Monday, June 11, 2007

In The Limelight: Executive Compensation Pre-IPO

Last week's IPO of CDN startup Limelight Networks offered some good data points on executive compensation pre and post IPO. The highlights:

- Compensation is for a company with 168 employees, and $64 Million in 2006 revenues.

- Management and directors (excluding investor nominees) held just over 20% of the Company prior to IPO.

- Option vesting moved from 36 to 48 month period

- Executives agreed to a 24-month non-compete period in exchange for 12 months severance

- Bonus is included in any severance payment for executives. Some options will also accelerate, depending on circumstances of termination.

Note on Founder Indemnities: In an earlier private placement in 2006, some of the founders were permitted to sell some of their holdings and get some liquidity. As part of that deal, the usual seller indemnities were given, including an indemnity that there was no third party infringement of intellectual property rights. At the time, Limelight had no patents, but had 12 US patent applications pending. (No patents have issued yet)

Shortly after the sale, Akamai sued for patent infringement,a strategy it has successfully pursued in the past with Digital Island and Speedera. As the registration statement notes, the indemnities came into play and it appears that, even after some relief, the founders are still out $3 million plus for ther indemnity obligations, wih possibly more to follow. A story to remember when you are considering the indemnity as part of yoru next deal.

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