UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
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Internap Network Services Corporation
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Internap Network Services Corporation
250 Williams Street, Suite E-100
Atlanta, Georgia 30303
NOTICE OF THE 20082010 ANNUAL MEETING OF STOCKHOLDERS
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A copy of our Annual Report to Stockholders for the year ended December 31, 2009 is enclosed with this Notice. The following proxy statement and enclosed proxy card are being sent to stockholders on and after April 30, 2010.
| By order of the Board of | |
| Directors, | |
  | |
Richard P. Dobb Corporate Secretary and Chief | |
| Administrative Officer |
Atlanta, Georgia
| Your Vote is Important to Us. Even if You Plan to Attend the Meeting in Person, |
| PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY OR |
| VOTE BY TELEPHONE OR THE INTERNET. |
Meeting of Stockholders to attend the annual meeting, please read the attachedbe Held On June 17, 2010.
Our proxy statement for the 2010 Annual Meeting of Stockholders and then promptly complete, date, sign, and return the enclosed proxy card in orderAnnual
Report to ensure your representationStockholders for the fiscal year ended December 31, 2009 are available at the annual meeting. A return envelope, which is postage prepaid if mailed in the United States, is enclosed for your convenience. Even if you have given your proxy, you may still vote in person if you attend the annual meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the annual meeting, you must obtain from such broker, bank or other nominee a proxy card issued in your name. Contact your broker, bank or other nominee for instructions.
http://ir.internap.com/proxy10.cfm
INTERNAP NETWORK SERVICES CORPORATION
250 Williams Street, Suite E-100
2010 ANNUAL MEETING OF STOCKHOLDERS
June 17, 2010
PROXY STATEMENT
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| A: | Our Board of Directors is providing these proxy materials to you in connection with its solicitation of proxies for use at the Internap 2010 Annual Meeting of Stockholders, which will take place on June 17, 2010, at our corporate headquarters located at 250 Williams Street, Suite E-100, | |
| Atlanta, Georgia, |
| Q: | What information is contained in these materials? | |
| A: | The information included in this proxy statement relates to the proposals to be voted upon at the annual meeting, the voting process, the compensation of our directors and named executive officers and certain other required information. Our Annual Report to Stockholders for the year ended December 31, 2009, which includes our audited consolidated financial statements for the years ended December 31, 2009, 2008 and 2007, is included in these proxy materials. Your proxy, which you may use to vote, is also enclosed. | |
| Q: | What proposals will be voted upon at the annual meeting? | |
| A: | There are three proposals scheduled to be voted upon at the annual meeting: | |
| ● | election of three directors for three-year terms expiring in 2013 and election of one | |
| Q: | How does Internap’s Board of Directors recommend that I vote? | ||
| A: | Your Board of Directors recommends that you vote your shares “FOR” each of the nominees to the Board of Directors, “FOR” approval of the amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock and “FOR” ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for our fiscal year ending December 31, 2010. | ||
| Q: | Who may vote? | ||
| A: | You may vote at the annual meeting or by proxy if you were a stockholder of record at the close of business on April 19, 2010. Each stockholder is entitled to one vote per share on each matter presented. As of April 19, 2010, there were _______________ shares of our common stock outstanding. | ||
| Q: | How do I vote before the annual meeting? | ||
| A: | We offer the convenience of voting by mail-in proxy, telephone or the Internet as described in more detail below. See the enclosed proxy for voting instructions. If you properly sign and return the proxy in the form we have provided or properly vote by telephone or the Internet, your shares will be voted at the annual meeting and at any adjournment | ||
| Q: | What if I return my proxy but do not provide voting instructions? |
| 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. |
| Q: | Can I change my mind after I vote? |
| 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. |
| Q: | How can I vote my shares in person at the annual meeting? |
| 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. |
| Q: | What is the quorum requirement for the annual meeting? |
| 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. |
| Q: | What is the voting requirement to approve each of the proposals? |
| 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. |
| 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 | |
| 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. | |
| Q: | What are broker non-votes and what effect do they have on the proposals? |
| 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. |
| 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. |
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Q: |
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| Q: | Where can I find the voting |
| 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. |
PROPOSAL 1—ELECTION OF DIRECTORS
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.
