Election of Directors. Stockholders may vote “For” all nominees, “Withhold” theirQ: | What if I return my proxy but do not provide voting instructions? |
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A: | If you specify a choice, your proxy will be voted as specified. If you return a signed proxy but do not specify a choice, your shares will be voted “for” the election of all nominees named in this proxy statement, “for” approval of an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock and “for” the ratification of PricewaterhouseCoopers LLP as the independent registered public accounting firm for our fiscal year ending December 31, 2010. In all cases, your proxy will be voted in the discretion of the individuals named as proxies on the proxy card with respect to any other matters that may come before the annual meeting. |
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Q: | Can I change my mind after I vote? |
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A: | You may revoke your proxy at any time before it is exercised by delivering written notice of revocation to the Corporate Secretary of Internap or by attending and voting at the annual meeting. |
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Q: | How can I vote my shares in person at the annual meeting? |
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A: | Shares held directly in your name as the stockholder of record may be voted in person at the annual meeting. If you choose to vote in person, please bring the enclosed proxy card and proof of identification. Even if you plan to attend the annual meeting in person, we recommend that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the annual meeting. Shares held in “street name” through a brokerage account or by a bank or other nominee may be voted in person by you if you obtain a signed proxy from the record holder giving you the right to vote the shares. |
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Q: | What is the quorum requirement for the annual meeting? |
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A: | The presence in person or by proxy of the holders of a majority of the shares entitled to vote at the annual meeting is necessary to constitute a quorum. If a registered stockholder indicates on his or her proxy card that the stockholder wishes to abstain from voting, or a beneficial owner instructs its bank, broker or other nominee that the stockholder wishes to abstain from voting, these shares are considered present and entitled to vote at the annual meeting. These shares will count toward determining whether or not a quorum is present. |
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Q: | What is the voting requirement to approve each of the proposals? |
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A: | A plurality of the shares voting is required to elect directors. This means that the nominees who receive the most votes will be elected. In counting votes on the election of directors, only votes “for” or “withheld” affect the outcome. Broker non-votes (which are explained below) will be counted as not voted and will be deducted from the total shares of which a plurality is required. |
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| The affirmative vote of holders of a majority of the outstanding shares entitled to vote at the annual meeting is required to approve the proposed amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock. In counting votes as to all nominees or “Withhold” their votes as to specific nominees. The person receiving the highest number of votes for election as a Director with a term expiring at the 2010 annual meeting and the three persons receiving the highest number of votes for election as a Director with a term expiring at the 2011 annual meeting will be elected, which is called a “plurality.” Abstentions will be counted in determining whether a quorum is present but will have no other effect on the election of Directors.Amendment to the Certificate of Incorporation. Stockholders may vote “For” the proposal, “Against” the proposal or “Abstain.” The vote required to approve the amendment to the certificate of incorporation is the affirmative vote of a majority of the shares of our common stock that are outstanding. Abstentions and broker non-votes will not be voted, although they will be counted in determining whether a quorum is present. Abstentions will have the same effect as a vote against the proposal, but broker non-votes will have no effect in determining the outcome of the vote on this proposal.
Increase the Number of Shares Available for Issuance Pursuant to the Amended and Restated Internap Network Services Corporation 2005 Incentive Stock Plan. Stockholders may vote “For” the proposal, “Against” the proposal or “Abstain.” The vote required to approve the increase of number of shares available for issuance pursuant to the Amended and Restated Internap Network Services Corporation 2005 Incentive Stock Plan is the affirmative vote of a majority of the shares of our common stock present, in person or by proxy, at the annual meeting. Abstentions and broker non-votes will not be voted, although they will be counted in determining whether a quorum is present. Abstentions will have the same effect as a vote against the proposal, but broker non-votes will have no effect in determining the outcome of the vote on this proposal.
Ratification of the Auditors. Stockholders may vote “For” the proposal, “Against” the proposal or “Abstain.” The vote required to approve the ratification of the appointment of our independent registered public accounting firm is the affirmative vote of a majority of the shares of our common stock present, in person or by proxy, at the annual meeting. Abstentions and broker non-votes will not be voted, although they will be counted in determining whether a quorum is present. Abstentions will have the same effect as a vote against the proposal, but broker non-votes will have no effect in determining the outcome of the vote on this proposal, abstentions, broker non-votes and other shares not voted will be counted as votes “against” the proposal.
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| Each other matter requires the affirmative vote of a majority of the shares present or represented at the annual meeting and entitled to vote upon the proposal. In counting votes on these other matters, abstentions will be counted as votes “against” the matter and broker non-votes, if any, will not be counted as votes cast and therefore will have no effect. |
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Q: | What are broker non-votes and what effect do they have on the proposals? |
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A: | Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because (a) the broker has not received voting instructions from the beneficial owner and (b) the broker lacks discretionary voting power to vote those shares. |
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| If you do not vote your proxy and your shares are held in street name, your brokerage firm may either vote your shares on routine matters or leave your shares unvoted. On non-routine matters, if the brokerage firm has not received voting instructions from you, the brokerage firm cannot vote your shares on that proposal, which is considered a “broker non-vote.” Broker non-votes will be counted for purposes of establishing a quorum to conduct business at the annual meeting. The proposal for the ratification of the appointment of our independent registered public accounting firm is routine. The proposal for approval of an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock is non-routine. The New York Stock Exchange recently eliminated broker discretionary voting for the election of directors. Therefore, unlike in prior years, your broker is not able to vote uninstructed shares on your behalf in any director election. These rules apply to us even though our common stock is traded on The NASDAQ Global Market (“Nasdaq”). Accordingly, brokers that do not receive instructions will be entitled to vote on the ratification of the appointment of our independent registered public accounting firm at the annual meeting, but may not vote for the election of directors or for approval of an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock. Therefore, we encourage you to sign and return your proxy, with voting instructions, before the annual meeting so that your shares will be represented and voted at the meeting even if you cannot attend in person. |
Failure to Vote
If you do not vote your proxy and your shares are held in street name, your brokerage firm may either:
vote your shares on routine matters; or
leave your shares unvoted.
How to Vote
You may vote by mail. You may vote by mail by signing your proxy card and mailing it in the enclosed envelope. If you mark your voting instructions on the proxy card, your shares will be voted as you instruct. If you return a signed card but do not provide voting instructions, your shares will be voted “For” each of the proposals described in this proxy statement.
You may vote by the Internet. Detailed instructions on how to vote by the Internet are set forth below.
For shares registered in your name —As a stockholder of record, you may go to www.proxyvote.com to grant a proxy to vote your shares via the Internet. You will be required to provide your number and control number contained on your proxy card. You will then be asked to complete an electronic proxy card. The votes represented by such proxy will be generated on the computer screen, and you will be prompted to submit or revise them as desired.
For shares registered in the name of a broker or bank —If you hold your shares through a broker, bank or other nominee, that institution will send you separate instructions describing the procedures for voting your shares.
General information for all shares voted via the Internet —We must receive votes submitted via the Internet by 11:59 p.m., Eastern Time, on June 18, 2008. Submitting your proxy via the Internet will not affect your right to vote in person should you decide to attend the annual meeting.
You may also vote by phone. You may vote by phone by using a touch-tone telephone and calling 1-800-690-6903. Have your proxy card in hand when you call and then follow the instructions.
You may also vote in person at the annual meeting. Written ballots will be given to anyone who wants to vote at the annual meeting. If you hold your shares in “street name,” you will need to obtain a proxy from the broker or bank that holds your shares in order to vote at the annual meeting.
Revocability of Proxies
Any stockholder delivering a proxy has the power to revoke it at any time before it is voted by:
Q: | 1. | giving written notice to the Corporate Secretary, Internap Network Services Corporation, at 250 Williams Street, Suite E-100, Atlanta, Georgia 30303;What does it mean if I receive more than one proxy or voting instruction card? |
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A: | executingIt means that your shares are registered differently or are in more than one account. Please provide voting instructions for all proxy and delivering to the Corporate Secretary a proxy card bearing a later date; orvoting instruction cards you receive. |
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Q: | Where can I find the voting in personresults of the annual meeting? |
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A: | We will announce preliminary voting results at the annual meeting and publish final results in a current report on Form 8-K shortly after the meeting. |
Cost of this Proxy
We will bear the entire cost of solicitation of proxies, including the costs of preparing, assembling, printing, and mailing this proxy statement, the proxy card and any additional information furnished to stockholders. We will furnish copies of solicitation materials to banks, brokerage houses, fiduciaries, and custodians holding in their names shares of our common stock beneficially owned by others to forward to such beneficial owners. We may reimburse persons representing beneficial owners of common stock for their costs of forwarding solicitation materials to such beneficial owners. We may also solicit proxies by telephone, facsimile or personal solicitation by our Directors, officers or other regular employees. We will not pay any additional compensation to Directors, officers or other regular employees for such services.We have retained Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902, to assist us in the solicitation of proxies at an initial anticipated cost of approximately $10,000 plus reasonable out-of-pocket expenses.Other Matters that May Come Before the Annual Meeting
Our Board of Directors knows of no matters other than those referred to in the accompanying Notice of 2008 Annual Meeting of Stockholders that may properly come before the annual meeting. If, however, any other matters should be properly presented for consideration and voting at the annual meeting or any adjournments or postponements thereof, the accompanying proxy gives discretionary authority to the persons named as proxies on the proxy card to vote the shares represented by all valid proxy cards with respect to such other matters. Those persons intend to vote that proxy in accordance with their best judgment.
PROPOSAL 1—ELECTION OF DIRECTORS
Under our certificate of incorporation, as amended, the size of ourOur Board of Directors is set at no less than five (5) nor more thancurrently consists of nine (9) members, withmembers. Our bylaws provide that the specific number set by resolutions of our Board of Directors. The Board is divided into three classes, with each class to be as nearly equal number as possible. Each class serves a term of office of three years, with the Directorsterm of one class expiring at the annual meeting in each class servingsuccessive year.
We seek to achieve an appropriate level of diversity in our Board membership and to assemble a three-year term. Ourbroad range of skills, expertise, knowledge and contacts to benefit our business. The Nominations and Governance Committee and the Board of Directors currently consists of eight members.
The termsannually assess the current make-up of the three DirectorsBoard, considering diversity across many dimensions, including gender, race, age, industry experience, functional areas (e.g., technology and finance), geographic scope, public and private company experience, academic background and director experience in Class III, Eugene Eidenberg, William Hardingthe context of an assessment of the current and Daniel Stanzione, will expire atexpected needs of the annual meeting.Board. The Nominations and Governance Committee reviews director candidates based on the Board’s needs as identified through this assessment and other factors, including their relative skills and characteristics, their exemplification of the highest standards of personal and professional integrity, their independence under Nasdaq listing standards, their potential contribution to the composition and culture of the Board and their ability and willingness to actively participate in the Board and committee meetings and to otherwise devote sufficient time to their Board duties. In addition,particular, the termBoard and the Nominations and Governance Committee believe that sound governance of Gary Pfeiffer,our company in an increasingly complex marketplace requires a Class II Director, will expire atwide range of viewpoints, backgrounds, skills and experiences. Although the annual meeting. TheBoard does not have a formal policy regarding Board diversity, the Board believes that having such diversity among its members enhances the Board’s ability to make fully informed, comprehensive decisions.
We sell Internet services and products. Given the nature of our business, we believe it is important for members of the Board of Directors appointed Mr.collectively to have experience in the industry in which we operate as well as corporate or other relevant leadership experience, public company officer and director experience and public company finance and accounting experience, including experience serving on other public company audit, compensation and governance committees and experience in senior finance roles at public companies. We believe that our Board collectively possesses these types of experience. Below is a summary of each director’s most relevant experience.
As recommended by the Nominations and Governance Committee, our Board of Directors has nominated Kevin L. Ober, Gary M. Pfeiffer and Michael A. Ruffolo as Class II directors for terms expiring at the 2013 annual meeting of stockholders and Debora J. Wilson as a Class II Director in August 2007 to fillIII director for a vacancyterm expiring at the 2011 annual meeting of stockholders. Mr. Ruffolo and Ms. Wilson joined our Board on the Board of Directors.January 1, 2010. In accordance with Delaware law and our bylaws, Directors electeddirectors appointed by the Board to fill newly-created directorships or to fill vacancies on the Board may only serve until the annual meeting of stockholders immediately following the appointment. For this reason, Mr. Pfeiffer, whose term does not otherwise expire until 2010, is being put forward toRuffolo and Ms. Wilson must be voted upon by our stockholders for a vote.
Based upon the recommendation of the Nominations and Governance Committee, the Board of Directors has nominated each of Dr. Eidenberg, Dr. Harding and Dr. Stanzione for election as Class III Directors for a term expiring at the 2011this year’s annual meeting of stockholders and Mr. Pfeiffer for electionmeeting. Each proposed nominee is willing to serve as a Class II Director fordirector if elected. However, if a term expiring at the 2010 annual meeting of stockholders and until their successors have been qualified, or until their earlier death, resignation or removal. Each of the nominees has agreed to serve if elected, and the Board of Directors has no reason to believe they will be unable to serve. If any nominee for Director is unable to serve the persons named in the proxyor is otherwise unavailable for election, which is not contemplated, our incumbent Board may vote foror may not select a substitute nominee. If a substitute nominee is selected, your shares will be voted for the substitute nominee (unless you give other instructions). If a substitute nominee is not selected, your shares will be voted for the remaining nominees. Proxies will not be voted for more than four nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF DR. EIDENBERG, DR. HARDING AND DR. STANZIONE AS DIRECTORS TO HOLD OFFICE UNTIL THE 2011 ANNUAL MEETING OF STOCKHOLDERS AND “FOR” THE ELECTION OF MR. PFEIFFER AS A DIRECTOR TO HOLD OFFICE UNTIL THE 2010 ANNUAL MEETING OF STOCKHOLDERS.
Set forth belowBiographical information for each nominee and each current director who will continue to serve after the annual meeting is information aboutpresented below. Except as otherwise indicated, all have had the Director nomineessame principal positions and about the incumbent Directors whose terms will expire in 2009 and 2010.employment for over five years.
Nominees for Terms Expiring in 2013 (Class II)
Kevin L. Ober, 49, has served as a director since 1997. Mr. Ober brings more than 15 years of broad technology, business and investment experience to our Board of Directors. Mr. Ober’s extensive investment experience in the markets in which we operate, including collocation, CDN and managed services, is valuable to our Board because it closely aligns with our operations, and his investment experience facilitates an in-depth understanding of our finances. Mr. Ober is a Managing Partner of Divergent Venture Partners. Mr. Ober currently leads Divergent’s investment in Pliant Technology, Inc. Prior to Divergent, Mr. Ober spent seven years with Vulcan Ventures, a national venture capital firm owned by Paul Allen, co-founder of Microsoft Corporation. While with Vulcan, Mr. Ober led investments in Internet infrastructure companies such as Nexabit Networks, Wavtrace, Inc. and Net Perceptions, as well as Internap. Other investments included Command Audio Corporation; Capstone Turbine Corporation; Colorado MicroDisplay, Inc.; ShareWave, Inc; Terastor, Inc; and Netschools Corporation. Prior to working at Vulcan, Mr. Ober served in various positions at Conner Peripherals, Inc., a computer hard disk drive manufacturer in San Jose, California. Mr. Ober holds a B.S. in Business Administration from St. John’s University and an M.B.A. from Santa Clara University.
Gary M. Pfeiffer, 60, has served as a director since 2007. Mr. Pfeiffer’s extensive experience includes public company officer, finance and accounting experience, corporate leadership experience, international operations experience, public sector experience as well as service on the boards of directors of other public companies, including service as non-executive chairman of the board of directors and chairman of audit, compensation and executive committees. This experience includes services as Chief Financial Officer and in other senior finance roles and in senior roles involving executive management during his more than 32 years with E. I. du Pont de Nemours and Company (DuPont), a large, complex, technology-based, multinational science-based products and services company. During his career with DuPont, Mr. Pfeiffer held a variety of financial and business leadership positions in the United States, Brazil and Japan. From 1997 to 2006, Mr. Pfeiffer served as Senior Vice President and Chief Financial Officer of DuPont. Mr. Pfeiffer also served as Secretary of Finance for the State of Delaware from January 2009 through June 2009. Mr. Pfeiffer is a member of the board of directors of Quest Diagnostics, Inc. and serves as non-executive chairman of the board of directors of The Talbots, Inc. Mr. Pfeiffer holds a B.A. and an M.B.A. from the College of William and Mary in Virginia. Mr. Pfeiffer’s background and skills have qualified him to chair our Audit Committee and to serve as our Audit Committee financial expert.
Michael A. Ruffolo, 48, has served as a director since January 1, 2010. Mr. Ruffolo has more than 27 years of broad business experience, including six years as a technology-company Chief Executive Officer, service as a Chief Information Officer of a Fortune 500 company as well as Chief Operating Officer of an Internet services company that experienced significant turnaround growth during his tenure. These varied positions provide Mr. Ruffolo with insight into various areas of our business, including sales, marketing, services, information technology and operations. In addition to his business experience, Mr. Ruffolo has served as a board member of other public companies as well as chairman of a compensation committee, all of which makes him a valuable addition to our Board of Directors. Mr. Ruffolo currently serves as Chief Executive Officer and President of Crossbeam Systems, Inc., a security platform provider. From 2004 to February 2010, Mr. Ruffolo served as Chairman and Chief Executive Officer of Liquid Machines, Inc., a provider of enterprise rights management solutions. Mr. Ruffolo served as Executive Vice President and Chief Operating Officer of Akamai Technologies, Inc. from 2001 until 2004. From 2000 to 2001, Mr. Ruffolo served as Executive Vice President of Global Sales, Services and Marketing of EMC Corporation. From 1998 to 1999, Mr. Ruffolo served as President of the Document Solutions Group at Xerox Corporation. From 1988 to 1998, Mr. Ruffolo served in various capacities at NCR Corporation, a global technology company, including Vice President and Chief Information Officer from 1996 to 1998. Mr. Ruffolo served as a director of Pomeroy IT Solutions, Inc. from 2007 to 2009. Mr. Ruffolo holds an M.B.A. from Harvard Graduate School of Business Administration and a B.S. from the University of Dayton. Mr. Ruffolo also has post graduate education in advanced management from the European Institute of International Business in Fountainebleau, France.
Nominee for Term Expiring in 2011 (Class III)
Eugene EidenbergDebora J. Wilson, 68,52, has served as a Directordirector since November 1997January 1, 2010. Ms. Wilson brings more than 30 years of experience managing key operational functions including sales, marketing, product development and management, business development, technology, human resources and finance/accounting. Ms. Wilson gained valuable executive management, business and leadership skills during her service as Chief Executive Officer of a technology-driven company. Ms. Wilson also brings in-depth knowledge of corporate governance and finance matters based on her experience as a director of several public and private company boards of directors. Ms. Wilson served as President and Chief Executive Officer of The Weather Channel from 2004 to 2009 and in other positions including Senior Vice President, Executive Vice President and Chief Operating Officer from 1994 to 2004. Before joining The Weather Channel, Ms. Wilson spent 15 years in the telecommunications industry at Bell Atlantic (now Verizon) and held management positions in network operations and new product development. Ms. Wilson is a member of the board of directors of Markel Corporation. Ms. Wilson has a B.S. in Business Administration from George Mason University in Virginia.
Your Board of Directors unanimously recommends that you vote FOR each of the above-listed nominees.
Continuing Directors with Terms Expiring in 2011 (Class III)
Eugene Eidenberg, 70, has served as a director since 1997. Dr. Eidenberg has broad experience in venture capital firms as well as significant public service at both the state and federal levels. Dr. Eidenberg brings an in-depth knowledge of the business and operational issues facing our company as well as the leadership, management and business skills gained during his tenure as our Chief Executive Officer. Dr. Eidenberg’s service as a senior executive at a telecommunications company provides strategic planning and corporate development expertise to our Board of Directors. Dr. Eidenberg served as non-executive chairmanChairman of our Board of Directors since April 2002. Fromfrom 2002 until June 2009 and as Chairman from November 1997 until April 2002, Dr. Eidenberg was the chairman of the Board of Directors.2002. From July 2001 until April 2002, Dr. Eidenberg served as our chief executive officer.Chief Executive Officer. Since 2005, Dr. Eidenberg has been a Strategic Advisor of Granite Venture Associates LLC, an early-stage high tech venture capital firm, since 2005, after co-founding the firm and serving as a Managing Director from 1999 until 2005. HeSince 1998, Dr. Eidenberg has served as a Principal of Hambrecht & Quist Venture Associates, an early-stage high tech venture capital firm, since 1998 and was an advisory director at the San Francisco investment-banking firm of Hambrecht & Quist from 1995 to 1998. Dr. Eidenberg served for 12 years in a number of senior management positions with MCI Communications Corporation. His positions at MCI includedCorporation, including Senior Vice President for Regulatory and Public Policy, President of MCI’s Pacific Division, Executive Vice President for Strategic Planning and Corporate Development and Executive Vice President for MCI’s international businesses. Dr. Eidenberg was Secretary to the Cabinet and Assistant to the President during the Carter Administration. Dr. Eidenberg is currently a director of severala private companies.company. Dr. Eidenberg holds a Ph.D. and a M.A. degree from Northwestern University and a B.A. degree from the University of Wisconsin.
William J. Harding, 60, is currently a Managing Director of VantagePoint Venture Partners since October 2007. Dr. Harding served as a Managing Member of Morgan Stanley Venture Partners III, LLC since 1997 and a Managing Director of Morgan Stanley & Co., Inc. from 1999 until October 2007. He joined Morgan Stanley & Co., Inc. in October 1994. Dr. Harding is currently a director of Aviza Technology, Inc. and several private companies. Prior to joining Morgan Stanley, Dr. Harding was a General Partner of several venture capital partnerships affiliated with J.H. Whitney & Co. Previously, Dr. Harding was associated with Amdahl Corporation from 1976 to 1985, serving in various technical and business development roles. Prior to Amdahl, Dr. Harding held several technical positions with Honeywell Information Systems. Dr. Harding holds a B.S. degree in Engineering Mathematics and a M.S. degree in Systems Engineering from the University of Arizona and a Ph.D. in Engineering from Arizona State University. Dr. Harding also served as an officer in the Military Intelligence Branch of the United States Army Reserve.
Daniel C. Stanzione62,, 64, has served as a Directordirector since October 2004.2004 and our non-executive Chairman since July 2009. Dr. Stanzione brings more than 30 years of experience in technology and communications companies, including service as Chief Operating Officer, Chief Technology Officer and general manager of a large telecommunications company. Dr. Stanzione’s business management, leadership and problem-solving skills developed as an executive and director of other public and private companies, and specific experience in various areas including technology, corporate governance, accounting and finance, brings valuable skills to our Board of Directors. Dr. Stanzione is President Emeritus of Bell Laboratories as well as an independent consultant. Dr. Stanzione retired from Lucent Technologies Inc. in 2000 where he served as Chief Operating Officer and as President of Bell Laboratories. At Lucent’s formation in 1995, Dr. Stanzione was President of Network Systems, Lucent’s largest business unit that sold products and services to telecommunication service providers around the world. Dr. Stanzione is currently a directorthe Lead Independent Director of Quest Diagnostics Inc., a public company, and Telecordia, atwo private company.companies. Dr. Stanzione is currently a consultant and serves on the Network Advisory Board at Accenture.Accenture plc. Dr. Stanzione previously served as a director of Avaya Inc. from 2000 until 2007 and on various private company boards. Dr. Stanzione holds a B.S. degree in Electrical Engineering, a M.S. degree in Environmental Systems Engineering and a Ph. D.Ph.D. in Electrical and Computer Engineering, all from Clemson University.
Nominee for a TermContinuing Directors with Terms Expiring in 20102012 (Class II)
Gary PfeifferJ. Eric Cooney, 58, joined Delaware-based E. I. du Pont de Nemours and Company, in 1974, where he held numerous positions in finance and international operations in several DuPont divisions. He served as Senior Vice President and Chief Financial Officer of the company from 1997 to 2006. Currently a member of the Board of Directors of The Talbots, Inc., Mr. Pfeiffer serves as Presiding Director, Chairperson of the Compensation Committee, and is also a member of the Audit Committee. He also serves as a Director of Quest Diagnostics, Inc. where he chairs the Audit and Finance Committee and is a member of the Compensation Committee, Governance Committee and Executive Committee.
Incumbent Directors Whose Terms Will Expire in 2010 (Class II)
James DeBlasio, 52, was appointed as Internap’s44, has been our President and Chief Executive Officer and a director since March 2009. Mr. Cooney brings valuable experience creating stockholder value as a public-company Chief Executive Officer in November 2005, after servingthe telecommunications, media and technology industry. Further Mr. Cooney’s practical experience includes: conceiving and executing a business turnaround, leading global organizations, executing buy-side and sell-side mergers and acquisitions transactions and rebuilding sales and engineering teams. Mr. Cooney joined the global digital video business of NDS, Inc (a News Corporation company) in April 1997, which was acquired by TANDBERG Television, in October 1999. Mr. Cooney held a number of positions including Vice President/General Manager Americas and Chief Operating Officer, before assuming his role as President and Chief OperatingExecutive Officer of InternapTANDBERG Television in June 2003. TANDBERG Television was acquired by the Ericsson Group in early 2007 and Mr. Cooney continued his role as Chief Executive Officer of the television business unit within Ericsson until he joined our company in 2009. Prior to his career in the digital video industry, Mr. Cooney spent several years working in systems engineering and sales in the computer process control industry and also spent five years as a U.S. Naval officer. Mr. Cooney received post graduate education in Nuclear Engineering from September 2005 until November 2005. Mr. DeBlasiothe U.S. Navy, a B.S. from the University of Rochester and an M.B.A. from the University of Southern California.
