UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(Rule
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(A) of The
Securities
Exchange Act of 1934
Filed by
the Registrant þ
Filed by
a Party other than the Registrant ¨
Check the
appropriate box:
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Preliminary
Proxy Statement
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Definitive
Proxy Statement
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Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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Internap
Network Services Corporation
(Name
of Registrant as Specified in Its Charter)
(Name
of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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Fee
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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Title
of each class of securities to which transaction
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Aggregate
number of securities to which transaction
applies:
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was
determined):
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(4)
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Proposed
maximum aggregate value of
transaction:
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(5)
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was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
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previously paid:
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Party:
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April 29,
2008
Dear
Internap Stockholder:
I am
pleased to invite you to Internap Network Services Corporation’s 2008 annual
meeting of stockholders. This year’s meeting will be held on Thursday,
June 19, 2008, at 10:00 a.m., Eastern Time, at 250 Williams Street,
Atlanta, Georgia 30303. Details of the business to be conducted at the annual
meeting are given in the attached Notice of Annual Meeting and Proxy Statement.
A copy of our 2007 Annual Report to Stockholders is also enclosed.
Whether
or not you plan to attend the annual meeting, we hope you will have your shares
represented by marking, signing, dating, and returning your proxy card in the
enclosed envelope as soon as possible. Your stock will be voted in accordance
with the instructions you have given in your proxy card. If you return your
signed proxy but no voting instructions are given, your shares will be voted for
each of the proposals discussed in the attached Notice of Annual Meeting and
Proxy Statement. If you attend the annual meeting, you may vote your shares in
person even though you have previously signed and returned your proxy card. Even
if you plan to attend the annual meeting, we recommend that you also submit your
proxy and voting instructions so that your vote will be counted if you later
decide not to attend the meeting.
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Very
truly yours,
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James
P. DeBlasio
President
and Chief Executive Officer
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NOTICE
OF THE 2008 ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON JUNE 19, 2008
NOTICE IS
HEREBY GIVEN that the 2008 annual meeting of stockholders of Internap Network
Services Corporation, a Delaware corporation, will be held on Thursday,
June 19, 2008, at 10:00 a.m., Eastern Time, at 250 Williams Street,
Atlanta, Georgia 30303, for the following purposes:
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1.
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To
elect three Directors for a term expiring at the 2011 annual meeting and
one Director for a term expiring at the
2010 annual meeting;
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2.
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To
amend the Certificate of Incorporation;
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3.
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To
increase the number of shares available for issuance pursuant to the
Amended and Restated Internap Network Services Corporation 2005 Incentive
Stock Plan by four million shares;
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4.
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To
ratify the appointment of PricewaterhouseCoopers LLP as the independent
registered public accounting firm for
our fiscal year ending December 31, 2008; and
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5.
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To
transact such other business as may properly come before the annual
meeting or any adjournment or postponement
thereof.
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The
foregoing items of business are more fully described in the proxy statement
accompanying this notice and incorporated by reference herein.
The Board
of Directors has fixed the close of business on April 21, 2008 as the
record date for the determination of holders of our common stock entitled to
notice of, and to vote at, the annual meeting and any adjournment or
postponement thereof. A list of stockholders entitled to vote at the annual
meeting shall be open for the examination of any stockholder, for any purpose
relevant to the annual meeting, during ordinary business hours, for a period of
at least ten days prior to the annual meeting at our principal executive offices
at 250 Williams Street, Suite E-100, Atlanta, Georgia 30303.
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By
order of the Board of Directors,
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Richard
Dobb
Corporate
Secretary
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Atlanta,
Georgia
April 29,
2008
Your
vote is important. Whether or not you expect to attend the annual meeting,
please read the attached proxy statement and then promptly complete, date, sign,
and return the enclosed proxy card in order to ensure your representation 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.
INTERNAP
NETWORK SERVICES CORPORATION
250
Williams Street, Suite E-100
PROXY
STATEMENT
FOR
THE 2008 ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON JUNE 19, 2008
INFORMATION
ABOUT THE ANNUAL MEETING
Our Board
of Directors is soliciting proxies for use at our 2008 annual meeting of
stockholders to be held on Thursday, June 19, 2008, at 10:00 a.m., Eastern
Time, or at any adjournment or postponement thereof. The annual meeting will be
held at 250 Williams Street, Atlanta, Georgia 30303. When used in this proxy
statement, the terms “we,” “us,” “our,” the “Company,” and “Internap” refer to
Internap Network Services Corporation.
A copy of
our 2007 Annual Report to Stockholders accompanies this proxy statement.
Additional copies of the 2007 Annual Report to Stockholders, along with copies
of our 2007 Annual Report on Form 10-K, including financial statements and
financial statement schedules (but not including documents incorporated by
reference) are available to any stockholder without charge upon written request
to:
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Internap
Network Services Corporation
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Attention:
Corporate Secretary
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250
Williams Street, Suite E-100
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Atlanta,
Georgia 30303
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You may
also obtain our 2007 Annual Report on Form 10-K over the Internet at the
Securities and Exchange Commission’s, or SEC’s, website, www.sec.gov, or at our
website, www.internap.com.
This
proxy statement and form of proxy card are first being sent or given to
stockholders on or about May 15, 2008.
GENERAL
INFORMATION ABOUT VOTING
Who
Can Vote
The Board
of Directors has set April 21, 2008 as the record date for the annual
meeting. Only holders of record of our common stock at the close of business on
this date will be entitled to notice of, and to vote at, the annual meeting. As
of the record date, we had outstanding and entitled to vote shares of
common stock. Each holder of record of our common stock on the record date will
be entitled to one vote for each share held on all matters to be voted upon at
the annual meeting.
Matters
Submitted to Stockholders for a Vote
You are
being asked to vote on the following proposals:
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1.
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To
elect three Directors for a term expiring at the 2011 annual meeting and
one Director for a term expiring at
the 2010 annual meeting;
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2.
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To
amend the Certificate of Incorporation;
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3.
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To
increase the number of shares available for issuance pursuant to the
Amended and Restated Internap Network Services Corporation 2005 Incentive
Stock Plan by four million shares;
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4.
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To
ratify the appointment of PricewaterhouseCoopers LLP as the independent
registered public accounting firm
for our fiscal year ending December 31, 2008; and
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5.
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To
transact such other business as may properly come before the annual
meeting or any adjournment or postponement
thereof.
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No
cumulative voting rights are authorized, and dissenters’ rights are not
applicable to any of the matters being voted upon.
Quorum
In order
for us to conduct the annual meeting, we must have a quorum, which means that a
majority of the outstanding shares of our common stock as of the record date
must be present, in person or by proxy, at the meeting.
