and authorizations required to conduct the business;

 

   

real property;

 

   

intellectual property;

 

   

information technology and data security;

 

   

data privacy;

 

   

environmental matters;

 

   

absence of certain changes relating to the business;

 

   

absence of affiliate contracts;

 

   

broker’s fees;

 

   

top customers and suppliers;

 

   

accounts receivable and accounts payable.

Limelight’s representations and warranties relate to, among other things:

 

   

organization and qualification;

 

   

authority with respect to the execution and delivery of the purchase agreement and the due and valid execution and delivery of the purchase agreement;

 

   

no conflicts with or violations of Limelight’s organizational documents, other contracts and applicable law;

 

   

capitalization;

 

   

financial statements;

 

   

absence of certain undisclosed liabilities;

 

   

litigation;

 

   

Limelight SEC reports;

 

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compliance with certain applicable laws;

 

   

material contracts;

 

   

Limelight benefit plans;

 

   

employees and labor matters;

 

   

taxes;

 

   

insurance;

 

   

licenses, permits and authorizations;

 

   

real property;

 

   

intellectual property;

 

   

information technology and data security;

 

   

data privacy;

 

   

environmental matters;

 

   

absence of certain changes relating to Limelight’s business;

 

   

absence of related-party contracts;

 

   

broker’s fees;

 

   

solvency;

 

   

Limelight’s acquisition of the Edgecast common stock for investment purposes;

 

   

Limelight having conducting its own independent investigation of the transferred entities and the business.

Many of the representations and warranties in the purchase agreement are qualified by a “materiality” or “material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct, individually or in the aggregate, would, as the case may be, be material or have a material adverse effect). Please refer to the definitions of “seller material adverse effect”, “business material adverse effect” and “purchaser material adverse effect” in the purchase agreement for the full description of the definitions of “material adverse effect” applicable in the purchase agreement.

Conduct of Business Prior to the Completion of the Transaction

Each of Limelight and the transferred entities has undertaken certain covenants in the purchase agreement restricting the conduct of their respective businesses between the date of the purchase agreement and the closing. In general, each of the Limelight and the transferred entities has agreed to, and to cause our and their respective subsidiaries to, carry on their respective businesses in the ordinary course of business and to use reasonable best efforts to preserve intact its business relationships with material customers, suppliers, distributors, lessors and others having material business dealings with such parties. However, each of the transferred entities and Limelight may deviate from the ordinary course covenants, if, among other things, after reasonable prior consultation with the other party, in order to take reasonable measures to comply with any law or order issued by a governmental entity in connection with SARS-CoV-2 or COVID-19, and any evolutions or mutations thereof or related or associated epidemics, pandemic or disease outbreaks.

Each of Limelight and the transferred entities has also agreed to various specific restrictions relating to the conduct of its business, including with respect to the below (subject in each case to certain exceptions, including those specified below or in the purchase agreement or disclosed in the confidential disclosure schedules provided to the other party).

 

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In the case of the transferred entities:

 

   

not (1) amend their organizational documents, (2) split, combine or reclassify their outstanding equity interests, or (3) declare, set aside or pay any dividend or distribution to any person other than a transferred entity;

 

   

other than to a transferred entity, not (1) issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any equity interests or (2) pledge or agree to pledge any assets of the transferred entities (other than, in each case of clauses (1) and (2), in the case of pledges, permitted liens);

 

   

not (1) incur indebtedness for borrowed money outstanding at any time (other than intercompany indebtedness solely among the transferred entities, any borrowings under credit facilities in effect on the date of the purchase agreement that will be released or repaid at or prior to the closing), (2) guarantee any obligations of any of College Parent or its subsidiaries, other than the transferred entities (the “seller group”) (other than any guarantee that will be released at or prior to the closing), or (3) make any acquisition of any assets other than acquisitions of supplies, equipment, bandwidth or other assets for the purpose of being used in the ordinary course of business or any capital expenditure;

 

   

not (A) grant to any business employee (as defined in the purchase agreement) any increase in compensation or benefits, including but not limited to severance or termination pay, (B) adopt or enter into any transferred entity benefit plan (as defined in the purchase agreement) or adopt, enter into or materially amend any seller benefit plan (as defined in the purchase agreement), (C) hire, engage or terminate without cause, any business employee with annual compensation in excess of $150,000, (D) take any action to accelerate the payment, funding, right to payment or vesting of any rights, compensation or benefits with respect to any business employee, under any seller benefit plan, (E) grant or announce any equity or equity-based incentive awards to any business employee or (F) agree to pay to any business employee any pension, retirement allowance or other employee benefit not required by any existing benefit plan as in effect on the date hereof (or as adopted, entered into or amended after the date hereof as permitted hereunder), except, in each case, (x) as required by applicable law or existing benefit plans (as defined in the purchase agreement) or other written agreements in effect on the date hereof (or adopted, entered into or amended after the date hereof as permitted hereunder) or (y) to the extent such action similarly affects other similarly-situated employees of the seller group or would be taken as part of the seller group’s or the transferred entities’ customary performance management and pay review cycle in the ordinary course of business;

 

   

except as required by applicable law or the terms of a collective bargaining or other labor agreement, in each case, covering business employees outside of the United States, not (A) negotiate, extend, enter into, terminate or modify any collective bargaining agreement or (B) recognize or certify any labor union or labor organization, works council, or group of employees as the collective bargaining representative for any business employee;

 

   

not (A) change the responsibilities of any employee as of the date of the purchase agreement, such that the person is no longer a business employee, (B) change the responsibilities of any person, who was not a business employee as of the date of the purchase agreement, such that the person becomes a business employee, (C) transfer any business employee out of the transferred entities or (D) transfer any employee into the transferred entities who is not a business employee;

 

   

not implement or announce any layoffs; furloughs; reductions in compensation, hours or benefits; or facility or departmental closures, in each case, affecting any group of business employees;

 

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not make any material change to its methods of financial accounting, except as required by a change in, or to comply with GAAP (or any interpretation thereof) or applicable law;

 

   

except as set forth in the capital budget of the business (as defined in the purchase agreement) made available to Limelight prior to the date hereof, not commit or authorize any commitment to make any capital expenditures in excess of $100,000 in the aggregate;

 

   

not merge or consolidate with any person other than another transferred entity in connection with the pre-closing restructuring;

 

   

not (1) make, change or revoke any material tax election (other than as contemplated in connection with the pre-closing restructuring), (2) change any material method of accounting for tax purposes, (3) settle any claim or assessment in respect of a material amount of taxes, (4) amend any tax return, (5) enter into any closing or voluntary disclosure agreement with a tax authority, or (6) following any claim or assessment by a tax authority, consent to any extension or waiver of the limitation period applicable to such claim or assessment;

 

   

not (1) materially amend, voluntarily terminate (other than in accordance with its terms) or voluntarily cancel any business material contract (as defined in the purchase agreement) or (2) enter into any contract that if in effect on the date hereof would be a business material contract, other than, in the case of each of clause (1) and clause (2), in the ordinary course of business or with respect to any shared contract (as defined in the purchase agreement);

 

   

not enter into any consent decree or settlement agreement with any governmental entity or settle or compromise any action against or involving any transferred entity.

In the case of Limelight and its affiliates:

 

   

not (1) amend their organizational documents in any manner adverse to College Parent or the transferred entities or (2) split, combine or reclassify their outstanding equity interests in any manner adverse to College Parent or the transferred entities;

 

   

other than to Limelight or its subsidiaries, not (1) issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any equity interests, other than the issuance of Limelight common stock (A) upon the exercise of options to purchase shares of Limelight common stock (“Limelight options”) or awards of Limelight restricted stock units (“Limelight RSUs”) outstanding as of the date of the execution of the purchase agreement pursuant to existing purchaser entity benefit plans (as defined in the purchase agreement); (B) in connection with conversions (in whole or in part) of any of the Limelight senior notes in accordance with the terms of the Limelight Convertible Senior Notes Indenture dated as of July 27, 2020, by and between Purchaser and U.S. Bank National Association (as amended, restated, supplemented or otherwise modified from time to time prior to the date hereof) (the “Limelight senior notes indenture”) in effect as of the date hereof; nor (2) issue or sell any equity interests (A) to employees or directors of, or consultants or advisors to, Limelight or any of its affiliates pursuant to existing purchaser entity benefit plans; (B) to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction; or (C) to suppliers or third party service providers in connection with the provision of goods or services;

 

   

take any action that would reasonably be expected to result in an adjustment to the conversion rate (as defined in the Limelight senior notes indenture) for the Limelight senior notes;

 

   

not liquidate or dissolve or take steps to liquidate or dissolve any subsidiary of Limelight that is to be a purchaser of specified assets (as defined in the purchase agreement) in connection with the local transfers.

 

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Additional Agreements

Employee Non-solicitation

College Parent and Limelight have agreed not to, and to cause their respective affiliates not to, at any time prior to 12 months from the date of the closing, without the other party’s prior written consent, solicit the employment or services of, or hire, any employee of the other party with a title of vice president or above, unless such person (i) has been terminated by such other party or any of its affiliates subsequent to the closing or (ii) has not been employed or engaged by such other party for a period of at least six months prior to the date of such solicitation or hire.

Non-Competition

College Parent has agreed that neither it or nor its affiliates will permit, cause or encourage for 36 months following the date of the closing, engage or actively prepare to engage in the business, subject to certain exceptions specified in the purchase agreement.

Efforts to Obtain Required Stockholder Vote

In connection with the purchase agreement, Limelight has agreed to, as reasonably practicable after the date of the execution of the purchase agreement, and following the delivery of the audited financial statements of the business for the years ended December 31, 2020 and 2021 (the “carve-out audited financials”) by College Parent, prepare and file with the SEC this proxy statement and to use commercially reasonable efforts to do so on or before April 15, 2022. Subject to the ability of the Limelight board to effect a recommendation change (as defined in the purchase agreement), Limelight has agreed to use reasonable best efforts to solicit from the holders of Limelight common stock proxies in favor of the approval of issuances of Limelight common stock contemplated by the purchase agreement.