Kevin L. Ober, 47, has served as a Director of Internap since October 1997 and is a Managing Partner of Divergent Venture Partners. Mr. Ober currently leads Divergent’s investment in Plaint Technology. Prior to Divergent, he spent seven years with Vulcan Ventures, a national venture capital firm owned by Paul Allen, co-founder of Microsoft Corporation. While with Vulcan, he led investments in Internet infrastructure companies such as Nexabit Networks, Wavtrace and Net Perceptions, as well as Internap. Other investments included Command Audio, Capstone Turbine, Colorado Micro Displays, ShareWave, Terastor, and Netschools. Prior to working at Vulcan Ventures, Mr. Ober served in various positions at Conner Peripherals, Inc., a computer hard disk drive manufacturer in San Jose California. He holds a B.S. degree in Business Administration from St. John’s University and a M.B.A. degree from Santa Clara University.
Incumbent Directors Whose Terms Will Expire in 2009 (Class I)
Charles B. Coe, 60, has served as a Director since July 2003. Mr. Coe is a 28-year veteran of the telecommunications industry, including 15 years with BellSouth.BellSouth Corporation. Mr. Coe brings a wealth of management, leadership and business skills from his professional experience as well as his service on another public company board. During his tenure at BellSouth, heMr. Coe served as President of BellSouth Network Services, President of BellSouth Telecommunications, President of BellSouth International and Group President of Customer Operations for BellSouth Telecommunications. Previously, Mr. Coe had served in various management positions with AT&T Communications and American Telesystems Corporation. Mr. ColeCoe is currently a director of Dycom Industries, Inc. Mr. Coe holds a M.B.A. degree from Georgia State University and a B.S. degree from The Citadel.
Patricia L. Higgins, 58,60, has served as a Directordirector since December 2004. Ms. Higgins has nearlyover 30 years of experience in the telecommunications industry.industry, including experience as Chief Executive Officer in the colocation industry and service as Chief Information Officer for a Fortune 100 company. Ms. Higgins brings leadership, business and management skills developed as an executive and director of other public companies, including serving as chairwoman of audit, committee, finance and governance committees. Ms. Higgins is the former President, CEO,Chief Executive Officer and a Board member of the board of directors of Switch & Data Facilities Company, Inc., a leading provider of neutral interconnection and collocationcolocation services. UntilFrom 1999 to 2000, Ms. Higgins served as ChairmanChairwoman and CEOChief Executive Officer of The Research Board, a premier consulting and research services company for information technology. Prior to 1999, Ms. Higgins was the CIOChief Information Officer of Alcoa Inc. and also held senior management positions at UNISYS Corporation, Verizon (NYNEX) and AT&T Inc. Ms. Higgins currently serves on the Boardboard of Directorsdirectors of The Travelers Companies, Inc.,; Barnes & Noble, Inc.; Dycom Industries, Inc; and Visteon CorporationCorporation. Ms. Higgins also served as a director of Delta Airlines, Inc. from 2005 until 2007; SpectraSite, Inc. from 2004 until 2005 and Barnes and Noble,The Williams Companies, Inc. from 1995 to 2000. Ms. Higgins holds a B.A. degree from Montclair State University and attended Harvard Business School’s Advanced Management Program.
Family Relationships
No family relationships exist among any of our Directors or executive officers.
Agreements to Elect Directors
No agreements exist to elect any of our Directors.
BOARD AND COMMITTEE MEMBERSHIP AND MEETINGS
Our stockholders elect the Board of Directors to oversee management of our company. The Board delegates authority to the Chief Executive Officer and senior management to pursue the company’s mission and oversees the Chief Executive Officer’s and senior management’s conduct of our business. In addition to its general oversight function, the Board reviews and assesses the company’s strategic and business planning, senior management’s approach to addressing significant risks and has additional responsibilities including, but not limited to, the following:
| ● | reviewing and approving the company’s key objectives and strategic business plans and monitoring implementation of those plans and our success in meeting identified objectives; |
| ● | reviewing the company’s financial objectives and major corporate plans, business strategies and actions; |
| ● | selecting, evaluating and compensating the Chief Executive Officer and overseeing Chief Executive Officer succession planning; |
| ● | providing advice and oversight regarding the selection, evaluation, development and compensation of executive management; |
| ● | reviewing significant risks confronting our company and alternatives for their mitigation; and |
| ● | assessing whether adequate policies and procedures are in place to safeguard the integrity of our business operations and financial reporting and to promote compliance with applicable laws and regulations, and monitoring management’s administration of those policies and procedures. |
During 2009, our Board held 15 meetings. In 2009, each director then serving on the Board attended the 2009 Annual Meeting of Stockholders (seven in person and one by telephone) and all directors attended at least 75% of the meetings of the Board and the committees on which they served.
We have three standing committees of the Board of Directors: the Audit Committee, the Compensation Committee and the Nominations and Governance Committee. Members of each committee are appointed by the Board and the authority, duties and responsibilities of each committee are governed by written charters approved by the Board. These charters can be found on our website at www.internap.com. In addition to regular meetings of the Board and committees, we have regular scheduled executive sessions for non-management directors.
The current membership for each of the standing committees is as follows:
Audit Committee | | Compensation Committee | | Nominations and Governance Committee |
| | | | |
Gary M. Pfeiffer (Committee Chair) | | Charles B. Coe (Committee Chair) | | Patricia L. Higgins (Committee Chair) |
Eugene Eidenberg | | Patricia L. Higgins | | Charles B. Coe |
Kevin L. Ober | | Michael A. Ruffolo | | Gary M. Pfeiffer |
Debora J. Wilson | | Daniel C. Stanzione | | Daniel C. Stanzione |
Audit Committee
The Board of Directors has determined that all members of the Audit Committee are independent as defined by Nasdaq rules and the Sarbanes-Oxley Act of 2002, as applicable to audit committee members. The Board has determined that Mr. Pfeiffer, the committee Chairman, is an “audit committee financial expert” under rules of the Securities and Exchange Commission (the “SEC”). The Audit Committee met eight times in 2009. The Audit Committee:
| ● | appoints, retains, compensates, oversees, evaluates and, if appropriate, terminates our independent registered public accounting firm; |
| ● | annually reviews the performance, effectiveness, objectivity and independence of our independent registered public accounting firm and our internal audit function; |
| ● | establishes procedures for the receipt, retention and treatment of complaints regarding accounting and auditing matters; |
| ● | reviews with our independent registered public accounting firm the scope and results of its audit; |
| ● | approves all audit services and pre-approves all permissible non-audit services to be performed by our independent registered public accounting firm; |
| ● | assesses and provides oversight to management relating to identification and evaluation of major risks inherent in our business and the control processes with respect to such risks; |
| ● | oversees the financial reporting process and discusses with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; |
| ● | reviews and monitors our accounting principles, policies and financial and accounting processes and controls; and |
| ● | oversees the internal auditor and reviews and approves the annual internal audit plan. |
Compensation Committee
The Board of Directors has determined that all members of the Compensation Committee are independent as defined by Nasdaq rules. The Compensation Committee met 12 times during 2009. The Compensation Committee:
| | |
| ● | assists the Board in discharging its responsibilities relating to executive compensation and fulfilling its responsibilities relating to our compensation and benefit programs and policies; |
| ● | oversees the overall compensation structure, policies and programs, and assesses whether the compensation structure establishes appropriate incentives for management and employees; |
| ● | administers and makes recommendations with respect to our incentive compensation plans, including stock option and other equity-based incentive plans; |
| ● | reviews and approves the compensation of our executive officers, including bonuses and equity compensation; |
| ● | reviews and approves corporate and personal goals and objectives relevant to executive officers other than the Chief Executive Officer, evaluates the performance of such executive officers in light of these goals and objectives and approves the compensation of the executive officers based on the evaluation; |
| ● | reviews corporate and personal goals and objectives relevant to the Chief Executive Officer, evaluates the performance of the Chief Executive Officer in light of these goals and objectives and recommends to the full Board the compensation of the Chief Executive Officer based on the evaluation; |
| ● | reviews and discusses with management our Compensation Discussion and Analysis and related disclosures required by the rules of the SEC and recommends to the Board whether such disclosures should be included in our annual report and proxy statement; |
| ● | reviews and recommends employment agreements and severance arrangements for executive officers, including change in control provisions; and |
| ● | reviews annually the compensation of directors for service on the Board and committees and makes recommendations to the Board regarding such compensation. |
See the “Compensation Discussion and Analysis” section below for more information regarding the Compensation Committee’s processes and procedures.
Nominations and Governance Committee
The Board of Directors has determined that all members of the Nominations and Governance Committee are independent as defined by Nasdaq rules. The Nominations and Governance Committee met six times during 2009. The Nominations and Governance Committee:
| | |
| ● | assists the Board in fulfilling its responsibilities on matters and issues related to our corporate governance practices; |
| ● | in conjunction with the Board, establishes qualification standards for membership on the Board and its committees; |
| ● | leads the search for individuals qualified to become members of the Board, reviews the qualifications of candidates for election to the Board and assesses the contributions and independence of incumbent directors eligible to stand for re-election to the Board; |
| ● | selects and recommends to the Board the nominees for election or re-election by the stockholders at the annual meeting, and fills vacancies and newly created directorships on the Board; |
| ● | develops and recommends to the Board corporate governance guidelines, reviews the guidelines on an annual basis and recommends any changes to the guidelines as necessary; |
| ● | establishes and recommends to the Board guidelines, in accordance with applicable rules and regulations, to be applied when assessing the “independence” of directors; |
| ● | reviews and approves related person transactions, as defined in applicable SEC rules, and establishes policies and procedures for the review, approval and ratification of related person transactions; |
| ● | annually reviews and makes recommendations to the Board concerning the structure, composition and functioning of the Board and its committees and recommends to the Board directors to serve as committee members and chairpersons; |
| ● | reviews directorships in other public companies held by or offered to directors; |
| ● | develops and recommends to the Board for its approval an annual self-evaluation process for the Board and its committees and oversees the evaluation process; and |
| ● | reviews and reports on all matters generally relating to corporate governance. |
Compensation Committee Interlocks and Insider Participation
No current member of the Compensation Committee is a current or former executive officer or employee of our company. None of our executive officers served and currently none of them serves on the board of directors or compensation committee of any other entity with executive officers who have served on our Board of Directors or Compensation Committee.
CORPORATE GOVERNANCE
Board of Directors’ Committees and Meetings
The Board of Directors conducts its business through meetings and it may take action by unanimous written consent of the full Board, but only in rare instances following fulsome consideration and discussion of the issues presented, and through three standing committees of the Board, which are an Audit Committee, a Compensation Committee and a Nominations and Governance Committee. TheOur Board of Directors has adopted a charter for each of these committeesCorporate Governance Guidelines that can be found on our website at www.internap.com.
Duringoutline the fiscal year ended December 31, 2007, the Board of Directors held nine meetings, the Audit Committee held 11 meetings, the Compensation Committee held nine meetings,general duties and the Nominations and Governance Committee held six meetings. During the fiscal year ended December 31, 2007, each member of our Board of Directors attended at least 75% of the meetingsfunctions of the Board of Directors and of the committees on which he or she served that were held during the period for which he or she was a Director or committee member.
We have not adopted a formal policy regarding Director attendance at our annual meetings. We, however, strongly encourage all Directors to attend the annual meeting. Each of our Directors, who was a Director at the time of our 2007 annual meeting, was in attendance at the 2007 annual meeting of stockholders.
Audit Committee. The Audit Committee is composed of Dr. Harding, Ms. Higgins, Mr. Ober, and Mr. Pfeiffer. Ms. Higgins is the Chair of the Audit Committee. The Audit Committee is responsible for, among other things:
directly appointing our independent registered public accountants;
discussing with our independent registered public accountants their independence from management;
reviewing with our independent registered public accountants the scope and results of their audit;
approving all audit services and pre-approving all permissible non-audit services to be performed by the independent registered public accountants;
overseeing the financial reporting process and discussing with management and our independent registered public accountants the interimset forth general principles regarding Board composition, independence, Board meetings and responsibilities, Board committees, annual financial statements that we file with the SEC;performance evaluations and
reviewing and monitoring our accounting principles, policies and financial and accounting controls.
All committee members management succession. The Corporate Governance Guidelines are independent as defined in applicable NASDAQ rules. The Board of Directors has determined that Ms. Higgins, the current committee Chair, qualifies as an audit committee financial expert within the meaning of NASDAQ rules and regulations.
Compensation Committee. The Compensation Committee consists of Mr. Coe, Ms. Higgins, Mr. Pfeiffer, and Dr. Stanzione. Mr. Harman was a member of the Compensation Committee prior to his resignation on March 15, 2007. Mr. Coe currently serves as Chair of the Compensation Committee. The Compensation Committee reviews and recommendsattached to the Board the compensation and benefits of all our officers and establishes and reviews general policies relating to compensation and benefits for our employees. All committee members are independent as defined in applicable NASDAQ rules.
Nominations and Governance Committee. The Nominations and Governance Committee consists of Doctors Stanzione and Eidenberg, Mr. Coe, and Ms. Higgins. Dr. Stanzione currently serves as Chair of the Nominations and Governance Committee. The Nominations and Governance Committee is responsible for assisting the Board of Directors in identifying and attracting highly qualified individuals to serve as Directors and selecting Director nominees and recommending them to the Board for election at annual meetings of stockholders. Each membercharter of the Nominations and Governance Committee, which can be found on the Corporate Governance section of the Investors Services section of our website at www.internap.com.
Our Corporate Governance Guidelines assist our Board of Directors in fulfilling its responsibilities to stockholders and provide a framework for the Board’s oversight responsibilities regarding our business. Our Corporate Governance Guidelines are dynamic and have been developed and revised to reflect changing laws, regulations and good corporate governance practices. The guidelines also provide guidance and transparency to management, employees and stockholders regarding the Board’s philosophy, high ethical standards, expectations for conducting business and decision-making processes.
The following is a summary of certain of our policies, guidelines and principles relating to corporate governance. You may access complete current copies of our Code of Conduct, Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter and Nominations and Governance Committee Charter on the Corporate Governance section of the Investors Services section of our website at www.internap.com. Each of these is also available in print to any stockholder upon request to our Corporate Secretary.
Identification and Evaluation of Director Candidates
The Board of Directors prides itself on its ability to recruit and retain directors who have a diversity of experience, who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who are effective (in conjunction with the other members of the Board) in collectively serving the long-term interests of our stockholders.
The Nominations and Governance Committee of the Board of Directors acts as the Board’s nominating committee. All members of the Nominations and Governance Committee are independent as defined in applicable NASDAQby Nasdaq rules. The Nominations and Governance Committee is also responsibleseeks individuals qualified to become directors and recommends candidates for monitoring significant developmentsall director openings to the full Board. For a discussion of the Board’s membership criteria and how the company seeks to achieve diversity in Board membership and to attract directors with a broad range of skills, expertise, knowledge and contacts to benefit our business, see “Proposal 1—Election of Directors.” The Nominations and Governance Committee considers director candidates in anticipation of upcoming director elections and other potential or expected Board vacancies.
The Nominations and Governance Committee considers director candidates suggested by directors, senior management and stockholders and evaluates all nominees for director in the regulation and practice of corporate governance and the duties and responsibilities of directors generally, evaluating and administering the Corporate Governance Guidelines of the Company and recommending changes to the Board and periodically reviewing the Company’s governance structure.
Selection of Director Nominees
General Criteria and Process. The policy ofsame manner. Stockholders may recommend individual nominees for consideration by the Nominations and Governance Committee isby communicating with the committee as discussed below in “Stockholder Communications with the Board of Directors.” The Board of Directors ultimately determines individuals to consider candidates for Board membership received by Nominations and Governance Committee members, other Board members, management,be nominated at each annual meeting. Stockholders must comply with the Company’s stockholders, third party search firms, and any other appropriate sources. In identifying and evaluating Director candidates,procedures described below under “Stockholder Nominations.”
From time-to-time, the Nominations and Governance Committee has not set specific criteria for Directors. Under its committee charter, the Nominations and Governance Committee is responsible for determining desired skills and attributes and may consider strength of character, mature judgment, career specialization, relevant technical skills, diversity, and the extent to which the candidate would fill a present need on the Board. The Nominations and Governance Committee may retain a third party search firm to identify Directordirector candidates and has sole authority to select the search firm and approve the terms and fees of any Directordirector search engagement.
Stockholder Nominations.Stockholders who wish to recommend nominees for consideration by the Nominations and Governance Committee must submit their nominations in writing to our Corporate Secretary. Submissions must include sufficient biographical information concerning the recommended individual, for the committee to consider the recommended nominee, including age, five-year employment history with employer names and a description of the employer’s business, whether such individual can read and comprehend basic financial statements and other board memberships, if any, held by the recommended individual. The submission must be accompanied by a written consent of the individual to stand for election if nominated by the Board of Directors and to serve if elected by the stockholders. The Nominations and Governance Committee may consider such stockholder recommendations when it evaluates and recommends nominees to the full Board of Directors for submission to the stockholders at each annual meeting. Stockholder nominations made in accordance with these procedures and requirements must be addressed to Internap Network Services Corporation, Attn: Corporate Secretary, at 250 Williams Street, Suite E-100, Atlanta, Georgia 30303.
In addition, stockholders may nominate Directorsdirectors for election without consideration by the Nominations and Governance Committee. Any stockholder of record may nominate an individual by following the procedures and deadlines set forth in the “Stockholders’“Stockholder Proposals for 2009Inclusion in Next Year’s Proxy Statement” and “Other Stockholder Proposals for Presentation at Next Year’s Annual Meeting” sectionsections of this proxy statement and by complying with the eligibility, advance notice and other provisions of our bylaws. Under our bylaws, a stockholder is eligible to submit a stockholder proposal if the stockholder is a holder of record and entitled to vote at the annual meeting. The stockholder also must provide us with timely notice of the proposal to us.proposal. To be timely, the stockholder must provide advance notice not less than 90 nor more than 120 calendar days prior to the anniversary date of the preceding year’s annual meeting.
Board Leadership Structure
Our Board of Directors does not have a formal policy with respect to whether the Chief Executive Officer should also serve as Chairman of the Board. Our Corporate Governance Guidelines provide only that if our Chairman is not independent, then the Board also may designate a Lead Director who will be independent. Our Board makes the decision regarding leadership structure based on its evaluation of the circumstances in existence and the specific needs of the company and the Board at the time it reviews either or both roles. When making this decision, the Board considers factors such as:
| ● | the person filling each role; |
| ● | the composition, independence and effectiveness of the entire Board; |
| ● | other corporate governance structures in place; |
| ● | the compensation practices used to motivate our leadership team; |
| ● | our leadership succession plan; and |
| ● | the competitive and economic environment facing the company. |
The Board periodically reviews its leadership structure to ensure that it remains the optimal structure for our company and our stockholders.
Since April 2002, we have had different individuals serving as our Chairman of the Board of Directors and Chief Executive Officer. Currently, Daniel C. Stanzione is our Chairman and J. Eric Cooney is our Chief Executive Officer and President. As Chairman, Dr. Stanzione leads the Board in its role to provide general oversight of December 31, 2007,strategic planning for the Nominationscompany and to provide guidance and support for the Chief Executive Officer. Further, the Chairman sets the agenda for and presides over meetings of the full Board. As Chief Executive Officer, Mr. Cooney is responsible for developing and executing the corporate strategy, as well as for overseeing the day-to-day operations and performance of the company.
We believe that separating the roles of Chairman and Chief Executive Officer represents the appropriate structure for the company at this time.
Independence
The Board of Directors annually assesses the independence of all directors. No director qualifies as “independent” unless the Board affirmatively determines that the director is independent under the listing standards of Nasdaq. Our Corporate Governance Committee hadGuidelines require that a majority of our directors be independent.
For over 10 years, we have functioned with not received a recommended nominee from any stockholder or group of stockholders that beneficially owned more than 5%two active or former management employees as directors. Our Board of Directors believes that the independence of directors and committee members is important to assure that the Board and its committees operate in the best interests of the stockholders and to avoid any appearance of conflict of interest.
Under Nasdaq standards, our Board of Directors has determined that the following eight directors are independent: Charles B. Coe, Eugene Eidenberg, Patricia L. Higgins, Kevin L. Ober, Gary M. Pfeiffer, Michael A. Ruffolo, Daniel C. Stanzione and Debora J. Wilson. Mr. Cooney is not independent because he currently serves as our Chief Executive Officer and President. In 2009, only two current or former management employees, Mr. Cooney and Dr. Eidenberg (who served as our Chief Executive Officer from July 2001 until April 2002), served as directors.
Risk Oversight by our Board of Directors
While risk management is primarily the responsibility of our common stockmanagement team, our Board of Directors is responsible for the overall supervision of our risk management activities. The Board implements its risk oversight function both at the full Board level and through delegation to various committees. These committees meet regularly and report back to the full Board. The Audit Committee has primary oversight responsibility not only for financial reporting with respect to our major financial exposures and the steps management has taken to monitor and control such exposures, but also for the effectiveness of management’s Enterprise Risk Management process that monitors and manages key business risks facing our company. The Audit Committee also oversees our procedures for the receipt, retention and treatment of complaints relating to accounting and auditing matters and oversees management of our legal and regulatory compliance systems. The Compensation Committee oversees risks relating to our compensation plans and programs.
Management provides updates throughout the year to the respective committees regarding the management of the risks they oversee and each of these committees reports on risk to the full Board of Directors at regular meetings of the Board. At least once every year, the Audit Committee reviews the allocation of risk responsibility among the Board’s committees and implements any changes that it deems appropriate. In addition to the reports from the committees, the Board receives presentations throughout the year from various department and business unit leaders that include discussion of significant risks as appropriate. At each Board meeting, the Chairman and Chief Executive Officer address, in a director-only session, matters of particular importance or concern, including any significant areas of risk that require Board attention. Additionally, through dedicated sessions focusing entirely on corporate strategy, the full Board reviews in detail the company’s short- and long-term strategies, including consideration of significant risks facing us and how the risks could impact our business.
Our Vice President of Internal Audit coordinates the day-to-day risk management process for our company and reports directly to the Chief Financial Officer and to the Audit Committee. The Vice President of Internal Audit updates the Audit Committee at least
one year as ofquarterly and updates the
date of full Board regarding the recommendation.company’s risk analyses and assessments and risk mitigation strategies and activities.
Compensation of Directors
We discussbelieve that our approach to risk oversight, as described above, optimizes our ability to assess inter-relationships among the compensationvarious risks, make informed cost-benefit decisions and approach emerging risks in a proactive manner for the company. We also believe that our risk structure complements our current Board of Directors leadership structure, as it allows our independent directors, through the three fully-independent Board committees, to exercise effective oversight of the actions of management in identifying risks and implementing effective risk management policies and controls.
During 2010, we conducted a risk assessment of our compensation plans to identify any potential risks associated with the design of the plans and assess the controls in place to mitigate risks, if any, to an acceptable level. Based on this assessment, management has concluded that our compensation plans do not contain risks that are reasonably likely to cause a material adverse effect on us. We evaluated each plan independently and as part of our overall compensation framework. In general, our compensation plans:
| ● | are well documented, appropriately communicated, consistently applied and reviewed annually by the Compensation Committee; |
| ● | are based on both individual performance and company performance metrics that are tied to the strategic goals and objectives of the company; |
| ● | balance short- and long-term rewards, with compensation capped at levels consistent with industry standards; |
| ● | do not encourage excessive risk taking, focus on short-term gains rather than long-term value creation, reward circumvention of controls or contain unrealistic goals and/or targets; and |
| ● | are compared to industry standards and peer companies on an on-going basis by both the internal compensation department as well as independent compensation consultants and amended periodically to maintain consistency with common practices. |
Based on these factors, the absence of any identified incentives for risk taking above the level associated with our business model, the involvement of the Compensation Committee and our overall culture and control environment, we have concluded our compensation plans do not promote excessive risk taking.
Stock Retention Requirements for Directors and Executive Officers
The Board of Directors believes that directors and management should have a significant financial stake in our company to align their interests with those of our stockholders. In that regard, the sectionBoard has adopted a policy that requires directors and executive officers to retain specified amounts of our stock granted or awarded to them in connection with their service to us. The stock retention guidelines are further described below in “Compensation Discussion and Analysis.”
Code of Conduct and Ethics Hotline
We have a Code of Conduct that covers our directors, officers and employees and satisfies the requirements for a “code of ethics” within the meaning of SEC rules. This group includes, without limitation, our chief executive officer and chief financial/accounting officer. A copy of the code is posted on our website, www.internap.com under “Investor Services.” The code is available in print to any person without charge, upon request sent to our Corporate Secretary at Internap Network Services Corporation, 250 Williams Street, Suite E-100, Atlanta, Georgia 30303. We will disclose, in accordance with all applicable laws and regulations, amendments to, or waivers from, our Code of Conduct.
Any suggestions, concerns or reports of misconduct at our company or complaints or concerns regarding our financial statements and accounting, auditing, internal control and reporting practices can be reported by submitting a report on https://internap.alertline.com/gcs/welcome (anonymously, if desired) or by calling our third-party provider, Global Compliance, at (800) 323-6182.
Attendance
Our Board of Directors prides itself on its ability to recruit and retain directors who have a diversity of experience, who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who are effective (in conjunction with the other members of the Board) in collectively serving the long-term interests of the stockholders. Board and committee attendance is central to the proper functioning of our Board and is a priority. Directors are expected to make every effort to attend all meetings of the Board, meetings of committees on which they serve and the annual meeting of stockholders.
Board and Company Culture
Our Corporate Governance Guidelines are coupled with a robust, open and effective Board environment that promotes respect, trust and candor, fosters a culture of open dissent and permits each director to express opinions and contribute to the Board process. Directors are expected to have unrestricted access to management and any company information they believe is necessary and appropriate to perform their roles as directors. The participation of Board members and the open exchange of opinions is further encouraged at the Board committee level through the periodic rotation of Board members among its standing committees. This open and candid operating environment is shared by management and the Board and is essential to fully realize the benefits of our Corporate Governance Guidelines, committee charters and other policies governing our company.