Vote
Required
Election of Directors.
Stockholders may vote “For” all nominees, “Withhold” their votes as to all
nominees or “Withhold” their votes as to specific nominees. The person receiving
the highest number of votes for election as a Director with a term expiring at
the 2010 annual meeting and the three persons receiving the highest number of
votes for election as a Director with a term expiring at the 2011 annual meeting
will be elected, which is called a “plurality.” Abstentions will be counted in
determining whether a quorum is present but will have no other effect on the
election of Directors.
Amendment to the Certificate of
Incorporation. Stockholders may vote “For” the proposal, “Against” the
proposal or “Abstain.” The vote required to approve the amendment to the
certificate of incorporation is the affirmative vote of a majority of the shares
of our common stock that are issued and outstanding. Abstentions and broker
non-votes will not be voted, although they will be counted in determining
whether a quorum is present. Abstentions will have the same effect as a vote
against the proposal, but broker non-votes will have no effect in determining
the outcome of the vote on this proposal.
Increase the Number of Shares
Available for Issuance Pursuant to the Amended and Restated Internap Network Services
Corporation 2005 Incentive Stock Plan. Stockholders may vote “For” the
proposal, “Against” the proposal or “Abstain.” The vote required to approve the
increase of number of shares available for issuance pursuant to the Amended and
Restated Internap Network Services Corporation 2005 Incentive Stock Plan is the
affirmative vote of a majority of the shares of our common stock present, in
person or by proxy, at the annual meeting. Abstentions and broker non-votes will
not be voted, although they will be counted in determining whether a quorum is
present. Abstentions will have the same effect as a vote against the proposal,
but broker non-votes will have no effect in determining the outcome of the vote
on this proposal.
Ratification of the Auditors.
Stockholders may vote “For” the proposal, “Against” the proposal or “Abstain.”
The vote required to approve the ratification of the appointment of our
independent registered public accounting firm is the affirmative vote of a
majority of the shares of our common stock present, in person or by proxy, at
the annual meeting. Abstentions and broker non-votes will not be voted, although
they will be counted in determining whether a quorum is present. Abstentions
will have the same effect as a vote against the proposal, but broker non-votes
will have no effect in determining the outcome of the vote on this
proposal.
2
Failure
to Vote
If you do
not vote your proxy and your shares are held in street name, your brokerage firm
may either:
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vote
your shares on routine matters; or
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leave
your shares unvoted.
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How
to Vote
You may vote by
mail. You may vote by mail by signing your proxy card and mailing it in
the enclosed envelope. If you mark your voting instructions on the proxy card,
your shares will be voted as you instruct. If you return a signed card but do
not provide voting instructions, your shares will be voted “For” each of the
proposals described in this proxy statement.
You may vote by
the Internet. Detailed instructions on how to vote by the Internet are
set forth below.
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For shares
registered in your name —As a stockholder of record, you may go to
www.proxyvote.com to grant
a proxy to vote your shares via the Internet. You will be required to
provide your number and control number
contained on your proxy card. You will then be asked to complete an
electronic proxy card. The votes represented
by such proxy will be generated on the computer screen, and you will be
prompted to submit or revise
them as desired.
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For shares
registered in the name of a broker or bank —If you hold your shares
through a broker, bank or other
nominee, that institution will send you separate instructions describing
the procedures for voting your shares.
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General
information for all shares voted via the Internet —We must receive
votes submitted via the Internet by
11:59 p.m., Eastern Time, on June 18, 2008. Submitting your proxy via
the Internet will not affect your right to
vote in person should you decide to attend the annual
meeting.
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You may also vote
by phone. You may vote by phone by using a touch-tone telephone and
calling 1-800-690-6903. Have your proxy card in hand when you call and then
follow the instructions.
You may also vote
in person at the annual meeting. Written ballots will be given to anyone
who wants to vote at the annual meeting. If you hold your shares in “street
name,” you will need to obtain a proxy from the broker or bank that holds your
shares in order to vote at the annual meeting.
Revocability
of Proxies
Any
stockholder delivering a proxy has the power to revoke it at any time before it
is voted by:
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giving
written notice to the Corporate Secretary, Internap Network Services
Corporation, at 250 Williams Street,
Suite E-100, Atlanta, Georgia
30303;
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executing
and delivering to the Corporate Secretary a proxy card bearing a later
date; or
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3.
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voting
in person at the annual meeting.
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Cost
of this Proxy
We will bear the entire cost of
solicitation of proxies, including the costs of preparing, assembling, printing,
and mailing this proxy statement, the proxy card and any additional information
furnished to stockholders. We will furnish copies of solicitation
materials to banks, brokerage houses, fiduciaries, and custodians holding in
their names shares of our common stock beneficially owned by others to forward
to such beneficial owners. We may reimburse persons representing beneficial
owners of common stock for their costs of forwarding solicitation materials to
such beneficial owners. We may also solicit proxies by telephone, facsimile or
personal solicitation by our Directors, officers or other regular employees. We
will not pay any additional compensation to Directors, officers or other regular
employees for such services. We have
retained Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902, to
assist us in the solicitation of proxies at an initial anticipated cost of
approximately $10,000 plus reasonable out-of-pocket expenses.
3
Other
Matters that May Come Before the Annual Meeting
Our Board
of Directors knows of no matters other than those referred to in the
accompanying Notice of 2008 Annual Meeting of Stockholders that may properly
come before the annual meeting. If, however, any other matters should be
properly presented for consideration and voting at the annual meeting or any
adjournments or postponements thereof, the accompanying proxy gives
discretionary authority to the persons named as proxies on the proxy card to
vote the shares represented by all valid proxy cards with respect to such other
matters. Those persons intend to vote that proxy in accordance with their best
judgment.
PROPOSAL
1—ELECTION OF DIRECTORS
Under our
certificate of incorporation, as amended, the size of our Board of Directors is
set at no less than five (5) nor more than nine (9) members, with the
specific number set by resolutions of our Board of Directors. The Board is
divided into three classes, with the Directors in each class serving a
three-year term. Our Board of Directors currently consists of eight
members.
The terms
of the three Directors in Class III, Eugene Eidenberg, William Harding and
Daniel Stanzione, will expire at the annual meeting. In addition, the
term of Gary Pfeiffer, a Class II Director, will expire at the annual meeting.
The Board of Directors appointed Mr. Pfeiffer as a Class II Director in August
2007 to fill a vacancy on the Board of Directors. In accordance with
Delaware law and our bylaws, Directors elected 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 to our stockholders for a vote.