Efforts to Complete the Transactions

Limelight and College Parent have agreed to, and have agreed to cause their respective subsidiaries to, use reasonable best efforts to take all actions and do all things necessary, proper or advisable under any applicable laws to consummate and make effective in an expeditious manner the transactions contemplated by the purchase agreement, including (i) the preparation and filing of all forms, registrations and notices required to be filed to consummate the transactions contemplated by the purchase agreement and (ii) the obtainment of the regulatory approvals as discussed in this document under the heading “The Transaction—Regulatory Approvals Required for the Transaction” located elsewhere in this proxy statement.

Change in Limelight Board Recommendation

Limelight has agreed under the purchase agreement to not, through an action of the Limelight board, (i) withdraw, change, amend, modify or qualify or publicly propose to withdraw, change, amend, modify or qualify, in a manner adverse to College Parent or Edgecast, its recommendation to Limelight stockholders to vote in favor of the approval of the issuances of Limelight common stock contemplated by the purchase agreement (the “purchaser board recommendation”), (ii) fail to include the purchaser board recommendation in this proxy statement, (iii) recommend the approval or adoption of, or approve or adopt, or publicly propose to recommend, approve or adopt, any acquisition proposal (as defined in the purchase agreement), (iv) fail to recommend, in a Solicitation/Recommendation Statement on Schedule 14D-9, against any acquisition proposal subject to Regulation 14D under the Exchange Act within ten business days after commencement of such acquisition proposal, (v) following the date of receipt of any acquisition proposal or any material modification thereto is first made public, sent or

 

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given to the Limelight stockholders, fail to issue a press release that expressly reaffirms the purchaser board recommendation within two business days following a written request to do so from College Parent, or (vi) publicly propose to do any of the foregoing.

The purchase agreement provides that if the Limelight board reasonably determines in good faith, after consultation with outside counsel, that failure to do so would be inconsistent with its fiduciary obligations under applicable law, the Limelight board may, solely in connection with a superior proposal (as defined in the purchase agreement) or in response to an intervening event (as defined in the purchase agreement), prior to the receipt of Limelight stockholders’ approval of the stock issuance proposal (“Limelight stockholder approval”), make a recommendation change if it (A) gives Edgecast at least four business days’ prior written notice of its intention to take such action and a reasonable description of the event or circumstances giving rise to its determination to take such action and (B) at the end of such notice period, takes into account any amendment or modification to the purchase agreement proposed by College Parent and reasonably determines in good faith, after consultation with outside counsel, that the failure to make a recommendation change or, to the extent permitted, terminate the purchase agreement, would be inconsistent with its fiduciary obligations under applicable law.

Acquisition Proposals

Limelight and College Parent have agreed that they will not authorize or permit any of their respective affiliates or representatives to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate any inquiries or proposals with respect to any acquisition proposal, (ii) engage or participate in any negotiations with any person concerning any acquisition proposal, (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with any person relating to any acquisition proposal or (iv) unless the purchase agreement has been terminated in accordance with its terms, approve or enter into any term sheet, letter of intent, commitment, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement.

Notwithstanding the foregoing, if after the purchase agreement and prior to the receipt of Limelight stockholder approval, Limelight receives a bona fide written acquisition proposal not solicited in violation (other than de minimis violations) of the applicable terms of the purchase agreement, Limelight and its affiliates and representatives may furnish or cause to be furnished confidential or nonpublic information or data and participate in such negotiations or discussions with the person making the acquisition proposal and Limelight’s representatives if the Limelight board determines in good faith after consultation with, and taking into account the advice of, its outside legal counsel that the failure to take such actions would be inconsistent with its fiduciary duties under applicable law.

Directors and Officers Indemnification, Exculpation and Insurance

The purchase agreement requires Limelight, for a period of six years following the closing, to indemnify, defend and hold harmless each person who prior to the closing is or was a current or former director, manager, officer or employee of a transferred entity, or who at the request of College Parent or any of its affiliates served prior to the closing as a director, officer, member, manager, employee, trustee or fiduciary in connection with the business from liability for or in connection with acts or omissions occurring to any time prior to or on date of the closing (the “closing date”) to the same extent as such indemnified parties were indemnified as of the date of the purchase agreement under the organizational documents of College Parent or any of its subsidiaries or any indemnification agreements in existence as of the date of the purchase agreement. The purchase agreement also requires College Parent to purchase and maintain for six years following the closing date run off coverage for the indemnified persons in an amount not less than the existing coverage and with terms

 

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no less favorable to such persons than the coverage presently maintained by College Parent (the “d&o tail policy”). Limelight’s liability to all indemnified persons described in the foregoing will be limited to any recovery under the d&o tail policy.

Officers and Directors Following Closing

Upon the closing, the Limelight board will expand from its current size of eight members to nine members. Pursuant to the stockholders agreement (as defined in this document under the heading “Other Agreements related to the Transaction—Stockholders Agreement” located elsewhere in this proxy statement), up to three new members designated by College Parent will be appointed to the Limelight board at the closing. See “Other Agreements related to the Transaction—Stockholders Agreement” located elsewhere in this proxy statement, for more information about the stockholders agreement and College Parent’s right to appoint certain designees to the Limelight board.

Employee Matters

With respect to each transferred business employee, upon the terms set forth in the purchase agreement, Limelight has agreed to take all actions necessary to provide, for the period commencing on the closing date and ending on September 1, 2022, (a) at least the same wage rate or cash salary level in effect for such transferred business employee immediately prior to the closing, (b) target short-term incentive compensation and commission opportunities that are substantially comparable to the target short-term incentive compensation and commission opportunities as in effect for such transferred business employee immediately prior to the closing, (c) target long-term incentive compensation opportunities that are substantially comparable to the target long-term incentive compensation opportunities as in effect for such transferred business employee immediately prior to the closing, (d) severance benefits in amounts and upon and under terms, conditions and provisions that are at least as favorable as the severance benefits provided by any transferred entity, College Parent or any applicable affiliate of College Parent to such transferred business employee immediately prior to the closing and (e) employee benefits that are substantially comparable, in the aggregate, to those in effect with respect to such transferred business employee immediately prior to the closing.

Conditions to the Completion of the Transaction

The respective obligations of each party to the purchase agreement to consummate the transactions contemplated by the purchase agreement are subject to the satisfaction or waiver of the following conditions:

 

   

the termination or expiration of any applicable waiting period under the HSR Act;

 

   

no governmental entity of competent authority will have issued an order, enacted a law or issued any other legal restraint that remains in effect and makes illegal or prohibits the consummation of the transactions contemplated by the purchase agreement; and

 

   

the Limelight stockholder approval will have been obtained.

The obligations of Limelight to consummate the transactions contemplated by the purchase agreement are subject to the satisfaction or waiver of the following conditions:

 

   

the representations and warranties of College Parent relating to its organization and qualification, authority, conflicts with organizational documents, ownership, organization of the transferred entities and broker’s fees being true and correct in all material respects as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date;

 

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the representations and warranties of College Parent relating to capitalization and the absence of a business material adverse effect (as defined in the purchase agreement) being true and correct as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date;

 

   

each other representation and warranty of College Parent being true and correct in all respects as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date, except where the failure of such representations and warranties to be true and correct would not reasonably be expected to have a business material adverse effect;

 

   

College Parent will have complied with the covenants and agreements of College Parent required to be performed or complied with on or before the closing date in accordance with the terms of the purchase agreement in all material respects;

 

   

Limelight will have received a certificate of College Parent certifying that certain conditions have been satisfied;

 

   

Limelight will have received the carve-out audited financials; and

 

   

Limelight will have received from College Parent a Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) certificate according to the terms of the purchase agreement.

The obligations of College Parent to consummate the transactions contemplated by the purchase agreement are subject to the satisfaction or waiver of the following conditions:

 

   

the representations and warranties of Limelight relating to its organization and qualification, authority, conflicts with organizational documents, capitalization and broker’s fees being true and correct in all material respects as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date;

 

   

the representations and warranties of Limelight relating to absence of a purchaser material adverse effect (as defined in the purchase agreement) and solvency being true and correct as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date;

 

   

the representations and warranties of Limelight relating to capitalization being true and correct other than de minimis inaccuracies as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date;

 

   

each other representation and warranty of Limelight being true and correct in all respects as of the date of the purchase agreement and as of the closing date as if made on and as of the closing date, except where the failure of such representations and warranties to be true and correct would not reasonably be expected to have a purchaser material adverse effect;

 

   

Limelight will have complied with the covenants and agreements of Limelight required to be performed or complied with on or before the closing date in accordance with the terms of the purchase agreement in all material respects; and

 

   

College Parent will have received a certificate of Limelight certifying that certain conditions have been satisfied.

Termination of the Stock Purchase Agreement

The purchase agreement contains certain customary termination rights for Limelight and College Parent. The parties may mutually agree to terminate the purchase agreement before the closing.

 

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In addition, Limelight or College Parent may terminate the purchase agreement:

 

   

if the closing has not occurred on or before the date that is nine months after the date of the purchase agreement, subject to extension to 12 months after the date of the purchase agreement under certain circumstances where the required regulatory approvals have not been obtained;

 

   

if any legal restraint permanently preventing or prohibiting the consummation of the transactions contemplated by the purchase agreement has become final and non-appealable; or

 

   

if the Limelight stockholder approval will not have been obtained following a vote taken at the annual meeting.

In addition, College Parent may terminate the purchase agreement:

 

   

at any time prior to the obtainment of the Limelight stockholder approval, if the Limelight board will have made a recommendation change; or

 

   

if Limelight will have breached or failed to perform in any material respect any of its respective representations, warranties, covenants or other agreements in the purchase agreement, which breach or failure to perform would give rise to the failure of the applicable condition to consummate the transactions contemplated by the purchase agreement and is either incapable of being cured by the applicable outside date of the purchase agreement or has not been cured prior to the date that is the earlier of (i) the business day immediately preceding such outside date and (ii) 30 days from the date that Limelight is notified of such breach. College Parent will not have the right to terminate the purchase agreement in the foregoing way if it is then in breach of any of its respective representations, warranties, covenants or other agreements contained in the purchase agreement and such breach would give rise to the failure of the applicable condition to consummate the transactions contemplated by the purchase agreement.