Stockholder Communications with the Board of Directors
TheStockholders and interested parties may communicate with our Board of Directors has a policy and processby sending correspondence to facilitate stockholder communications with Directors. Stockholders who wish to communicate directly with the Board, of Directors may do so by writing toa specific Board committee or a director c/o Corporate Secretary, Internap Network Services Corporation, 250 Williams Street, Suite E-100, Atlanta, Georgia 30303 Attn: Corporate Secretary or by sending electronic mail to boardofdirectors@internap.com.corpsec@internap.com.
The Corporate Secretary will forwardreviews all communications received without reviewingto determine whether the contents include a message to a director and will provide a summary and copies of all correspondence (other than solicitations for services, products or editing them.publications) to the applicable directors at each regularly scheduled meeting. The Chairman of the Board of Directors, or the other Director to whom your communication is addressed, if other than the Board, will decide whether and how to respond to your communication. Such person may consult with the Corporate Secretary will alert individual directors to items which warrant a prompt response from the individual director prior to the next regularly scheduled meeting. Items warranting prompt response, but not addressed to a specific director, will be routed to the applicable committee chairperson.
Any suggestions, concerns or reports of misconduct at our company or complaints or concerns regarding hisour financial statements and accounting, auditing, internal control and reporting practices can be reported by submitting a report on https://internap.alertline.com/gcs/welcome (anonymously, if desired) or her response.by calling our third-party provider, Global Compliance, at (800) 323-6182.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENTOFFICERS AND DIRECTORS
Five Percent Stockholders
The following table sets forth information as to those holders known to us to be the beneficial owners of more than 5% of our outstanding shares of common stock as of December 31, 2009:
| | Common Stock Beneficially Owned | |
Name and Address of Beneficial Owner | | Number of Shares | | Percent of Class(1) | |
| | | | | | |
BlackRock, Inc.(2) | | 2,993,245 | | | 5.77% | |
Dimensional Fund Advisors LP(3) | | 2,665,178 | | | 5.14% | |
Kornitzer Capital Management, Inc. (4) | | 3,395,850 | | | 6.55% | |
(1) As of April 1, 2010, based on 51,832,434 shares outstanding on that date.
(2) Based on information set forth in Schedule 13G filed January 29, 2010. The Schedule 13G indicates that BlackRock, Inc. has sole voting and dispositive power over the 2,993,245 shares of our common stock. The business address of BlackRock, Inc. is 40 East 52nd Street, New York, New York 10022.
(3) Based on information set forth in Schedule 13G filed February 8, 2010. The Schedule 13G indicates that Dimensional Fund Advisors LP has sole voting power over 2,553,741 shares of our common stock and sole dispositive power over 2,665,178 shares of our common stock. The business address of Dimensional Fund Advisors LP is Palisades West, Building One, 6300 Bee Cave Road, Austin, Texas 78746.
(4) Based on information set forth in Amendment No. 1 to Schedule 13G filed January 22, 2010. The Schedule 13G indicates that Kornitzer Capital Management, Inc. has sole voting power over 3,395,850 shares of our common stock, sole dispositive power over 3,281,700 shares of our common stock and shared dispositive power over 114,150 shares of our common stock. The business address of Kornitzer Capital Management, Inc. is 5420 West 61st Place, Shawnee Mission, Kansas 66205.
Stock Ownership of Management
The following table sets forth the beneficial ownershipnumber of shares of common stock beneficially owned as of March 25, 2008 for:
| • | our DirectorsApril 1, 2010 by each of our directors and named executive officers (as defined below under “Compensation Discussion and Analysis”) and Director nominees; |
| | |
| • | our principal executive officer, our principal accounting officer, our three most highly compensated named executive officers other than the principal executive officer and principal accounting officer as of December 31, 2007, and one individual who would have been the principal financial officer had he been an executive officer as of December 31, 2007; |
| | |
| • | our Directors, Director nominees and executive officers as a group; and |
| | |
each stockholder who holds more than a 5% interest in our outstanding common stock.
Unless otherwise indicated in the footnotes, all of such interests are owned directlyour directors and the indicated person or entity has sole voting and disposition power.
Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned bynamed executive officers as a person and the percentage of ownership held by that person, shares of common stock subject to options and warrants held by that person that are currently exercisable or will become exercisable within 60 days after March 25, 2008 are deemed outstanding, while these shares are not deemed outstanding for computing percentage ownership of any other person.
The percentage of common stock beneficially owned is based on 50,249,871 shares of our common stock outstanding at March 25, 2008.
group. The address for those individuals for which an addressof each current director and named executive officer is not otherwise indicated is: c/o Internap Network Services Corporation, 250 Williams Street, Suite E-100, Atlanta, Georgia 30303.
| | Common Stock Beneficially Owned | |
| | Number of Shares | | Percent of Class | |
Tamara Augustyn (1) | | 36,751 | | * | |
David A. Buckel (2) | | -- | | -- | |
Charles B. Coe (3) | | 53,500 | | * | |
James P. DeBlasio (4) | | 681,323 | | * | |
Richard Dobb (5) | | 66,235 | | * | |
Eugene Eidenberg (6) | | 242,656 | | * | |
Franklin Resources, Inc. (7) | | 3,696,290 | | 7.4% | |
William J. Harding (8) | | 24,783 | | * | |
Patricia L. Higgins (9) | | 41,229 | | * | |
Integral Capital Management VII, LLC, Integral Capital Management VIII, LLC and ICP Absolute Return Management, LLC (10) | | 2,999,000 | | 6.0% | |
Phil Kaplan (11) | | 437,862 | | * | |
Kornitzer Capital Management, Inc. (12) | | 3,736,800 | | 7.4% | |
Vince Molinaro (13) | | 194,771 | | * | |
Kevin L. Ober (14) | | 23,500 | | * | |
Gary Pfeiffer (15) | | 12,500 | | * | |
Daniel C. Stanzione (16) | | 45,500 | | * | |
All Directors and executive officers as a group (13 persons) | | 1,860,610 | | 3.7% | |
To our knowledge, except under community property laws or as otherwise noted, the persons and entities named in the table have sole voting and sole investment power over their shares of our common stock.
| | Common Stock Beneficially Owned | |
Name and Address of Beneficial Owner | | Number of Shares(1) | | Percent of Class(2) | |
| | | | | |
Charles B. Coe | | 86,900 | | * | | |
J. Eric Cooney(3) | | 807,092 | | 1.6 | % | |
Eugene Eidenberg(4) | | 281,056 | | * | | |
William J. Harding(5) | | 30,684 | | * | | |
Patricia L. Higgins | | 74,629 | | * | | |
Kevin L. Ober | | 34,202 | | * | | |
Gary M. Pfeiffer | | 45,900 | | * | | |
Michael A. Ruffolo | | 15,957 | | * | | |
Daniel C. Stanzione | | 83,900 | | * | | |
Debora J. Wilson | | 28,957 | | * | | |
George E. Kilguss III | | 249,200 | | * | | |
Richard P. Dobb | | 111,453 | | * | | |
Randal R. Thompson | | 110,510 | | * | | |
Steven A. Orchard | | 53,726 | | | | |
James P. DeBlasio(6) | | 245,284 | | * | | |
Timothy P. Sullivan(7) | | — | | * | | |
All directors and executive officers as a group (16 persons) | 2,259,450 | | 4.3 | % | |
* LessRepresents beneficial ownership of less than 1%.
(1) Includes shares that may be acquired by the exercise of stock options granted under our stock option plans within 60 days after April 1, 2010 as follows:
(1) | Consists of 3,980 shares of restricted common stock awarded on March 20, 2008 that vest in 16 quarterly installments, 7,500 shares of restricted common stock awarded on March 15, 2007 that vest in 16 quarterly installments, 10,000 shares of restricted common stock awarded on February 27, 2006 of which 12.5% vest every six months, and options to purchase 15,271 shares of common stock that are vested and exercisable or that will vest within 60 days. | | | |
(2)Name | Mr. Buckel resigned his position as Vice President and Chief Financial Officer on November 19, 2007. | | Options | |
| Consists of 15,000 shares of common stock, 2,500 shares of restricted common stock awarded on June 22, 2007 one-third of which vest on each of the first, second and third anniversary of the grant date, provided Mr. Coe is a Director of the Company on such date, and options to purchase 36,000 shares of common stock that are vested and exercisable.
| | | |
(4)Charles B. Coe | Consists of: (i) 5,000 shares purchased in the open market; (ii) 100,000 shares of restricted stock of which 50,000 vested on September 30, 2006 and 17,325 shares were withheld to cover taxes, 16,667 vested on September 30, 2007 with 16,667 shares to vest on September 30, 2008 and 16,666 shares to vest on September 30, 2009, provided that Mr. DeBlasio is employed by the Company on such vesting dates. Thus far, Mr. DeBlasio has sold 27,000 shares in accordance with his 10b-5 plan; (iii) 125,000 shares of restricted stock that vest in a series of 16 quarterly installments at the end of each calendar quarter beginning with the second quarter of 2007 provided that Mr. DeBlasio is employed by the Company at the end of such quarter; (iv) 149,776 shares of restricted common stock awarded on March 20, 2008, half of which are time-based and half are performance-based vesting. The time-based portion vests in 16 equal quarterly installments. The performance-based portion vests in increments of one-third beginning on the first anniversary of the grant date if the Company achieves revenue and EBITDA levels established by the Board. The Company will either meet or not meet both goals in a given year. With respect to all shares of performance-based restricted stock that do not vest during any of the three years, 50% of such shares will vest on the fourth anniversary of the date of the grant. The vesting of any restricted stock (including both time-based and performance-based) is subject to Mr. DeBlasio being an employee in good standing on the date of vesting; (v) 4,372 shares awarded on March 15, 2008; and (vi) and options to purchase 341,500 shares of common stock that are vested and exercisable or that will vest within 60 days.
| | 58,270 | |
(5)J. Eric Cooney | Consists of 30,000 shares of restricted common stock awarded on April 23, 2007 and 25% of the award vests on the anniversary of grant, provided that Mr. Dobb is employed by the Company on that date, 1,628 shares awarded on March 15, 2008 that are fully vested, and 34,607 shares of restricted common stock awarded on March 20, 2008, half of which are time-based and half are performance-based vesting. The time-based portion vests in 16 equal quarterly installments. The performance-based portion vests in increments of one-third beginning on the first anniversary of the grant date if the Company achieves revenue and EBITDA levels established by the Board. The Company will either meet or not meet both goals in a given year. With respect to all shares of performance-based restricted stock that do not vest during any of the three years, 50% of such shares will vest on the fourth anniversary of the date of the grant. The vesting of any restricted stock (including both time-based and performance-based) is subject to Mr. Dobb being an employee in good standing on the date of vesting. | | 25,000 | |
(6) | Consists of the 2,500 shares of restricted common stock awarded on June 22, 2007 one-third of which vest on each of the first, second and third anniversary of the grant date, provided Dr. Eidenberg is a Director of the Company on such date, 236 shares of common stock held by Mr. Eidenberg, 45,556 shares of common stock held by Mr. Eidenberg, as trustee of the Eugene Eidenberg Trust dated 9/97, 2,799 shares of common stock held by Eugene Eidenberg, | | | 157,269 | |
William J. Harding | | | — | |
Patricia L. Higgins | | | 56,270 | |
Kevin L. Ober | | | 22,133 | |
Gary M. Pfeiffer | | | 22,270 | |
Michael A. Ruffolo | | | — | |
Daniel C. Stanzione | | | 56,270 | |
Debora J. Wilson | | | — | |
George E. Kilguss III | | | 19,804 | |
Richard P. Dobb | | | 19,658 | |
Randal R. Thompson | | | 15,137 | |
Steven A. Orchard | | | 21,262 | |
James P. DeBlasio | | | — | |
Timothy P. Sullivan | | | — | |
Directors and executive officers as trustee of the Anna M. Chavez Educational Trust, 40,000 shares of common stock held by the Eugene Eidenberg Grantor Retained Annuity Trust, 8,566 shares held by Anna M. Chavez, and options to purchase 142,999 shares of common stock that are vested and exercisable.a group | | 473,343 | |
(2) As of April 1, 2010, based on 51,832,434 shares outstanding on that date.
(3) Mr. Cooney became our President and Chief Executive Officer in March 2009.
(4) Includes 13,236 shares of common stock held by Dr. Eidenberg; 45,556 shares of common stock held by Dr. Eidenberg, as trustee of the Eugene Eidenberg Trust dated 9/97; 2,799 shares of common stock held by Eugene Eidenberg, as trustee of the Anna M. Chavez Educational Trust; 40,000 shares of common stock held by the Eugene Eidenberg Grantor Retained Annuity Trust and 8,566 shares held by Anna M. Chavez.
(7) | As of December 31, 2007. The address of Franklin Resources, Inc. is One Franklin Parkway, San Mateo, California 94403. |
(8) | Dr. Harding retired from Morgan Stanley Venture Partners III, LLC and Morgan Stanley & Co., Inc. in 2007. He assigned all of his equity compensation received while serving on our Board of Directors to Morgan Stanley, which consists of 2,500 shares of restricted common stock and options to purchase 27,000 shares of common stock that are vested and exercisable. Dr. Harding disclaims beneficial ownership in all such shares. Because Dr. Harding has retired from Morgan Stanley, such shares are excluded from the table above. |
(9) | Consists of 4,729 shares of common stock, 2,500 shares of restricted common stock awarded on June 22, 2007 one-third of which vest on each of the first, second and third anniversary of the grant date, provided Ms. Higgins is a Director of the Company on such date, and options to purchase 34,000 shares of common stock that are vested and exercisable. |
(10) | As of January 4, 2008. The address is 3000 Sand Hill Road, Building 3, Suite 240, Menlo Park, California 94025. |
(11) | Consists of 329,321 shares owned by Mr. Kaplan’s family trust, options to purchase 74,493 shares of common stock that are vested and exercisable or that will vest within 60 days and 34,048 shares of restricted common stock awarded on March 20, 2008, half of which are time-based and half are performance-based vesting. The time-based portion vests in 16 equal quarterly installments. The performance-based portion vests in increments of one-third beginning on the first anniversary of the grant date if the Company achieves revenue and EBITDA levels established by the Board. The Company will either meet or not meet both goals in a given year. With respect to all shares of performance-based restricted stock that do not vest during any of the three years, 50% of such shares will vest on the fourth anniversary of the date of the grant. The vesting of any restricted stock (including both time-based and performance-based) is subject to Mr. Kaplan being an employee in good standing on the date of vesting. |
(12) | As of December 31, 2007. The address is 5420 West 61st Place, Shawnee Mission, Kansas 66205. |
(13) | Consists of 125,000 shares of restricted common stock awarded on April 24, 2007 of which 25% of the award vests on the anniversary of grant, provided that Mr. Molinaro is employed by the Company on that date and 69,771 shares of restricted common stock awarded on March 20, 2008, half of which are time-based and half are performance-based vesting. The time-based portion vests in 16 equal quarterly installments. The performance-based portion vests in increments of one-third beginning on the first anniversary of the grant date if the Company achieves revenue and EBITDA levels established by the Board. The Company will either meet or not meet both goals in a given year. With respect to all shares of performance-based restricted stock that do not vest during any of the three years, 50% of such shares will vest on the fourth anniversary of the date of the grant. The vesting of any restricted stock (including both time-based and performance-based) is subject to Mr. Molinaro being an employee in good standing on the date of vesting. Mr. Molinaro resigned his position as Chief Operating Officer on April 7, 2008 and plans to remain an employee through June 30, 2008. |
(14) | Consists of 2,500 shares of restricted common stock awarded on June 22, 2007 one-third of which vest on each of the first, second and third anniversary of the grant date, provided Mr. Ober is a Director of the Company on such date, and options to purchase 21,000 shares of common stock that are vested and exercisable. |
(15) | Consists of 12,500 shares of restricted common stock awarded on August 21, 2007 one-third of which vest on each of the first, second and third anniversary of the grant date, provided Mr. Pfeiffer is a Director of the Company on such date. |
(16) | Consists of 9,000 shares purchased in the open market, 2,500 shares of restricted common stock awarded on June 22, 2007 one-third of which vest on each of the first, second and third anniversary of the grant date, provided Dr. Stanzione is a Director of the Company on such date, and options to purchase 34,000 shares of common stock that are vested and exercisable. |
(5) Dr. Harding resigned as a director in October 2009. The number of shares reported in the table above is based on the latest information available to us which may not reflect the current holdings of Dr. Harding.(6) The employment of Mr. DeBlasio, our former Chief Executive Officer and President, was terminated in March 2009. The number of shares reported in the table above is based on the latest information available to us which may not reflect the current holdings of Mr. DeBlasio.
(7) The employment of Mr. Sullivan, our former Chief Technology Officer, was terminated in July 2009. The number of shares reported in the table above is based on the latest information available to us which may not reflect the current holdings of Mr. Sullivan.
Executive Officers
In addition to Mr. DeBlasio,Cooney, our President and Chief Executive Officer and President, whose biographical information appears under “Proposal 1—Election of Directors,” set forth below are the names, ages and biographical information for each of our namedcurrent executive officers and their ages as of December 31, 2007.
officers.
| | | | |
| | Age | | Position |
James P. DeBlasio | | 52 | | President and Chief Executive Officer |
Tamara Augustyn | | 38 | | Vice President and Principal Accounting Officer |
David A. Buckel | | 45 | | Vice President and Chief Financial Officer (1) |
Richard Dobb | | 53 | | Vice President and General Counsel |
Phil Kaplan | | 41 | | Chief Strategy Officer |
Vince MolinaroJ. Eric Cooney | | 44 | | Chief OperatingExecutive Officer (2)and President |
George E. Kilguss III | | 49 | | Chief Financial Officer |
Richard P. Dobb | | 56 | | Chief Administrative Officer |
Randal R. Thompson | | 42 | | Senior Vice President, Global Sales |
Steven A. Orchard | | 38 | | Senior Vice President, Operations and Support |
(1) | Mr. Buckel resigned his position as Vice President and Chief Financial Officer on November 19, 2007. |
(2) | Mr. Molinaro resigned his position as Chief Operating Officer on April 7, 2008. |
Tamara AugustynGeorge E. Kilguss III assumedhas been our Chief Financial Officer since April 2008 and manages all of our finance, accounting and information technology activities. Prior to joining us, Mr. Kilguss served as Chief Financial Officer of Towerstream Corporation from 2004 to 2007. From November 2000 until December 2003, Mr. Kilguss was a private investor. From September 1998 until October 2000, Mr. Kilguss was Chief Financial Officer of Stratos Global Corporation, a publicly traded company on the role of the Company’s Principal Accounting Officer effective as of November 19, 2007 in addition to serving asToronto Stock Exchange. Mr. Kilguss was also an Executive Vice President Financeof Stratos Global Corporation and Chief Accountant since January 2007. Ms. Augustyn served ason its board of directors from April 1999 until October 2000. Mr. Kilguss holds an M.B.A. in finance and accounting from the Company’s Corporate ControllerUniversity of Chicago’s Graduate School of Business and Chief Accountant from August 2006 to January 2007, and prior to that time, as the Company’s Operational Controller since June 2004. Before she joined the Company in June 2004, Ms. Augustyn held a number of positions with American Tower Corporation from June 1999 to January 2004, most recently as the Director of Finance for one of its wholly-owned subsidiaries, Galaxy Engineering Services, which was acquired by Incode Telecom Group in August of 2003. Ms. Augustyn worked in Internal Audit at Fluor Corporation from 1997 to 1999 and began her career in the audit department of Dixon Hughes PLLC. Ms. Augustyn has a B.S. degree in Businesseconomics and finance from Wake Forestthe University and is a certified public accountant.of Hartford.
David A. Buckel served as the Company’s Vice President and Chief Financial Officer from May 2004 to November 2007, after serving as Financial Vice President from October 2003 until May 2004. Mr. Buckel also previously served as an Investor Relations consultant with the Company from July 2003 until October 2003. From November 2002 to July 2003, he served as Senior Manager and President of AJC Finance & Market Group, a financial consulting firm. Prior to that, Mr. Buckel was Senior Vice President and Chief Financial Officer for two NASDAQ-listed companies, Web.com, which was formerly known as Interland Corporation, a provider of applications and web hosting and consulting services from March 2001 through November 2002, and Applied Theory Corporation, a provider of hosting, software development and Internet connectivity products, from July 1995 through March 2001. Mr. Buckel, a Certified Management Accountant, holds a B.S. degree in Accounting from Canisius College and a M.B.A. degree in Finance and Operations Management from Syracuse University.
Richard P. Dobbhas servedbeen our Chief Administrative Officer since June 2008, where he leads our human resources, real estate and facilities and legal functions, and as Vice President,our General Counsel and Corporate Secretary of the Company since April 2007. Prior to joining the Company,us, Mr. Dobb served as Chief Legal Officer and Corporate Secretary for S1 Corporation, a global provider of Internet banking solutions, from 2001 -to 2007. Prior to joining S1, Mr. Dobb was Vice President, General Counsel and Corporate Secretary of eShare Communications, Inc., a global provider of Web-based customer care software solutions. Mr. Dobb has also served as a senior counsel at Digital Equipment Corporation and as Chief Legal Officer of the Georgia Institute of Technology. Additionally, heMr. Dobb was a member of the corporate finance practice at King & Spalding.Spalding LLP. Mr. Dobb holds a B.A. from Rutgers UniversityCollege and J.Da J.D. from the Emory University School of Law.
Philip N. Kaplan Randal R. Thompsonhas been our Senior Vice President of Global Sales since 2009 and leads our worldwide sales organization, strategy and programs. Mr. Thompson originally joined us in 2003 as Market Manger and previously served as Chief Strategy Officer of the Company since Februaryour regional Vice President Sales for mid-America and Europe from 2006 to 2007 when the Company acquired VitalStream Holdings, Inc., or VitalStream. Heand Vice President, Global sales from 2007 through 2009. Prior to joining us, Mr. Thompson served as presidentDirector of VitalStream since November 2004, as chief operating officerSales for Major and National Accounts at MCI WorldCom. Mr. Thompson holds a director of VitalStream since April 2002, and as Secretary of VitalStream from April 2002 until November 2004. Mr. Kaplan served as chief operating officer, secretary and a director of VitalStream, Inc. since its inception in March 2000, which merged with VitalStream in 2002. Mr. Kaplan was also co-founder of AnaServe, Inc. where he held the position of senior vice president, secretary and treasurer from its formation in 1995 until its acquisition by Concentric Network Corporation in August 1998. Mr. Kaplan remained employed by Concentric until April 1999. Mr. Kaplan received a Bachelor of Arts degree in Economics with a minor in Russian languageB.S. from the University of California, Davis.New Haven.
Vincent J. Molinaro Steven A. Orchard has been our Senior Vice President, Operations and Support since July 2009, where he leads our operations and customer support programs. Mr. Orchard originally joined us in 1999 and has previously served as the Company’s Chief Operating OfficerSenior Manager, IP Operations from April2005 until 2006; Director, Network Operations from 2006 until 2007 and Vice President, Network Operations from 2007 until July 2009. Prior to April 7, 2008. From December 2006 to April 2007,joining us, Mr. Molinaro served as president of the Europe & North Region for Alcatel-Lucent. From July 2005 to December 2006,Orchard held systems positions with Codesic, Inc. and Oasis Systems, Inc. Mr. Molinaro served as president of North America Region for Lucent Technologies and led the sales, technical support and delivery teams to grow the company’s service provider business and extend its legacy products into next-generation enterprise solutions. Additionally, from December 1994 to July 2000, Mr. Molinaro lived in the Netherlands serving as vice president and chief operating officer of Lucent’s Europe, Middle East & Africa Regions. In that position, he oversaw all marketing, sales, service, support, and program management for Internet and telecommunications companies throughout the region. He was also an executive in the Data Networking Systems Group and the Applications Software Business Unit. Mr. Molinaro joined AT&T Bell Laboratories as a member of the technical staff in 1988, and then transferred to AT&T Network Systems two years later. During his tenure with AT&T he held many global roles ranging from systems engineering and product management to marketing and business development. Mr. MolinaroOrchard holds a Bachelor of Science degree in Biomedical Engineering from Boston University and a Master of Science in Electrical EngineeringB.S. from the University of Bridgeport.Oregon in Eugene.
Compensation Discussion and AnalysisCOMPENSATION DISCUSSION AND ANALYSIS
Introduction
In this section, we discuss certain aspectsprovide an overview and analysis of our executive compensation philosophy, program as it pertains to our principal executive officer, our principal accounting officer, our three other most highly compensated executive officers as of December 31, 2007, and one individual who would have been amongpolicies, the three most highly compensated executive officers had he been an executive officer as of December 31, 2007. We refer to these individuals asmaterial compensation decisions made about 2009 compensation, the “named executive officers.” Our discussion focuses on compensationmaterial factors considered in making those decisions and practices relating to 2007, our most recently completed fiscal year, and includes relevantthe actions we have taken thus far in 20082010 that affect the current and future compensation of our named executive officers. We have divided the discussion into four parts:
| ● | Compensation Philosophy and Objectives |
| ● | Compensation Consultant and Market Comparisons |
| ● | Overview of Compensation Components |
| ● | 2009 Compensation Decisions and 2010 Actions |
This section refers only to the individual performancecompensation of our “named executive officers” unless we note otherwise:
| ● | J. Eric Cooney, Chief Executive Officer and President |
| ● | George E. Kilguss III, Chief Financial Officer |
| ● | Richard P. Dobb, Chief Administrative Officer |
| ● | Randal R. Thompson, Senior Vice President, Global Sales |
| ● | Steven A. Orchard, Senior Vice President, Operations and Support |
In addition, we include information related to James P. DeBlasio, our former Chief Executive Officer, and Timothy P. Sullivan, our former Chief Technology Officer. These individuals are no longer employed by us but did serve as named executive officers can have a significant impact on our overall results. We, therefore, place considerable importance on the design and administration of our executive compensation program.during 2009.
This Compensation DiscussionPhilosophy and Analysis will outline our compensation philosophy, the administration of our policies, our use of consultants, and provide a detailed description of how and why we paid each element of the compensation plan to our named executive officers.