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.
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.
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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)
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.
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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.
Charles B. Coe, 61, has served as a Director of Internapdirector since July 2003. He also previously served as Chairman of the Audit Committee and member of the Nominations and Governance Committee of Internap’s Board of Directors, until he resigned from these committee appointments upon commencing employment as the Company’s President and Chief Operating Officer in September 2005. From 2003 until September 2005, Mr. DeBlasio served as Financial Vice President of the wireline and wireless product portfolio of Lucent Technologies, a network communications equipment provider. Prior to that, from 2002 to 2003, he was Financial Vice President for Lucent’s Mobility Solutions Group. He served as Financial Vice President—Corporate Planning and Analysis for Lucent from 2001 to 2002, as Chief Financial Officer of Lucent’s Optical Networking Group from 2000 to 2001 and as Financial Vice President and Chief Financial Officer of Lucent’s Wireless Networks Group from 1997 to 2000. Mr. DeBlasio holds a M.B.A degree in Finance and Financial Portfolio Analysis from Seton Hall University and a B.S. degree in Industrial Management from Villanova University.
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.
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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. |
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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
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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.
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
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.
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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.
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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.
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Stockholder Communications with the Board of Directors
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.
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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:
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% | |||
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:
| Options | |||||
| 58,270 | |||||
| 25,000 | |||||
| 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 | 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.
(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.
Name | Age | Position | ||
| 44 | Chief | |||
| 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 |
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.
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 |
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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.
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.
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.
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.
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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:
| 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:
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
Overview of Executive Compensation Components
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.
named executive officers:
| 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 |
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.
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.
Name | 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 | ||
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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.
| ● | encourage and reward participants for the achievement of specified individual goals | |
| ● | maintain a competitive range of |
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:
| ● | free cash flow of $15.3 million (20% of potential award); and | |
| ● | personal and business unit goals |
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.
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.
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:
Name | 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) | -- | % | -- | % |
| 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 | ||||||||||||
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 | ||||||
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:
Name | 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) | -- | % | -- | % |
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.
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Mr. Thompson was eligible to receive an incentive separate from the 2009 STIP of up to $40,000 if we achieved specific gross margin improvements. Based on our 2009 results, no additional payment was made to Mr. Thompson.
2010 Short Term Incentive Plan
The Compensation Committee has approved the 2010 Short Term Incentive Plan (the “2010 STIP”) with awards based on achievement of three criteria:
| revenue (30% of potential award); | ||
| ● | adjusted EBITDA (40% of potential award); and | |
| ● | personal and business unit goals specific to each named executive officer (30% of potential award). |
The 2010 STIP incorporates a threshold level of performance above which a payout for each corporate and personal component could occur. The payout at the threshold level of performance is zero. The payout rises by linear interpolation from threshold to target and from target to stretch. The 2009 STIP did not recognize threshold levels of performance which meant that there were no payouts for a component unless it was fully achieved. The Compensation Committee believed that providing a threshold level of performance would be a more effective motivator and, therefore, added this element to the 2010 STIP.
The table below outlines the potential payout for each named executive officer and the amounts related to the potential target and stretch awards:
At Threshold(1) | At Target (%) | At Target(2) ($) | 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.
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.
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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.
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.
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.
20
Name | 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 | -- |
| 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. |
| 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 |
Stock Retention Guidelines for Named Executive Officers
| Position | Retention Ratio | Time to Retain From Date of Acquisition | ||||
| Chief Executive Officer | 50.0% | |||||
| Chief Financial Officer | ||||||
| Chief | 33.0% | |||||
| Senior Vice President, Global Sales | 33.0% | |||||
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.
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.
Limitations on the Deductibility of Executive Compensation
21
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.
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 | ||||||||||||||||||
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 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
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 | ||||||||||||||||
| 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 | — | — | — | — | |||||||||||||||
| 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 | ||||||||||||||||||
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.
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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.
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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. |
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| (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.
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(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.
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(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.