In addition, Limelight may terminate the purchase agreement:

 

   

at any time prior to obtaining the Limelight stockholder approval, in order to accept a superior proposal, subject to (i) the payment of $9,000,000 and (ii) the entry into a definitive agreement with respect to such superior proposal concurrently with such termination; or

 

   

if College Parent has breached or failed to perform in any material respect any of its respective representations, warranties, covenants or other agreements in the purchase agreement, which breach or failure to perform would give rise to the failure of the applicable condition to consummate the transactions contemplated by the purchase agreement and is either incapable of being cured by the applicable outside date of the purchase agreement or has not been cured prior to the date that is the earlier of (x) the business day immediately preceding such outside date and (ii) 30 days from the date that Limelight is notified of such breach. Limelight will not have the right to terminate the purchase agreement in the foregoing way if it is then in breach of any of its respective representations, warranties, covenants or other agreements contained in the purchase agreement and such breach would give rise to the failure of the applicable condition to consummate the transactions contemplated by the purchase agreement.

Effect of Termination

Limelight may be obligated to pay (or cause to be paid) a termination fee to College Parent in the following circumstances:

 

   

if College Parent terminates the purchase agreement at any time prior to obtaining the Limelight stockholder approval, if the Limelight board has made a recommendation change;

 

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if Limelight terminates the purchase agreement at any time prior to obtaining the Limelight stockholder approval, in order to accept a superior proposal;

 

   

if Limelight terminates the purchase agreement at any time prior to obtaining the Limelight stockholder approval if the Limelight stockholder approval will not have been obtained following a vote taken at the annual meeting and if at the time of such termination College Parent was entitled to terminate the purchase agreement due to the Limelight board having made a recommendation change; and

 

   

If the purchase agreement is validly terminated by Limelight or College Parent due to the expiration of the applicable outside date or due to the failure to obtain the Limelight stockholder approval and following the date of the purchase agreement and prior to such termination, an acquisition proposal will have been publicly disclosed or will have otherwise become publicly known and within 12 months after such termination Limelight enters into a definitive agreement with respect to an acquisition proposal and consummates such acquisition proposal or another acquisition proposal.

Indemnification

College Parent will indemnify Limelight for losses to the extent arising out of, resulting from, or in connection with: (a) the retained businesses and the retained liabilities (as such terms are defined in the purchase agreement), (b) any breach by College Parent or Edgecast of any of its covenants or agreements in the purchase agreement, (c) fraud by College Parent or the Edgecast, (d) taxes of, or attributable to the operations of, the retained businesses (or attributable to the retained liabilities) for any pre-closing tax period, (e) the post-closing restructuring, (f) pre-closing taxes (as defined in the purchase agreement), or (g) certain matters set forth in the confidential disclosure letter delivered to Limelight.

Limelight will indemnify College Parent for losses to the extent arising out of, resulting from, or in connection with: (a) the business liabilities (as defined in the purchase agreement), (b) any breach by Limelight of any of its covenants or agreements in the purchase agreement, (c) fraud by Limelight, (d) taxes of the operations of any transferred entity or the business for any post-closing tax period or (e) certain matters set forth in the confidential disclosure letter delivered to College Parent.

Amendment and Waiver

The purchase agreement may not be modified or amended, except in writing signed by the party against whom enforcement of any such modification or amendment is sought. Any party to the purchase agreement may waive, through a written instrument, compliance by the other party with any term or provision of the purchase agreement.

Governing Law

This purchase agreement, and all proceedings arising out of or relating to the purchase agreement or the actions of the parties in the negotiation, administration, performance and enforcement thereof, will be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.

 

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OTHER AGREEMENTS RELATED TO THE TRANSACTION

The following is a summary of the material terms and conditions of certain other agreements entered into, or to be entered into, in connection with the transaction. This summary may not contain all the information about such agreements that is important to you and is qualified in its entirety by reference to the applicable agreement, a form of which is attached as an exhibit to the purchase agreement, as applicable, and incorporated by reference into this proxy statement. You are encouraged to read each agreement in its entirety.

Stockholders Agreement

Limelight and College Parent, have agreed to a “form of” stockholders agreement, which the parties intend to enter into as of the closing. The stockholders agreement will govern the terms of College Parent’s investment in Limelight post-closing. The following is a summary of the terms of the stockholders agreement.

Board and Governance Terms

Board Seats

College Parent will initially be entitled to designate three individuals (the “College Parent designees”) to serve on the Limelight board (out of a total of nine directors). College Parent has indicated that the initial designees will be Reed Rayman and E-Fei Wang and one independent director, who shall be an independent director under the rules and regulations of Nasdaq and the SEC. College Parent also has the right to designate replacements for the initial College Parent designees, subject to undergoing a customary evaluation process by our nominating and corporate governance committee. In connection with the appointment of the College Parent designees, Limelight will expand the size of the board to nine members and cause two current directors, Jefferey T. Fisher and Marc Debevoise, to resign at closing.

Following the closing, for so long as College Parent and any permitted transferee (as defined in the stockholders agreement) beneficially owns a number of shares of Limelight common stock representing more than ten percent of the then outstanding shares of Limelight common stock, the number of individuals that College Parent is entitled to designate to serve as a director shall be equal to the percentage Limelight common stock that is beneficially owned by College Parent and any permitted transferee that becomes a party to the stockholders agreement multiplied by the total number of directors, rounded to the nearest whole number, subject to a maximum of three; provided, that so long as College Parent has the right to propose for nomination two or three directors, one shall be independent under the rules and regulations of Nasdaq and the SEC; provided, further, that College Parent and its affiliates shall be entitled to designate zero directors if, at any time, College Parent or any permitted transferees in the aggregate, beneficially own less than ten percent of the outstanding shares of Limelight common stock.

Board Committees

College Parent shall be entitled, but not obligated, to cause the Limelight board to designate a number of College Parent designees to serve as members of each committee proportional to the number of College Parent designees on the Limelight board, rounded down to the nearest whole number.

Transfer Restrictions

College Parent is subject to (i) a 24 month lock-up period following the closing date, with respect to the shares Limelight common stock issued to College Parent at closing and (ii) for Limelight common stock

 

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issued in connection with a triggering event, the period ending on the later of (a) the date that is 24 months from the closing and (b) the relevant restricted period. Only certain “permitted transfers” (as such term is defined in the stockholders agreement) are allowed during this period, including transfers to affiliates (subject to such affiliates executing a joinder agreement), transfers pursuant to a bona fide loan or other financing arrangement and transfers pursuant to a total return swap; provided that written notice of any such total return swap, which shall include the number of shares of Limelight common stock underlying such total return swap, shall be provided to Limelight, and that such total return swap shall not result in an increase in the voting rights of College Parent and any permitted transferee.

After the lock-up period, College Parent may freely transfer its shares, so long as such transfers (i) comply with the volume and manner of sale restrictions in Rule 144, (ii) (a) are not a competitor of Limelight (as such term is defined in the stockholders agreement) and (b) are not listed on the then most recently published “SharkWatch 50” list.

Standstill Obligations

College Parent will be subject to standstill obligations for a period of the earlier of the date on which (i) College Parent and its affiliates cease to beneficially own at least 35% of Limelight common stock issued at closing, and (ii) College Parent and its affiliates no longer has any rights under the stockholders agreement to designate or nominate any College Parent designee to serve on the Limelight board or has otherwise irrevocably waived such designation rights (the “standstill period”).

During the standstill period, College Parent shall not, and shall direct its affiliates not to, directly or indirectly, without the prior written consent of Limelight, do the following:

 

   

acquire or agree to acquire, beneficial ownership of equity interests of Limelight (other than as permitted by the stockholders agreement);

 

   

publicly offer to acquire Limelight;

 

   

solicit proxies or influence any voting of Limelight common stock;

 

   

seek to control or influence of the board of director (including removal/election);

 

   

initiate Limelight stockholder proposals or seek action by Limelight stockholders;

 

   

form or join a “group” with respect to Limelight common stock (other than a group consisting solely of College Parent and its affiliates);

 

   

seek to control or influence Limelight management or policies (alone or with others);

 

   

advise, assist, encourage or enter into arrangements with anyone with respect to any of the above; and

 

   

publicly disclose any intention, plan, or arrangement inconsistent with any of the above that College Parent and its affiliates know, or would reasonably be expected to know, would require Limelight to make a public announcement regarding any of the foregoing activities.

Consent Rights

So long as College Parent and its affiliates beneficially own at least 50% of Limelight common stock issued immediately after the closing after giving effect to the issuance of approximately 71.9 million shares of Limelight common stock to either College Parent or a designated subsidiary of College Parent at the closing, the consent of College Parent will be required to (i) amend Limelight or its material subsidiaries’ charter or bylaws in a manner that would disproportionately affect the rights of College Parent and its affiliates or (ii) change the size of the Limelight board and (iii) undertake any liquidation or dissolution of Limelight.

 

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Additionally, the stockholders agreement may not be amended without the written consent of both Limelight and College Parent.

Registration Rights Agreement

Limelight and College Parent, have agreed to a “form of” registration rights agreement, which the parties intend to enter into as of the closing, granting College Parent the right to require us to register under specified circumstances any shares of Limelight common stock held by College Parent, including shares issuable in connection with a triggering event, as well as any securities issued as (or issuable upon the conversion or exercise of any security issued as) a share split, share dividend, distribution, recapitalization, merger, exchange, replacement or similar event or otherwise (collectively, the “registrable securities”). The following is a summary of the material terms of the registration rights agreement.