Philosophy
Our executive compensation program is designed to: (1) attract, motivate, reward, and retain high quality executives necessary for our leadership; (2) ensure that compensation provided to executive officers is closely aligned with our short and long-term business objectives, financial performance and strategic goals; (3) build a strong link between an individual’s performance and his or her related paid compensation; and (4) further align the interests of management with our stockholders by providing equity incentive compensation. Our executive compensation practices are intended to provide each executive a total annual compensation that is commensurate with the executive’s responsibilities, experience and demonstrated performance and are intended to be competitive with a select group of peer companies, as well as a larger group of other technology companies.
The Company is in an industry characterized by intense competition, rapid technological change and the introduction of new products and services. Successful companies in this industry are those that achieve growth in this environment. Our compensation program reflects our commitment to growth and increasing stockholder value by providing for bonuses and equity awards only when the Company has achieved certain levels of growth. For example, the bonuses received by our named executive officers in 2007 for performance in 2006 were the first such bonuses awarded by the Company and coincided with the Company’s unprecedented financial performance.
Determination ProcessObjectives
The Compensation Committee or the Committee, oversees the establishment of executive compensation policies and programs consistent with our corporate objectives and stockholder interests, as well as reviews the general policies relating to the compensation and benefits for all of our employees. The Board of Directors determines the Committee’s membership. All members of the Committee are independent Directors under NASDAQ rules.oversees our compensation program. The Committee meets at scheduled times during the year, and it may take action by unanimous written consent, but only in rare instances following fulsome consideration and discussion of the issues presented. The Chair of the Committee reports on Committee actions and recommendations at meetings of the full Board of Directors. The Committee engages independent compensation consultants and considers their data and input.
TheCompensation Committee’s charter, which is available on our website, mandates thatrequires the Compensation Committee to annually review eachand approve the compensation of our named executive officer’s compensation package. The Committee considers: (1) the extent to which we attained specified corporate objectives for the preceding year; (2) the extent to which the named executive officer attained his or her individual objectives for the preceding year; (3) the recommendations ofofficers, other than the Chief Executive Officer, and to annually review and make recommendations to the full Board regarding the compensation of our Chief Executive Officer. A majority of the independent directors of the full Board must approve the compensation of our Chief Executive Officer. In this regard, our Compensation Committee reviews and, other than with respect to compensationour Chief Executive Officer, approves each component of the other named executive officers; (4) the experience and contribution levels of the named executive officer; (5) internal pay equity; and (6) benchmarking the total compensation levels of executive officers in similar positions in companies in a select group of peer companies, as well as a larger group of other technology companies, through surveys conducted by independent compensation consultants.
The Committee approves the total compensation,package, including base salary, adjustments,annual cash bonus and long-term incentive awards, of the named executive officers.
Our Chief Executive Officer reviewed and approved the 2009 compensation of Mr. Orchard, who was appointed a named executive officer in March 2010. In accordance with its charter, the Compensation Committee will approve Mr. Orchard’s total compensation package in 2010.
Our executive compensation philosophy is to provide competitive salaries and incentives to achieve superior financial performance for our company and to provide each named executive officer with a total compensation package that is commensurate with the individual’s responsibilities, experience, contributions and performance. Our compensation for the named executive officers and other thanexecutives has four primary objectives:
| ● | attract, motivate, reward and retain highly-qualified executives who will lead our company and achieve and inspire superior performance; |
| ● | provide incentives for achieving specific near-term individual, business unit and corporate goals and reward goal attainment at established levels; |
| ● | provide incentives for achieving longer-term corporate goals; and |
| ● | align the interests of named executive officers and other executives with those of our stockholders to reward increasing stockholder value. |
Our Compensation Committee monitors and assesses our executive compensation program during the year to ensure adherence to these objectives.
Our executive compensation program balances base salaries with short-term performance-based compensation in order to reward annual performance while maintaining emphasis on longer-term objectives through the grant of stock options and restricted stock. The program also balances the cash, non-cash, short-term and long-term components and current and future compensation. The Compensation Committee considers qualitative and quantitative factors when setting compensation for each named executive officer. Each named executive officer’s compensation mix and cash-to-equity ratio depends on his or her responsibilities, experience, skills, potential to affect our overall performance and market competitiveness of compensation package. The Compensation Committee believes our Chief Executive Officer has the broadest scope of responsibilities and typically approves a compensation package for the Chief Executive Officer based on the factors described in the preceding paragraph. The Committee considers the same factors when evaluating the Chief Executive Officer’sthat has a larger portion tied to performance and recommends a compensation package, including base salary adjustments, cash bonus and long-term incentive awards, to the Board of Directorsthan for its review, discussion and approval. A majority of the independent Directors of the full Board of Directors must approve the compensation of our Chief Executive Officer.
The Committee typically makes changes to our named executive officers’ base salaries in December of each year, but made such adjustments to base salaries for 2007 in January of 2007. The Committee typically determines bonus awards in March after financial results for the preceding year are available. The Committee also determines the long-term incentives in March during its prescheduled meeting.
Use of Consultants
We recognize that competitive compensation is critical for attracting, motivating and rewarding qualified executives. To ensure our named executive officers are compensated appropriately, the Committee retained the services of Aon Consulting, or Aon, an independent compensation consultant, to identify appropriate compensation levels and compensation program design features. Aon assisted the Committee in identifying and establishing median total compensation goals and assisted in general oversight of our executive compensation program. This oversight includes helping the Committee evaluate compensation practices and assisting the Committee with developing and implementing our executive compensation program and philosophy. The Committee used information provided by Aon when approving or recommending compensation levels, but does not delegate authority to set compensation to Aon or to any other party.
At the Committee’s direction to ensure independence, neither Aon nor any of its affiliates or subsidiaries provided any other services to the Company.
Compensation for 2007
In September 2006, Aon conducted a review of labor market salary levels for top executives in similar sized companies and similar industries using published compensation surveys and a selected peer group of companies. Aon provided a preliminary list of potential peer companies using publicly available databases and screening on relevant industry categories. The Committee reviewed this preliminary list and considered the similarities of products and services offered, revenue size, market capitalization, and number of employees, as well as revenue growth and profitability. Based on this review, the Committee determined that the following companies would constitute the peer group: Akamai Technologies Inc., Arbinet-Thexchange Inc., Cbeyond Communications Inc., Cogent Communications Group, Covad Communications Group, Equinix Inc., Globix Corp., Infospace Inc., Internet Security Systems Inc., Ipass Inc., ITC Deltacom Inc., Navisite Inc., Savvis Inc., Terremark Worldwide Inc., and VitalStream Holdings, Inc. The peer group companies are Internet infrastructure companies, as well as a larger group of similarly situated and sized technology companies, but these companies are not necessarily dispositive of the companies we consider in all comparative analyses. While the these peer companies differed in relative revenue size, Aon used regression analysis of its database to factor in size differences and to calculate actual and expected compensation for executives relative to net sales and completed an analysis that linked the peer group executive regression data, the published survey data and the Company’s internal hierarchy. Aon matched our executive positions to published compensation survey data for similarly sized companies. These surveys are generally broad in scope and incorporate the comparison data from hundreds of respondent companies. The survey sources on which Aon relied included Aon’s Radford Technology Compensation Surveys and surveys from other well-known sources, including William M. Mercer and Watson Wyatt. Data utilized represented companies of similar size, industry and scope to us, with revenues generally less than $200 million.
Aon conducted a regression analysis using the peer group database to calculate actual and expected compensation for chief executive officers relative to 2005 net sales and completed an analysis that linked the peer group chief executive officer regression data, the published survey data and our internal hierarchy. This analysis compared relative values from published surveys of positions below the chief executive officer by creating a published survey index to the chief executive officer. Aon set the chief executive officer index at 100% and the indices for positions below the chief executive officer are calculated by dividing the published survey median results for each position by the published median for the chief executive officer’s compensation. These indices were applied to calculate expected compensation levels for the positions below the chiefnamed executive officer.
For base salaries,Compensation Consultant and Market Comparisons
In March 2009, the Compensation Committee focused onreplaced AON Consulting (“Aon”), the published surveyincumbent compensation consultant, with Compensation Strategies, Inc. (“CSI”) following a competitive bid process. Aon previously had provided compensation data results becausefor use in establishing the Committee viewed those results as more indicativecompetitive market positioning of each component of the labor market since the published survey data sources covered many more companies. For total cash compensation which is salary plus bonus and total direct compensation, which is total cash plus the present value of stock or other long-term compensation, the Committee focused on the peer group regression results because those companies are growth companies and better represented the labor market on these elements of compensation.
Aon identified the market median salary for eachpackage of our named executive officers. Based on that median, we concluded thatCSI and the base salariesCompensation Committee utilized the data compiled by Aon to establish compensation levels in 2009.
The Compensation Committee and management sought the views of ourthe compensation consultants regarding market trends for executive compensation and analysis of specific compensation program components. In addition, Aon provided information comparing direct compensation for the named executive officers were between 94%to market data from several published surveys. “Direct compensation” encompassed base salary, annual bonus opportunities and 112%long-term compensation in the form of equity grants. Aon used the following published surveys’ market median salary for each position. We also concluded that our named executive officers had total cash compensation that ranged from 105%survey sources in addition to 139% of expected total cash compensationdata obtained from the proxy statements of peer companies (identified below):
| ● | 2008 Confidential Radford Executive Compensation Survey; Telecommunications Products/Services; Revenues $200 million to $1 billion; |
| ● | 2007 William M. Mercer Executive Compensation Report, All Organizations, Revenue less than $1 billion; and |
| ● | 2007 Watson Wyatt Industry Report on Top Management Compensation, All Organizations; Revenue $150 million to $750 million. |
These surveys include information from participants in a broader range of industries than solely the Internet services and products industries in which we operate. Aon also utilized compensation information obtained from the proxy statements of a select peer group regressions, and total direct compensationof companies that ranged from 85% to 151% of the expected total direct compensation from the peer group regressions.operate in our markets, which encompassed:
The overall results of the Aon engagement provided the foundation for our actions involving executive compensation in 2007.
Compensation for 2008
To assist with its decisions for executive compensation for 2008, the Committee asked Aon to conduct a review of the competitiveness of Internap’s executive compensation program for its top executives and to compare Internap’s executive compensation to published surveys and a mutually selected peer group. Aon presented the results of this review in August of 2007 and formed the foundation for our actions related to executive compensation in 2008.Akamai Technologies, Inc. | Global Crossing Ltd. | Riverbed Technology Inc. |
Blue Coat Systems | Level 3 Communications Inc. | Savvis Inc. |
Cbeyond Inc. | Limelight Networks Inc. | Switch & Data Facilities Co. |
Cogent Communications Group | Navisite Inc. | Terremark Worldwide Inc. |
Equinix Inc. | Paetec Holding Corp. | XO Holdings Inc. |
Aon utilized published surveys and a selected peer group of similar companiesdid not provide any other services to Internap. Aon developed key findings from an analysis of competitive compensation data and its review of reports and documents provided byus in 2009. We continue to utilize the Company. Aon compared the Company’s top executive positions to the executives listed in the proxy statement of each of the selected peer companies. The Committee, with Aon’s advice, selected the peer companies. Aon then matched the Company’s executive positions to published compensation survey data for similarly sized companies. The surveys are generally broad in scope and incorporate the compensation data from hundreds of respondent companies. Aon aged this salary information to October 1, 2007 at a 3.5% annualized increase rate, which was based on actual 2006 and projected 2007 median merit salary increase rates for technology companies. The surveys Aon used were:
● The 2005 Radford Executive Compensation Survey, Telecommunications Products/Serviceswhich is developed by an affiliate of Aon, to review the competitive level of executive compensation packages for executives (other than the named executive officers) and other managers.
CSI relied on the market data prepared by Aon to prepare its analysis of each element of the compensation package of the named executive officers.
In August 2009, based on CSI’s recommendation, the Compensation Committee selected a revised group of peer companies for use in establishing 2010 compensation levels for the named executive officers. CSI provided 50th percentile compensation information from this revised peer group for base salary and short- and long-term incentive compensation. Consistent with revenues from $200 millionstandard practices, due to $1 billion;the varying sizes of the companies included in the peer group, statistical analysis was used to “size-adjust” the market compensation data to reflect our relative annual revenue. The revised peer group consists of:
Akamai Technologies, Inc. | F5 Networks, Inc. | Rackspace Hosting, Inc. |
Aruba Networks, Inc. | InfoSpace, Inc. | Riverbed Technology Inc. |
Blue Coat Systems | j2 Global Communications, Inc. | Savvis Inc. |
Cbeyond Inc. | Limelight Networks Inc. | Switch & Data Facilities Co. |
Cogent Communications Group | Navisite Inc. | Terremark Worldwide Inc. |
Digital River, Inc. | NeuStar, Inc. | Veraz Networks, Inc. |
Equinix Inc. | Omniture, Inc. | Websense, Inc. |
Other than executive and Board compensation consulting, CSI did not provide any other services to us in 2009. The 2006 William M. Mercer Executive Compensation Report, All Organizations with revenues less than $500 million;Committee has continued to engage CSI for executive compensation services in 2010.
The Compensation Committee considered the survey information, the peer group information and
● The 2006 Watson Wyatt Industry Report on Top Management Compensation, All Organizations with revenues from $150 million to $750 million.
Aon then evaluated the Company’sexperience levels and responsibilities of the named executive officers as reference points in evaluating the compensation components and total compensation levels, including base salary and annual and long-term incentives, for the positions matched to the survey sources. Aon also developed a database of compensation and financial information for the Company and the peer group. The peer group consisted of the following companies: Akamai Technologies Inc., Cbeyond Communications Inc., Cogent Communications Group, Covad Communications Group, Equinix Inc., Infospace Inc., ITC Deltacom Inc., Limelight Networks Inc., Navisite Inc., Neustar Inc., Premier Global Services, Radiant Systems Inc., Savvis Inc., Switch & Data Facilities Co., and Terremark Worldwide Inc.
The following companies were included as peers in Aon’s 2006 analysis, but were not included as peers in this 2007 analysis: Arbinet-Thexchange Inc., Globix Corp., Internet Security Systems Inc., Ipass Inc., and VitalStream Holdings, Inc. The Committee did not include Globix because it underwent business changes and portions were acquired. Similarly, the Committee did not include Internet Security Systems Inc. or VitalStream Holdings, Inc. because both were acquired. The following companies were not included as peers in the 2006 analysis, but were peers in this 2007 analysis: Infospace Inc., Limelight Networks Inc., Neustar Inc., Premier Global Services, Radiant Systems Inc., and Switch & Data Facilities Co. The Committee did not include Limelight in its 2006 analysis because it was not publicly traded. It added Infospace, Neustar, Premier, Radiant, and Switch & Data this year because those companies are succeeding in areas we expect to grow. The Committee did not include Arbinet-Thexchange Inc. and Ipass Inc. because it concluded that the newly included companies were more relevant peers.
Aon then conducted regression analyses using the peer group database to calculate actual and expected CEO compensation. Aon completed an Executive Value Index analysis that linked peer group CEO regression data, the published survey data and the Company’s internal hierarchy. This analysis compared relative values from published surveys of positions below the CEO by creating a published survey index to CEO. The CEO index is set at 100% and the indices for positions below the CEO are calculated by dividing the published survey results for each position by the published survey median for the CEO’s compensation. This approach is particularly accurate in measuring job values based on the duties and responsibilities of each job, rather than a ranking of by salary only.
Aon also identified the prevalence of performance-based long-term incentive grants for the peer companies. Aon evaluated stock compensation dilution levels for the peer companiesnamed executive officers. Our Chief Executive Officer considered similar information in setting the compensation for Mr. Orchard in conjunction with his promotion to identify competitive annual stock compensation grants and total stock compensation shares outstanding and available for grant relativeSenior Vice President (prior to total shares issued and outstanding.his appointment as a named executive officer in March 2010).
Aon then developed recommendedGenerally, we target compensation levels for certain executives, including target base salaries, bonus opportunity ranges and long-term incentive award ranges.
Based on the published survey data, Aon concluded that the Company’s base salaries for these executives were 103.7% of the median survey data and 87.2% of the 75th percentile survey data. Based on the trended peer group analysis, which was unadjusted for differences in net sales size, Aon concluded that the Company’s base salaries for these executives was 98.7% of the median survey data and 88.7% of the 75th percentile survey data.
Executive Compensation Program Overview
The three primary components of our executive compensation program are:
Annual cash incentives; and
Long-term equity incentives, which consist of stock options and restricted stock.
We strive to provide sufficiently competitive levels of base salary and annual and long-term incentive opportunities in order to attract and retainmatch the talent needed to ensure continued operational and financial success, high quality customer service and creation of sustained stockholder value. To this end, we target each element to themarket median of our peer group and the broader published survey pay data for similar sizedsimilarly-sized companies in the telecommunications and technology industry,industries. We recognize that while we may target the median, there may be circumstances when an individual may be either below or above the target given specific recruiting or retention needs or the need to reward performance or longevity. When our corporate performance exceeds targets established by the Compensation Committee, the total compensation paid to our named executive officers, as a group, may exceed the median for total cash compensation, which reflects the Compensation Committee’s commitment to pay for performance. When our corporate performance does not meet our established targets, the Company’s performance exceeds established benchmarks, thetotal compensation of our named executive officers will exceed thisgenerally would be expected to be below the median.
We believe that the compensation of our named executive officers should be predominately performance-based because these individuals have the greatest ability to influence our performance. To that end, our compensation practices provide ong-term award opportunities to reflect the strategic roles of our named executive officers in leading us toward long-term growth, increasing profitability and stockholder value creation. Accordingly, the Committee does not target a particular mix of compensation elements and the amounts awarded or paid pursuant to each element do not affect decisions regarding the other elements.
A description of these three components and related programs follows.
Overview of Executive Compensation ComponentsExecutive Summary
The totalfollowing table describes our compensation of our President and Chief Executive Officer, Jim DeBlasio, was $1,750,408, which consisted of base salary of $425,000, awards of restricted stock of $524,831, awards of stock options of $435,452, and a bonus of $337,663 of which $297,500 was paid in cash and $40,163 was paid in shares of common stock. The cash component of Mr. DeBlasio’s compensation equals approximately 41% of his total compensation and the equity component of his compensation equals approximately 59% of his total compensation.
The total compensation of our former Chief Financial Officer, David Buckel, was $750,248, which consisted of salary of $240,333, which is a prorated amount of his base salary of $260,000program components for the portion of the year he was employed by the Company, awards of restricted stock of $222,204 and awards of stock options of $287,711. The cash component of Mr. Buckel’s compensation equals approximately 32% of his total compensation and the equity component of his compensation equals approximately 68% of his total compensation.
The total compensation of our Chief Operating Officer, Vincent Molinaro, was $661,336, which consisted of salary of $247,917, which is a prorated amount of his base salary of $350,000 for the portion of the year he was employed by the Company, a portion of his signing bonus of $13,333, awards of restricted stock of $325,086, and a cash bonus of $75,000. The cash component of Mr. Molinaro’s compensation equals approximately 51% of his total compensation and the equity component of his compensation equals approximately 49% of his total compensation.
The total compensation of our Vice President and General Counsel, Richard Dobb, was $381,363, which consisted of salary of $180,000, which is a prorated amount of his base salary of $240,000 for the portion of the year he was employed by the Company, awards of restricted stock of $78,783 and a bonus of $122,580 of which $108,000 was paid in cash and $14,180 was paid in shares of common stock. The cash component of Mr. Dobb’s compensation equals approximately 76% of his total compensation and the equity component of his compensation equals approximately 24% of his total compensation.
The total compensation of our Vice President and Chief Strategy Officer, Phil Kaplan, was $726,137, which consisted of base salary of $230,808, which is a prorated amount of his base salary of $235,000 for the portion of the year he was employed by the Company, awards of stock options of $396,641 and a bonus of $98,688 of which $87,000 was paid in cash and $11,688 was paid in shares of common stock. The cash component of Mr. Kaplan’s compensation equals approximately 44% of his total compensation and the equity component of his compensation equals approximately 56% of his total compensation.
The total compensation of our Vice President and Principal Accounting Officer, Tamara Augustyn, was $347,428, which consisted of base salary of $172,500 awards of restricted stock of $42,987, awards of stock options of $41,941, and a cash bonus of $90,000. The cash component of Ms. Augustyn’s compensation equals approximately 76% of her total compensation and the equity component of her compensation equals approximately 24% of her total compensation.
named executive officers:
1.Pay Element | What the Pay Element Rewards | | Purpose of the Pay Element |
| | | |
Base Salary | ● Core responsibilities, skills, knowledge and years of service with us and/or experience in similar positions | | ● Provide a regular and stable source of income to the named executive officers |
| | | |
Annual Incentive Compensation | ● Achieving specific corporate objectives with respect to which the named executive officer has reasonable control, influence or input | | ● Focus named executive officers on specific annual goals that contribute to our success |
| | | |
| ● Achieving specific business unit objectives over which the named executive officer has reasonable control | | ● Provide annual performance-based cash compensation |
| | | |
| ● Achieving specific personal objectives | | ● Reward participants for achieving specified objectives |
| | | |
Long-Term Incentive Compensation | ● Achieving long-term corporate objectives with respect to which the named executive officer has reasonable control, influence or input | | ● More closely align named executive officers’ interests with stockholders’ interests |
| | | |
| ● Achieving results that drive stockholder value | | ● Reward named executive officers for building stockholder value |
| | | |
| ● Continuing employment with us during the vesting period | | ● Encourage long-term investment in us by named executive officers |
| | | |
| | | ● Retain named executive officers |
The Committee establishes base salaries that are sufficient to attract2009 Compensation Decisions and retain individuals with the qualities it believes are necessary for our long-term financial success and that are competitive in the marketplace. A2010 Actions
As part of approving a named executive officer’s base salary generally reflects the officer’s responsibilities, tenure, job performance, special circumstances, and direct competition(other than for the officer’s services. In other cases, the Committee determines salaries in negotiations to recruit certain highly qualified executives for key positions, after consideration of, with no specific weighting, the importance of the position being filled, the experience and background of the candidate, the level of compensation required to induce the candidate to leave his or her current position, and the compensation historically paid to others in that position.
The Committee reviews the salaries of our executive officers annually. In addition to these periodic reviews, the Committee may at any time review the salary of an executive who has received a significant promotion, whose responsibilities have been increased significantly or who is a retention risk. Salaries for the named executive officers generally are based upon their personal performance in light of individual levels of responsibility, our overall performance and profitability during the preceding year, economic trends that may affect us, and the competitiveness of the executive’s salary with the salaries of executives in comparable positions at companies of comparable size or with operational characteristics. While the Committee considered each of these factors, it did not assign a specific value to each factor.
As part of the compensation setting process for the named executive officers other than the Chief Executive Officer whose base salary is approved by the full Board of Directors) the Compensation Committee met with our Chief Executive Officer and reviewedconsiders the performance of each of the other named executive officers. The Committee considered the recommendations of the Chief Executive Officer along with the competitivenessscope of the named executive officer’s salary compared to salariesresponsibilities, years of executives ofservice with us and in similar positions at other companies, skills and knowledge, the labor market and executive compensation dynamics both generally and within our peer group. Thespecific markets, economic conditions and our compensation philosophy. For promotions from within our company, the Compensation Committee approves the named executive officer’s base salary component ofafter considering the above factors and recommendations from our executive compensation provides eachChief Executive Officer. For a named executive officer hired from outside our company, the Compensation Committee approves the named executive officer’s base salary in much the same manner after the Chief Executive Officer recommends a base salary following negotiation with the named executive officer. After hiring or promotion, the Compensation Committee approves changes to a fixed minimum amountnamed executive officer’s base salary to reflect increased responsibilities, years of annual cash compensation. Set forth belowservice and effectiveexecutive compensation dynamics within our markets based on the recommendations of our Chief Executive Officer. Base salaries of named executive officers are reviewed generally every 12 months.
Mr. Cooney joined our company in 2009. Our Board of Directors approved his base salary following comprehensive negotiations prior to his employment and considered, among other things, market levels for his position as well as his extensive experience and considerable professional achievements. Mr. Cooney’s 2009 base salary was approximately 25% above his market median.
Early in 2009, the Compensation Committee considered the then-current and projected economic conditions, our cost structure, our estimated future financial performance in light of January 2007 areeconomic conditions and individual performance by the fiscal year 2007named executive officers and implemented a base salary freeze for all named executive officers, except for Mr. Thompson whose base salary was raised in July 2009 to reflect market competitiveness. Mr. Orchard’s base salary was increased in July 2009 to reflect additional responsibilities he assumed, but he was not a named executive officer at the time. The named executive officers’ 2009 base salaries, for our named executive officers:other than Mr. Cooney’s, were generally in a range from somewhat below to no more than 10% above their respective market medians.
| | Base Salary | |
James DeBlasio | | $ | 425,000 | |
Vincent Molinaro | | $ | 350,000 | |
David Buckel | | $ | 260,000 | (1) |
Richard Dobb | | $ | 240,000 | |
Phil Kaplan | | $ | 235,000 | |
Tamara Augustyn | | $ | 175,000 | |
(1) | Mr. Buckel resigned his position as Chief Financial Officer in November 2007. |
In December 2007, the BoardFebruary 2010, our Compensation Committee conducted its annual review of the salaries of the named executive officers.officers’ salaries. The BoardCompensation Committee compared each named executive officer’s base salary to market median levels provided to it by CSI and considered each individual’s experience and performance balanced against the individual’s retention risk. Given improvements in economic conditions, improvements in our business and individual performance considerations as discussed below, the Compensation Committee lifted the salary freeze in 2010 for the named executive officers listed below. The Compensation Committee approved the following increases effective April 1, 2010:
| ● | Mr. Kilguss’ base salary was increased to $290,000 from $275,000. This increase of 5.5% reflects his level of personal performance and overall contribution to our results, the impact of his role and finance organization on us and the degree of market competitiveness of his base salary level. |
| ● | Mr. Dobb’s base salary was increased to $280,000 from $272,800. This increase of 2.6% reflects his level of personal performance and organizational impact and the degree of market competitiveness of his base salary level. |
| ● | Mr. Thompson’s base salary was increased to $230,000 from $225,000. This increase of 2.2% reflects his personal and organizational level of performance, as well as the degree of market competitiveness of his base salary level. |
| ● | Mr. Orchard’s base salary was increased to $195,000 from $185,000. This increase of 5.4% reflects his personal performance since assuming responsibility as our Senior Vice President, Operations and Support. |
The base salaries of the named executive officers listed above remain in a range from somewhat below to no more than 10% above their respective market medians.