Based
upon the recommendation of the Nominations and Governance Committee, the Board
of Directors has nominated each of Dr. Eidenberg, Dr. Harding and
Dr. Stanzione for election as Class III Directors for a term expiring at
the 2011 annual meeting of stockholders and Mr. Pfeiffer for election as a Class
II Director for a term expiring at the 2010 annual meeting of stockholders and
until their successors have been qualified, or until their earlier death,
resignation or removal. Each of the nominees has agreed to serve if elected, and
the Board of Directors has no reason to believe they will be unable to serve. If
any nominee for Director is unable to serve, the persons named in the proxy may
vote for a substitute nominee.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF
DR. EIDENBERG, DR. HARDING AND DR. STANZIONE AS DIRECTORS TO HOLD
OFFICE UNTIL THE 2011 ANNUAL MEETING OF STOCKHOLDERS AND “FOR” THE ELECTION OF
MR. PFEIFFER AS A DIRECTOR TO HOLD OFFICE UNTIL THE 2010 ANNUAL MEETING OF
STOCKHOLDERS.
Set forth
below is information about the Director nominees and about the incumbent
Directors whose terms will expire in 2009 and 2010.
Nominees
for a Term Expiring in 2011 (Class III)
Eugene Eidenberg, 68, has
served as a Director since November 1997 and non-executive chairman of our Board
of Directors since April 2002. From November 1997 until April 2002,
Dr. Eidenberg was the chairman of the Board of Directors. From July 2001
until April 2002, Dr. Eidenberg served as our chief executive officer.
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. He
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 included 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 several private companies. Dr. Eidenberg holds a
Ph.D. and a M.A. degree from Northwestern University and a B.A. degree from the
University of Wisconsin.
William J. Harding, 60, is
currently a Managing Director of VantagePoint Venture Partners since October
2007. Dr. Harding served as a Managing Member of Morgan Stanley
Venture Partners III, LLC since 1997 and a Managing Director of Morgan
Stanley & Co., Inc. from 1999 until October 2007. He joined Morgan
Stanley & Co., Inc. in October 1994. Dr. Harding is currently a
director of Aviza Technology, Inc. and several private companies. Prior to
joining Morgan Stanley, Dr. Harding was a General Partner of several
venture capital partnerships affiliated with J.H. Whitney & Co.
Previously, Dr. Harding was associated with Amdahl Corporation from 1976 to
1985, serving in various technical and business development roles. Prior to
Amdahl, Dr. Harding held several technical positions with Honeywell
Information Systems. Dr. Harding holds a B.S. degree in Engineering
Mathematics and a M.S. degree in Systems Engineering from the University of
Arizona and a Ph.D. in Engineering from Arizona State University.
Dr. Harding also served as an officer in the Military Intelligence Branch
of the United States Army Reserve.
Daniel C.
Stanzione, 62, has served as a Director since October 2004.
Dr. Stanzione retired from Lucent Technologies in 2000 where he served as
Chief Operating Officer and President of Bell Laboratories. At Lucent’s
formation in 1995, Dr. Stanzione was President of Network Systems, Lucent’s
business unit that sold products and services to telecommunication service
providers around the world. Dr. Stanzione is currently a director of
Quest Diagnostics Inc., a public company, and Telecordia, a private company.
Dr. Stanzione is currently a consultant and serves on the Network Advisory
Board at Accenture. Dr. Stanzione holds a B.S. degree in Electrical
Engineering, a M.S. degree in Environmental Systems Engineering and a Ph. D. in
Electrical and Computer Engineering, all from Clemson University.
4
Nominee
for a Term Expiring in 2010 (Class II)
Gary Pfeiffer,
58, joined Delaware-based E. I. du Pont de Nemours and Company, in 1974, where
he held numerous positions in finance and international operations in several
DuPont divisions. He served as Senior Vice President and Chief Financial Officer
of the company from 1997 to 2006. Currently a member of the Board of Directors
of The Talbots, Inc., Mr. Pfeiffer serves as Presiding Director, Chairperson of
the Compensation Committee, and is also a member of the Audit Committee. He also
serves as a Director of Quest Diagnostics, Inc. where he chairs the Audit and
Finance Committee and is a member of the Compensation Committee, Governance
Committee and Executive Committee.
Incumbent
Directors Whose Terms Will Expire in 2010 (Class II)
James
DeBlasio, 52, was
appointed as Internap’s President and Chief Executive Officer in November 2005,
after serving as President and Chief Operating Officer of Internap from
September 2005 until November 2005. Mr. DeBlasio has served as a
Director of Internap 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.
Kevin L. Ober, 47, has served
as a Director of Internap since October 1997 and is a Managing Partner of
Divergent Venture Partners. Mr. Ober currently leads Divergent’s investment in
Plaint Technology. Prior to Divergent, he spent seven years with Vulcan
Ventures, a national venture capital firm owned by Paul Allen, co-founder of
Microsoft Corporation. While with Vulcan, he led investments in Internet
infrastructure companies such as Nexabit Networks, Wavtrace and Net Perceptions,
as well as Internap. Other investments included Command Audio, Capstone Turbine,
Colorado Micro Displays, ShareWave, Terastor, and Netschools. Prior to working
at Vulcan Ventures, Mr. Ober served in various positions at Conner
Peripherals, Inc., a computer hard disk drive manufacturer in San Jose
California. He holds a B.S. degree in Business Administration from St. John’s
University and a M.B.A. degree from Santa Clara University.
Incumbent
Directors Whose Terms Will Expire in 2009 (Class I)
Charles B.
Coe, 60, has served as a Director since July 2003. Mr. Coe is a
28-year veteran of the telecommunications industry, including 15 years with
BellSouth. During his tenure at BellSouth, he served as President of
BellSouth Network Services, President of BellSouth Telecommunications, President
of BellSouth International, and Group President of Customer Operations for
BellSouth Telecommunications. Previously, Mr. Coe had served in
various management positions with AT&T Communications and American
Telesystems Corporation. Mr. Cole is currently a director of Dycom
Industries, Inc. Mr. Coe holds a M.B.A. degree from Georgia State
University and a B.S. degree from The Citadel.
Patricia L. Higgins, 58, has
served as a Director since December 2004. Ms. Higgins has nearly 30
years of experience in the telecommunications
industry. Ms. Higgins is the former President, CEO, and a
Board member of Switch & Data Facilities Company, Inc., a leading
provider of neutral interconnection and collocation services. Until 2000,
Ms. Higgins served as Chairman and CEO of The Research Board, a premier
consulting and research services company for information technology. Prior to
1999, Ms. Higgins was the CIO of Alcoa Inc. and also held senior management
positions at UNISYS Corporation, Verizon (NYNEX) and AT&T Inc.