Shelf Registration

On or before the first expiration of the relevant restricted period, we must use commercially reasonable efforts to file with the SEC a registration statement on Form S-3 (which, if Limelight is a well-known seasoned issuer at the time, must be designated as an automatic shelf registration statement) to register the offer and sale of all of the registrable securities, except if Limelight is not then eligible to register for resale the registrable securities on Form S-3, then such registration shall be on another appropriate form and shall provide for the registration of such registrable securities for resale by College Parent in accordance with any reasonable method of distribution elected by College Parent. In addition, pursuant to the registration rights agreement, following the effectiveness of a shelf registration statement registering registrable securities, College Parent will have the right to require us, subject to certain limitations set forth therein, to effect a sale of any or all of its registrable securities by means of an underwritten offering (including an underwritten block trade or bought deal). We will not be obligated to effect any underwritten offering (i) (A) subject to certain exceptions, if the dollar amount of the registrable securities to be included in such underwritten offering is anticipated to result in gross sale proceeds of less than $30 million or (B) such underwritten offering is a marketed underwritten offering and within 90 days of any other marketed underwritten offering and (b) if three marketed underwritten offerings (or two marketed underwritten offerings if the shelf registration statement is a long-form registration statement) have already been launched at the request of College Parent within a 365-day period.

Piggyback Registration

Additionally, except with respect to a shelf registration statement, if Limelight proposes to file a registration statement under the Securities Act of 1933, as amended with respect to an offering of Limelight common stock or other securities convertible, or exchangeable or exercisable for, Limelight common stock (other than a registration statement (i) on Form S-4, Form S-8 or any successor forms thereto or (ii) filed to effectuate an exchange offer or any employee benefit or dividend reinvestment plan), then Limelight shall give prompt written notice of such filing, which notice shall be given, to the extent reasonably practicable, no later than seven business days prior to the filing date (the “piggyback notice”) to College Parent. The piggyback notice shall offer College Parent the opportunity to include (or cause to be included) in such registration statement the number of shares of registrable securities as College Parent may request. Any request by College Parent to include registrable securities in connection with an underwritten offering will be subject to customary underwriter cutback provisions.

Expenses of Registration

We are required to pay all registration expenses relating to any shelf or piggyback registration, including certain fees and expenses of one counsel for College Parent, but not including underwriting,

 

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discounts, selling commissions and stock transfer taxes applicable to securities registered by College Parent.

Termination

Generally, the registration rights agreement terminates when College Parent and any other party to the registration rights agreement no longer holds any registrable securities.

Commercial Agreement

In connection with the transactions contemplated by the purchase agreement, on or before the closing, College Parent and/or its applicable subsidiaries, on the one hand, and Limelight and/or its applicable subsidiaries, on the other hand, have agreed to enter into one or more contracts reflecting the service terms and conditions applicable to certain service orders listed in an exhibit to the purchase agreement. To the extent the parties have not entered into such agreements as of the closing, those service orders will be governed by Limelight’s standard service terms and conditions until the parties have entered into such contracts.

Domain Name Sublicense Agreement

In connection with the transactions contemplated by the purchase agreement, the parties negotiated a term sheet that sets forth the material terms of the domain name sublicense agreement. Under the domain name sublicense agreement, Yahoo will grant Edgecast a limited, fully paid-up, royalty-free, non-sublicensable (except to affiliates solely to the extent permitted under the license from Verizon) sublicense under the rights granted by Verizon Trademark Services LLC (“Verizon Trademark”) pursuant to that certain Domain Names License Agreement, dated as of July 23, 2021, by and between Oath Inc. and Verizon Trademark (the “Verizon license”) to use two Verizon Trademark uniform resource locators (“URLs”), solely for redirects of Edgecast corporate email addresses existing as of September 1, 2021 to new Edgecast company email addresses, and expressly excluding any external use of the Verizon Trademark URLs. This license grant will be effective as of the closing; the sublicense to one of the domain names will expire after three years, and the sublicense to the other domain name will expire on November 30, 2031. The domain name sublicense agreement may only be terminated (i) for material breach, or (ii) if the Verizon license is terminated. Edgecast must use reasonable best efforts to ensure that the domain names are decommissioned as soon as practicable.

Patent Cross License Agreement

In connection with the transactions contemplated by the purchase agreement, the parties negotiated a term sheet that sets forth the material terms of the patent cross-license agreement. Under the patent cross-license agreement, which will be effective as of the closing, (i) Edgecast will grant Yahoo and its affiliates (but expressly excluding Apollo and its affiliates, their investment funds and their portfolio companies) a worldwide, perpetual, irrevocable, royalty-free, fully paid-up, non-exclusive, non-sublicensable (except to service providers, affiliates and customers) license to all patents owned by Edgecast immediately prior to the closing (including all family members and all foreign cases), and (ii) Yahoo will grant Edgecast and its subsidiaries a worldwide, perpetual, irrevocable, royalty-free, fully paid-up, non-exclusive, non-sublicensable (except to service providers, affiliates and customers) license to all patents owned by Yahoo or its subsidiaries immediately prior to the closing (including all family members and all foreign cases), solely as they relate to the Edgecast products and services commercially released (or for which substantial steps have been taken to develop or commercialize) as of the closing, and all improvements, modifications and natural extensions thereof. The patent cross-license agreement will include typical accommodations for divested entities or business lines, and may only be terminated for material breach. The term of this agreement will continue until the expiration or invalidation of the last patent so licensed.

 

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Transition Services Agreement

In connection with the transactions contemplated by the purchase agreement, the parties negotiated the transition services agreement under which College Parent would provide certain back-office services (i.e., human resources, accounting, legal and compliance and information technology) to Limelight, with such services being provided at or near College Parent’s actual cost. The transition services agreement will be effective at the closing, and provision of the services will last between three and 18 months (depending on the actual service being provided), which time period may be extendable for up to two additional three-month periods. Limelight may terminate any particular service on 30 days’ prior written notice, and either party may terminate the agreement for material breach.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF EDGECAST

The following management’s discussion and analysis (“MD&A”) is intended to help readers understand Edgecast’s results of operations, financial condition and cash flows and should be read in conjunction with the financial statements of Edgecast, as attached in the section entitled “Combined Financial Statements of Edgecast” located elsewhere in this proxy statement (the “Edgecast financial statements”) and the related notes included elsewhere in this proxy statement. In this MD&A Edgecast’s management has made forward-looking statements. These statements are based on Edgecast’s management’s estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning Edgecast’s possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “expects,” “hopes” or similar expressions. For those statements, Edgecast’s management claims the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. Edgecast’s management undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Overview

Edgecast, a business of College Parent and formerly a business of Verizon Media Group (“VMG”), operates one of the largest content delivery networks with over 135 terabytes of capacity, over 175 strategically placed points-of-presence in six continents, interconnected with more than 7,000 peering and routing partners. Edgecast’s platform is designed to help digital media companies meet the ever-growing expectations of their businesses by providing simplified workflows and improving efficiency across digital content delivery, video streaming services, cloud security, and edge computing. Edgecast’s platform provides innovative technology, first-class performance, excellent service and the security that comes with working with a proven market leader.

College Parent was formed in 2021 by Apollo to acquire VMG. VMG was a business of Verizon. On May 2, 2021, Verizon entered into a definitive stock purchase agreement with College Parent pursuant to which Verizon agreed to sell VMG, and on September 1, 2021, VMG was sold to College Parent (collectively, the “VMG transaction”). The information for the periods started from September 1, 2021 to December 31, 2021 (“successor”) and the period ended prior to August 31, 2021 (“predecessor”) relates to the periods succeeding and preceding the VMG transaction, respectively. The information for predecessor period from January 1, 2021 to August 31, 2021 (the “2021 predecessor period”) and the successor period from September 1, 2021 to December 31, 2021 (the “2021 successor period”) and the predecessor periods for the years ended December 31, 2020 and December 31, 2019 are derived from the Edgecast financial statements.

Edgecast’s products and solutions are categorized within the following areas: delivery services, streaming, and other. Edgecast offers a scalable platform for delivering content, including live broadcasts, video on demand, games, software and websites to end users on their devices at any time. This platform is targeted at media and entertainment companies and other businesses that deliver their digital products and services through the internet. As the digital landscape reshapes the delivery of data, media and entertainment content, there is an increasing need for stable, high-quality data delivery and video delivery platforms.

Edgecast has a highly diverse workforce of approximately 611 employees as of December 31, 2021.

 

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Edgecast’s Business Strategy

As Edgecast prepares for future content and application demands, efforts are focused on the following areas:

 

   

network transformation to support compute workloads on the edge,

 

   

enhanced performance and protection with edge security,

 

   

enhanced performance and expansion of Edgecast’s video streaming platform,

 

   

new customer acquisition and the expansion of existing customers, and

 

   

providing customers with tools they need to easily configure and engage Edgecast’s platform.

Edgecast has reduced its footprint to focus on engaging customers with high-margins in addition to video streaming initiatives. Edgecast implemented new data analytics and processes that enable it to more accurately forecast margins and traffic from potential customers. Edgecast is shifting from a traditional, low-profit commoditized environment to increased profitability by upselling value added services to its target customer base. Edgecast is executing on its initiatives while staying true to its customer commitment.

Impacts of the COVID-19 Pandemic

Edgecast continues to operate through the COVID-19 pandemic, including recent variants.

The impact of COVID-19 pandemic in the future will depend on the duration and severity of the COVID-19 pandemic and the related public policy actions, additional initiatives Edgecast may undertake in response to employee, market or regulatory needs or demands, the length and severity of the global economic slowdown, and whether and how customers change their behaviors over the longer term. During the year ended December 31, 2021, Edgecast continued to experience recovery from the negative impacts of COVID-19 pandemic on video streaming. Professional sports leagues resumed their activities toward the end of fiscal year 2020, and Edgecast revenue normalized during the year ended December 31, 2021 as a result. During the year ended December 31, 2020, Edgecast experienced increased traffic on the content delivery network due to stay-at-home Orders and mask mandates. During the year ended December, 31, 2021, traffic normalized as stay-at-home Orders and mask mandates were lifted.