Annual Incentive Compensation
Named executive officers have the opportunity to earn an annual bonus under our annual short-term incentive plan based on achieving performance criteria the Compensation Committee sets for both our company as a whole and for individual business units. Our Compensation Committee believes the annual incentive compensation opportunities for named executive officers should be competitive with incentive compensation at comparable peer-group companies of similar size and companies with whom we compete to hire named executive officers. Our corporate performance goals are based on our financial plan approved by the Board of Directors. This approach ensures that each named executive officer’s experience and sustained performance in the position and also considered each named executive officer’s job performance balanced against his or her retention risk. Effective January 1, 2008, the Board increased Mr. DeBlasio’s base salary to $460,000, increased Mr. Molinaro’s base salary to $360,000, Mr. Dobb’s base salary to $248,000, Mr. Kaplan’s base salary to $244,000, and Ms. Augustyn’s base salary to $185,000.
We believe that our compensation program should focus the named executive officers and other key executives on our annual financial performance and should reward individual performance. To that end, we have adopted the 2007 Executive Bonus Award Incentive Plan, or the Plan. Named executive officers and other executives participate in the Plan and our Chief Executive Officer may recommend to the Committee that other key contributors participate in the Plan.
The purpose of the Plan is to:
Focus participants’ actions on the achievement of annual revenue growth and profitability goals;
Align participants’ actions on the accomplishment of key operational and strategic goals;
Encourage and reward participants for the achievement of specific objectives; and
Maintain a competitive range of incentive compensation opportunities.
Each named executive officer’spotential award is based on the following three criteria:same corporate goals and objectives and that the named executive officer is focused on achieving these shared corporate goals. It also ensures that these goals are directly linked to the Board-approved financial plan. The Compensation Committee considers each named executive officer’s past performance, experience level and potential to impact our short-term performance when setting an individual’s annual incentive compensation opportunity. The purpose of our annual short-term incentive plan is to:
| 1.● | Achievementfocus participants’ actions on the achievement of revenueannual corporate financial goals; |
| ● | encourage and reward participants for the achievement of specified individual goals by us, which comprises 25%and/or business unit goals; and |
| ● | maintain a competitive range of the potential award;incentive compensation opportunities. |
2009 Short Term Incentive Plan
In 2009, our non-sales employees, including our named executive officers, participated in the 2009 Short Term Incentive Plan (the “2009 STIP”). Awards under the 2009 STIP were based on achievement of four criteria established in the fourth quarter of 2008:
| 2.● | Achievementrevenue of adjusted EBITDA goals by us, which comprises 50%$284.8 million (30% of the potential award; andaward); |
| 3.● | Achievementadjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) of individual$40.3 million (20% of potential award); |
| ● | free cash flow of $15.3 million (20% of potential award); and |
| ● | personal and business unit goals by thespecific to each named executive officer which comprises 25%(30% of the potential award.award). |
Mr. Cooney joined our company after the Compensation Committee had set the three corporate targets under the 2009 STIP. After joining us, Mr. Cooney made significant changes to the executive management team and implemented a new company strategy in support of long-term profitable growth. Our Board of Directors supported these efforts and recognized that these management and operational changes could result in the previously-established corporate targets not being met for 2009.
We must meet a threshold of financial performance based on revenue, adjusted EBITDA and net income, which excludes equity compensation expenses, for the year in order for any awards to be made pursuant to the Plan. The Board established this minimum financial performance in November of 2006 as part of our business plan for 2007. In addition, a named executive officer must achieve a certain rating in his or her performance review, which includes attaining his or her individual and department budget objectives, to receive any award pursuant to the Plan.
We choose to base awards pursuant to the Plan on adjusted EBITDA and revenue because we believe they are accurate measurements of our core performance. We chose to base the majority of awards pursuant to the Plan based on adjusted EBITDA because adjusted EBITDA has become a commonly used metric, especially for capital-intensive technology companies such as ours, for assessing operating performance, liquidity and valuations by investors, analysts and banks.
For 2007, the adjusted EBITDA target was $36.1 million and the revenue target was $235.0 million, compared to an adjusted EBITDA target of $18.8 million and revenue target of $160.1 million for 2006. The change in these targets from 2006 to 2007 represents an approximately 92% increase in adjusted EBITDA and a 46% increase in revenue.
The Committee chose these revenue and adjusted EBITDA targets because they reflected the substantial growth the Company expected in 2007, particularly in light of its acquisition of VitalStream Holdings, Inc. Further, these targets complemented the earnings guidance the Company issued, which was adjusted EBITDA of $34-37 million and revenue of $235 million.
With respect to individualpersonal and business unit goals, the Compensation Committee worked with our Chief Executive Officer establishesto establish his individual goals, withwhich the Compensation Committee andthen recommended to the full Board of Directors for approval. Our Chief Executive Officer overseesoversaw the establishment of each of the other named executive officer’s goals for 2009, subject to the upcoming year.review and approval of the Compensation Committee. Upon completion of the year, theour Chief Executive Officer ratesrated each of the other named executive officerofficers on the attainment of those goals. Apersonal and business unit goals and submitted ratings to the Compensation Committee. Each named executive officer receivesreceived either a Needs Improvement rating, or NI, a Meets Expectations rating or ME, an Often Exceeds Expectations rating, or OE, or an Exceeds Expectations rating or EE.depending on his performance level as determined by our Chief Executive Officer. The Board rates therated our Chief Executive Officer using the same rating system. IfTo receive the award component attributable to personal performance under the 2009 STIP, a named executive officer receiveswas required to achieve a Needs Improvementminimum rating he or she is not eligible for any award pursuantin his personal performance review of at least “Meets Expectations,” with respect to the Plan, regardless of the Company’s financial performance.all individual business unit goals.
To be eligible for awards, a participant must be a full-time employee at the time the Board determines achievement under the Plan. If an executive joins the Company mid-year, his or her award is pro-rated for the portion of the year during which he or she was an executive.
The Board assigns each executive a target level as a percentage of his or her salary, which are based on survey analysis. The target award levels for 2007 were:
| | | | | | |
| | Target | | | Maximum | |
James DeBlasio | | 70 | % | | 140 | % |
David Buckel (1) | | 50 | % | | 100 | % |
Vincent Molinaro | | 50 | % | | 100 | % |
Richard Dobb | | 45 | % | | 90 | % |
Phil Kaplan | | 37 | % | | 74 | % |
Tamara Augustyn (2) | | -- | % | | -- | % |
(1) | Mr. Buckel resigned his position as Chief Financial Officer in November 2007. |
(2) | Ms. Augustyn assumed the role of Principal Accounting Officer following Mr. Buckel’s resignation in November 2007 and was not a participant in the Plan when the Board established these percentages. |
The Board retains the sole discretion to determine whether the Company and the named executive officer have met the objectives.
The Board established the following four levels for each of the three criteria: threshold, target, above and maximum.
Potential payment for achievement of the “Threshold” objective for the annual revenue goal and annual adjusted EBITDA goal equals 40% of each respective criterion’s allocated percentage of the individual named executive officer’s target award amount, which is 40% of 25% of the total target award amountCompensation Committee, in the case of the annual revenue goal and 40% of 50% of the total target award amount, in the case of the annual adjusted EBITDA goal. Potential payment for achievement of the threshold objective for the individual goals is $0.
Potential payment of achievement of the “Target” objective for the annual revenue goal, annual adjusted EBITDA goal and individual goals equals 100% of each criterion’s allocated percentage of the named executive officer’s total target award amount, which are 25%, 50% and 25% of the total target award amount, respectively.
Potential payment for achievement of the “Above” objective for the annual revenue goal, annual adjusted EBITDA goal and individual goals are 130% of each respective goal’s allocated portion of the individual’s target award amount.
Potential payment for achievement of the “Maximum” objective for the annual revenue goal, annual adjusted EBITDA goal and individual goals is 200% of each such goal’s allocated portion of the individual’s target award amount.
The Board determines the potential payment for performance for the annual revenue and annual adjusted EBITDA goals that fall between the “Target,” “Threshold,” “Above,” or “Maximum” objectives by interpolating on a straight-line basis to determine an incentive amount.
The following table is an illustrative example for a named executive officer whose salary is $240,000 and whose target award is 45%.
| | | | | | | | | | | | | | | | | | | |
| | Weight | | | Threshold | | | Target | | | Above | | | Maximum | |
Annual Revenue Bonus Payout | | 25 | % | | | 95 | % | | | 100 | % | | | 105 | % | | | 110 | % |
| | | | | $ | 10,800 | | | $ | 27,000 | | | $ | 35,100 | | | $ | 54,000 | |
| | | | | |
Annual Adjusted EBITDA Bonus Payout | | 50 | % | | | 90 | % | | | 100 | % | | | 110 | % | | | 120 | % |
| | | | | $ | 21,600 | | | $ | 54,000 | | | $ | 70,200 | | | $ | 108,000 | |
| | | | | |
Individual Goals Bonus Payout | | 25 | % | | | NI | | | | ME | | | | OE | | | | EE | |
| | | | | $ | 0 | | | $ | 27,000 | | | $ | 35,100 | | | $ | 54,000 | |
If our annual revenue was 110% of the annual revenue goal established by the Board, then this named executive officer would receive a bonus for those criteria of $54,000. If our annual adjusted EBITDA objective was 110% of the adjusted EBITDA goal established by the Board, then this named executive officer would receive a bonus of $70,200. If this named executive officer received a rating of Often Exceeds Expectations, or OE, this named executive officer would receive a bonus of $35,100. In total, this named executive officer would receive a total bonus of $159,300.
The Board decided that the Company would pay the Target Award Level, as defined in the Plan, in cash and pay the excess of the Target Award Level in shares of common stock. The Company determined the number of shares of common stock to be awarded based on the closing price of the Company’s stock price on the day preceding the date on which the Company paid such bonus. The Company withheld the number of shares necessary to cover the taxes each participant owed the Internal Revenue Service as a result of the vesting of the shares of common stock.
In 2007, the Company’s revenue was $235 million, which equaled the revenue target established in the Plan, and adjusted EBITDA was $37.7 million, which exceeded the adjusted EBITDA target established in the Plan. In consideration of this matrix and as provided in the Plan, the Committee determined in 2008 and approved bonus payment amounts not directly calculated by reference to the Plan in excess of the targets established in the Plan for each named executive officer, other than the Chief Executive Officer, and the Board determined the bonus payment for the Chief Executive Officer, as follows and paid such amounts on March 15, 2008:
Name: | | Total Bonus Amount | | | Cash Portion | | | Stock Portion | |
James DeBlasio | | $ | 337,663 | | | $ | 297,500 | | | $ | 40,163, or 6,638 shares | |
David Buckel (1) | | | -- | | | | -- | | | | -- | |
Vincent Molinaro | | $ | 75,000 | | | $ | 75,000 | | | $ | 0 | |
Richard Dobb | | $ | 122,580 | | | $ | 108,000 | | | $ | 14,580, or 2,409 shares | |
| | | | | | | | | | | |
Phil Kaplan | | $ | 98,688 | | | $ | 87,000 | | | $ | 11,688, or 1,931 shares | |
| | | | | | | | | | | |
Tamara Augustyn (2) | | $ | 90,000 | | | $ | 90,000 | | | $ | 0 | |
(1) | Mr. Buckel resigned his position as Chief Financial Officer in November 2007 and thus, was not eligible for an award pursuant to the Plan. |
| |
(2) | Ms. Augustyn assumed the role of Principal Accounting Officer following Mr. Buckel’s resignation in November 2007. |
In the fourth quarter of 2007, the Board established the target revenue and target adjusted EBITDA goals for 2008. The Committee established the following target award levels for our named executive officers other than our Chief Executive Officer, and the Board establishedof Directors, in the case of our Chief Executive Officer, assigned each named executive officer a target level of incentive compensation potential, expressed as a percentage of base salary. The Compensation Committee evaluated the potential annual incentive compensation each named executive officer could earn at the target awardpayout level, considering it in the context of the general survey information described above in “Compensation Consultant and Market Comparisons,” our peer group data, information provided by management from our experience recruiting named executive officers and the experience and responsibilities of the named executive officers.
Mr. Cooney’s target bonus as a percentage of his base salary was approximately 20 percentage points above his market median. The other named executive officers’ target bonus percentages were within a range of approximately +/- 5 percentage points around their respective market medians.
Our Compensation Committee approves payouts to named executive officers, other than Mr. Cooney, and reviews results achieved versus the corporate and individual objectives. The Board of Directors approves any payouts to Mr. Cooney after receiving recommendations from the Compensation Committee.
Our revenues, adjusted EBITDA and free cash flow for Mr. DeBlasio:
| | | | | | |
| | Target | | | Maximum | |
James DeBlasio | | 70 | % | | 140 | % |
| | | | | | |
David Buckel (1) | | -- | % | | -- | % |
| | | | | | |
Vice President and Chief Financial Officer | | 50 | % | | 100 | % |
| | | | | | |
Vincent Molinaro (2) | | 50 | % | | 100 | % |
| | | | | | |
Richard Dobb | | 45 | % | | 90 | % |
| | | | | | |
Phil Kaplan | | 45 | % | | 90 | % |
| | | | | | |
Tamara Augustyn (3) | | -- | % | | -- | % |
(1) | Mr. Buckel resigned his position as Vice President and Chief Financial Officer on November 18, 2007. |
| |
(2) | Mr. Molinaro resigned his position as Chief Operating Officer on April 7, 2008. |
| |
(3) | Ms. Augustyn will not be a participant in the Plan for 2008. |
The changes in performancethe year ended December 31, 2009 were $256.3 million, $28.0 million and $10.8 million, respectively. These results did not meet the 2009 STIP targets are not an indication of how we will perform in 2008. The sole purpose of these targets, which the Board established in the fourth quarter of 2007, is2008 and, therefore, there was no payout related to establish internal performance-based goalsthe corporate performance component of the 2009 STIP. Notwithstanding, our Board of Directors recognized that the new management team had achieved success in executing against the new company strategy. Accordingly, payouts under an annual incentive compensation plan. Consistent with our pay-for-performance compensation philosophy,the 2009 STIP were approved based on the attainment of individual objectives and in recognition of the company’s demonstrated progress toward delivering long-term profitable growth.
The table below outlines the potential target award levels and payout authorized to each named executive officer under the 2009 STIP:
Name | | Target of Base Salary (%) | | | 2009 STIP Target(1) ($) | | | Maximum of Base Salary (%) | | | 2009 STIP Maximum ($) | | | 2009 STIP Award(2) ($) | |
| | | | | | | | | | | | | | | | | | | | |
J. Eric Cooney | | | 100% | | | $ | 475,000 | (3) | | | 200% | | | $ | 950,000 | | | $ | 200,000 | |
George E. Kilguss III | | | 50% | | | | 137,500 | | | | 100% | | | | 275,000 | | | | 97,103 | |
Richard P. Dobb | | | 50% | | | | 136,400 | | | | 100% | | | | 272,800 | | | | 55,768 | |
Randal R. Thompson | | | 50% | | | | 105,729 | | | | 100% | | | | 211,458 | | | | 36,885 | |
Steven A. Orchard | | | 40% | | | | 70,568 | | | | 80% | | | | 141,136 | | | | 62,557 | |
(1) | The target amount that a named executive could earn was based on the actual base salary earned during 2009. |
(2) | These amounts were paid in March 2010. |
(3) | Mr. Cooney’s plan target was prorated for his partial-year service. |
In determining the payment for Mr. Cooney, the Board establishes these goalsof Directors considered the improvements in our network operations center, the enhancements of our management team, the development of a strategic investment plan for our data center expansion and the roll-out of technological improvements in our CDN services. In determining the payment to align executive compensation withMr. Kilguss, the Compensation Committee considered the achievements of the finance organization, including the reduction of the monthly financial close calendar, the ongoing evolution of our performancecustomer invoicing/billing system and the ongoing development of our contract management system. In determining the payment to encourageMr. Dobb, the Compensation Committee considered the achievements of the legal, human resources and real estate departments, including contract standardization affecting contractors and vendors, improvements to our internal and external websites, implementation of a human resources information system and renewal of certain significant leasehold interests. In determining the payment to Mr. Thompson, the Compensation Committee considered sales productivity, bookings growth and customer retention. In determining the payment to Mr. Orchard, the Compensation Committee considered his business function’s achievement of our goals. As disclosed in the press release we furnished in our Current Report on Form 8-K on February 28, 2008, we issued revenue guidance of 25% growthcustomer service and full year adjusted EBIDTA of approximately 20% of total revenue. We are not providing any guidance, nor updating any prior guidance, of our future performance with the disclosure of these performance targets, and you are cautioned not to place any reliance on these performance targets as an indication of our future performance.support metrics.
Mr. Thompson was eligible to receive an incentive separate from the 2009 STIP of up to $40,000 if we achieved specific gross margin improvements. Based on our 2009 results, no additional payment was made to Mr. Thompson.
2010 Short Term Incentive Plan
The Compensation Committee has approved the 2010 Short Term Incentive Plan (the “2010 STIP”) with awards based on achievement of three criteria:
3. | Long-Term Equity Incentives● | revenue (30% of potential award); |
| ● | adjusted EBITDA (40% of potential award); and |
| ● | personal and business unit goals specific to each named executive officer (30% of potential award). |
Historically,The Compensation Committee, in the primary formcase of equity compensation that we awarded consisted of non-qualified stock options. We selected this form because of the favorable accounting and tax treatments and the near universal expectation by employees in our industry that they would receive stock options. Beginning in 2006, however, the accounting treatment for stock options changed as a result of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment (revised 2004), making the accounting treatment of stock options less attractive because it required the Company to record an expense related to stock options. As a result, we assessed the desirability of granting shares of restricted stock to employees, particularly members of senior management, and concluded that restricted stock would provide an equally motivating form of incentive compensation while permitting us to issue fewer shares, thereby reducing potential dilution. We continue to award stock options to new hires, upon a promotion, as a result of performance evaluations, and in other special situations.
The Committee grants stock options and restricted stock to named executive officers other than theour Chief Executive Officer, under the Amended and Restated Internap Network Services Corporation 2005 Incentive Stock Plan, or the Stock Plan, which our stockholders approved, to provide long-term incentives that are aligned with the creation of increased stockholder value over time. We believe an executive who owns options or restricted stock will have an increased personal interest in our growth and success. Because these awards vest over time, they also serve as a retention device. The Committee recommends the amounts of the Chief Executive Officer’s awards to the Board and the Board determinesof Directors, in the case of our Chief Executive Officer, assigned each named executive officer a target level of incentive compensation potential, expressed as a percentage of base salary. The Compensation Committee evaluated the potential annual incentive compensation each named executive officer could earn at the target payout level, considering it in the context of the general survey information described above in “Compensation Consultant and Market Comparisons,” the peer group data developed with CSI, information provided by management from our experience recruiting named executive officers and the experience and responsibilities of the named executive officers.
The 2010 STIP incorporates a threshold level of performance above which a payout for each corporate and personal component could occur. The payout at the threshold level of performance is zero. The payout rises by linear interpolation from threshold to target and from target to stretch. The 2009 STIP did not recognize threshold levels of performance which meant that there were no payouts for a component unless it was fully achieved. The Compensation Committee believed that providing a threshold level of performance would be a more effective motivator and, therefore, added this element to the 2010 STIP.
The table below outlines the potential payout for each named executive officer and the amounts related to the potential target and stretch awards:
| | At Threshold(1) | | | At Target (%) | | | At Target(2) ($) | | | At Stretch (%) | | | At Stretch ($) | |
| | | | | | | | | | | | | | | | | | | |
J. Eric Cooney | | – | | | | 100% | | | $ | 600,000 | | | | 200% | | | $ | 1,200,000 | |
George E. Kilguss III | | – | | | | 50% | | | | 145,000 | | | | 100% | | | | 290,000 | |
Richard P. Dobb | | – | | | | 50% | | | | 140,000 | | | | 100% | | | | 280,000 | |
Randal R. Thompson | | – | | | | 50% | | | | 115,000 | | | | 100% | | | | 230,000 | |
Steven A. Orchard | | – | | | | 40% | | | | 78,000 | | | | 80% | | | | 156,000 | |
(1) Partial payments may be earned for each objective based on achievement between the threshold and target objectives. Threshold levels differ by objective, but no payout will be made for achievement less than threshold.
(2) The target amount that a named executive can earn in 2010 will be based on the individuals’ base salary as of December 31, 2010.
A named executive officer is only entitled to above-target to stretch payments with respect to corporate goals but not personal performance goals, which means that the potential stretch payouts in the above table can only be achieved with significant over-achievement of corporate goals. Mr. Cooney’s target bonus percentage is approximately 20 percentage points above his grants.market median. The strikeother named executive officers’ target bonus percentages are within a range of approximately +/- 5 percentage points around their respective market medians.
Long-Term Incentive Compensation Our Compensation Committee believes that stock ownership by named executive officers benefits stockholders and has approved stock option grants and restricted stock awards for a number of years. The Compensation Committee administers the stock incentive plans for stock option grants and restricted stock awards, and approves the amount of and terms applicable to all grants and awards, other than grants and awards to our Chief Executive Officer, which are approved by the full Board of Directors. In addition to annual grants and awards, the Compensation Committee may approve special grants or awards to named executive officers, such as a grant or award to a new hire or for a promotion. The exercise price of stock options is the fair market value of our common stock aton the grant date, which is the closing price of grant. Options also typically have a ten-year term andour common stock reported on Nasdaq on that date. The stock option grants generally vest 25% on the first anniversary of the grant date and in 36 equal monthly installments thereafter. Shares ofThe restrictions on restricted stock typically vestlapse in 16four equal quarterly installments.annual installments beginning on the first anniversary of the grant date.
TheOur Compensation Committee annually reviews long-term incentive levels for all named executive officers each fiscal year in light of long-term strategic and performance objectives and each named executive officer’s current and anticipated contributions to our future performance. When determiningIn setting the value of the stock options and restricted stock awards, the Compensation Committee considers the named executive officer’s position, responsibilities, years of service, performance, number of stock options orand amount of restricted shares to be awarded to a named executive officer, the Committee considers: (1) the named executive officer’s current contribution to our performance; (2) the named executive officer’s anticipated contribution in meeting our long-term strategic performance goalsstock previously granted and (3) comparisons to formal surveys of executive long-term incentive awardscomparative market information relative to the median of the peer group, as well as a larger groupincluding comparison to other similarly-sized technology companies prepared by our compensation consultants. Our Chief Executive Officer provides input to these decisions, except in the case of other similarly sized technology companies.his own compensation. In general, position, responsibilities and performance are the primary factors.
With the exception of significant promotions and new hires, we generally make thesethe Compensation Committee historically approved long-term awards at theits first meeting of the Committee each year following the availabilityrelease of the financial results for the prior year. TheseThe Compensation Committee approved 2009 annual stock option grants were made on March 15, 2007 for our 2006 fiscal year and March 20, 2008 for our 2007 fiscal year. We selected this timingrestricted stock awards at its regularly-scheduled meeting in March because it enables us to consider both2009. In 2010, the Company’s performanceCompensation Committee approved 2010 annual stock option grants and the named executive officer’s performance for the previous year, as well as to consider our expectations for the current year. The Committee’s schedule is determined several months in advance and the proximity of any awards to earnings announcements or other market events is coincidental.
We do not time, and have never timed, the grant of stock options or restricted stock awards at its regularly-scheduled meeting in coordination with the releaseFebruary 2010. The Compensation Committee expects to make future annual grants in February of material non-public information nor have we timed our release of non-public information for the purpose of affecting the value of executive compensation. Although our Chief Executive Officer may recommend the amount of stock awards granted to management, the Committee, or in the case of awards to our Chief Executive Officer, the Board, approves the grant of all stock awards and does not delegate the timing of grants. We have retained a third party service provider to administer the day-to-day activities of the Stock Plan, but the provider does not determine the recipient of stock awards, the amount of stock awards granted to a participant, the exercise price, or vesting of stock awards.each year.
Prior to the scheduledMarch 2009 meeting of the Compensation Committee, CSI recommended stock option and restricted stock grants for our named executive officers, other than Mr. Cooney whose grants were made upon the commencement of his employment. The Compensation Committee approved the following recommendations:
| | |
| ● | split the value of the grant of equity awards into 50% restricted stock and 50% stock options; |
| ● | modify the vesting of future restricted stock awards to be 100% time-based vesting; |
| ● | discontinue the use of the prior formula-based approach for determining equity award amounts in favor of determining award values based on the results of competitive market data discussed above in “Compensation Consultant and Market Comparisons;” |
| ● | grant stock options with vesting of 25% on the first anniversary of the grant date and 36 equal monthly installments thereafter; and |
| ● | grant restricted stock with vesting of 25% annually in four equal annual installments. |
In February 2010, the Compensation Committee determined that it would continue these practices, but modified the value weighting of grants to be 20% in March,restricted stock and 80% in stock options to better focus the named executive officers on appreciation of the value of our common stock from then-current levels.
Prior to the grants of restricted stock to named executive officers in 2009, the Compensation Committee had granted performance-based restricted stock subject to three-year performance periods. The elimination of performance-based vesting for awards made in 2009 and 2010 reflects the Compensation Committee’s belief that it is difficult to establish meaningful long-term performance objectives in this challenging and relatively uncertain economic environment.