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 | 18 months | — | |||||||||||||||
David Buckel (1) Chief Financial Officer | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||
Vincent Molinaro Chief Operating Officer | 525,000 | Involuntary Termination Without cause | 1.5x Base Salary | 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 | 18 months | — | |||||||||||||||
Richard Dobb Vice President and General Counsel | 240,000 | Involuntary Termination Without cause | 1x Base Salary | 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 | 18 months | — | |||||||||||||||
Philip Kaplan Chief Strategy Officer | 235,000 | Involuntary Termination Without cause | 1x Base Salary | No accelerated vesting - Executive has 90 days to exercise vested options | 18 months | — | — | 643,900 | 24 months | 2x(Base Salary + Maximum Target Bonus) | 100% vesting of restricted stock and options | 18 months | — | |||||||||||||||
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 | |||
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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.
(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 $55,000 (reflected in the table above). This step brought the equity component of the program closer to (but still somewhat below) the target value established by the Board in prior years. When setting this value for the annual grants, the Board agreed to further review the components of the compensation program, including both the cash and equity components, later in 2009 to determine the need for any further adjustments within the context of current economic conditions and updated market compensation levels, as consistent with its philosophy of targeting the median of the market for similar companies. After receiving recommendations from CSI, the Board determined late in 2009 that an additional modification to its compensation package was warranted to retain and attract qualified individuals. The change in non-employee director compensation for non-employee Directors2010 is as follows:reflected in the table below.
We also reimburse Directors for certainpay director expenses in connectionassociated with attendance atattending Board of DirectorDirectors and committee meetings. Directors who are also employees do not receive any additional compensation for serving on the Board of Directors or any committees of the Board of Directors.its committees.
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Effective January 1, 2010, we increased the compensation of our non-employee directors as follows:
| Cash | Stock Options(1)(3) ($) | 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.
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: |
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| 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.
Name | 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 | |||||||||||
Name | 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 | ||||
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 | ||
| Charles B. Coe, Chairman |
| Patricia L. Higgins |
| Michael A. Ruffolo |
| Daniel C. Stanzione |
CERTAIN RELATIONSHIPS AND TRANSACTIONS
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.
30
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).
| Gary M. Pfeiffer, Chairman | |
| Eugene Eidenberg | |
| Kevin L. Ober |
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.
PROPOSAL 2 - APPROVAL—
AMENDMENT OF AMENDMENT TO THE CERTIFICATEOUR RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED SHARES OF COMMON STOCK
Introduction
On June 21, 2006,April 12, 2010, our stockholders approvedBoard of Directors adopted, subject to stockholder approval, an amendment ofto our certificate of incorporation to affect a one-for-ten reverse stock split of our common stock. On July 11, 2006, we filed a certificate of amendment to effectuate this split, or the Previously FiledRestated Certificate of Amendment.
The Company intended for the one-for-ten reverse stock split to reduce the authorized number of shares of preferred stock. In addition, the Company pays a franchise tax to the state of Delaware based on the total number of shares of stock authorized by its certificate of incorporation. The Board of Directors recommends that the stockholders approve a reduction in the authorized number of shares of stock to 80,000,000, consisting of 60,000,000additional shares of common stock and 20,000,000 shares of preferred stock as originally intended.
Authorized Shares of Common Stock
As of March 31, 2010, of the 60,000,000 shares of common stock currently authorized, we estimate a total of 58,797,921 shares have been issued or reserved:
| ● | approximately 51,832,434 shares have been issued and are currently outstanding; | |
| ● | approximately 4,819,154 shares are issuable upon exercise of outstanding stock options under all of our equity plans; | |
| ● | approximately 1,953,625 shares remain available for grant under all of our equity plans; and | |
| ● | approximately 192,708 shares remain available for purchase under our 2004 Employee Stock Purchase Plan. |
Reasons Forfor the Proposed CertificateProposal
The additional authorized shares of Amendment
Possible Effects of the Proposed Certificate of Amendment is desirable for the following reasons:Proposal
The Proposed Certificate of Amendment should resultincrease in a tax savings.