Results of Operations

For both the predecessor and successor periods, the Edgecast financial statements have been prepared on a “carve-out” basis. During predecessor and successor periods, Edgecast operated as part of VMG and College Parent, respectively, and consisted of several entities for which separate financial statements had not historically been prepared. As such, financial statements of Edgecast during predecessor and successor periods have been derived from VMG and College Parent’s historical accounting records and were prepared on a standalone basis. The Edgecast financial statements may not be indicative of what they would have been had the Edgecast actually been an independent standalone entity, nor are they necessarily indicative of Edgecast’s future results of operations, comprehensive income, financial position and cash flows.

Edgecast received an allocated share of the expense related to VMG or College Parent corporate functions for certain services that VMG or College Parent provides to Edgecast, but which are not specifically billed to Edgecast, such as administering employee benefits plans and paying related claims, human resources, legal functions, finance, executives, procurement, business development,

 

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facility management, real estate, license fees, central and shared technology, and various other VMG or College Parent corporate functions and overhead.

The following table sets forth Edgecast’s combined statement of operations information and combined statement of operations information as a percentage of revenue for the periods presented:

 

     (dollars in thousands)  
     Successor            Predecessor  
     Period from
September 1,
2021 to
December 31,
2021
    % of Total
Revenue
           Period from
January 1,
2021 to
August 31,
2021
    % of Total
Revenue
    Year ended
December 31,
2020
    % of Total
Revenue
 

Revenues

                 

Service revenues

   $ 82,454       79.7        $ 178,171       81.0   $ 243,756       80.0

Related party revenues

     21,006       20.3          41,791       19.0     61,056       20.0
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     103,460       100.0          219,962       100.0     304,812       100.0
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses

                 

Cost of revenues (exclusive of depreciation and amortization shown below)

     77,717       75.1          134,901       61.3     192,860       63.3

Related party cost of revenues (exclusive of depreciation and amortization shown below)

     2,772       2.7          13,904       6.3     20,752       6.8

Selling, general and administrative expense

     34,698       33.5          57,463       26.1     95,906       31.5

Related party selling, general and administrative expense

     14,827       14.3          30,720       14.0     51,319       16.8

Depreciation and amortization expense

     14,111       13.6          43,350       19.7     72,648       23.8
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

     144,125       139.3          280,338       127.4     433,485       142.2
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Operating Loss

     (40,665     (39.3 )%           (60,376     (27.4 )%      (128,673     (42.2 )% 

Other income (expense), net

     830       0.8          1,810       0.8     (2,490     (0.8 )% 

Related party other income, net

     3,287       3.2          4,481       2.0     17,333       5.7

Related party interest (expense)

     —         —            (3,992     (1.8 )%      (8,823     (2.9 )% 
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Loss Before Benefit (Provision) for Income Taxes

     (36,548     (35.3 )%           (58,077     (26.4 )%      (122,653     (40.2 )% 

Benefit (provision) for income taxes

     8,794       8.5          (3,464     (1.6 )%      1,364       0.4
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss

   $ (27,754     (26.8 )%         $ (61,541     (28.0 )%    $ (121,289     (39.8 )% 
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

 

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     (dollars in thousands)  
     Predecessor     Change  
     Year Ended
December 31,
2020
    % of Total
Revenue
    Year Ended
December 31,
2019
(unaudited)
    % of Total
Revenue
    $     %  

Revenues

            

Service revenues

   $ 243,756       80.0   $ 247,144       82.7   $ (3,388     (1.4 )% 

Related party revenues

     61,056       20.0     51,634       17.3     9,422       18.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     304,812       100.0     298,778       100.0     6,034       2.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses

            

Cost of revenues (exclusive of depreciation and amortization items shown below)

     192,860       63.3     174,602       58.4     18,258       10.5

Related party cost of revenues (exclusive of depreciation and amortization shown below)

     20,752       6.8     20,459       6.8     293       1.4

Selling, general and administrative expense

     95,906       31.5     97,567       32.7     (1,661     (1.7 )% 

Related party selling, general and administrative expense

     51,319       16.8     56,933       19.1     (5,614     (9.9 )% 

Depreciation and amortization expense

     72,648       23.8     90,229       30.2     (17,581     (19.5 )% 

Impairments of long-lived assets

     —         0.0     1,102       0.4     (1,102     (100.0 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

     433,485       142.2     440,892       147.6     (7,407     (1.7 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Loss

     (128,673     (42.2 )%      (142,114     (47.6 )%      (13,441     (9.5 )% 

Other (expense) income, net

     (2,490     (0.8 )%      3,480       1.2     (5,970     (171.6 )% 

Related party other income, net

     17,333       5.7     13,633       4.6     3,700       27.1

Related party interest (expense)

     (8,823     (2.9 )%      (13,572     (4.5 )%      (4,749     (35.0 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) Before Benefit for Income Taxes

     (122,653     (40.2 )%      (138,573     (46.4 )%      (15,920     (11.5 )% 

Benefit (provision) for income taxes

     1,364       0.4     13,258       4.4     (11,894     (89.7 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss

   $ (121,289     (39.8 )%    $ (125,315     (41.9 )%    $ (4,026     (3.2 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

 

     (dollars in thousands)  
     Successor    

 

     Predecessor  
     Period from
September 1,
2021 to
December 31,
2021
     % of Total
Revenue
   

 

     Period from
January 1,
2021 to
August 31,
2021
     % of Total
Revenue
    Year ended
December 31,
2020
     % of Total
Revenue
 

Delivery Services

   $ 60,917        58.9        $ 139,096        63.2   $ 207,463        68.1

Streaming Services

     36,916        35.7          66,672        30.3     74,145        24.3

Other Revenues

     5,627        5.4          14,194        6.5     23,204        7.6
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Revenues

   $ 103,460        100.0        $ 219,962        100.0   $ 304,812        100.0
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

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Revenues were $103.5 million, $220.0 million, and $304.8 million for the 2021 successor period, 2021 predecessor period, and the year ended December 31, 2020, respectively. The periods were impacted by growth in Edgecast’s streaming services from newly acquired customers and expansion from existing customers. Customers typically enter into agreements for periods in excess of one year. Additionally, Edgecast implemented initiatives to attract and retain customers with high-margin offerings. Delivery services decreased due to a planned reduction in low-margin customers. Other revenues decreased due to reductions in customized services related to video streaming provided to end customers.

 

     (dollars in thousands)  
     Predecessor     Change  
     Year ended
December 31,
2020
     % of Total
Revenue
    Year ended
December 31,
2019
(unaudited)
     % of Total
Revenue
    Change
($)
    Change
(%)
 

Delivery Services

   $ 207,463        68.1   $ 209,362        70.1   $ (1,899     (0.9 )% 

Streaming Services

     74,145        24.3     67,979        22.8     6,166       9.1

Other Revenues

     23,204        7.6     21,437        7.2     1,767       8.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Revenues

   $ 304,812        100.0   $ 298,778        100.0   $ 6,034       2.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Revenue for the year ended December 31, 2020 was $304.8 million, an increase of $6.0 million or 2.0%, from the prior year comparable period. The increase was primarily attributed to continued growth in streaming services. Edgecast provided support to customers with linear platforms (i.e., pay-television, free-to-air, and broadcast television) through scheduling and syndication technology. Additionally, there was an increase in customized video projects to meet the specific needs of customers. The increase was partially offset by a $1.9 million decline in delivery services revenue due to changes in Edgecast’s pricing policies for that category.

Operating Expenses

 

     (dollars in thousands)  
     Successor    

 

     Predecessor  
     Period from
September 1,
2021 to
December 31,
2021
     % of Total
Revenue
   

 

     Period from
January 1,
2021 to
August 31,
2021
     % of Total
Revenue
    Year ended
December 31,
2020
     % of Total
Revenue
 

Cost of revenues (exclusive of depreciation and amortization shown below)

   $ 77,717        75.1        $ 134,901        61.3   $ 192,860        63.3

Related party cost of revenues (exclusive of depreciation and amortization shown below)

     2,772        2.7          13,904        6.3     20,752        6.8

Selling, general and administrative expense

     34,698        33.5          57,463        26.1     95,906        31.5

Related party selling, general and administrative expense

     14,827        14.3          30,720        14.0     51,319        16.8

Depreciation and amortization expense

     14,111        13.6          43,350        19.7     72,648        23.8
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total Operating Expense

   $ 144,125        139.3        $ 280,338        127.4   $ 433,485        142.2
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

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     (dollars in thousands)  
     Predecessor     2020 vs. 2019  
     Year ended
December 31,
2020
     % of Total
Revenue
    Year ended
December 31,
2019
(unaudited)
     % of Total
Revenue
    Change
($)
    Change
(%)
 

Cost of revenues (exclusive of depreciation and amortization shown below)

   $ 192,860        63.3   $ 174,602        58.4   $ 18,258       10.5

Related party cost of revenues (exclusive of depreciation and amortization shown below)

     20,752        6.8     20,459        6.8     293       1.4

Selling, general and administrative expense

     95,906        31.5     97,567        32.7     (1,661     (1.7 )% 

Related party selling, general and administrative expense

     51,319        16.8     56,933        19.1     (5,614     (9.9 )% 

Depreciation and amortization expense

     72,648        23.8     90,229        30.2     (17,581     (19.5 )% 

Impairments of long-lived assets

     —          —       1,102        0.4     (1,102     (100.0 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Operating Expense

   $ 433,485        142.2   $ 440,892        147.6   $ (7,407     (1.7 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cost of Revenues

Cost of revenues consists of bandwidth costs, cross-connect, dark fiber and lit wave costs, colocation costs, remote hands, cloud costs, security certificates, stock-based compensation related to certain employees involved in revenue generating activities, and other expenses associated with the production and usage of Edgecast’s network infrastructure and platforms. Cost of revenues also includes hosting costs such as third-party and other operating costs, directly related to revenue generating activities.