Ms. Higgins currently serves on the Board of Directors of The Travelers
Companies, Inc., Visteon Corporation and Barnes and Noble, Inc. Ms. Higgins
holds a B.A. degree from Montclair State University and attended Harvard
Business School’s Advanced Management Program.
Family
Relationships
No family
relationships exist among any of our Directors or executive
officers.
Agreements
to Elect Directors
No
agreements exist to elect any of our Directors.
5
CORPORATE
GOVERNANCE
Board
of Directors’ Committees and Meetings
The Board
of Directors conducts its business through meetings and it may take action by
unanimous written consent of the full Board, but only in rare instances
following fulsome consideration and discussion of the issues presented, and
through three standing committees of the Board, which are an Audit Committee, a
Compensation Committee and a Nominations and Governance Committee. The Board of
Directors has adopted a charter for each of these committees that can be found
on our website at www.internap.com.
During
the fiscal year ended December 31, 2007, the Board of Directors held nine
meetings, the Audit Committee held 11 meetings, the Compensation Committee held
nine meetings, and the Nominations and Governance Committee held six meetings.
During the fiscal year ended December 31, 2007, each member of our Board of
Directors attended at least 75% of the meetings of the Board of Directors and of
the committees on which he or she served that were held during the period for
which he or she was a Director or committee member.
We have
not adopted a formal policy regarding Director attendance at our annual
meetings. We, however, strongly encourage all Directors to attend the annual
meeting. Each of our Directors, who was a Director at the time of our
2007 annual meeting, was in attendance at the 2007 annual meeting of
stockholders.
The Board of Directors has
affirmatively determined that each current non-employee Director is an
“independent director” as that term is defined under NASDAQ rules and
regulations. Mr. DeBlasio, the President and Chief Executive Officer,
is not an independent Director because of his employment by the Company.
Mr. DeBlasio does not participate in any action of the Board or the
Compensation Committee related to his compensation.
Audit Committee. The Audit
Committee is composed of Dr. Harding, Ms. Higgins, Mr. Ober, and
Mr. Pfeiffer. Ms. Higgins is the Chair of the Audit Committee. The Audit
Committee is responsible for, among other things:
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directly
appointing our independent registered public
accountants;
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discussing
with our independent registered public accountants their independence from
management;
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reviewing
with our independent registered public accountants the scope and results
of their audit;
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approving
all audit services and pre-approving all permissible non-audit services to
be performed by the
independent registered public
accountants;
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overseeing
the financial reporting process and discussing with management and our
independent registered public
accountants the interim and annual financial statements that we file with
the SEC; and
|
|
•
|
reviewing
and monitoring our accounting principles, policies and financial and
accounting controls.
|
All
committee members are independent as defined in applicable NASDAQ rules. The
Board of Directors has determined that Ms. Higgins, the current committee
Chair, qualifies as an audit committee financial expert within the meaning of
NASDAQ rules and regulations.
Compensation Committee. The
Compensation Committee consists of Mr. Coe, Ms. Higgins, Mr. Pfeiffer,
and Dr. Stanzione. Mr. Harman was a member of the Compensation Committee
prior to his resignation on March 15, 2007. Mr. Coe currently serves
as Chair of the Compensation Committee. The Compensation Committee reviews and
recommends to the Board the compensation and benefits of all our officers and
establishes and reviews general policies relating to compensation and benefits
for our employees. All committee members are independent as defined in
applicable NASDAQ rules.
Nominations and Governance
Committee. The Nominations and Governance Committee consists of Doctors
Stanzione and Eidenberg, Mr. Coe, and Ms. Higgins. Dr. Stanzione
currently serves as Chair of the Nominations and Governance Committee. The
Nominations and Governance Committee is responsible for assisting the Board of
Directors in identifying and attracting highly qualified individuals to serve as
Directors and selecting Director nominees and recommending them to the Board for
election at annual meetings of stockholders. Each member of the Nominations and
Governance Committee is independent as defined in applicable NASDAQ rules. The
Nominations and Governance Committee is also responsible for monitoring
significant developments in the regulation and practice of corporate governance
and the duties and responsibilities of directors generally, evaluating and
administering the Corporate Governance Guidelines of the Company and
recommending changes to the Board and periodically reviewing the Company’s
governance structure.
Selection
of Director Nominees
General Criteria and Process.
The policy of the Nominations and Governance Committee is to consider candidates
for Board membership received by Nominations and Governance Committee members,
other Board members, management, the Company’s stockholders, third party search
firms, and any other appropriate sources. In identifying and evaluating Director
candidates, 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 Director
candidates and has sole authority to select the search firm and approve the
terms and fees of any Director search engagement.
6
In
addition, stockholders may nominate Directors 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’ Proposals for 2009 Annual Meeting” section 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 of record and entitled to vote at
the annual meeting. The stockholder also must provide timely notice of the
proposal to us. 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.
As of
December 31, 2007, the Nominations and Governance Committee had not
received a recommended nominee from any stockholder or group of stockholders
that beneficially owned more than 5% of our common stock for at least one year
as of the date of the
recommendation.
Compensation
of Directors
We
discuss the compensation of our Directors in the section “Compensation
Discussion and Analysis.”
Stockholder
Communications with the Board of Directors
The Board
of Directors has a policy and process to facilitate stockholder communications
with Directors. Stockholders who wish to communicate directly with the Board of
Directors may do so by writing to Internap Network Services Corporation, 250
Williams Street, Suite E-100, Atlanta, Georgia 30303, Attn: Corporate Secretary
or by sending electronic mail to boardofdirectors@internap.com.
The
Corporate Secretary will forward all communications received without reviewing
or editing them. 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 regarding his or her response.
SECURITY
OWNERSHIP OF
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth the beneficial ownership of shares of common stock as
of March 25, 2008 for:
|
•
|
our
Directors and Director nominees;
|
|
|
•
|
our
principal executive officer, our principal accounting officer, our three
most highly compensated named executive
officers other than the principal executive officer and principal
accounting officer as of December 31,
2007, and one individual who would have been the principal financial
officer had he been an executive officer
as of December 31, 2007;
|
|
|
•
|
our
Directors, Director nominees and executive officers as a group;
and
|
|
|
•
|
each
stockholder who holds more than a 5% interest in our outstanding common
stock.
|
Unless
otherwise indicated in the footnotes, all of such interests are owned directly
and the indicated person or entity has sole voting and disposition
power.