Vote Required
| Name and Position | Dollar Value ($) | Number of Units | ||||||
James DeBlasio Chief Executive Officer | $ | 0 | 0 | |||||
David Buckel (1) Chief Financial Officer | $ | 0 | 0 | |||||
Vincent Molinaro Chief Operating Officer | $ | 0 | 0 | |||||
Richard Dobb Vice President and General Counsel | $ | 0 | 0 | |||||
Philip Kaplan Chief Strategy Officer | $ | 0 | 0 | |||||
Tamara Augustyn Vice President and Principal Accounting Officer | $ | 0 | 0 | |||||
| Executive Group | $ | 0 | 0 | |||||
| Non-Executive Director Group | $ | 0 | 0 | |||||
| Non-Executive Officer Employee Group | $ | 0 | 0 | |||||
Certificate of Incorporation to increase the authorized shares reserved for issuance under the Stock Plan by four million shares.of common stock.
32
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has appointed PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2008.2010. PricewaterhouseCoopers LLP has audited our financial statements since our inception in 1996. Representatives of PricewaterhouseCoopers LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
Stockholder ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm is not required by our bylaws or otherwise. The Board of Directors, however, is submitting the selection of PricewaterhouseCoopers LLP to our stockholders for ratification as a matter of good corporate governance. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether to retain this firm. Even if the selection is ratified, the Audit Committee in their discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of us and our stockholders.
Audit Fees
The following table shows the fees paid or accrued by us for the audit and other services provided by PricewaterhouseCoopers LLP for the fiscal years ended December 31, 20072009 and 2006.2008:
| 2007 | 2006 | |||||
| Audit Fees (1) | $ | 1,988,994 | $ | 1,298,297 | ||
| Audit-Related Fees (2) | 325,694 | 399,966 | ||||
| Tax Fees (3) | 78,530 | 52,768 | ||||
| All Other Fees (4) | 1,500 | 142,804 | ||||
| Total | $ | 2,394,718 | $ | 1,893,835 | ||
| 2009 | 2008 | |||||||
Audit Fees(1) | $ | 992,538 | $ | 2,250,926 | ||||
Audit-Related Fees(2) | 373,791 | 578,049 | ||||||
Tax Fees(3) | 122,866 | 42,265 | ||||||
All Other Fees(4) | 3,900 | 1,500 | ||||||
| Total | $ | 1,493,095 | $ | 2,872,740 | ||||
| (1) | Fees related to the audit of | ||||||||
| (2) | Fees primarily related to international statutory | ||||||||
| (3) | Fees primarily related to tax compliance, advice and planning. | ||||||||
| (4) | Fees related to services performed in conjunction with other professional services. | ||||||||
Approval of Audit and Permissible Non-Audit Services
Our Audit Committee Charter requires the Audit Committee to review and approve all audit services and all permissible non-audit services to be performed for us by our independent registered public accounting firm, and thefirm. The Audit Committee will not approve any services that are not permitted by SEC rules.
The Audit Committee pre-approved all audit and audit related, tax and non-audit related services to be performed for us by our independent registered public accounting firm.
to serve as our independent registered public accounting firm for the fiscal year ended December 31, 2008.2010.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and regulations of the SEC thereunderregulations require our Directors,directors, executive officers and persons who own more than 10% of our outstanding common stock, as well as certain affiliates of such persons, to file initial reports of theirownership and changes in ownership of our common stock and subsequent reports of changes in such ownership with the SEC. Directors, executive officers and persons owning moregreater than 10% of our common stockbeneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file.
Based solely on our review of copies of these reports or of certifications to us that no report was required to be filed, we believe that all of our Directorsdirectors and executive officers complied with all Section 16(a) filing requirements applicable to them during the 20072009 fiscal year, except: Mr. Buckel, who filed two late Form 4syear.
33
ADDITIONAL INFORMATION
Stockholders List
A list of stockholders entitled to vote at the annual meeting will be available for review by our stockholders at the office of Richard P. Dobb, Corporate Secretary, Internap, located at 250 Williams Street, Suite E-100, Atlanta, Georgia, during ordinary business hours for the 10-day period before the meeting.
Director and Officer Indemnification
We indemnify our directors and named executive officers to the fullest extent permitted by law so that they will be free from undue concern about personal liability in connection with their service to us.
Stockholder Proposals for Inclusion in Next Year’s Proxy Statement
Pursuant to Rule 14a-8 under the sale of shares of his common stock; Mr. Abrahamson, who resignedExchange Act, some stockholder proposals may be eligible for inclusion in August of 2007, who filed one late Form 4our 2010 proxy statement and proxy card. Any such stockholder proposals must be submitted in connection with his exercise of stock options priorwriting to our Corporate Secretary no later than December 31, 2010.