Cost of revenues as a percentage of revenue were 75.1%, 61.3%, and 63.3% for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively. The change was impacted by increased bandwidth costs, host web services costs, and barter transaction expense to support the increase in revenues and higher volume. Edgecast recorded approximately $13.2 million, $23.1 million, and $27.0 million in barter transaction expenses for the 2021 successor period, the 2021 predecessor period, and for the year ended December 31, 2020, respectively. Additionally, there was an increase in contract and outside services to support business needs from the impact of decreased headcount. Edgecast has implemented strategies to mitigate personnel attrition going forward by increased efforts in recruitment and their approach to remote work. Compensation expense related to the short-term incentive plan was $3.3 million, $3.0 million, and $2.8 million for the 2021 successor period, the 2021 predecessor period, and for the year ended December 31, 2020, respectively. Stock-based compensation expense related to Edgecast’s management equity program and the retention awards and replacement awards issued in connection with the VMG transaction was $1.5 million in the 2021 successor period. Stock-based compensation expense, including restricted stock units (“RSUs”) and performance stock units (“PSUs”), was $1.3 million and $2.4 million in the 2021 Predecessor period and the year ended December 31, 2020, respectively. These compensation plans are to support continued employment before and after the VMG transaction.

Cost of revenues for the year ended December 31, 2020 was $192.9 million, an increase of $18.3 million or 10.5%, from the prior year comparable period. The increase was due to a $20.4 million

 

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increase in network, bandwidth costs and host web services costs due to increased usage and an increase in Barter transaction expenses. There was a $3.2 million increase in broadcast production costs and maintenance contracts due to the increased revenue from customized video projects. The increase was partially offset by a $5.3 million decrease in personnel costs and stock-based compensation expense due to decreased headcount.

Related Party—Cost of Revenues

Related party cost of revenues were $2.8 million, $13.9 million, and 20.8 million for the 2021 Successor period, the 2021 Predecessor period and the year ended December 31, 2020, respectively. The change was attributed to a decrease in allocable costs from VMG or College Parent and lower facilities expense with Verizon. The 2021 successor period was impacted by $0.7 million from the transition services agreement entered into with Verizon as a result of the VMG transaction (the “VMG trnasition services agreement”).

Related party cost of revenues for the year ended December 31, 2020 were $20.8 million, an increase of $0.3 million or 1.4%, from the prior year comparable period. The change was attributed to increased allocable costs from VMG.

Selling, General, and Administrative

Selling, general, and administrative expenses consist of three main expenses groupings: sales and marketing expenses, product development and general and administrative. Sales and marketing expenses consist primarily of advertising and other marketing-related expenses, compensation-related expenses (including stock-based compensation expense), sales commissions, and travel costs. Product development expenses consist primarily of compensation-related expenses (including stock-based compensation expense) incurred for the development and enhancements of research and development, and Edgecast’s technology platforms and infrastructure. General and administrative expenses consist primarily of compensation-related expenses (including stock-based compensation expense) related to other corporate departments and fees for professional services.

Selling, general, and administrative expenses were $34.7 million, $57.5 million, and $95.9 million for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively. The 2021 predecessor period and the year ended December 31, 2020 were impacted by non-income tax reserve releases of $13.2 million and $3.9 million, respectively. Compensation expense related to the short-term incentive plan was $3.5 million, $7.7 million, and $8.4 million for the 2021 successor period, the 2021 predecessor period, and for the year ended December 31, 2020, respectively. Stock-based compensation expense related to the management equity program and the retention awards and replacement awards issued in connection with the VMG transaction was $6.3 million in the 2021 successor period. Stock-based compensation expense, including RSUs and PSUs, was $7.7 million and $9.0 million in the 2021 predecessor period and for the year ended December 31, 2020, respectively. The 2021 successor period had increased consulting fees for strategic initiatives. Edgecast continued to incur lower salaries and benefits due to decreased headcount.

Selling, general, and administrative expenses for the year ended December 31, 2020 were $95.9 million, a decrease of $1.7 million or 1.7%, from the prior year comparable period due to decreased headcount, reduced travel due to COVID-19 restrictions, and the expiration and subsequent release of non-income tax reserves.

 

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Related Party—Selling, General, and Administrative

Related party for selling, general, and administrative expenses were $14.8 million, $30.7 million, and $51.3 million for the 2021 Successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively, due to reduced corporate allocations.

Related party for selling, general, and administrative expenses were $51.3 million, a decrease of $5.6 million or 9.9%, from the prior year comparable period due to reduced corporate allocations.

Depreciation and Amortization Expense

Depreciation and amortization expense was $14.1 million, $43.3 million, and $72.6 million for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively. The change was primarily attributable to fixed assets that were adjusted to fair value as part of the VMG transaction resulting in lower depreciation relative to the comparable period. The 2021 successor period was impacted by a $2.9 million increase in amortization due to additional intangible assets after the VMG transaction.

Depreciation and amortization expense for the year ended December 31, 2020 was $72.6 million, a decrease of $17.6 million or 19.5%, from the prior year comparable period. The decrease was primarily attributable to fewer assets subject to depreciation.

Impairment of Long-Lived Assets

Edgecast recorded a loss on impairment of internally developed software of $1.1 million for the year ended December 31, 2019 related to a decommissioned product previously offered to customers. There were no impairments recorded during the year ended December 31, 2020.

 

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Other Results

Additional information relating to other income (expenses), net and interest expense (income) is as follows:

 

     (dollars in thousands)
     Successor    

 

     Predecessor  
     Period from
September 1,
2021 to
December 31,
2021
     % of Total
Revenue
   

 

     Period from
January 1,
2021 to
August 31,
2021
    % of Total
Revenue
    Year ended
December 31,
2020
    % of Total
Revenue
 

Other income (expense), net

   $ 830        0.8        $ 1,810       0.8   $ (2,490     (0.8 )% 

Related party other income, net

     3,287        3.2          4,481       2.0     17,333       5.7

Related party interest (expense)

   $ —        $ —            $ (3,992     (1.8 )%    $ (8,823     (2.9 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

     (dollars in thousands)  
     Predecessor     Change  
     Year ended
December 31,
2020
    % of Total
Revenue
    Year ended
December 31,
2019
(unaudited)
    % of Total
Revenue
    Change
($)
    Change
(%)
 

Other income (expense), net

   $ (2,490     (0.8 )%    $ 3,480       1.2   $ (5,970     (171.6 )% 

Related party other income, net

     17,333       5.7     13,633       4.6     3,700       27.1

Related party interest (expense)

   $ (8,823     (2.9 )%    $ (13,572     (4.5 )%    $ (4,749     (35.0 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net was $0.8 million, $1.8 million, and $(2.5) million for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively. The periods were primarily impacted by foreign exchange rate fluctuations and transfer pricing adjustments. Other income (expense), net for the year ended December 31, 2020 was $(2.5) million, a decrease of $6.0 million or 171.6% from the prior year comparable period, primarily due to foreign exchange rate fluctuations.

Related party other income, net was $3.3 million, $4.5 million and $17.3 million for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively. The change was primarily attributed to a reduction in related party interest income and foreign exchange rate fluctuations. Related party other income, net was $17.3 million for the year ended December 31, 2020, an increase of $3.7 million or 27.1% from the prior year comparable period, primarily due to foreign exchange rate fluctuations.

Related party interest (expense) was $(4.0) million, and $(8.8) million for the 2021 predecessor period and the year ended December 31, 2020, respectively. There was no related party interest (expense) in the 2021 successor period. The change in each period with respect to interest expense was primarily attributable to outstanding related party loans between Edgecast and VMG or College Parent. All interest bearing related party indebtedness arising from historical related party transactions was settled in connection with the VMG transaction. Related party interest (expense) was $(8.8) million for the year ended December 31, 2020, a decrease of $4.7 million or 35% from the prior year comparable period, primarily attributable to a settlement in outstanding intercompany loans between Edgecast and VMG.

 

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Benefit (Provision) For Income Taxes

Additional information relating to benefit (provision) for income taxes is as follows:

 

     (dollars in thousands)  
     Successor             Predecessor  
     Period from
September 1,
2021 to
December 31,
2021
    % of Total
Revenue
            Period from
January 1,
2021 to
August 31,
2021
    % of
Total
Revenue
    Year ended
December 31,
2020
    % of Total
Revenue
 

Net loss before income taxes

   $ (36,548     (35.3)%           $ (58,077     (26.4 )%    $ (122,653     (40.2 )% 

Benefit (provision) for income taxes

   $ 8,794       8.5%           $ (3,464     (1.6 )%    $ 1,364       0.4

Effective income tax rate

     24.1             (6.0 )%        1.1  

 

     (dollars in thousands)  
     Predecessor     2020 vs. 2019  
     Year ended
December 31,
2020
    % of Total
Revenue
    Year ended
December 31,
2019
(unaudited)
    % of Total
Revenue
    Change
($)
    Change
(%)
 

Net loss before income taxes

   $ (122,653     (40.2 )%    $ (138,573     (46.4 )%    $ (15,920     (11.5 )% 

Benefit for income taxes

   $ 1,364       0.4   $ 13,258       4.4   $ (11,894     (89.7 )% 

Effective income tax rate

     1.1       9.6      

The effective income tax rate was 24.1%, (6.0)%, and 1.1% for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively.

The tax benefit was $8.8 million during the 2021 successor period and was driven by federal and state income tax benefits on tax losses partially offset by valuation allowances recorded during the period and other permanent items. Edgecast was able to realize these tax attributes in the 2021 successor period due to the reversing taxable temporary differences booked as a result of the VMG transaction.

The tax provision of $(3.5) million during the 2021 predecessor period was primarily driven by valuation allowances recorded during the period and net operating loss utilization.

The effective income tax rate for the year ended December 31, 2020 was 1.1%, as compared to 9.6% for the prior year comparable period. The tax benefits were $1.4 million and $13.3 million, during the years ended December 31, 2020 and December 31, 2019, respectively. The tax benefits were primarily driven by federal and state income tax benefits on tax losses partially offset by valuation allowances recorded during the year.