Beginning in 2009, the Compensation Committee used the analyses provided by Aon and CSI as guides rather than the formula-based method that we historically used. In 2009, the Compensation Committee targeted awards to be equal to the adjusted 50th percentile of equity incentive award values reflected in the peer group competitive market data. The value of awards at the 50th percentile were first adjusted downward by 20% to reflect an expected discount from 2008 market values, which the Compensation Committee believed was a fair and reasonable estimate of 2009 market values given global economic factors. In 2009, the grant values for each of the named executive officers, other than the Chief Executive Officer, were generally equal to the adjusted market median levels. As Mr. Cooney was a new hire at the time the 2009 grants were made, his 2009 grants were based on values negotiated prior to his employment.
The Compensation Committee also based 2010 awards on a modified market median method as recommended by CSI to reflect the lagging impact of the economy on published survey data and lowered long-term incentive values reported in competitor proxy materials. For 2010, grant values were equal to their respective adjusted market medians for our Chief Executive Officer provided a list of recommended incentive restricted stock grantsand Chief Financial Officer. Grant values ranged from somewhat below median to no more than 10% above median for the other named executive officers to the Committee. The following paragraph describes the formula he used to determine the number of shares restricted stock he recommended that the other named executive officers receive.
The named executive officer’s base salary is multiplied by the target bonus percentage established by the Board for that named executive officer for 2007 to arrive at a target bonus. The target bonus percentage is multiplied by a market competitive multiple, which Aon developed based on its analysis. Based on this analysis, the Committee determined that our chief executive officer would receive a multiple of 6.0. Other executives receive a lower multiple, which is expressed in increments of 0.5 based on his or her decreasing level of responsibilities from the chief executive officer. These multiples of target bonus reinforce our named executive officers’ strategic role in driving the achievement of our long-term performance objectives and the creation of stockholder value. We calculated the target long-term incentive opportunities for our named executive officers using the following multiples of their target bonus percentages:
| | Multiple |
James DeBlasio | | 6.0 |
| | |
David Buckel (1) | | -- |
| | |
Vince Molinaro | | 5 |
| | |
Richard Dobb | | 4 |
| | |
Phil Kaplan | | 4 |
| | |
Tamara Augustyn | | 1.5 |
(1) | Mr. Buckel resigned his position as Vice President and Chief Financial Officer on November 18, 2007 prior to the Board’s determination of awards and thus, was not eligible for an award pursuant to the Stock Plan. |
internal equity considerations.
The target bonus percentage multiplied by this multiple yields a target long-term incentive as a percentage of target salary. This percentage of target salary is then multiplied by the named executive officer’s 2007 base salary to yield a target long-term incentive amount. This target long-term incentive amount is then divided by the volume-weighted average price of our common stock from March 19, 2007 to March 19, 2008 to yield a target number of restricted shares. Our Chief Executive Officer then presented his recommendations to the Committee.
The calculation of these awards is materially different from such calculation in 2007 in that the Committee chose to use the volume-weighted average price of our common stock from March 19, 2007 to March 19, 2008 rather than the closing price of the stock on the day before the grant. Using the volume-weighted average price rather than the closing price the day before reduced the number of shares granted by approximately 66%. In making its determination to use the volume-weighted average price, the Committee considered the unusual volatility of the stock price and that the closing price of the Company’s stock on March 19, 2007 was $16.49, while the closing price on March 19, 2008 was $4.09. Given this decline in value, the Committee concluded that using the closing price the day before rather than the volume-weighted average price would result in equity awards that do not reflect the goal of paying for performance.
The Board concluded that half of each award should be time-based and half should be performance-based in order to tie the long term incentive to performance. Previous equity awards were all time-based. The Board made this change to further align the interest of our named executive officers with our stockholders’ interests. For the time-based portion, the shares vest in 16 equal quarterly installments. For the performance-based portion, the shares vest in 33% annual increments starting with the year that includes the first anniversary of the grant date. Executives earn annual tranches of awards, which vest on each of the first three anniversaries from the date of grant, to the extent that the Company achieves certain revenue and EBITDA targets established by the Board of Directors for each respective year in the performance cycle. The Company will either meet or not meet both goals in a given year. With respect to all shares of performance-based restricted stock that do not vest during any of the three years, 50% of such shares will vest on the fourth anniversary of the date of the grant.
The vesting of any restricted stock (including both time-based and performance-based) is subject to the executive being an employee in good standing on the date of vesting.
The Committee considered the recommendation in light of the named executive officer’s contribution and anticipated contribution and the results provided from Aon’s competitive market survey. In making its determination of both cash incentives and long-term incentive awards and its recommendation to the Board for Mr. DeBlasio’s awards, the Committee considered the Company’s performance in 2007 and granted each named executive officer, other than the Chief Executive Officer, a target award based on the above-described matrix.
The Board then considered the number of shares of restricted stock to grant to our Chief Executive Officer. The Board applied the same process as described above, and granted Mr. DeBlasio 149,776 shares, as indicated in the following table.
| | Total Number of Shares | Time-Based | Performance-Based |
James DeBlasio | | 149,776 | 74,888 | 74,888 |
David Buckel (1) | | -- | -- | -- |
Vincent Molinaro | | 69,771 | 34,886 | 34,886 |
Richard Dobb | | 34,607 | 17,303 | 17,303 |
Phil Kaplan | | 34,048 | 17,024 | 17,024 |
Tamara Augustyn | | 3,980 | 3,980 | -- |
The equity awards granted in February 2010 to the named executive officers were as follows: | | | | | | | | |
| | Restricted Stock | | | Stock Options | |
Name | | | (#) | | | (#) | |
| | | | | | | | |
J. Eric Cooney | | | 32,092 | (1) | | | 248,830 | |
George E. Kilguss III | | | 13,352 | | | | 103,530 | |
Richard P. Dobb | | | 7,597 | | | | 58,905 | |
Randal R. Thompson | | | 7,597 | | | | 58,905 | |
Steven A. Orchard | | | 7,597 | | | | 58,905 | |
(1) | Pursuant to his offer letter, Mr. Buckel resignedCooney was granted 200,000 shares of restricted stock on March 16, 2010 and will be entitled to an additional 200,000 shares of restricted stock on March 16, 2011, the second anniversary of his positioncommencement of employment. |
|
The Compensation Committee believes that the compensation program for the named executive officers provides significant performance incentives. Specifically, the 2010 STIP provides incentives for performance and includes defined performance thresholds and maximum opportunity levels for each of the named executive officers. The restricted stock and stock option grants encompassing our long-term incentive program also provide longer-term incentives since recipients can benefit significantly from appreciation in our stock price. The increased level of stock option grants in the equity awards focuses recipients on stock price appreciation, thus furthering the goal of rewarding performance and aligning the interests of the named executive officers with those of our stockholders. Because these awards vest over time, they also serve as Vice President and Chief Financial Officer on November 18, 2007 prior to the Board’s determination of awards and thus, was not eligible for an award pursuant to the Stock Plan.a retention device. |
Stock Retention Guidelines for Named Executive Officers
OnIn March 20, 2008,2009, the Board adoptedof Directors revised its stock retention guidelines for certain executives.named executive officers. The stock retention guidelines are based onrequire these named executive officers to retain the following percentages of the net shares obtained from option exercises or vesting of shares of restricted sharesstock after costs of exercise and taxes. The percentage of net shares obtained from option exercises or vesting of restricted shares after costs of exercise and taxes that each executive is to retain and the time in which he or she is to hold such shares are set forth in the following table:minimum statutory payroll taxes: | | | | |
Position | | Retention Ratio | | Time to Retain From Date of Acquisition | |
| | | | |
Chief Executive Officer | | 50.0% | | 5Five Years from date of
acquisition
|
Chief Operating Officer | | 33.3% | | 4 Years from date of
acquisition
|
Chief Financial Officer | | 33.3%33.0% | | 4Four Years from date of
acquisition
| |
Chief TechnologyAdministrative Officer | 33.0% | | 25.0%Four Years | |
Senior Vice President, Global Sales | 33.0% | | 3Four Years from date of
acquisition
|
Chief Strategy Officer | | 25.0% | | 3 Years from date of
acquisition
|
Vice President, Human Resources | | 25.0% | | 3 Years from date of
acquisition
|
Vice President and General Counsel | | 25.0% | | 3 Years from date of
acquisition
|
Vice President, Sales | | 25.0% | | 3 Years from date of
acquisition
|
These guidelines apply to the grants made pursuant toin 2009 and future grants, unless subsequently modified by the Stock Plan on March 20, 2008 described above and will apply to all future grants.Board of Directors. The enumerated executivesnamed executive officers are subject to these guidelines for as long as he or she is an employee of the Company.
employment continues.
The Board of Directors concluded that the emerging best practices in corporate governance include such guidelines and and adopted these stock retention guidelines to further align the interests of the executives with our stockholders’ interests.
Perquisites;Welfare and Other CompensationBenefits
We annually review any perquisites that ourprovide named executive officers may receive. In general, wewith the same benefits available to all of our salaried employees, including (a) health and dental insurance; (b) basic life insurance; (c) long-term disability insurance; and (d) participation in our 401(k) plan, including discretionary company-matching contributions.
We do not provide our named executive officers with many of the types of perquisites that other companies offer their executives. As reflectedWe describe the perquisites provided to our named executive officers in ourthe Summary Compensation Table our Chief Executive Officer received $18,900 for corporate housing and $8,561.91 for car service during fiscal year 2007. The aggregate cost of these perquisites was $27,462.below.
We provide named executive officers with the same benefit package available to all of our salaried employees. This package includes:
Health and dental insurance;
Long-term disability insurance; and
Participation in our 401(k) plan, including matching contributions.
Limitations on the Deductibility of Executive Compensation
CompensationGenerally, compensation payments in excess of $1 million to the chief executive officerChief Executive Officer or the other fivefour most highly compensated executive officers are subject to a limitation on deductibility by us under Section 162(m) of the Internal Revenue Code of 1986, as amended. Certain performance-based compensation is not subject to the limitation on deductibility. TheWhile the Compensation Committee has established procedures to help maximize tax deductibility, the Compensation Committee does not expect cashrequire all executive compensation to be exempt from the limitations on deductions provided under Section 162(m) in 2007order to have the flexibility to design a compensation program that addresses our needs. Certain compensation paid by us in future years may not qualify as performance-based compensation that is excluded from the limitation on deductibility. Because we have available net operating losses, however, the impact of any non-deductibility is expected to be negligible.
Offer Letter of our Chief Executive Officer
J. Eric Cooney. In January 2009, we entered into an offer letter with Mr. Cooney, our Chief Executive Officer or any other named executive officerand President, which provided him: (a) an annual base salary of $600,000, (b) a cash signing bonus of $300,000 (under certain circumstances, Mr. Cooney will be obligated to be in excess of $1 million. We intend to maintain qualificationreimburse us for $150,000 of the Amendedsigning bonus if his employment terminates prior to March 1, 2011), (c) an option to purchase 600,000 shares of our common stock at $2.24 per share, the closing price on the day of commencement of work, 25% of which vested on March 16, 2010, the first anniversary of the grant date, and Restated Internap Network Services Corporation 2005 Incentive Stock Plan for the performance-based exceptionremainder to vest in 36 equal monthly installments thereafter, (d) a new hire grant of 300,000 shares of restricted stock, 25% of which vested on March 16, 2010, and the $1 million limitation on deductibilityremainder to vest in three additional annual installments, (e) a grant of compensation payments.
Summary Compensation Table
The following table sets forth total compensation for 2007 for our named executive officers.
Name and Principal Position | | Year | | Salary $(1) | | | Bonus $ | | Stock Awards $(2) | | Option Awards $ (2) | | Non-Equity Incentive Plan Compensation(3) $ | | Change in Pension Value & Non-Qualified Deferred Compensation Earnings $ | | All Other Compensation $ | | Total $ |
James DeBlasio Chief Executive Officer | | 2007 | | | 425,000 | | | — | | | 524,831 | | | 435,452 | | | 337,663 | | | | | | 27,462 | | | 1,750,408 |
| | 2006 | | | 350,000 | | | — | | | 119,918 | | | 435,452 | | | — | | | — | | | 47,599 | | | 952,969 |
| | | | | | | | | |
David Buckel (4) Chief Financial Officer | | 2007 | | | 240,333 | | | — | | | 222,204 | | | 287,711 | | | — | | | — | | | — | | | 750,248 |
| | 2006 | | | 235,385 | | | — | | | 70,097 | | | 390,611 | | | 100,000 | | | — | | | — | | | 796,093 |
| | | | | | | | | |
Vincent Molinaro Chief Operating Officer | | 2007 | | | 247,917 | | | 13,333 | | | 325,086 | | | — | | | 75,000 | | | — | | | — | | | 661,336 |
| | 2006 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | |
Richard Dobb Vice President and General Counsel | | 2007 | | | 180,000 | | | — | | | 78,783 | | | | | | 122,580 | | | — | | | — | | | 381,363 |
| | 2006 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Philip Kaplan Chief Strategy Officer | | 2007 | | | 230,808 | | | — | | | — | | | 396,641 | | | 98,688 | | | — | | | — | | | 726,137 |
| | 2006 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Tamara Augustyn Vice President and Principal Accounting Officer | | 2007 | | | 172,500 | | | — | | | 42,987 | | | 41,941 | | | 90,000 | | | — | | | — | | | 347,428 |
| | 2006 | | | 152,274 | | | — | | | 14,902 | | | 41,227 | | | 50,000 | | | — | | | — | | | 202,274 |
(1) | The salary of each of Mr. Buckel, Mr. Molinaro, Mr. Dobb, and Mr. Kaplan is prorated for the portion of the year he was employed by the Company. |
(2) | Represents the proportionate amount of the total fair value of stock and option awards recognized by the Company as an expense in 2007 and 2006 for inancial accounting purposes, excluding forfeitures related to service-based vesting conditions. The fair values of these awards and the amounts expensed were determined in accordance with FAS 123R. The awards for which expense is shown in this table include the awards described in the Grants of Plan-Based Awards table of this Proxy Statement, as well as awards granted in prior years for which the Company continued to recognize expense in 2007 and 2006. The assumptions used in determining the grant date fair values of these awards are set forth in the notes to the Company’s consolidated financial statements, which are included in our Annual Report on Form 10-K/A for the year ended December 31, 2007. |
(3) | As provided in the Plan, the Committee determined and approved bonus payments in 2008 in excess of the targets established in the Plan for each named executive officer, other than the Chief Executive Officer, and the Board determined the bonus payment for the Chief Executive Officer, and paid such excess in shares of common stock on March 15, 2008. Mr. DeBlasio’s bonus consisted of $297,500 paid in cash and $40,163 paid in shares of common stock. Mr. Dobb’s bonus consisted of $108,000 paid in cash and $14,180 paid in shares of common stock. Mr. Kaplan’s bonus consisted of $87,000 paid in cash and $11,688 paid in shares of common stock. The amounts reported in this column include the value of such shares. The value of these shares is not, however, reflected in column (e). |
(4) | Mr. Buckel resigned as Chief Financial Officer in November of 2007. As a result, he forfeited 9,375 options that were a part of a grant made on May 12, 2004, 1,597 options that were part of a grant made on September 28, 2006, 1,298 options that were part of a second grant made on September 28, 2006, 5,090 options that were part of a third grant made on September 28, 2006, as well as 30,934200,000 shares of restricted common stock that were part of an award made on January 18, 2006 and 65,625 shares of restricted common stock that were part of an award made on March 15, 2007. The aggregate amount of this forfeiture is $249,525.60 based on the assumptions delineated in footnote (2) above. |
All Other Compensation
Name and Principal Position | | Perquisites and Other Personal Benefits $ | | | Tax Reimburse- ments $ | | Dividend Equivalents $ | | Payments/ Accruals on Termination Plans $ | | Registrant Contributions to Defined Contribution Plans $ | | Insurance Premiums $ | | Other $ |
James DeBlasio Chief Executive Officer | | | 27,462 | (1) | | | — | | | — | | | — | | | — | | | — | | | — |
| | | | | | | |
David Buckel Chief Financial Officer | | | — | | | | — | | | — | | | — | | | — | | | — | | | — |
| | | | | | | |
Vincent Molinaro Chief Operating Officer | | | — | | | | — | | | — | | | — | | | — | | | — | | | — |
| | | | | | | |
Richard Dobb Vice President and General Counsel | | | — | | | | — | | | — | | | — | | | — | | | — | | | — |
| | | | | | | |
Philip Kaplan Chief Strategy Officer | | | — | | | | — | | | — | | | — | | | — | | | — | | | — |
| | | | | | | |
Tamara Augustyn Vice President and Principal Accounting Officer | | | — | | | | — | | | — | | | — | | | — | | | — | | | — |
(1) | The amounts shown for fiscal 2007 include personal use of corporate housing of $18,900 and car service of $8,562. |
Grants of Plan-Based Awards Table
The following table sets forth information regarding grants of annual incentive awards and stock based compensation for 2007 for each named executive officer.
| | Grant Date | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards | | All Other Stock Awards: Number of Shares of Stock or Units # | | All Other Stock Awards: Number of Securities Underlying Options # | | Exercise or Base Price of Option Awards $/Sh | | Grant Date Fair Value of Stock and Option Awards |
Name and Principal Position | | | | Threshold $ | | Target $ | | Maximum $ | | Threshold # | | Target # | | Maximum # | | | | | | | | |
James DeBlasio Chief Executive Officer | | 3/15/2007 | | | — | | — | | | — | | — | | | | | | 125,000 | | | | | — | | $ | 2,082,500 |
| | 3/15/2008 | (1) | | — | | — | | | — | | | | | | | | 6,638 | | | | | | | | 40,160 |
| | | | | | | | | | | | | |
David Buckel Chief Financial Officer | | 3/15/2007 | | | | | — | | | | | — | | | | | | 75,000 | | | | | | | | 1,249,500 |
| | | | | | | | | | | | | |
Vincent Molinaro Chief Operating Officer | | 4/24/2007 | | | | | — | | | | | | | | | | | 125,000 | | | | | | | | 2,005,000 |
| | | | | | | | | | | | | |
Richard Dobb | | 4/23/2007 | | | — | | — | | | — | | — | | — | | — | | 30,000 | | — | | | — | | | 474,600 |
Vice President and General Counsel | | 3/15/2008 | (1) | | — | | — | | | | | — — | | — — | | — — | | 2,409 | | | | | — | | | 14,574 |
| | | | | | | | | | | | | |
Philip Kaplan | | 6/22/2007 | | | | | | | | | | | | | | | | — | | 30,000 | | | 13.64 | | | 409,200 |
Chief Strategy Officer | | 3/15/2008 | (1) | | — | | — | | | — | | — | | — | | — | | 1,931 | | — | | | — | | | 11,683 |
| | | | | | | | | | | | | |
Tamara Augustyn
Vice President and Principal Accounting Officer
| | 03/15/07
12/19/2007
| | | | | | | | | | | | | | | | 7,500
| | 10,000
| | | 9.15
| | | 124,950
91,500
|
(1) As provided in the Plan, the Committee determined and approved bonus payments in 2008 in excess of the targets established in the Plan for each named executive officer, other than the Chief Executive Officer, and the Board determined the bonus payment for the Chief Executive Officer, and paid such excess in shares of common stock on March 15, 2008. Mr. DeBlasio’s bonus consisted of $297,500 paid in cash16, 2010, and $40,163 paid inan additional 200,000 shares of common stock, or 6,638 shares. Mr. Dobb’s bonus consisted of $108,000 paid in cash and $14,180 paid in shares of common stock, or 2,409 shares. Mr. Kaplan’s bonus consisted of $87,000 paid in cash and $11,688 paid in shares of common stock, or 1,931 shares. The Company included these shares even though the Company did not award these shares in fiscal year 2007 to enhance the overall disclosure of our executive compensation policies.
Outstanding Equity Awards Table
The following table provides a detail of outstanding stock options and restricted stock awardson the second anniversary of Mr. Cooney’s commencement of work, both such grants to vest in four equal annual installments, and (f) an annual incentive bonus based upon criteria established by our Board of Directors, with a target level of 100% of base salary and a maximum level of 200% of base salary. Mr. Cooney also participates in our Employment Security Plan discussed below. The terms of Mr. Cooney’s employment were set through comprehensive negotiations prior to his employment and were influenced by market levels for each named executive officerhis position as of December 31, 2007.well as his extensive experience and considerable professional achievements.
| | Option Awards | | | Stock Awards |
Name and Principal Position | | Number of Securities Underlying Unexercised Options # Exercisable | | | Number of Securities Underlying Unexercised Options # Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options # | | Option Exercise Price $ | | Option Expiration Date | | | Number of Shares or Units of Stock That Have Not Vested # | | | Market Value of Shares or Units of Stock That Have Not Vested (1) $ | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested # | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested $ |
| | | | | | | | | | | | | | | | | | | | | |
James DeBlasio Chief Executive Officer | | 8,000 17,000 2,000 2,000 312,5000 | (2) | | — — — — — | | — — — — — | | | 13.50 13.50 14.90 4.60 4.80 | | 9/16/2013 9/16/2013 5/27/2014 6/23/2015 9/30/2015 | | | 33,330 101,562 — — — | (3) (4) | | | 277,639 846,011 — — — | | — — — — — | | — — — — — |
| | | | | | | | | |
David Buckel Chief Financial Officer | | 15,000 65,625 903 734 2,877 | (5) | | — — — — — | | — — — — — | | | 11.10 14.30 14.46 14.46 14.46 | | 10/31/2013 5/12/2014 9/28/2016 9/28/2016 9/28/2016 | | | — — — — — | | | | — — — — — | | — — — — — | | — — — — — |
| | | | | | | | | |
Vincent Molinaro Chief Operating Officer | | — | | | — | | — | | | — | | — | | | 125,000 | (6) | | | 1,041,250 | | — | | — |
| | | | | | | | | |
Richard Dobb Vice President and General Counsel | | — | | | — | | — | | | — | | — | | | 30,000 | (7) | | | 249,900 | | — | | — |
| | | | | | | | | |
Philip Kaplan Chief Strategy Officer | | 25,569 13,471 24,056 | (8) | | — 13,471 52,924 | | — — — | | | 4.06 10.53 17.31 | | 12/2/2014 12/16/2015 07/13/2016 | | | — — — | | | | — — — | | — — — | | — — — |
| | | | | 30,000 | (9) | — | | | 13.64 | | 6/22/2017 | | | — | | | | — | | — | | — |
| | | | | | | | | |
Tamara Augustyn Vice President and Principal | | 13,125 479 | | | 1,875 521 | (10) | — — | | | 12.10 5.30 | | 6/30/2014 1/18/2016 | | | 6,250 6,094 | (11) (12) | | | 52,063 50,763 | | — — | | — — |
Accounting Officer | | — | | | 10,000 | | — | | | 9.15 | | 12/19/2017 | | | — | | | | — | | — | | — |
(1) | The fair market value of a share of Internap stock on the last day of the 2007 fiscal year was $8.33. |
(2) | Mr. DeBlasio was granted 500,000 options on September 30, 2005. 25% vested immediately, but were not exercisable until September 30, 2006 with the remaining shares vesting annually over a four-year period beginning September 30, 2005, and the other options were granted for Mr. DeBlasio’s service as a Director. |
(3) | Mr. DeBlasio was awarded restricted shares on September 30, 2005. 50% of those shares vested on September 30, 2006, with the remaining shares vesting annually over a three-year period beginning September 30, 2006. |
(4) | Mr. DeBlasio was granted 125,000 shares of restricted stock on March 15, 2007 that vest in a series of 16 quarterly installments at the end of each calendar quarter beginning with the second quarter of 2007. |
(5) | Mr. Buckel was granted options on October 31, 2003, May 12, 2004, January 18, 2006, and three separate grants on September 29, 2006. The options vest over a four-year period with the exception of options granted on September 28, 2006. The options vest monthly over a three-year period. |
(6) | Mr. Molinaro was granted 125,000 shares of restricted common stock on April 24, 2007 of which 25% of the award vests on the anniversary of grant. |
(7) | Mr. Dobb was granted 30,000 shares of restricted common stock on April 23, 2007 and 25% of the award vests on the anniversary of grant. |
(8) | Mr. Kaplan was granted options on December 2, 2004, December 16, 2005 and July 13, 2006. One-fourth of the number of shares vested on the anniversary of the grant date and then vest quarterly over the next three years. |
(9) | Mr. Kaplan was granted 30,000 options on June 22, 2007. One-fourth of the number of shares vest on each of the first, second, third, and fourth anniversary of the grant date. |
(10) | Ms. Augustyn was granted options on June 30, 2004, January 18, 2006 and December 19, 2007. One-fourth of the number of shares vest on the anniversary of the grant date and 1/48 of the number of shares vest per month thereafter.
|
(11) | Ms. Augustyn was granted 10,000 shares of restricted common stock on February 27, 2006. One-eighth of the number of shares vest every six months after the grant date. |
(12) | Ms. Augustyn was granted 7,500 shares of restricted common stock on March 15, 2007 that vest in a series of 16 quarterly installments at the end of each calendar quarter beginning with the second quarter of 2007. |
Option Exercises and Stock Vesting
The following table provides information with respect to options exercised during fiscal 2007.
| | | | | | | | | | | |
| | Option Awards | | Stock Awards |
Name and Principal Position | | Number of Shares Acquired on Exercise # | | Value Realized Upon Exercise $ | | Number of Shares Acquired on Vesting # | | | Value Realized On Vesting $ |
| | | | | | | | | |
James DeBlasio Chief Executive Officer | | — | | | — | | 40,108 | | | | 535,124 |
| | | | |
David Buckel Chief Financial Officer | | — | | | — | | 19,689 | | | | 288,753 |
| | | | |
Vincent Molinaro Chief Operating Officer | | — | | | — | | — | | | | — |
| | | | |
Richard Dobb Vice President and General Counsel | | — | | | — | | — | | | | — |
| | | | |
Philip Kaplan Chief Strategy Officer | | — | | | — | | — | | | | — |
| | | | |
Tamara Augustyn Vice President and Principal Accounting Officer | | — | | | — | | 3,906 | | | | 59,222 |
Pension Benefits
None of our named executive officers are covered by a pension plan or other similar benefit plan that provides for payments or other benefits at, following or in connection with retirement.