You should address all stockholder proposals to the Board’s determination that he no longer have filing obligations pursuant to Section 16(a); Mr. Kaplan, who filed one late Form 4 in connection with his grantattention of stock options; and Ms. Augustyn, who filed one late Form 4 in connection with her grant of stock options. Richard P. Dobb, Corporate Secretary, Internap Network Services Corporation, 250 Williams Street, Suite E-100, Atlanta, Georgia 30303.
Solicitation of Proxies
We will pay the expenses of solicitation of proxies for the annual meeting. Solicitations may be made in person or by telephone, by our officers and employees or by nominees or other provisionsfiduciaries who may mail materials to or otherwise communicate with the beneficial owners of shares held by the nominees or other fiduciaries. Upon request, we will reimburse brokers, dealers, banks and trustees, or their nominees, for reasonable expenses incurred by them in forwarding material to beneficial owners of our bylaws. A copycommon stock. We have engaged Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902, to assist us in the solicitation of proxies at an estimated fee of approximately $6,500 plus reasonable out-of-pocket expenses.
Delivery of Documents to Stockholders Sharing an Address
If you are the beneficial owner, but not the record holder, of shares of our bylaws is available upon request to the address below.
Electronic Access to Proxy Statement and Annual Report
Our proxy statement by mailed infor the future.2010 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended December 31, 2009 are available at http://ir.internap.com/proxy10.cfm.
| Page | ||
| § 1. BACKGROUND AND PURPOSE | 1 | |
| § 2. DEFINITIONS | 1 | |
| 2.1 | Affiliate | 1 |
| 2.2 | Board | 1 |
| 2.3 | Change Effective Date | 1 |
| 2.4 | Change in Control | 2 |
| 2.5 | Code | 5 |
| 2.6 | Committee | 5 |
| 2.7 | Company | 6 |
| 2.8 | Director | 6 |
| 2.9 | Eligible Employee | 6 |
| 2.10 | Fair Market Value | 6 |
| 2.11 | ISO | 7 |
| 2.12 | 1933 Act | 7 |
| 2.13 | 1934 Act | 7 |
| 2.14 | Non-ISO | 7 |
| 2.15 | Option | 7 |
| 2.16 | Option Certificate | 7 |
| 2.17 | Option Price | 7 |
| 2.18 | Parent | 7 |
| 2.19 | Plan | 7 |
| 2.20 | Preexisting Plan | 7 |
| 2.21 | Rule 16b-3 | 8 |
| 2.22 | SAR Value | 8 |
| 2.23 | Stock | 8 |
| 2.24 | Stock Appreciation Right | 8 |
| 2.25 | Stock Appreciation Right Certificate | 8 |
| 2.26 | Stock Grant | 8 |
| 2.27 | Stock Grant Certificate | 8 |
| 2.28 | Stock Unit Grant | 8 |
| 2.29 | Subsidiary | 9 |
| 2.30 | Ten Percent Shareholder | 9 |
| § 3. SHARES AND GRANT LIMITS | 9 | |
| 3.1 | Shares Reserved | 9 |
| 3.2 | Source of Shares | 9 |
| 3.3 | Use of Proceeds | 10 |
| 3.4 | Grant Limits | 10 |
| 3.5 | Preexisting Plan | 10 |
| 11 | ||
| § 5. COMMITTEE | 11 | |
| § 6. ELIGIBILITY | 12 | |
| § 7. OPTIONS | 12 | |
| 7.1 | Committee Action | 12 |
| 7.2 | $100,000 Limit | 13 |
| 7.3 | Option Price | 13 |
| 7.4 | Payment | 13 |
| 7.5 | Exercise | 14 |
| § 8. STOCK APPRECIATION RIGHTS | 15 | |
| 8.1 | Committee Action | 15 |
| 8.2 | Terms and Conditions | 15 |
| 8.3 | Exercise | 17 |
| § 9. STOCK GRANTS | 18 | |
| 9.1 | Committee Action | 18 |
| 9.2 | Conditions | 18 |
| 9.3 | Dividends, Voting Rights and Creditor Status | 21 |
| 9.4 | Satisfaction of Forfeiture Conditions. | 22 |
| 9.5 | Income Tax Deduction | 22 |
| § 10. NON-TRANSFERABILITY | 25 | |
| § 11. SECURITIES REGISTRATION | 26 | |
| § 12. LIFE OF PLAN | 27 | |
| § 13. ADJUSTMENT | 27 | |
| 13.1 | Capital Structure | 27 |
| 13.2 | Available Shares | 28 |
| 13.3 | Transactions Described in § 424 of the Code | 29 |
| 13.4 | Fractional Shares | 30 |
| § 14. CHANGE IN CONTROL | 30 | |
| § 15. AMENDMENT OR TERMINATION | 32 | |
| § 16. MISCELLANEOUS | 32 | |
| 16.1 | Shareholder Rights | 32 |