Liquidity and Capital Resources

Summary

As of December 31, 2021, Edgecast had $7.8 million of cash, an increase of $7.8 million from December 31, 2020. Participation in the cash pooling arrangement for Edgecast’s domestic operations ended September 1, 2021. During predecessor periods, Edgecast participated in cash pooling arrangements for its domestic operations. Edgecast’s due to related party balances were decreased through daily cash deposits by Edgecast to VMG and increased by cash distributions and disbursements made by VMG on behalf of Edgecast for operating expenses, fees, and services

 

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provided by VMG, including information system services and other operating expenses, such as personnel costs, legal costs, marketing production, facilities costs, and insurance. This arrangement was not reflective of the manner in which Edgecast would have financed its domestic operations had it been a stand-alone business separate from VMG during predecessor periods presented. Further, as a result of this arrangement, Edgecast was dependent on transfers of cash from VMG to fund its operations. In the Edgecast financial statements in predecessor periods, the cash pooling arrangement is reflected within financing activities. In the 2021 successor period, Edgecast no longer participates in cash pooling arrangements for its domestic operation. Additionally, in the 2021 successor period, existing cash, cash generated by operations and net transfers from College Parent continue to be the primary sources of liquidity, as well as borrowings available and outstanding between affiliates.

Edgecast believes that its sources of funding provided by net transfers from College Parent will be sufficient to satisfy Edgecast’s currently anticipated cash requirements including capital expenditures, working capital requirements, or strategic investments and other liquidity requirements through at least the next 12 months. Edgecast executes planned infrastructure investments to replace servers and network equipment that have reached the end of their useful lives, leading to improved speed and performance of the network in support of Edgecast’s growth strategies in 2022 and beyond.

Edgecast has various commitments primarily to purchase bandwidth and cloud services, which will be used or sold in the ordinary course of business, from a variety of suppliers. As of December 31, 2021, such purchase commitments, which do not qualify for recognition on the Edgecast financial statements, amount to $5.1 million, of which $4.4 million is short-term. Edgecast’s commitments are generally determined based on the non-cancelable quantities or termination amounts and do not include obligations under contracts that we can cancel without a significant penalty.

Edgecast has entered into various operating leases for certain offices with contractual lease periods expiring between 2023 and 2026, some of which include options that we can elect to extend the leases term and some of which include options to terminate for leases. Edgecast recognized total rental expenses under operating leases of $15.3 million for the 2021 successor period, $20.7 million for the 2021 predecessor period, $29.8 million for 2020 and $28.7 million for 2019, respectively.

Cash Flows

The following table summarizes Edgecast’s cash flow information for the periods presented:

 

     (dollars in thousands)  
     Successor            Predecessor     Predecessor  
     Period from
September 1,
2021 to
December 31,
2021
           Period from
January 1,
2021 to
August 31,
2021
    Year ended
December 31,
2020
    Year ended
December 31,
2019
(unaudited)
 

Cash flows provided by (used in):

             

Operating activities

   $ (37,943        $ (43,932   $ (79,496   $ (41,618

Investing activities

     (70,123          (43,990     (9,002     (48,534

Financing activities

     115,850            87,922       (8,883     169,964  

Effect of foreign currency exchange rates

     —              —         (3,866     3,063  
  

 

 

        

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

   $ 7,784          $ —       $ (101,247   $ 82,875  
  

 

 

        

 

 

   

 

 

   

 

 

 

 

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Cash Flows Used In Operating Activities

Cash flows used in operating activities were $37.9 million, $43.9 million, and $79.5 million for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively. Various changes in working capital were $15.2 million, $30.4 million, $30.8 million for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively. The changes during the periods were primarily attributed to changes in affiliate interest receivable and payable. There was also a decrease in net loss, after adjustments for non-cash items of $22.7 million, $13.5 million, and $48.6 million for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively.

There was a $37.9 million increase in net cash used in operating activities during the year ended December 31, 2020 compared to the prior year comparable period due to a net change in operating assets and liabilities. The increase was due to a $57.5 million outflow due to a net decrease in payables to affiliates. There was also a $5.8 million outflow due to a decrease in accounts payable trade and other, accrued liabilities, and other current liabilities due to timing, and outflows of $3.0 million primarily due to an increase in accounts receivable trade and other. These were offset by a $17.2 million cash inflow from an increase in other liabilities primarily due to the timing of payments and a $11.2 million inflow due to a decrease in affiliate interest receivable.

Cash Flows Used In Investing Activities

Cash flows used in investing activities were $70.1 million, $44.0 million, and $9.0 million for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively. The change was primarily due to a cash outflow of $50.0 million for a revolving credit facility agreement with an affiliated entity during the 2021 successor period. There was a cash inflow of $47.6 million received for the Oath (Netherlands) B.V. promissory note during the year ended December 31, 2020. Cash flows used in investing activities were also impacted by capital expenditures. Capital expenditures continue to relate primarily to the use of capital resources to increase the operating efficiency and productivity of Edgecast’s networks, maintain existing infrastructure, facilitate the introduction of new products and services and enhance responsiveness to competitive challenges. Edgecast invested $20.1 million, $44.8 million, and $56.8 million in capital expenditures, including capitalized software, during the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively.

The $39.5 million decrease in net cash used in investing activities was primarily due to $47.6 million received for the Oath (Netherlands) B.V. promissory note. The increase was offset by additional cash paid for capital expenditures to support ongoing initiatives and a decrease in proceeds received from dispositions of assets.

Cash Flows Provided By (Used In) Financing Activities

Cash flows provided by (used in) financing activities were $115.9 million, $87.9 million, and ($8.9) million for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively. Net transfers from VMG or College Parent were $115.9 million, $244.2 million, and $84.7 million for the 2021 successor period, the 2021 predecessor period, and the year ended December 31, 2020, respectively. Net transfers from VMG or College Parent include adjustments relating to certain transactions among Edgecast, VMG or College Parent and their affiliates, which include the transfer of the balance of cash held in cash pooling arrangements, settlement of related party loans and the related interest between Edgecast and VMG or College Parent or its affiliates, and pushdown of all costs of doing business that were paid on behalf of Edgecast by VMG or College Parent, or their affiliates. The 2021 predecessor period and the year ended December 31, 2020 were partially offset by payments to affiliates for loans of $156.3 million and $93.6 million, respectively.

 

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The $178.8 million decrease in net cash related to financing activities for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to payments of $93.6 million made on an unsecured loan note of $249.9 million to Oath Inc., Adap.tv, Inc., and Verizon Media Inc. There was also a decrease of $85.2 million for net transfers from VMG.

Critical Accounting Estimates

Edgecast’s management has identified the following accounting estimates as critical to Edgecast’s business operations and the understanding of the results of operations. The preparation of this MD&A requires Edgecast’s management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Edgecast financial statements, and the reported amounts of revenue and expenses during the reporting period. While Edgecast’s management does not believe that a change in these estimates is reasonably likely, there can be no assurance that Edgecast’s actual results will not differ from these estimates.

Pushdown Accounting

The VMG transaction was accounted for by College Parent in accordance with the acquisition method of accounting pursuant to Accounting Standards Codification No. 805 (Business Combinations), and pushdown accounting was applied to VMG to record the fair value of the assets and liabilities of VMG as of September 1, 2021, the date of the VMG transaction. Edgecast, as a consolidating business of VMG, also accounts for the VMG transaction using pushdown accounting. Under pushdown accounting, identifiable assets and liabilities are recorded at fair value and the excess of the fair value of Edgecast above the fair value accounting basis of the net assets and liabilities of Edgecast is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires Edgecast’s management’s judgment in making estimates, such as useful lives, projected financial information, or discount rates which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset.

Goodwill

Impairment testing for goodwill is performed annually in the fourth quarter or more frequently if impairment indicators are present. During the presented periods, Edgecast’s management determined Edgecast comprised a single reporting unit for impairment test purposes.

To determine if goodwill is potentially impaired, Edgecast’s management has the option to perform a qualitative assessment. However, Edgecast’s management may elect to bypass the qualitative assessment and perform a quantitative impairment test even if no indications of a potential impairment exist.

The process of estimating the fair value of goodwill is subjective and requires us to make estimates that may significantly impact the outcome of the analysis. Under the qualitative assessment, Edgecast’s management considers several qualitative factors, including the business enterprise value of the reporting unit and the excess of fair value over carrying value from this test, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations (including industry revenue and Earnings before interest, taxes, depreciation and amortization margin results and projections), the recent and projected financial performance of the reporting unit, cost factors, as well as other factors. The use of discount rates and projected financial performance requires Edgecast’s management’s judgment and estimates in making these quantitative assessments.

 

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Edgecast’s management has concluded that it has one reporting unit and assigned the entire balance of goodwill to this reporting unit. As of October 31, 2021, the goodwill testing date, Edgecast performed its impairment test for goodwill which indicated that the fair value for the reporting unit exceeded the carrying value, and therefore did not result in a goodwill impairment.

Corporate Allocations

The Edgecast financial statements have been prepared on a “carve-out” basis and include an allocated share of costs related to VMG or College Parent corporate functions for certain services provided to Edgecast. Expenses are allocated to Edgecast based on utilization, percentage of revenue, or other metrics deemed reasonable and appropriate by management. As such, the Edgecast financial statements may not include all of the actual expenses that would have been incurred and may not reflect Edgecast’s results of operations, comprehensive income, financial position and cash flows had it been a standalone company during the periods presented. Actual costs that would have been incurred if Edgecast had been a standalone company would depend on multiple factors, including organization structure and various other strategic decisions.

Income Taxes

Income tax benefit (provision) represents the income tax benefit or expense associated with Edgecast’s operations based on the tax laws of the jurisdictions in which we operate. Foreign jurisdictions in which Edgecast operates have different statutory tax rates than the United States. Edgecast did not operate as a standalone entity in the past and, accordingly, tax losses, receivables and other deferred tax assets included in the Edgecast financial statements on a separate return basis may not be available upon separation of Edgecast from College Parent.