Nonqualified Deferred Compensation
None of our named executive officers are covered by a nonqualified defined contribution or other nonqualified plan that provides for the deferral of compensation.
Employment Agreements and Potential Payments Upon Termination or Change in Control
We have entered intoOur named executive officers participate in an employment security plan with Mr. Molinaro, Mr. Dobb, Mr. Kaplan, and certain other officers and an employment agreement with Mr. DeBlasioEmployment Security Plan that provideprovides for payments in the event of termination of employment or in connection with a change in control or termination of the officer’s employment.control. We believe that we should protect these individualsthe interests of our stockholders are best served if the interests of our named executive officers are aligned with them in the event of a change in control. We also believe that the interests of our stockholders will be best served if the interests of these officers are aligned with them. Providing change in control benefits shouldare intended to eliminate, or at least reduce, the reluctance of these named executive officers to pursue potential change in control transactions that may be in the best interests of our stockholders. The employment security plan and Mr. DeBlasio’s employment agreement areEmployment Security Plan is designed to promote stability and continuity of our officers.
Mr. DeBlasio’s employment agreement provides that if the Company terminates his employment without cause, as defined in the agreement, or if Mr. DeBlasio terminates his employment for good reason, also as defined in the agreement, Mr. DeBlasio shall receive a cash severance payment equal to one and one-half (1-1/2) times his then-current base salary. If the Company terminates Mr. DeBlasio’s employment without cause or if Mr. DeBlasio terminates his employment for good reason within 24 months of a change in control, as such term is defined in the agreement, instead of the severance benefits previously described, Mr. DeBlasio shall receive a severance payment equal to two (2) times the sum of his then-current base salary plus the greater of (A) his maximum bonus for the year in which the termination occurs and (B) his average bonus during the prior two completed years (as a percentage of his base salary upon which his bonus awards were calculated) multiplied by his then-current base salary, and all of his then-unvested stock options and additional equity compensation shall vest and become exercisable. In addition, he will continue to receive health care and life insurance coverage for 18 months as if he were an active employee, subject to the employee portion of premiums for such coverage. If Mr. DeBlasio dies while employed pursuant to this agreement, all of his unvested equity compensation that would, had he not have died, have become vested within twelve months after the date of his death (assuming fulfillment of any performance criteria and his continued employment by the Company) shall become vested, free of restrictions, other than those imposed by law, and immediately exercisable for a period ending on the earlier of twelve months after the date of death and the original expiration date thereof.
On November 14, 2007, the Company entered into an Employment Security Plan for certain executive officers of the Company (the “Plan”). The Plan supersedes the employment agreements that were in place for the executives who executed Joinder Agreements to the Plan, including Mr. Molinaro, Mr. Dobb and Mr. Kaplan. The Boardwas adopted the Plan in order to bring consistency to its executives’ agreements and to minimize the negotiation of individual contracts. The Board and Mr. DeBlasio decided to keep Mr. DeBlasio’s employment agreement in place rather than have him enter into the Plan in order to preserve maximum flexibility and to acknowledge the unique relationship of a chief executive officer with a company.
The purpose of the Plan is to provide certain benefits in the event an executive’s employment is terminated, either in connection with or unrelated to a change of control of the Company.
Upon a qualifying termination, as defined in the Employment Security Plan, other than during a protection period also(which is as defined inas a period beginning six months prior to a change of control event and ending 24 months after the Plan,change of control event), a participant will receive severance equal to his or herthe participant’s then-current base salary.salary for the year in which the termination occurs. Upon a qualifying termination during a protection period, a participant will receive severance equal to the sum of his or herthe participant’s then-current base salary plus the maximum bonus for the participant under the applicable bonus plan as established by Company’sour Board of Directors for the year in which the termination occurs, and all of his or herthe participant’s unvested equity-based compensation will vest. If the amounts payable to a participant under the Employment Security Plan result in the participant becoming liable for the payment of any excise taxes pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, the participant will receive the greater on an after-tax basis of (a) the severance benefits payable or (b) a reduced severance benefit to avoid the imposition of the 280G excise tax.
A participant is entitled to severance benefits under the Employment Security Plan in consideration for his or herof execution of an agreement with terms substantially similar to the terms of the General Releasea general release and Separation Agreement set forth as Exhibit B to the Plan. The Company’sseparation agreement. Our obligation to provide such severance benefits is also conditioned upon the participant’s continued compliance with confidentiality, non-competition, non-solicitation and non-disparagement covenants.
Certain of the named executive officers have joinder agreements which modify specific provisions of the Employment Security Plan as follows:
J. Eric Cooney. Upon a qualifying termination during a protection period, Mr. Cooney will receive severance equal to the sum of two and one-half times his then-current base salary plus two and one-half times the maximum bonus for him under the applicable bonus plan established by the Board of Directors for the year in which the termination occurs. If the amounts payable to Mr. Cooney under the Employment Security Plan would constitute an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, the amounts payable will be grossed-up for the payment of taxes. We believe that it is particularly important for the Chief Executive Officer’s interests to be aligned with those of our stockholders in a change of control since that position is of critical importance to the process and is often at-risk of termination following a change of control. As such, additional protections for Mr. Cooney, including the tax gross-up, were deemed appropriate.
George E. Kilguss III. The Joinder Agreement for eachterms of Mr. Molinaro,Kilguss’ joinder agreement do not modify the amounts provided to him for a termination of employment under the Employment Security Plan.
Richard P. Dobb. Mr. Dobb and Mr. KaplanDobb’s joinder agreement preserves certain benefits of each executive’shis superseded employment agreement that were greater than those provided by the Employment Security Plan.
Upon a qualifying termination, as defined in the Plan, other than during a protection period, also as defined in the Plan, Mr. Molinaro receives severance equal to one and one-half times his then-current base salary. Upon a qualifying termination during a protection period, he receivesMr. Dobb will receive severance equal to the sum of two times his then-current base salary plus maximum bonus for him under the applicable bonus plan.
Upon a qualifying termination during a protection period, Mr. Dobb receives severance equal to the sum of two times his then-current base salary plus maximum bonus for him under the applicable bonus plan.
Upon a qualifying termination during a protection period, Mr. Kaplan receives severance equal to the sum of two times his then-current base salary plus maximum bonus for him under the applicable bonus plan andestablished by the options holds that were originally granted on December 2, 2004 and December 16, 2005, shall become vestedBoard of Directors for the year in their entirety.
The table below details the calculation of the payments based upon an assumed January 1, 2008 termination date and assumingwhich the termination was without cause:occurs.
Randal R. Thompson. The terms of Mr. Thompson’s joinder agreement do not modify the amounts provided to him for a termination of employment under the Employment Security Plan.
Steven A. Orchard. We intend to enter into a joinder agreement with Mr. Orchard which will modify the general terms of the Employment Security Plan as follows: Mr. Orchard will be required to provide two months prior written notice of his intention to terminate employment. If accepted by us, we will pay Mr. Orchard’s base salary and health benefits during the two-month notice period. Mr. Orchard’s post-employment covenants with respect to non-competition and non-solicitation continue for seven months following his termination.
The following table sets forth the benefits potentially payable to each named executive officers in the event of a change of control of our company. Except as noted for Mr. Orchard, these amounts are calculated on the assumption that a qualifying termination and the change of control event took place on December 31, 2009. Restricted shares are valued and the option spread determined using a value of $4.70, the closing price of our common stock on December 31, 2009.
Name | | Severance Payment ($) | | Accelerated Vesting of Equity Awards ($) | |
| | | | | |
J. Eric Cooney | | 4,500,000(1) | | 2,886,000(2) | |
| | | | | |
George E. Kilguss III | | 550,000 | | 1,028,854 | |
| | | | | |
Richard P. Dobb | | 1,091,200 | | 505,378 | |
| | | | | |
Randal R. Thompson | | 450,000 | | 398,772 | |
| | | | | |
Steven A. Orchard(3) | | — | | 187,865 | |
| | | | | |
(1) The severance pay reflected for Mr. Cooney does not include any payment for the gross-up of taxes which could be triggered in the event of a change in control.
(2) Mr. Cooney’s March 2009 offer letter provided for a grant of 200,000 shares of restricted stock on each of the first anniversary and second anniversary of his commencement date. Under the terms of Mr. Cooney’s joinder agreement and the Employment Security Plan, these shares of restricted stock would not be accelerated as of December 31, 2009 because they had not yet been granted. Accordingly, no amount is reported in this column for these shares.
(3) Mr. Orchard was not a participant in the Employment Security Plan as of December 31, 2009 and, accordingly, was not entitled to a severance payment for a change of control at that time. Under the terms of the 2005 Incentive Stock Plan under which his equity was granted, the vesting of outstanding equity awards is accelerated in connection with the change of control irrespective of whether employment is terminated.
The employment of each of Messrs. DeBlasio and Sullivan was terminated in 2009. We discuss the payments made to each of them in connection with the termination of employment immediately below in “Severance Agreements for Former Named Executive Officers.”
Severance Agreements for Former Named Executive Officers
James P. DeBlasio. Mr. DeBlasio served as our President and Chief Executive Officer until March 15, 2009. Pursuant to the terms of his separation agreement, Mr. DeBlasio received (a) a cash payment of $927,200, (b) full vesting as of March 15, 2009 of all equity awards previously granted to him and (c) if he elected, continued health, dental and vision insurance coverage under our group health plan for 18 months from March 15, 2009 at our cost. Mr. DeBlasio had until March 15, 2010 to exercise any stock options held by him that were vested as of March 15, 2009. The receipt of these benefits by Mr. DeBlasio was contingent on continuing non-disclosure and non-solicitation obligations. These separation terms modified Mr. DeBlasio’s employment agreement as it related to post-termination benefits.
Timothy P. Sullivan. Mr. Sullivan served as our Chief Technology Officer until July 31, 2009. Pursuant to the terms of his separation agreement, Mr. Sullivan received (a) a cash payment of $275,000 to be made in 12 equal monthly installments and (b) if he elected, continued health, dental and vision insurance coverage under our group health plan for 18 months from July 31, 2009 at his cost. All unvested equity grants previously made to Mr. Sullivan expired on July 31, 2009. The receipt of these benefits by Mr. Sullivan was contingent on continuing non-disclosure and non-solicitation obligations. These separation terms were consistent with Mr. Sullivan’s joinder agreement under the Employment Security Plan.
Summary Compensation Table The following table presents information regarding compensation for our named executive officers for services rendered during 2009, 2008 and 2007.
| | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary | | | Bonus | | | Stock Awards(1) | | | Option Awards(2) | | | Non-Equity Incentive Plan Compensation(3) | | | All Other Compensation(4) | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
J. Eric Cooney | | 2009 | | $ | 475,000 | | | $ | 300,000 | (6) | | $ | 1,568,000 | (7) | | $ | 838,440 | | | $ | 200,000 | | | $ | 41 | | | $ | 3,381,481 | |
President and Chief Executive Officer(5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
George E. Kilguss III | | 2009 | | | 275,000 | | | | — | | | | 95,758 | | | | 107,479 | | | | 97,103 | | | | 7,404 | | | | 582,744 | |
Chief Financial Officer(8) | | 2008 | | | 202,196 | | | | — | | | | 962,000 | | | | — | | | | — | | | | 91,837 | | | | 1,256,033 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Richard P. Dobb | | 2009 | | | 272,800 | | | | — | | | | 109,647 | (10) | | | 106,687 | | | | 55,768 | | | | 7,404 | | | | 552,306 | |
Chief Administrative Officer(9) | | 2008 | | | 260,400 | | | | — | | | | 113,780 | (10) | | | — | | | | — | | | | 6,954 | | | | 381,134 | |
| | 2007 | | | 180,000 | | | | — | | | | 460,800 | | | | — | | | | 122,580 | | | | 4,554 | | | | 767,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Randal R. Thompson | | 2009 | | | 211,458 | | | | — | | | | 70,996 | (10) | | | 66,324 | | | | 36,885 | | | | 5,132 | | | | 390,795 | |
Senior Vice President, Global Sales | | 2008 | | | 200,000 | | | | — | | | | 80,006 | (10) | | | — | | | | — | | | | 4,479 | | | | 284,485 | |
| | 2007 | | | 167,010 | | | | 30,000 | | | | 567,650 | | | | — | | | | 125,000 | | | | 197,487 | | | | 1087,147 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Steven A. Orchard | 2009 | | | 176,421 | | | | — | | | | 53,280 | | | | 66,949 | | | | 62,577 | | | | 5,347 | | | | 364,574 | |
Senior Vice President, Operations | | 2008 | | | 160,095 | | | | — | | | | 10,088 | | | | — | | | | — | | | | 3,179 | | | | 173,362 | |
and Support | | 2007 | | | 139,689 | | | | — | | | | 82,450 | | | | — | | | | 45,000 | | | | 3,223 | | | | 270,362 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
James P. DeBlasio | | 2009 | | | 95,833 | | | | — | | | | — | | | | — | | | | — | | | | 979,592 | | | | 1,075,425 | |
Former Chief Executive Officer(11) | 2008 | | | 460,000 | | | | — | | | | 469,519 | (10) | | | — | | | | — | | | | 114,618 | | | | 1,044,137 | |
| | 2007 | | | 425,000 | | | | — | | | | 2,061,250 | | | | — | | | | 337,663 | | | | 27,462 | | | | 2,851,375 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Timothy P. Sullivan | 2009 | | | 160,417 | | | | — | | | | 118,321 | (10) | | | 107,479 | | | | — | | | | 355,352 | | | | 741,569 | |
Former Chief Technology Officer(12) | 2008 | | | 269,792 | | | | — | | | | 184,373 | (10) | | | — | | | | — | | | | 25,193 | | | | 479,358 | |
| | 2007 | | | 180,000 | | | | — | | | | 588,742 | | | | — | | | | — | | | | 54 | | | | 768,796 | |
(1) Represents the full grant date fair value of restricted stock awards granted in the years shown, calculated in accordance with FASB ASC Topic 718. We value restricted stock based on the closing market price of our common stock reported on Nasdaq on the various grant dates. For valuation assumptions, see the Notes to our Consolidated Financial Statements for the fiscal years ended December 31, 2009, 2008 and 2007. |
(2) Represents the full grant date fair value of stock options granted in the years shown, calculated in accordance with FASB ASC Topic 718. Stock options were valued using the Black-Scholes model. For additional valuation assumptions, see the Notes to our Consolidated Financial Statements for the fiscal years ended December 31, 2009, 2008 and 2007. |
(3) Includes amounts earned under our annual short-term incentive plans. We did not pay bonuses in 2009 based on our 2008 performance. The amounts reported for 2009 were earned under our 2009 STIP and paid in March 2010. |
(4) The compensation listed in this column for 2009 includes: (a) our matching contributions to the accounts of the named executive officers under our 401(k) savings plan as follows: $0 for Mr. Cooney; $7,350 for Mr. Kilguss; $7,350 for Mr. Dobb; $5,078 for Mr. Thompson; $5,293 for Mr. Orchard; $2,875 for Mr. DeBlasio and $0 for Mr. Sullivan; and (b) payments made by us for premiums on certain life insurance policies in the amount of $41 for Mr. Cooney; $54 for each of Messrs. Kilguss, Dobb, Thompson and Orchard; $14 for Mr. DeBlasio and $32 for Mr. Sullivan. The compensation listed in this column for Mr. DeBlasio also includes $927,200 of severance related to his termination of employment, $10,350 for corporate housing, $2,889 for the use of a company-provided automobile and a gross up of $36,264 for the payment of estimated taxes on taxable reimbursements made to Mr. DeBlasio. The compensation listed in this column for Mr. Sullivan also includes $275,000 of accrued severance related to his termination of employment, $17,438 for corporate housing, $4,398 for the use of a company-provided automobile and a gross up of $58,484 for the payment of estimated taxes on taxable reimbursements made to Mr. Sullivan. |
(5) Mr. Cooney’s employment began in March 2009. |
(6) We paid this sign-on bonus to Mr. Cooney in connection with his commencement of employment. |
(7) Mr. Cooney’s March 2009 offer letter provided for a grant of 200,000 shares of restricted stock on each of the first anniversary and second anniversary of his commencement date. The amount reported in this column includes the grant date fair value of $896,000 attributable to these 400,000 shares of restricted stock which we considered granted per his offer letter. We made the first grant of 200,000 shares of restricted stock in March 2010. We value his restricted stock at $2.24 per share, the closing price of our common stock reported on Nasdaq on the grant date. |
(8) Mr. Kilguss’ employment began in April 2008. |
(9) Mr. Dobb’s employment began in April 2007. |
(10) Amounts reported include the grant date fair value of performance-based restricted stock awards considered granted in March of 2008 and 2009 calculated in accordance with FASB ASC Topic 718. Our Board of Directors established revenue and EBITDA targets in 2008 and 2009 which would either be met or not met in the particular year. If the revenue and EBITDA targets are met for a particular year, 100% of the award for that year will vest in March of the following year. If the revenue and EBITDA targets are not met for a particular year, 50% of the award for that year is forfeited and the remaining 50% of the award will vest in March 2012. For 2008, the amounts reported include $24,802 for Mr. Dobb, $20,004 for Mr. Thompson, $107,341 for Mr. DeBlasio and $38,201for Mr. Sullivan, valued at $4.30 per share, the closing price of our common stock reported on Nasdaq on the date the 2008 targets were established. For 2009, the amounts reported include $14,651 for Mr. Dobb, $11,814 for Mr. Thompson and $22,563 for Mr. Sullivan, valued at $2.54 per share, the closing price of our common stock reported on Nasdaq on the date the 2009 targets were established. The revenue and EBITDA targets were not met in either 2008 or 2009, which resulted in forfeiture of 50% of the award reported for each individual. |
(11) Mr. DeBlasio’s employment ended March 15, 2009. |
(12) Mr. Sullivan’s employment began in November 2006 and ended July 31, 2009. |
Grants of Plan-Based Awards
The following table provides information about plan-based awards granted to the named executive officers in 2009:
| | | | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | | All Other Stock Awards: Number of Shares of Stock or Units(2) (#) | | | All Other Stock Awards: Number of Securities Underlying Options(3) (#) | | | Exercise or Base Price of Option Awards(4) ($/Sh) | | Grant Date Fair Value of Stock and Option Awards(5) ($) | |
Name and Principal Position | | Award Type | | | Grant Date | | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
J. Eric Cooney | | Restricted Stock | | | 3/16/2009 | | | | | | | | | | | 300,000 | | | | | | | | 672,000 | |
President and Chief | | Restricted Stock | | | 3/16/2009 | | | | | | | | | | | 400,000 | (6) | | | | | | | 896,000 | |
Executive Officer | | Stock Option | | | 3/16/2009 | | | | | | | | | | | | | | 600,000 | | | 2.24 | | 838,440 | |
| | 2009 STIP | | | 8/19/2009 | | | — | | | 475,000 | | | 950,000 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
George E. Kilguss, III | | Restricted Stock | | | 3/25/2009 | | | | | | | | | | | 37,700 | | | | | | | | 95,758 | |
Chief Financial | | Stock Option | | | 3/25/2009 | | | | | | | | | | | | | | 67,900 | | | 2.54 | | 107,479 | |
Officer | | 2009 STIP | | | 8/19/2009 | | | — | | | 137,500 | | | 275,000 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Richard P. Dobb | | Restricted Stock | | | 3/25/2009 | | | | | | | | | | | 37,400 | | | | | | | | 94,996 | |
Chief Administrative | | Stock Option | | | 3/25/2009 | | | | | | | | | | | | | | 67,400 | | | 2.54 | | 106,687 | |
Officer | | Performance Shares(7) | | | 3/25/2009 | | | | | | | | | | | 5,768 | | | | | | | | 14,651 | |
| | 2009 STIP | | | 8/19/2009 | | | — | | | 136,400 | | | 272,800 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Randal R. Thompson | | Restricted Stock | | | 3/25/2009 | | | | | | | | | | | 23,300 | | | | | | | | 59,182 | |
SVP, Global Sales | | Stock Option | | | 3/25/2009 | | | | | | | | | | | | | | 41,900 | | | 2.54 | | 66,324 | |
| | Performance Shares(7) | | | 3/25/2009 | | | | | | | | | | | 4,652 | | | | | | | | 11,814 | |
| | 2009 STIP | | | 8/19/2009 | | | — | | | 105,729 | | | 211,458 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Steven A. Orchard | | Restricted Stock | | | 3/25/2009 | | | | | | | | | | | 13,800 | | | | | | | | 35,052 | |
SVP, Operations and | | Stock Option | | | 3/25/2009 | | | | | | | | | | | | | | 24,800 | | | 2.54 | | 39,256 | |
Support | | Restricted Stock | | | 7/14/2009 | | | | | | | | | | | 6,200 | | | | | | | | 18,228 | |
| | Stock Option | | | 7/14/2009 | | | | | | | | | | | | | | 15,200 | | | 2.94 | | 27,693 | |
| | 2009 STIP | | | 8/19/2009 | | | — | | | 70,568 | | | 141,136 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
James P. DeBlasio(8) | | — | | | — | | | — | | | — | | | — | | — | | | — | | | — | | — | |
Former Chief | | | | | | | | | | | | | | | | | | | | | | | | | |
Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Timothy P. Sullivan | | Restricted Stock | | | 3/25/2009 | | | | | | | | | | | 37,700 | | | | | | | | 95,758 | |
Former Chief | | Stock Option | | | 3/25/2009 | | | | | | | | | | | | | | 67,900 | | | 2.54 | | 107,479 | |
Technology Officer | | Performance Shares(7) | | | 3/25/2009 | | | | | | | | | | | 8,884 | | | | | | | | 22,563 | |
(1) Amounts in these columns represent the threshold, target and maximum awards set for the 2009 STIP. The actual amount of awards paid for 2009 performance is included in the Summary Compensation Table above under the column entitled “Non-Equity Incentive Plan Compensation.”
(2) We granted restricted stock awards under our 2005 Stock Incentive Plan for all named executive officers. The shares of restricted stock vest annually in four equal installments beginning on the first anniversary of the grant date.
(3)We granted stock options under our 2005 Stock Incentive Plan for all named executive officers. The stock options vest 25% on the first anniversary of the grant date and in 36 equal monthly installments thereafter.
(4) The exercise price is equal to the closing price of our common stock reported on Nasdaq on the grant date.
(5) Represents the full grant date fair value of restricted stock, stock options and performance shares granted in 2009, calculated in accordance with FASB ASC Topic 718. For valuation assumptions, see footnotes 1 and 2 to the Summary Compensation Table.
(6)These restricted shares were considered granted pursuant to Mr. Cooney’s March 2009 offer letter which provided for a grant of 200,000 shares of restricted stock on each of the first anniversary and second anniversary of his commencement date. The shares of restricted stock vest annually in four equal installments beginning on the first anniversary of the grant date. We granted the first of these 200,000 shares of restricted stock on March 16, 2010, the first anniversary of Mr. Cooney’s employment.
(7) One-half of the awards for Messrs. Dobb and Thompson were forfeited in March 2010 when it was determined that the 2009 EBITDA and revenue targets were not met. The award for Mr. Sullivan was forfeited upon his termination of employment.
(8) Mr. DeBlasio’s employment ended in March 2009. No grants of plan-based awards were made to him in 2009.
Outstanding Equity Awards At Fiscal Year-End
The following table lists the outstanding stock options and restricted stock awards for each named executive officer as of December 31, 2009:
| | Option Awards | | Stock Awards | |
Name and Principal Position | | Grant Date | | Number of Securities Underlying Unexercised Options Exercisable | | Number of Securities Underlying Unexercised Options Unexercisable(1) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested(2) (#) | | Market Value of Shares or Units of Stock That Have Not Vested(3) ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |
| | | | | | | | | | | | | | | | | | | | |
J. Eric Cooney | | 3/16/2009 | | — | | 600,000 | | 2.24 | | 3/15/2019 | | | | | | | | | | |
President and Chief | | 3/16/2009 | | | | | | | | | | 300,000 | | 1,410,000 | | | | | | |
Executive Officer | | 3/16/2009 | | | | | | | | | | 400,000 | | 1,880,000 | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
George E. Kilguss, III | | 3/25/2009 | | — | | 67,900 | | 2.54 | | 3/24/2019 | | | | | | | | | | |
Chief Financial Officer | | 3/25/2009 | | | | | | | | | | 37,700 | | 177,190 | | | | | | |
| | 4/30/2008 | | | | | | | | | | 150,000 | | 705,000 | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Richard J. Dobb | | 3/25/2009 | | — | | 67,400 | | 2.54 | | 3/24/2019 | | | | | | | | | | |
Chief Administrative | | 3/25/2009 | | | | | | | | | | 37,400 | | 175,780 | | | | | | |
Officer | | 3/20/2008 | | | | | | | | | | 9,733 | | 45,745 | | | | | | |
| | 4/30/2007 | | | | | | | | | | 15,000 | | 70,500 | | | | | | |
| | 3/25/2009 | | | | | | | | | | | | | | 5,768 | (4) | | 27,111 | |
| | 3/20/2008 | | | | | | | | | | | | | | 2,883 | (5) | | 13,550 | |
| | | | | | | | | | | | | | | | | | | | |
Randal R. Thompson | | 3/25/2009 | | — | | 41,900 | | 2.54 | | 3/24/2019 | | | | | | | | | | |
Senior Vice President, | | 3/25/2009 | | | | | | | | | | 23,300 | | 109,510 | | | | | | |
Global Sales | | 3/20/2008 | | | | | | | | | | 7,849 | | 36,890 | | | | | | |
| | 11/15/2007 | | | | | | | | | | 20,000 | | 94,000 | | | | | | |
| | 3/19/2007 | | | | | | | | | | 1,562 | | 7,341 | | | | | | |
| | 9/28/2006 | | 2,187 | | — | | 14.46 | | 9/27/2016 | | | | | | | | | | |
| | 3/15/2006 | | | | | | | | | | 1,250 | | 5,875 | | | | | | |
| | 1/18/2006 | | 708 | | 21 | | 5.30 | | 1/17/2016 | | | | | | | | | | |
| | 3/25/2009 | | | | | | | | | | | | | | 4,651 | (6) | | 21,860 | |
| | 3/20/2008 | | | | | | | | | | | | | | 2,326 | (5) | | 10,932 | |
| | | | | | | | | | | | | | | | | | | | |
Steven A. Orchard | | 7/14/2009 | | — | | 15,200 | | 2.94 | | 7/13/2019 | | | | | | | | | | |
Senior Vice President, | | 7/14/2009 | | | | | | | | | | 6,200 | | 29,140 | | | | | | |
Operations and | | 3/25/2009 | | — | | 24,800 | | 2.54 | | 3/24/2019 | | | | | | | | | | |
Support | | 3/25/2009 | | | | | | | | | | 13,800 | | 64,860 | | | | | | |
| | 3/20/2008 | | | | | | | | | | 1,320 | | 6,204 | | | | | | |
| | 3/19/2007 | | | | | | | | | | 1,562 | | 7,341 | | | | | | |
| | 9/28/2006 | | 1,794 | | — | | 14.46 | | 9/27/2016 | | | | | | | | | | |
| | 3/15/2006 | | 7,188 | | 312 | | 7.40 | | 3/14/2016 | | | | | | | | | | |
| | 1/18/2006 | | 685 | | 15 | | 5.30 | | 1/17/2016 | | | | | | | | | | |
| | 12/20/2002 | | 3,535 | | — | | 4.80 | | 12/19/2012 | | | | | | | | | | |
| | 2/21/2002 | | 450 | | — | | 11.30 | | 2/20/2012 | | | | | | | | | | |
| | 12/28/2001 | | 50 | | — | | 11.90 | | 12/27/2011 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
James P. DeBlasio(7) | | 9/30/2005 | | 500,000 | | — | | 4.80 | | 9/29/2015 | | | | | | | | | | |
Former Chief | | 6/23/2005 | | 2,000 | | — | | 4.60 | | 6/22/2015 | | | | | | | | | | |
Executive Officer | | 5/27/2004 | | 2,000 | | — | | 14.90 | | 5/26/2014 | | | | | | | | | | |
| | 9/16/2003 | | 25,000 | | — | | 13.50 | | 9/15/2013 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Timothy P. Sullivan(8) | | — | | — | | — | | — | | — | | — | | — | | — | | | — | |
Former Chief | | | | | | | | | | | | | | | | | | | | |
Technology Officer | | | | | | | | | | | | | | | | | | | | |
(1) All unexercisable options become exercisable on the vesting date. The normal vesting period for options is 25% on the first anniversary of the grant date and in 36 equal monthly installments thereafter.