Beneficial
ownership is determined in accordance with the rules of the SEC. In computing
the number of shares beneficially owned by a person and the percentage of
ownership held by that person, shares of common stock subject to options and
warrants held by that person that are currently exercisable or will become
exercisable within 60 days after March 25, 2008 are deemed outstanding,
while these shares are not deemed outstanding for computing percentage ownership
of any other person.
7
The
percentage of common stock beneficially owned is based on 50,249,871 shares of
our common stock outstanding at March 25, 2008.
The
address for those individuals for which an address is not otherwise indicated
is: c/o Internap Network Services Corporation, 250 Williams Street, 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%
|
|
* Less
than 1%.
|
(1)
|
Consists
of 3,980 shares of restricted common stock awarded on March 20, 2008 that
vest in 16 quarterly installments, 7,500 shares
of restricted common stock awarded on March 15, 2007 that vest in 16
quarterly installments, 10,000 shares of restricted common
stock awarded on February 27, 2006 of which 12.5% vest every six months,
and options to purchase 15,271 shares of common
stock that are vested and exercisable or that will vest within 60
days.
|
|
(2)
|
Mr.
Buckel resigned his position as Vice President and Chief Financial Officer
on November 19, 2007.
|
|
Consists
of 15,000 shares of common stock, 2,500 shares of restricted common stock
awarded on June 22, 2007 one-third
of which vest on each of the first, second and third anniversary of the
grant date, provided Mr. Coe is a Director of
the Company on such date, and options to purchase 36,000 shares of
common stock that are vested
and exercisable.
|
|
|
(4)
|
Consists
of: (i) 5,000 shares purchased in the open market; (ii) 100,000 shares of
restricted stock of which 50,000 vested on September
30, 2006 and 17,325 shares were withheld to cover taxes, 16,667 vested on
September 30, 2007 with 16,667 shares to
vest on September 30, 2008 and 16,666 shares to vest on September 30,
2009, provided that Mr. DeBlasio is employed by the Company on such
vesting dates. Thus far, Mr. DeBlasio has sold 27,000 shares in
accordance with his 10b-5 plan; (iii) 125,000 shares
of restricted stock that vest in a series of 16 quarterly installments at
the end of each calendar quarter beginning with the second
quarter of 2007 provided that Mr. DeBlasio is employed by the Company
at the end of such quarter; (iv) 149,776 shares of restricted common stock
awarded on March 20, 2008, half of which are
time-based and half are performance-based vesting. The
time-based portion vests in 16 equal quarterly installments. The
performance-based portion vests in increments of one-third beginning on
the first anniversary of the grant date if the Company achieves revenue
and EBITDA levels established by the Board.
The Company will either meet or not meet both goals in a given year. With
respect to all shares of performance-based restricted stock
that do not vest during any of the three years, 50% of such shares will
vest on the fourth anniversary of the date of
the grant. The vesting of any restricted stock (including both time-based
and performance-based) is subject to Mr. DeBlasio being
an employee in good standing on the date of vesting; (v) 4,372 shares
awarded on March 15, 2008; and (vi) and options to purchase 341,500 shares
of common stock that are vested and exercisable or that will vest within
60 days.
|
|
(5)
|
Consists
of 30,000 shares of restricted common stock awarded on April 23, 2007 and
25% of the award vests on the anniversary of
grant, provided that Mr. Dobb is employed by the Company on that date,
1,628 shares awarded on March 15, 2008 that are fully
vested, and 34,607 shares of restricted common stock awarded on March 20,
2008, half of which are time-based and half are performance-based vesting.
The time-based portion vests in 16 equal quarterly installments. The
performance-based portion vests in increments of one-third beginning on
the first anniversary of the grant date if the Company achieves revenue
and EBITDA
levels established by the Board. The Company will either meet or not meet
both goals in a given year. With respect to
all shares of performance-based restricted stock that do not
vest during any of the three years, 50% of such shares will vest
on
the fourth anniversary of the date of the grant. The vesting of any
restricted stock (including both time-based and performance-based)
is subject to Mr. Dobb being an employee in good standing on the date of
vesting.
|
|
(6)
|
Consists
of the 2,500 shares of restricted common stock awarded on June 22, 2007
one-third of which vest on each of the first, second and third anniversary
of the grant date, provided Dr. Eidenberg is a Director of the Company on
such date, 236 shares of common stock held by Mr. Eidenberg,
45,556 shares of common stock held by Mr. Eidenberg, as trustee of the
Eugene Eidenberg Trust dated 9/97, 2,799 shares
of common stock held by Eugene Eidenberg, as trustee of the Anna M. Chavez
Educational Trust, 40,000 shares of common
stock held by the Eugene Eidenberg Grantor Retained Annuity Trust, 8,566
shares held by Anna M. Chavez, and options
to purchase 142,999 shares of common stock that are vested and
exercisable.
|
8
|
(7)
|
As
of December 31, 2007. The address of Franklin Resources, Inc. is One
Franklin Parkway, San Mateo, California 94403.
|
|
(8)
|
Dr.
Harding retired from Morgan Stanley Venture Partners III, LLC and Morgan
Stanley & Co., Inc. in 2007. He assigned all of
his
equity compensation received while serving on our Board of Directors to
Morgan Stanley, which consists of 2,500 shares of restricted
common stock and options to purchase 27,000 shares of common stock that
are vested and exercisable. Dr. Harding disclaims
beneficial ownership in all such shares. Because Dr. Harding has retired
from Morgan Stanley, such shares are
excluded from the table above.
|
|
(9)
|
Consists
of 4,729 shares of common stock, 2,500 shares of restricted common stock
awarded on June 22, 2007 one-third
of which vest on each of the first, second and third anniversary of the
grant date, provided Ms. Higgins is a Director of
the Company on such date, and options to purchase 34,000 shares of common
stock that are vested and exercisable.
|
|
(10)
|
As
of January 4, 2008. The address is 3000 Sand Hill Road,
Building 3, Suite 240, Menlo Park, California
94025.
|
|
(11)
|
Consists
of 329,321 shares owned by Mr. Kaplan’s family trust, options to purchase
74,493 shares of common stock that are vested
and exercisable or that will vest within 60 days and 34,048 shares of
restricted common stock awarded on March 20, 2008,
half of which are time-based and half are performance-based vesting. The
time-based portion vests in 16 equal quarterly installments. The
performance-based portion vests in increments of one-third beginning on
the first anniversary of the grant date
if the Company achieves revenue and EBITDA levels established by the
Board. The Company will either meet or not meet both
goals in a given year. With respect to all shares of performance-based
restricted stock that do not vest during any of the
three
years, 50% of such shares will vest on the fourth anniversary of the date
of the grant. The vesting of any restricted stock
(including both time-based and performance-based) is subject to Mr. Kaplan
being an employee in good standing on the date
of vesting.