Deferred income taxes are provided for temporary differences in the bases between financial reporting and income tax assets and liabilities. Deferred income taxes are recalculated annually at tax rates in effect for the years in which those tax assets and liabilities are expected to be realized or settled. Edgecast records valuation allowances to reduce Edgecast’s deferred tax assets to the amount that is more likely than not to be realized. Valuation allowances reflected in the Edgecast financial statements arose due to the fact the business has historically produced losses and that it expected to continue into the foreseeable future. However, as a result of the VMG transaction, it was determined that loss attributes that existed in the predecessor periods would not transfer to the new owner and are not included in the successor opening balance sheet. This resulted in changes in the valuation allowance assessments in significant jurisdictions in which the business operates. Separately, tax positions taken or expected to be taken in a tax return are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

Edgecast’s effective tax rate fluctuates from period to period due to changes in the mix of income and losses in jurisdictions with a wide range of tax rates, the effect of acquisitions, changes resulting from the amount of recorded valuation allowance, permanent differences between GAAP and local tax laws, and certain one-time items.

Stock-Based Compensation

Edgecast’s share of the stock-based compensation expenses include allocations of direct expenses as well as expenses that have been deemed attributable to Edgecast’s operations. Edgecast’s stock-based compensation plans have several types of stock-based compensation, including awards that vest, based on service conditions, performance conditions, or a combination of service and performance conditions. Determining the appropriate amount to expense in each period is based on likelihood and timing of achievement of the stated targets for performance-based awards, and requires

 

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judgment, including forecasting future financial results. The estimates are revised periodically, based on the probability and timing of achieving the required performance targets, and adjustments are made as appropriate. Additionally, Edgecast’s management equity program has a vesting schedule that is based on service conditions or on actual distributions of cash proceeds that meet the minimum return of money on invested capital threshold in addition to service.

Edgecast’s stock based compensation plans and generally accepted valuation techniques require Edgecast’s management to make assumptions and to apply judgment to determine the fair value of awards. These assumptions and judgments rely on equity volatility, expected period of distribution to investors, and enterprise value. Changes in these assumptions can affect the fair value estimate. Edgecast accounts for forfeitures as they occur rather than on an estimated basis.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF LIMELIGHT AND EDGECAST

The following unaudited pro forma condensed combined financial information combines the historical consolidated financial position and results of operations of Limelight and the historical combined financial position and results of operations of Edgecast after giving effect to the transaction as described in Note 1 – Description of the Transaction and the pro forma effects of certain assumptions and adjustments described in “Notes to the Unaudited Pro Forma Condensed Combined Financial Information” below.

The unaudited pro forma condensed combined balance sheet as of December 31, 2021 gives effect to the transaction as if it had occurred on December 31, 2021. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 gives effect to the transaction as if it had occurred on January 1, 2021.

The unaudited pro forma condensed combined financial information has been prepared to give effect to the following:

 

   

Application of the acquisition method of accounting under the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 805, Business Combinations (“ASC 805”) where the assets and liabilities of Edgecast will be recorded by Limelight at their respective fair values as of the date the transaction is completed;

 

   

Adjustments to conform the accounting policies and financial statement presentation of Edgecast to those of Limelight;

 

   

The issuance of approximately 71,936 thousand shares of Limelight common stock to College Parent (subject to customary closing adjustments) in exchange for the right, title and interest in and to all of the outstanding shares of common stock of Edgecast, certain Edgecast related assets specified in the purchase agreement, which includes a $30,000 thousand cash investment in Limelight by College Parent, and the issuance of up to an additional 12,685 thousand Limelight earnout shares, subject to the achievement of certain share-price targets;

 

   

Adjustments to reflect the elimination of certain affiliate balances between Edgecast and College Parent and certain employee award related balances of Edgecast that will be settled by College Parent; and

 

   

Adjustments to reflect transaction costs that would have been incurred had the transaction been effected as of and for the year ended December 31, 2021.

The following unaudited pro forma condensed combined financial information and related notes are based on and should be read in conjunction with (i) the historical audited consolidated financial statements of Limelight and the related notes included in Limelight’s Annual Report on Form 10-K, as amended as of and for the year ended December 31, 2021 (see section entitled “Where You Can Find Additional Information and Incorporation of Certain Documents by Reference”), and (ii) the historical audited combined financial statements of Edgecast and the related notes as of and for the year ended December 31, 2021 (see section entitled “Combined Financial Statements of Edgecast).

The unaudited pro forma condensed combined financial information is provided for informational purposes only. The unaudited pro forma condensed combined financial information is not necessarily, and should not be assumed to be, an indication of the actual results that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma condensed combined financial information has been prepared by Limelight in accordance with Regulation S-X Article 11 under the Securities Act as amended by the final rule, Release 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses.”

 

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The unaudited pro forma condensed combined financial information does not give effect to any cost savings, operating synergies, or revenue synergies that may result from the transaction or the costs to achieve such synergies.

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting under GAAP. GAAP requires that business combinations are accounted for under the acquisition method of accounting, which requires all of the following steps: (a) identifying the acquirer; (b) determining the acquisition date; (c) recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; and (d) recognizing and measuring goodwill or a gain from a bargain purchase. For the planned transaction, Limelight has been deemed to be the accounting acquirer. In identifying Limelight as the acquiring entity for accounting purposes, Limelight considered a number of factors, including but not limited to a) the relative voting rights of all equity instruments in the combined company after the transaction, in which Limelight stockholders and College Parent are expected to own approximately 65% and 35%, respectively, of the common stock, b) the intended executive management team after the transaction consisting of substantially all Limelight executives, and c) and the intended corporate governance structure of the combined company, with the board of directors consisting of nine members, in which Limelight will designate six directors.

On the acquisition date, the identifiable assets acquired and liabilities assumed and goodwill will be measured at fair value, with limited exceptions. The results of operations for the combined company will be reported prospectively after the acquisition date. While pro forma adjustments related to Edgecast assets and liabilities were based on estimates of fair value determined from preliminary information received from College Parent and initial discussions between Limelight and College Parent management, due diligence efforts, and information available in the historical audited combined financial statements of Edgecast and the related notes, the detailed valuation studies necessary to arrive at the required estimates of the fair value of the Edgecast assets to be acquired and the liabilities to be assumed, as well as the identification of all adjustments necessary to conform Limelight and Edgecast accounting policies, remain subject to completion because, amongst other things, prior to the closing of the transaction, both companies are limited in their ability to share information. Thus, certain valuations and other studies have yet to progress to a stage where there is sufficient information available for a definitive measurement. Limelight intends to complete the valuations and other studies upon completion of the transaction and will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the closing date of the transaction. The assets and liabilities of Edgecast have been measured based on various preliminary estimates using assumptions that Limelight believes are reasonable, based on information that is currently available. Differences between these preliminary estimates and the final acquisition accounting will occur, and those differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined company’s future results of operations and financial position. The unaudited pro forma condensed combined financial statements constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Special Note About Forward-Looking Statements” and “Risk Factors” included elsewhere in this proxy statement.

 

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Unaudited Pro Forma Condensed Combined Balance Sheet

As of December 31, 2021

(In thousands)

 

    Historical
Limelight
    Historical
Edgecast after
Reclassifications

(Note 3)
    Transaction
Accounting
Adjustments
    Notes   Pro Forma
Combined
 
ASSETS          
Current assets:          

Cash and cash equivalents

  $ 41,918     $ 7,784     $ 12,500     5(a), 5(b)   $ 62,202  

Marketable securities

    37,367       —         —           37,367  

Accounts receivable, net

    42,217       54,616       —           96,833  

Affiliate loan receivable

    —         50,778       (50,778   5(c)     —    

Income taxes receivable

    61       —         —           61  

Prepaid expenses and other current assets

    13,036       38,659       (2,880   5(d)     48,815  
 

 

 

   

 

 

   

 

 

     

 

 

 
Total current assets     134,599       151,837       (41,158       245,278  
Property and equipment, net     33,622       128,584       —           162,206  
Operating lease right of use assets     6,338       26,456       —           32,794  

Marketable securities, less current portion

    40       —         —           40  
Deferred income taxes     1,893       40       —           1,933  
Goodwill     114,511       60,919       (5,447   5(e)     169,983  
Intangible assets, net     14,613       49,111       (2,111   5(f)     61,613  
Affiliate loan receivable, non-current     —         201,000       (201,000   5(c)     —    
Other assets     5,485       163       —           5,648  
 

 

 

   

 

 

   

 

 

     

 

 

 
Total assets   $ 311,101     $ 618,110     $ (249,716     $ 679,495  
 

 

 

   

 

 

   

 

 

     

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          

Accounts payable

  $ 11,631     $ 46,342     $ (13,763   5(c)   $ 44,210  

Deferred revenue

    3,266       670       —           3,936  

Operating lease liability obligations

    1,861       11,907       —           13,768  

Income taxes payable

    873       —         —           873  

Other current liabilities

    19,292       69,445       (22,155   5(d)     66,582  
 

 

 

   

 

 

   

 

 

     

 

 

 
Total current liabilities     36,923       128,364       (35,918       129,369  
Convertible senior notes, net     121,782       —         —           121,782  

Operating lease liability obligations, less current portion

    9,616       14,619       —           24,235  
Deferred income taxes     308       15,941       (52   5(g)     16,197  
Deferred revenue, less current portion     116       —         —           116  
Other long-term liabilities     777       6       —           783  
 

 

 

   

 

 

   

 

 

     

 

 

 
Total liabilities     169,522       158,930       (35,970       292,482  
Stockholders’ equity:          

Common stock

    134       —         72     5(b)     206  

Additional paid-in capital

    576,807       —         260,462     5(b)     837,269  

Net parent investment

    —         459,857       (459,857   5(b)     —    

Accumulated other comprehensive loss

    (8,345     (677     677     5(b)     (8,345

Accumulated deficit

    (427,017     —         (15,100   5(b)     (442,117
 

 

 

   

 

 

   

 

 

     

 

 

 
Total stockholders’ equity     141,579       459,180       (213,746       387,013  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and stockholders’ equity

  $ 311,101     $ 618,110