Potential Termination(2) The shares of restricted stock generally vest annually in four equal installments beginning on the first anniversary of the grant date.
(3) The dollar values are calculated using a per share stock price of $4.70, the closing price of our common stock reported on Nasdaq on December 31, 2009.
(4) Mr. Dobb forfeited 2,884 of these shares in March 2010 given that we did not meet the revenue and ChangeEBITDA targets established for 2009. Of the remaining reported performance-based shares, 2,884 shares will vest in Control PaymentsMarch 2012.
(5) These performance-based shares will vest in March 2012.
(6) Mr. Thompson forfeited 2,326 shares in March 2010 given that we did not meet the revenue and EBITDA targets established for 2009. Of the remaining reported performance-based shares, 2,325 shares will vest in March 2012.
(7) All outstanding unvested stock options and restricted stock granted to Mr. DeBlasio became immediately vested upon his termination of employment in March 2009.
(8) Mr. Sullivan forfeited all outstanding unvested stock options and restricted stock upon his termination of employment in July 2009.
Option Exercises and Stock Vested
The following table provides information with respect to restricted stock that vested during 2009. No named executive officers exercised stock options in 2009.
| | Termination Benefit | | Change in Control Benefit |
Name and Principal Position | | Estimate of Total Severance Value $ | | Termination Reason | | Cash Severance Multiple | | Equity Treatment (3) | | Benefit Continu- ation | | Retirement Continu- ation | | Other | | Estimate of Total Change in Control Value $ | | Protection Period | | Cash Severance Multiple | | Equity Award Treatment | | Benefit Continu- ation | | Retirement Continu- ation |
James DeBlasio Chief Executive Officer | | | 637,500 | | Involuntary Termination Without cause | | 1.5x Base Salary | | No accelerated vesting - Executive has 90 days to exercise vested options | | 18 months | | — | | — | | | 2,332,400 | | 24 months | | 2x(Base Salary + Maximum Target Bonus) | | 100% vesting of restricted stock and options | | | | — |
David Buckel (1) Chief Financial Officer | | | — | | — | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | — | | — |
Vincent Molinaro Chief Operating Officer | | | 525,000 | | Involuntary Termination Without cause | | | | No accelerated vesting - Executive has 90 days to exercise vested options | | 18 months | | — | | — | | | 2,091,250 | | 24 months | | 2x(Base Salary + Maximum Target Bonus) | | 100% vesting of restricted stock and options | | | | — |
Richard Dobb Vice President and General Counsel | | | 240,000 | | Involuntary Termination Without cause | | | | No accelerated vesting - Executive has 90 days to exercise vested options | | 18 months | | — | | — | | | 924,900 | | 24 months | | 2x(Base Salary + Maximum Target Bonus) | | 100% vesting of restricted stock and options | | | | — |
Philip Kaplan Chief Strategy Officer | | | 235,000 | | Involuntary Termination Without cause | | | | No accelerated vesting - Executive has 90 days to exercise vested options | | | | — | | — | | | 643,900 | | 24 months | | 2x(Base Salary + Maximum Target Bonus) | | 100% vesting of restricted stock and options | | | | — |
Tamara Augustyn Vice President and Principal Accounting Officer | | | — | | — | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | — | | — |
Name and Principal Position | | Number of Shares Acquired on Vesting | | Value Realized On Vesting | |
| | | | | |
J. Eric Cooney President and Chief Executive Officer | | — | | — | |
| | | | | |
George E. Kilguss III Chief Financial Officer | | 50,000 | | 139,500 | |
| | | | | |
Richard P. Dobb Chief Administrative Officer | | 11,826 | | 35,950 | |
| | | | | |
Randal R. Thompson SVP, Global Sales | | 17,239 | | 52,855 | |
| | | | | |
Steven A. Orchard SVP, Operations and Support | | 1,836 | | 6,533 | |
| | | | | |
James P. DeBlasio Former Chief Executive Officer | | 222,706 | | 567,900 | |
| | | | | |
Timothy P. Sullivan Former Chief Technology Officer | 12,081 | | 32,168 | |
| (1) | Mr. Buckel resigned in November of 2007. |
Non-Employee Director Compensation
In 2009, we compensated non-employee directors as follows:
| | Cash | | | Stock Options(1) (#) | | | Restricted Stock(2) (#) | |
| | | | | | | | | | | | |
Newly appointed or elected director | | | – | | | | – | | | | 12,500 | |
Annual director retainer | | $ | 20,000 | | | | 17,270 | (3) | | | 8,630 | (3) |
Board meeting attendance fee – scheduled to be held in person | | | 1,500 | | | | – | | | | – | |
Committee meeting attendance fee – scheduled to be held in person | | | 1,000 | | | | – | | | | – | |
Board or Committee meeting attendance fee – scheduled to be held by telephone | | | 750 | | | | – | | | | – | |
Audit Committee chairperson annual retainer | | | 10,000 | | | | – | | | | – | |
Audit Committee member annual retainer | | | 5,000 | | | | | | | | | |
Compensation Committee chairperson annual retainer | | | 7,500 | | | | – | | | | – | |
Compensation Committee member annual retainer | | | 2,500 | | | | | | | | | |
Nominations and Governance Committee chairperson annual retainer | | | 5,000 | | | | – | | | | – | |
Chairman annual retainer(4) | | | 40,000 | | | | – | | | | – | |
| | | | | | | | | | | | |
(1) All stock options are fully vested and have an exercise price equal to 100% of Directorsthe fair market value on the grant date, which is the closing price of our common stock reported on Nasdaq on that date.
(2) All shares of restricted stock vest in three annual installments on the anniversary of grant.
Effective(3) The number of stock options and shares of restricted stock granted in 2009 was determined using a total value of $55,000 as recommended by CSI, and calculated by using the lesser of January 1, 2007,(a) the closing price of our common stock reported on Nasdaq on the grant date, or (b) three dollars per share.
(4) Our Chairman receives the listed amount in lieu of the retainer of $20,000 paid to all other directors and receives the standard director fees for attendance at Board and committee meetings as well as the equity grants made to all other directors.
To retain and attract highly-qualified individuals, the Board of Directors historically targeted its compensation at the median of the market based on a survey provided by Aon for software and Internet technology companies with $200 to $500 million in revenues. Given that the value of the equity component of our Board’s compensation package had fallen significantly below the market median in 2009, CSI recommended and the Board approved an increase in the value of the 2009 annual grants of stock options and restricted stock to a total of $55,000 (reflected in the table above). This step brought the equity component of the program closer to (but still somewhat below) the target value established by the Board in prior years. When setting this value for the annual grants, the Board agreed to further review the components of the compensation program, including both the cash and equity components, later in 2009 to determine the need for any further adjustments within the context of current economic conditions and updated market compensation levels, as consistent with its philosophy of targeting the median of the market for similar companies. After receiving recommendations from CSI, the Board determined late in 2009 that an additional modification to its compensation package was warranted to retain and attract qualified individuals. The change in non-employee director compensation for non-employee Directors2010 is as follows:reflected in the table below.
| • | The cash fee for Directors for attendance at a Board meeting in person is $1,500 and by telephone is $750 per meeting; |
| | |
| • | The cash fee for Directors for attendance at a Committee meeting in person is $1,000 and by telephone is $750 per meeting; |
| | |
| • | The annual retainer paid to each Director is $20,000. |
| | |
| • | An annual stock option grant to each Director of 5,000 shares of the Company’s common stock. The options have an exercise price equal to 100% of the fair market value of our common stock on the date of grant and are fully vested and exercisable as of the date of grant; |
| | |
| • | An annual grant of 2,500 restricted stock units, which vests ratably over a three-year period, subject to the terms in the stock grant agreement and Stock Plan under which the restricted stock units are granted; |
| | |
| • | The Chair of the Compensation Committee of the Board of Directors receives an annual retainer of $7,500; |
| | |
| • | Other members of the Compensation Committee receive an annual retainer of $2,500; |
| | |
| • | Members of the Audit Committee, other than the Chair, receive an annual retainer of $5,000. The Audit Committee Chair’s retainer is $10,000. |
| | |
| • | The Chair of the Nominations and Governance Committee of the Board of Directors receives an annual retainer of $5,000. |
| | |
| • | The Chairman of the Board of Directors receives an annual retainer of $40,000. |
| | |
| • | New non-employee Directors receive a grant of 12,500 restricted stock units, which vests ratably over a three-year period, subject to the terms of the stock grant agreement and Stock Plan under which the restricted stock units are granted. |
We also reimburse Directors for certainpay director expenses in connectionassociated with attendance atattending Board of DirectorDirectors and committee meetings. Directors who are also employees do not receive any additional compensation for serving on the Board of Directors or any committees of the Board of Directors.its committees.
Effective January 1, 2010, we increased the compensation of our non-employee directors as follows:
| | Cash | | | Stock Options(1)(3) ($) | | | Restricted Stock(2)(3) ($) | |
| | | | | | | | | |
Newly appointed or elected director | | | – | | | | – | | | Number of restricted shares equal to $75,000 | |
Annual director retainer | | $ | 20,000 | | | Number of options equal to $37,500 | | | Number of restricted shares equal to $37,500 | |
Board meeting attendance fee – scheduled to be held in person | | | 1,500 | | | | – | | | | – | |
Committee meeting attendance fee – scheduled to be held in person | | | 1,000 | | | | – | | | | – | |
Board or Committee meeting attendance fee – scheduled to be held by telephone | | | 750 | | | | – | | | | – | |
Audit Committee chairperson annual retainer | | | 15,000 | | | | – | | | | – | |
Audit Committee member annual retainer | | | 7,500 | | | | – | | | | – | |
Compensation Committee chairperson annual retainer | | | 10,000 | | | | – | | | | – | |
Compensation Committee member annual retainer | | | 5,000 | | | | | | | | | |
Nominations and Governance Committee chairperson annual retainer | | | 7,500 | | | | – | | | | – | |
Chairman annual retainer(4) | | | 50,000 | | | | – | | | | – | |
| | | | | | | | | | | | |
(1) All stock options are fully vested and have an exercise price equal to 100% of the fair market value on the grant date, which is the closing price of our common stock reported on Nasdaq on that date.
(2) All shares of restricted stock vest in three annual installments on the anniversary of grant.
(3) CSI will determine the number of options and shares of restricted stock based on the fair market value of our common stock on the grant date.
(4) Our Chairman receives the listed amount in lieu of the retainer of $20,000 paid to all other directors and receives the standard director fees for attendance at Board and committee meetings as well as the equity grants made to all other directors.
The following table lists the compensation paid to our non-employee directors during 2009:
Name | | Fees Earned or Paid in Cash | | | Stock Awards(1)(2) | | | Option Awards(1)(2) | | | Total | |
| | | | | | | | | | | | | | | | |
Eugene Eidenberg(3) | | $ | 50,250 | | | $ | 30,291 | | | $ | 37,761 | | | $ | 118,302 | |
Charles B. Coe | | | 57,000 | | | | 30,291 | | | | 37,761 | | | | 125,052 | |
William J. Harding(4) | | | 45,500 | | | | 30,291 | | | | 37,761 | | | | 113,552 | |
Patricia L. Higgins | | | 61,250 | | | | 30,291 | | | | 37,761 | | | | 129,302 | |
Kevin L. Ober | | | 47,750 | | | | 30,291 | | | | 37,761 | | | | 115,802 | |
Gary M. Pfeiffer | | | 61,000 | | | | 30,291 | | | | 37,761 | | | | 129,052 | |
Daniel C. Stanzione(3) | | | 66,500 | | | | 30,291 | | | | 37,761 | | | | 134,552 | |
(1) Represents the full grant date fair value of restricted stock and stock options granted in 2009, calculated in accordance with FASB ASC Topic 718. We value restricted stock using the closing price of our common stock reported on Nasdaq on the grant date. We value stock options using the Black-Scholes model. For additional valuation assumptions, see the Notes to our Consolidated Financial Statements for the fiscal year ended December 31, 2009. |
(2) The following table lists the number of outstanding stock options and restricted stock awards held by our non-employee directors as of December 31, 2009: |
Name | | Options (#)(a) | | | Restricted Stock (#)(b) | |
| | | | | | | | |
Eugene Eidenberg | | | 157,269 | | | | 13,630 | |
Charles B. Coe | | | 58,270 | | | | 13,630 | |
William J. Harding(c) | | | 22,270 | | | | 833 | |
Patricia L. Higgins | | | 56,270 | | | | 18,359 | |
Kevin L. Ober | | | 35,270 | | | | 13,630 | |
Gary M. Pfeiffer | | | 22,270 | | | | 23,630 | |
Daniel C. Stanzione | | | 56,270 | | | | 13,630 | |
| (a) | All outstanding options are fully vested. |
| (b) | Includes all grants of restricted stock, some of which remain subject to time-based vesting. |
| (c) | Dr. Harding retired from our Board in October 2009. Upon his resignation, he had three months to exercise his stock options and he forfeited all unvested shares of restricted stock. |
(3) Dr. Eidenberg served as our Chairman from January 1, 2009 through June 18, 2009. Mr. Stanzione became our Chairman on June 19, 2009 and currently serves in that position. |
(4) Dr. Harding retired from our Board of Directors effective October 20, 2009. |
Ms. Wilson and Mr. Ruffolo joined our Board effective January 1, 2010 and thus received no compensation during 2009.
Non-Employee Director Stock Retention Policy
The Board of Directors adopted a stock retention policy starting in 2007 that requires each Directordirector to retain a fixed percentage50% of the “net shares” he or she acquires through exercises of stock option exercise and vesting of restricted stock units.until six months following completion of the director’s services to us. Net shares are shares obtained after costs of exercise and taxes to the Director. For 2007, the stock retention requirement is fifty percent (50%) of these net shares. A Director must retain the stock so acquired until six months following the completion of his or her service as a Director. Thedirector. Our Board concluded that the best practices emerging inbelieves this policy to be an important corporate governance include such retention policiesmeasure and adopted this stock retention policy toconsiders it important in further alignaligning the interests of the Directorsour directors with those of our stockholders’ interests.stockholders.
The following table provides information concerning the compensation of our non-employee Directors for our most recently completed fiscal year.
| | Fees Earned or Paid in Cash $ | | Stock Awards $(1) | | Option Awards $(1) | | Non-Equity Incentive Plan Compensation $ | | Change in Pension Value and Non-Qualified Deferred Compensation Earnings $ | | All Other Compensation (2) $ | | Total $ |
Eidenberg, Eugene | | | 42,000 | | 4,779 | | | 57,631 | | — | | — | | | 9,879 | | | 114,289 |
Higgins, Patricia | | | 45,250 | | 4,779 | | | 57,631 | | — | | — | | | — | | | 107,659 |
Coe, Charles | | | 35,875 | | 4,779 | | | 57,631 | | — | | — | | | 2,113 | | | 100,397 |
Harding, William | | | 10,250 | | 4,779 | | | 57,631 | | — | | — | | | 1,497 | | | 74,157 |
Harman, Frederick (3) | | | 9,000 | | — | | | — | | — | | — | | | 2,399 | | | 11,399 |
Ober, Kevin | | | 33,000 | | 4,779 | | | 57,631 | | — | | — | | | 8,347 | | | 103,757 |
Pfeiffer, Gary | | | 10,250 | | 17,813 | | | — | | — | | — | | | 3,069 | | | 31,132 |
Stanzione, Daniel | | | 36,000 | | 4,779 | | | 57,631 | | — | | — | | | 124 | | | 98,533 |
(1) | Based on the grant date fair value of outstanding awards that vested in 2007 computed in accordance with FAS 123R. |
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(2) | Includes consulting fees and reimbursement for expenses. |
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(3) | Mr. Harman resigned on March 15, 2007. |
The Board also targets its compensation to the median based on a survey provided by Aon for software and Internet technology companies with $200 to $499.9 million in revenues.
The following table lists the number of outstanding stock options and restricted stock awards held by our non-employee Directors as of December 31, 2007. All outstanding options are fully vested.
| | Options | | Shares of Restricted Stock | |
Eidenberg, Eugene | | | 142,999 | | 2,500 | |
| | | | | | |
Higgins, Patricia | | | 34,000 | | 2,500 | |
| | | | | | |
Coe, Charles | | | 36,000 | | 2,500 | |
| | | | | | |
Harding, William (1) | | | — | | — | |
| | | | | | |
Harman, Frederick (2) | | | — | | — | |
| | | | | | |
Ober, Kevin | | | 21,000 | | 2,500 | |
| | | | | | |
Pfeiffer, Gary | | | — | | 12,500 | |
| | | | | | |
Stanzione, Daniel | | | 34,000 | | 2,500 | |
| | | | | | |
(1) | | Dr. Harding retired from Morgan Stanley Venture Partners III, LLC and Morgan Stanley & Co., Inc. in October of 2007. He assigned all of his equity compensation received while serving on our Board of Directors to Morgan Stanley, which consists of 2,500 shares of restricted common stock and options to purchase 27,000 shares of common stock that are vested and exercisable. Dr. Harding disclaims beneficial ownership in all such shares. Because Dr. Harding has retired from Morgan Stanley, such shares are excluded from the table above. |
(2) | | Mr. Harman resigned on March 15, 2007. |
Compensation Committee ReportCOMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis and, based on this review and discussion, recommends that the Compensation Discussion and Analysis be included in the proxy statement and filed with the Securities and Exchange Commission.
SEC.
| | |
| The Compensation Committee |
| Gary Pfeiffer | Michael A. Ruffolo |
Note that Mr. Harman served as a member of the Compensation Committee and resigned from the Board of Directors on March 15, 2007. Accordingly, he did not review the Compensation Discussion and Analysis and did not sign the Compensation Committee Report.Compensation Committee Interlocks and Insider Participation
CERTAIN RELATIONSHIPS AND TRANSACTIONS
We have entered into indemnification agreements with our DirectorsNo related party had any relationships requiring disclosure by us under the SEC’s rules requiring disclosure of certain relationships and executive officers for the indemnification of and advancement of expenses to such persons to the fullest extent permitted by law. We also intend to enter into these agreements with our future Directors and executive officers.
There are no transactions, since the beginning of our last fiscal year, or any currently proposed transaction, in which the Company was or is to be a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest.
related-party transactions. We do not have policies and procedures for the review, approval or ratification of any transactions with related personsparties because we have nevernot historically had occasion to consider a related party transaction.
The primary function of the Audit Committee is to assistof the Board of Directors consists of four directors who are independent under Nasdaq company standards and applicable SEC standards. The Audit Committee represents and assists the Board in fulfilling its oversight and monitoring of our financial reporting and auditing process. In January 2007, our Board of Directors adopted an amended and restated Audit Committee Charter that sets forthresponsibility regarding the responsibilitiesintegrity of the Audit Committee.
Management has primary responsibility for ourcompany’s financial statements and the overallfinancial reporting and accounting process, including our systemthe systems of internal controls. The independent registered public accountantsaccounting and financial controls, the performance of the internal audit the annual financial statements prepared by management and express an opinion as to whether those financial statements fairly present our financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. The independent registered public accountants also audit Management’s Report on Internal Control over Financial Reporting and discuss with the Audit Committee any issues that come about in conjunction with the audits that they believe should be raised with the Audit Committee. The Audit Committee monitors these processes, relying, without independent verification, on the information provided to it and on the representations made by managementfunction and the independent registered public accountants.accounting firm, the qualifications and independence of the registered public accounting firm, the annual independent audit of our financial statements and compliance with legal and regulatory requirements.
RepresentativesThe Audit Committee is directly responsible in its capacity as a committee of PricewaterhouseCoopers LLP, ourthe Board of Directors for appointing, retaining, compensating, overseeing, evaluating and terminating (if appropriate) the company’s independent registered public accounting firm. The company’s management has primary responsibility for the financial statements and the financial reporting process, including the application of accounting and financial principles, the preparation, presentation and integrity of the financial statements and the systems of internal controls and other procedures designed to promote compliance with accounting standards and applicable laws and regulations. The company’s independent registered public accounting firm attended 10 regular meetingsis responsible for expressing an opinion on the conformity of the Audit Committee. company’s financial statements with generally accepted accounting principles and for auditing the effectiveness of the company’s internal control over financial reporting.
The Audit Committee has taken steps to provide assurances regarding Audit Committee composition and procedures, the independence of the company’s independent registered public accounting firm and the integrity of the company’s financial statements and disclosures. These steps include: (a) reviewing the Audit Committee Charter; (b) reviewing the Code of Conduct; (c) maintaining a procedure to allow employees, stockholders and the public to report concerns regarding the company’s financial statements, internal controls and disclosures through the Ethics Hotline; and (d) reviewing procedures for the Audit Committee to pre-approve all audit and non-audit services provided by the company’s independent registered public accounting firm.
As part of its supervisory duties, the Audit Committee has reviewed and discussed with management and PricewaterhouseCoopers LLP ourthe company’s audited financial statements for the fiscal year ended December 31, 20072009 and our unaudited quarterlyhas discussed those financial statements forwith the quarters ended March 31, June 30company’s management, internal auditors and September 30, 2007.independent registered public accounting firm with and without management present. The Audit Committee also has reviewed and discussed the following with the company’s management, the internal auditors and independent registered public accounting firm with and without management present:
| ● | accounting and financial principles and significant assumptions, estimates and matters of judgment used in preparing the financial statements; |
| ● | allowances and reserves for accounts receivable, inventories and taxes; |
| ● | accounting for acquisitions and equity-based compensation plans; |
| ● | goodwill impairment analysis; and |
| ● | other significant financial reporting issues and practices. |
The Audit Committee has discussed with PricewaterhouseCoopers LLPthe company’s independent registered public accounting firm the results of the independent registered public accounting firm’s examinations and the judgments of the independent registered public accounting firm concerning the quality, as well as the acceptability, of the company’s accounting principles and such other matters that it is required to discuss with the independent registered public accounting firm under applicable rules, regulations or generally accepted auditing standards, including the matters required to be discussed by the rules of the Public Company Accounting Oversight Board (“PCAOB”).
The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (Communication With Audit Committees).
The(AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the PCAOB in Rule 3200T. In addition, the Audit Committee alsohas received from the independent registered public accounting firm the written disclosures and the letter from PricewaterhouseCoopers LLP that are required by Independence Standards Board Standard No. 1 (Independence Discussionsthe applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committees)Committee concerning independence rules and has discussed their independence from the company and the company’s management with PricewaterhouseCoopers LLP its independence. The Audit Committee considered whetherthem, including a consideration of the compatibility of non-audit services provided by PricewaterhouseCoopers LLP forwith their independence, the year ended December 31, 2007 are compatible with maintaining their independence. The Audit Committee has determinedscope of the audit and the scope of all fees paid to engage PricewaterhouseCoopers LLP as ourthe independent registered public accounting firm forduring the year ending December 31, 2008.
Basedyear. After and in reliance upon its review of the audited financial statements, including Management’s Report on Internal Control over Financial Reporting,reviews and the discussions noteddescribed above, the Audit Committee recommended thatto the company’s Board of Directors includethat the audited financial statements for the fiscal year ended December 31, 2009, be included in ourthe company’s Annual Report on Form 10-K/A10-K for the year then ended December 31, 2007 for filingto be filed with the SEC.
Securities and Exchange Commission. | |
| Patricia L. HigginsAudit Committee |
| Gary M. Pfeiffer, Chairman |
| Eugene Eidenberg |
| Kevin L. Ober |
| Gary PfeifferDebora J. Wilson |
The foregoing report of the Audit Committee shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the Exchange Act, unless we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.