|
|
(12)
|
As
of December 31, 2007. The address is 5420 West 61st Place, Shawnee
Mission, Kansas 66205.
|
|
(13)
|
Consists
of 125,000 shares of restricted common stock awarded on April 24, 2007 of
which 25% of the award vests on the anniversary
of grant, provided that Mr. Molinaro is employed by the Company on that
date and 69,771 shares of restricted common
stock awarded on March 20, 2008, half of which are time-based and half are
performance-based vesting. The time-based portion vests in 16 equal
quarterly installments. The performance-based portion vests in increments
of one-third beginning on
the first anniversary of the grant date if the Company achieves revenue
and EBITDA levels established by the Board. The Company
will either meet or not meet both goals in a given year. With respect to
all shares of performance-based restricted stock
that do not vest during any of the three years, 50% of such shares will
vest on the fourth anniversary of the date of the grant. The
vesting of any restricted stock (including both time-based and
performance-based) is subject to Mr. Molinaro being an employee
in good standing on the date of vesting. Mr. Molinaro resigned
his position as Chief Operating Officer on April 7, 2008 and plans to
remain an employee through June 30, 2008.
|
|
(14)
|
Consists
of 2,500 shares of restricted common stock awarded on June 22, 2007
one-third of which vest on each of the first, second
and third anniversary of the grant date, provided Mr. Ober is a Director
of the Company on such date, and options to purchase
21,000 shares of common stock that are vested and
exercisable.
|
|
(15)
|
Consists
of 12,500 shares of restricted common stock awarded on August 21, 2007
one-third of which vest on each of the first, second
and third anniversary of the grant date, provided Mr. Pfeiffer is a
Director of the Company on such date.
|
|
(16)
|
Consists
of 9,000 shares purchased in the open market, 2,500 shares of restricted
common stock awarded on June 22, 2007 one-third
of which vest on each of the first, second and third anniversary of the
grant date, provided Dr. Stanzione is a Director
of the Company on such date, and options to purchase 34,000 shares of
common stock that are vested and
exercisable.
|
Executive
Officers
In
addition to Mr. DeBlasio, our President and Chief Executive Officer, whose
biographical information appears under “Proposal 1—Election of Directors,” set
forth below are each of our named executive officers and their ages as of
December 31, 2007.
|
Name
|
|
Age
|
|
Position
|
|
James
P. DeBlasio
|
|
52
|
|
President
and Chief Executive Officer
|
|
Tamara
Augustyn
|
|
38
|
|
Vice
President and Principal Accounting Officer
|
|
David
A. Buckel
|
|
45
|
|
Vice
President and Chief Financial Officer (1)
|
|
Richard
Dobb
|
|
53
|
|
Vice
President and General Counsel
|
|
Phil
Kaplan
|
|
41
|
|
Chief
Strategy Officer
|
|
Vince
Molinaro
|
|
44
|
|
Chief
Operating Officer (2)
|
|
(1)
|
Mr.
Buckel resigned his position as Vice President and Chief Financial Officer
on November 19, 2007.
|
|
(2)
|
Mr.
Molinaro resigned his position as Chief Operating Officer on April 7,
2008.
|
Tamara Augustyn assumed the
role of the Company’s Principal Accounting Officer effective as of November 19,
2007 in addition to serving as Vice President, Finance and Chief Accountant
since January 2007. Ms. Augustyn served as the Company’s Corporate
Controller and Chief Accountant from August 2006 to January 2007, and prior to
that time, as the Company’s Operational Controller since June 2004. Before she
joined the Company in June 2004, Ms. Augustyn held a number of positions with
American Tower Corporation from June 1999 to January 2004, most recently as the
Director of Finance for one of its wholly-owned subsidiaries, Galaxy Engineering
Services, which was acquired by Incode Telecom Group in August of
2003. Ms. Augustyn worked in Internal Audit at Fluor Corporation from
1997 to 1999 and began her career in the audit department of Dixon Hughes
PLLC. Ms. Augustyn has a B.S. degree in Business from Wake Forest
University and is a certified public accountant.
9
David A. Buckel served as the
Company’s Vice President and Chief Financial Officer from May 2004 to November
2007, after serving as Financial Vice President from October 2003 until May
2004. Mr. Buckel also previously served as an Investor Relations
consultant with the Company from July 2003 until October 2003. From November
2002 to July 2003, he served as Senior Manager and President of AJC
Finance & Market Group, a financial consulting firm. Prior to that,
Mr. Buckel was Senior Vice President and Chief Financial Officer
for two NASDAQ-listed companies, Web.com, which was formerly known as Interland
Corporation, a provider of applications and web hosting and consulting
services from March 2001 through November 2002, and Applied Theory
Corporation, a provider of hosting, software development and Internet
connectivity products, from July 1995 through March 2001. Mr. Buckel, a
Certified Management Accountant, holds a B.S. degree in Accounting from
Canisius College and a M.B.A. degree in Finance and Operations Management from
Syracuse University.
Richard Dobb has served as
Vice President, General Counsel and Secretary of the Company since April
2007. Prior to joining the Company, Mr. Dobb served as Chief Legal
Officer and Corporate Secretary for S1 Corporation from 2001 -
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, as Chief Legal Officer of
the Georgia Institute of Technology. Additionally, he was a member of the
corporate finance practice at King & Spalding. Mr. Dobb
holds a B.A. from Rutgers University and J.D from the Emory University School of
Law.
Philip N. Kaplan has served
as Chief Strategy Officer of the Company since February 2007 when the Company
acquired VitalStream Holdings, Inc., or VitalStream. He served as
president of VitalStream since November 2004, as chief operating officer and a
director of VitalStream since April 2002, and as Secretary of VitalStream from
April 2002 until November 2004. Mr. Kaplan served as chief operating officer,
secretary and a director of VitalStream, Inc. since its inception in March 2000,
which merged with VitalStream in 2002. Mr. Kaplan was also co-founder of
AnaServe, Inc. where he held the position of senior vice president, secretary
and treasurer from its formation in 1995 until its acquisition by Concentric
Network Corporation in August 1998. Mr. Kaplan remained employed by Concentric
until April 1999. Mr. Kaplan received a Bachelor of Arts degree in Economics
with a minor in Russian language from the University of California,
Davis.
Vincent J. Molinaro served as
the Company’s Chief Operating Officer from April 2007 to April 7, 2008. From
December 2006 to April 2007, Mr. Molinaro served as president of the Europe
& North Region for Alcatel-Lucent. From July 2005 to December 2006, Mr.