| 16.2 | No Contract of Employment | 33 |
| 16.3 | Withholding | 33 |
| 16.4 | Construction | 33 |
| Other Conditions | 34 | |
| 16.6 | Rule 16b-3 | 34 |
| 16.7 | Coordination with Employment Agreements and Other Agreements | 34 |
NEW YORK, NY 10038
| ||
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. | ||
| ELECTRONIC DELIVERY OF FUTURE | ||
| PROXY MATERIALS | ||
If you would like to reduce the costs incurred by Internap Network Services the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access | ||
| VOTE BY PHONE - 1-800-690-6903 | ||
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. | ||
| VOTE BY MAIL | ||
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Internap Network Services, | ||
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||||||
KEEP THIS PORTION FOR YOUR RECORDS | ||||||
| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY | |||||
| INTERNAP NETWORK SERVICES CORPORATION | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | ||||||||
| THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 AND 3. | o | o | o | |||||||||
| (1) | To | |||||||||||
| 01) | Kevin L. Ober for a term to expire at the 2013 annual meeting | |||||||||||
| 02) | Gary M. Pfeiffer for a term to expire at the 2013 annual meeting | |||||||||||
| 03) | Michael A. Ruffolo for a term to expire at the 2013 annual meeting | |||||||||||
| 04) | Debora J. Wilson for a term to expire at the 2011 annual meeting | |||||||||||
| Vote on Proposals | For | Against | Abstain | |||||||||
| (2) | To approve an amendment to the Company's Restated Certificate of | |||||||||||
| o | o | |||||||||||
| (3) | To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31, | o | o | |||||||||
| In their discretion, the proxies are authorized to vote upon such other business as properly may come before the annual meeting and any and all adjournments thereof. | |||||||||||||
| This Proxy will be voted in the manner directed by the undersigned stockholder. If this Proxy is returned and no direction is provided by the undersigned stockholder, this Proxy will be voted FOR ALL NOMINEES in Proposal 1, "FOR" Proposal 2 and | "FOR" Proposal 3. | ||||||||||||
| Yes | No | ||||||||||||||||
| Please indicate if you plan to attend this meeting. | o | o | |||||||||||||||
| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | ||||||||||||||
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
| M24528-P90963 | |||
INTERNAP NETWORK SERVICES CORPORATION PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE | |||||||||
| Revocable Proxy | COMMON STOCK | ||||||||
The undersigned hereby appoints George E. Kilguss III and Richard P. Dobb, and each of them, proxies, with full power of substitution, to act for and in the name of the undersigned to vote all shares of common stock of Internap Network Services Corporation (the PROXY SOLICITED BY THE BOARD OF DIRECTORS This proxy card will be voted as directed. If no instructions are specified, this proxy card will be voted The undersigned may elect to withdraw this proxy card at any time prior to its use by: (i) giving written notice to the Corporate Secretary; (ii) executing and delivering to the Corporate Secretary a duly executed proxy card bearing a later date; or (iii) attending at the annual meeting and voting in person. Please mark, date and sign exactly as your name appears on this proxy card. When shares are held jointly, both holders should sign. When signing as attorney, executor, administrator, trustee, guardian, or custodian, please give your full title. If the holder is a corporation or a partnership, the full corporate or partnership name should be signed by a duly authorized officer. PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE (Continued, and to be signed and dated, on the reverse side) | |||||||||