Molinaro served as president of North America Region for Lucent Technologies and
led the sales, technical support and delivery teams to grow the company’s
service provider business and extend its legacy products into next-generation
enterprise solutions. Additionally, from December 1994 to July 2000, Mr.
Molinaro lived in the Netherlands serving as vice president and chief operating
officer of Lucent’s Europe, Middle East & Africa Regions. In that position,
he oversaw all marketing, sales, service, support, and program management for
Internet and telecommunications companies throughout the region. He was also an
executive in the Data Networking Systems Group and the Applications Software
Business Unit. Mr. Molinaro joined AT&T Bell Laboratories as a member of the
technical staff in 1988, and then transferred to AT&T Network Systems two
years later. During his tenure with AT&T he held many global roles ranging
from systems engineering and product management to marketing and business
development. Mr. Molinaro holds a Bachelor of Science degree in
Biomedical Engineering from Boston University and a Master of Science in
Electrical Engineering from the University of Bridgeport.
Compensation
Discussion and Analysis
Introduction
In this
section, we discuss certain aspects of our compensation 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 among the three most highly compensated
executive officers had he been an executive officer as of December 31, 2007. We
refer to these individuals as the “named executive officers.” Our discussion
focuses on compensation and practices relating to 2007, our most recently
completed fiscal year, and includes relevant actions we have taken thus far in
2008 that affect the compensation of our named executive officers.
We
believe that the individual performance of our 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.
This
Compensation Discussion and Analysis will outline our compensation philosophy,
the administration of our policies, our use of consultants, and provide a
detailed description of how and why we paid each element of the compensation
plan to our named executive officers.
10
Philosophy
Our
executive compensation program is designed to: (1) attract, motivate,
reward, and retain high quality executives necessary for our leadership;
(2) ensure that compensation provided to executive officers is closely
aligned with our short and long-term business objectives, financial performance
and strategic goals; (3) build a strong link between an individual’s
performance and his or her related paid compensation; and (4) further align
the interests of management with our stockholders by providing equity
incentive compensation. Our executive compensation practices are intended to
provide each executive a total annual compensation that is commensurate with the
executive’s responsibilities, experience and demonstrated performance and are
intended to be competitive with a select group of peer companies, as well as a
larger group of other technology companies.
The
Company is in an industry characterized by intense competition, rapid
technological change and the introduction of new products and services.
Successful companies in this industry are those that achieve growth in this
environment. Our compensation program reflects our commitment to
growth and increasing stockholder value by providing for bonuses and equity
awards only when the Company has achieved certain levels of
growth. For example, the bonuses received by our named executive
officers in 2007 for performance in 2006 were the first such bonuses awarded by
the Company and coincided with the Company’s unprecedented financial
performance.
Determination
Process
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. 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.
The
Committee’s charter, which is available on our website, mandates that the
Committee annually review each named executive officer’s compensation package.
The Committee considers: (1) the extent to which we attained specified
corporate objectives for the preceding year; (2) the extent to which the
named executive officer attained his or her individual objectives for the
preceding year; (3) the recommendations of the Chief Executive Officer with
respect to compensation of the other named executive officers; (4) the
experience and contribution levels of the named executive officer;
(5) internal pay equity; and (6) benchmarking the total compensation
levels of executive officers in similar positions in companies in a select group
of peer companies, as well as a larger group of other technology companies,
through surveys conducted by independent compensation consultants.
The
Committee approves the total compensation, including base salary adjustments,
cash bonus and long-term incentive awards, of the named executive officers,
other than 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’s performance and recommends a compensation package,
including base salary adjustments, cash bonus and long-term incentive awards, to
the Board of Directors for its review, discussion and approval. A majority of
the independent Directors of the full Board of Directors must approve the
compensation of our Chief Executive Officer.
The
Committee typically makes changes to our named executive officers’ base salaries
in December of each year, but made such adjustments to base salaries for 2007 in
January of 2007. The Committee typically determines bonus awards in
March after financial results for the preceding year are
available. The Committee also determines the long-term incentives in
March during its prescheduled meeting.
Use
of Consultants
We
recognize that competitive compensation is critical for attracting, motivating
and rewarding qualified executives. To ensure our named executive officers are
compensated appropriately, the Committee retained the services of Aon
Consulting, or Aon, an independent compensation consultant, to identify
appropriate compensation levels and compensation program design
features. Aon assisted the Committee in identifying and establishing
median total compensation goals and assisted in general oversight of our
executive compensation program. This oversight includes helping the Committee
evaluate compensation practices and assisting the Committee with developing and
implementing our executive compensation program and philosophy. The Committee
used information provided by Aon when approving or recommending compensation
levels, but does not delegate authority to set compensation to Aon or to any
other party.
At the
Committee’s direction to ensure independence, neither Aon nor any of its
affiliates or subsidiaries provided any other services to the
Company.
11
Compensation
for 2007
In
September 2006, Aon conducted a review of labor market salary levels for top
executives in similar sized companies and similar industries using published
compensation surveys and a selected peer group of companies. Aon provided a
preliminary list of potential peer companies using publicly available databases
and screening on relevant industry categories. The Committee reviewed
this preliminary list and considered the similarities of products and services
offered, revenue size, market capitalization, and number of employees, as well
as revenue growth and profitability. Based on this review, the Committee
determined that the following companies would constitute the peer group: Akamai
Technologies Inc., Arbinet-Thexchange Inc., Cbeyond Communications Inc., Cogent
Communications Group, Covad Communications Group, Equinix Inc., Globix Corp.,
Infospace Inc., Internet Security Systems Inc., Ipass Inc., ITC Deltacom Inc.,
Navisite Inc., Savvis Inc., Terremark Worldwide Inc., and VitalStream Holdings,
Inc. The peer group companies are Internet infrastructure companies, as well as
a larger group of similarly situated and sized technology companies, but these
companies are not necessarily dispositive of the companies we consider in all
comparative analyses. While the these peer companies differed in relative
revenue size, Aon used regression analysis of its database to factor in size
differences and to calculate actual and expected compensation for executives
relative to net sales and completed an analysis that linked the peer group
executive regression data, the published survey data and the Company’s internal
hierarchy. Aon matched our executive positions to published compensation survey
data for similarly sized companies. These surveys are generally broad in scope
and incorporate the comparison data from hundreds of respondent companies. The
survey sources on which Aon relied included Aon’s Radford Technology
Compensation Surveys and surveys from other well-known sources, including
William M. Mercer and Watson Wyatt. Data utilized represented companies of
similar size, industry and scope to us, with revenues generally less than $200
million.
Aon
conducted a regression analysis using the peer group database to calculate
actual and expected compensation for chief executive officers relative to 2005
net sales and completed an analysis that linked the peer group chief executive
officer regression data, the published survey data and our internal hierarchy.
This analysis compared relative values from published surveys of positions below
the chief executive officer by creating a published survey index to the chief
executive officer. Aon set the chief executive officer index at 100% and the
indices for positions below the chief executive officer are calculated by
dividing the published survey median results for each position by the published
median for the chief executive officer’s compensation. These indices were
applied to calculate expected compensation levels for the positions below the
chief executive officer.
For base
salaries, the Committee focused on the published survey data results because the
Committee viewed those results as more indicative of the labor market since the
published survey data sources covered many more companies. For total cash
compensation, which is salary plus bonus and total direct compensation, which is
total cash plus the present value of stock or other long-term compensation, the
Committee focused on the peer group regression results because those companies
are growth companies and better represented the labor market on these elements
of compensation.
Aon
identified the market median salary for each of our named executive officers.
Based on that median, we concluded that the base salaries of our named executive
officers were between 94% and 112% of the published surveys’ market median
salary for each position. We also concluded that our named executive officers
had total cash compensation that ranged from 105% to 139% of expected total cash
compensation from the peer group regressions, and total direct compensation that
ranged from 85% to 151% of the expected total direct compensation from the peer
group regressions.
The
overall results of the Aon engagement provided the foundation for our actions
involving executive compensation in 2007.
Compensation
for 2008
To assist
with its decisions for executive compensation for 2008, the Committee asked Aon
to conduct a review of the competitiveness of Internap’s executive compensation
program for its top executives and to compare Internap’s executive compensation
to published surveys and a mutually selected peer
group. Aon presented the results of this review in August
of 2007 and formed the foundation for our actions related to executive
compensation in 2008.
Aon
utilized published surveys and a selected peer group of similar companies to
Internap. Aon developed key findings from an analysis of competitive
compensation data and its review of reports and documents provided by the
Company. Aon compared the Company’s top executive positions to the
executives listed in the proxy statement of each of the selected peer
companies. The Committee, with Aon’s advice, selected the peer
companies. Aon then matched the Company’s executive positions to
published compensation survey data for similarly sized companies. The
surveys are generally broad in scope and incorporate the compensation data from
hundreds of respondent companies. Aon aged this salary information to
October 1, 2007 at a 3.5% annualized increase rate, which was based on actual
2006 and projected 2007 median merit salary increase rates for technology
companies. The surveys Aon used were:
●
The 2005 Radford Executive Compensation Survey, Telecommunications
Products/Services with revenues from $200 million to $1 billion;
● The
2006 William M. Mercer Executive Compensation Report, All Organizations with
revenues less than $500 million; and
● The
2006 Watson Wyatt Industry Report on Top Management Compensation, All
Organizations with revenues from $150 million to $750 million.
Aon then
evaluated the Company’s compensation components and total compensation levels,
including base salary and annual and long-term incentives, for the positions
matched to the survey sources. Aon also developed a database of
compensation and financial information for the Company and the peer
group. The peer group consisted of the following companies: Akamai
Technologies Inc., Cbeyond Communications Inc., Cogent Communications Group,
Covad Communications Group, Equinix Inc., Infospace Inc., ITC Deltacom Inc.,
Limelight Networks Inc., Navisite Inc., Neustar Inc., Premier Global Services,
Radiant Systems Inc., Savvis Inc., Switch & Data Facilities Co., and
Terremark Worldwide Inc.
12
The
following companies were included as peers in Aon’s 2006 analysis, but were not
included as peers in this 2007 analysis: Arbinet-Thexchange Inc., Globix Corp.,
Internet Security Systems Inc., Ipass Inc., and VitalStream Holdings,
Inc. The Committee did not include Globix because it underwent
business changes and portions were acquired. Similarly, the Committee
did not include Internet Security Systems Inc. or VitalStream Holdings, Inc.
because both were acquired. The following companies were not included
as peers in the 2006 analysis, but were peers in this 2007 analysis: Infospace
Inc., Limelight Networks Inc., Neustar Inc., Premier Global Services, Radiant
Systems Inc., and Switch & Data Facilities Co. The Committee did
not include Limelight in its 2006 analysis because it was not publicly
traded. It added Infospace, Neustar, Premier, Radiant, and Switch
& Data this year because those companies are succeeding in areas we expect
to grow. The Committee did not include Arbinet-Thexchange Inc. and Ipass Inc.
because it concluded that the newly included companies were more relevant
peers.
Aon then
conducted regression analyses using the peer group database to calculate actual
and expected CEO compensation. Aon completed an Executive Value Index analysis
that linked peer group CEO regression data, the published survey data and the
Company’s internal hierarchy. This analysis compared relative values
from published surveys of positions below the CEO by creating a published survey
index to CEO. The CEO index is set at 100% and the indices for
positions below the CEO are calculated by dividing the published survey results
for each position by the published survey median for the CEO’s compensation.
This approach is particularly accurate in measuring job values based on the
duties and responsibilities of each job, rather than a ranking of by salary
only.
Aon also
identified the prevalence of performance-based long-term incentive grants for
the peer companies. Aon evaluated stock compensation dilution levels
for the peer companies to identify competitive annual stock compensation grants
and total stock compensation shares outstanding and available for grant relative
to total shares issued and outstanding.
Aon then
developed recommended target compensation levels for certain executives,
including target base salaries, bonus opportunity ranges and long-term incentive
award ranges.
Based on
the published survey data, Aon concluded that the Company’s base salaries for
these executives were 103.7% of the median survey data and 87.2% of the 75th
percentile survey data. Based on the trended peer group analysis, which was
unadjusted for differences in net sales size, Aon concluded that the Company’s
base salaries for these executives was 98.7% of the median survey data and 88.7%
of the 75th
percentile survey data.
Executive
Compensation Program Overview
The three
primary components of our executive compensation program are:
|
•
|
Base
salary;
|
|
•
|
Annual
cash incentives; and
|
|
•
|
Long-term
equity incentives, which consist of stock options and restricted
stock.
|
We strive
to provide sufficiently competitive levels of base salary and annual and
long-term incentive opportunities in order to attract and retain the talent
needed to ensure continued operational and financial success, high quality
customer service and creation of sustained stockholder value. To this
end, we target each element to the median of our peer group and the broader
published survey pay data for similar sized companies in the technology
industry, which reflects the Committee’s commitment to pay for performance. When
the Company’s performance exceeds established benchmarks, the compensation of
our named executive officers will exceed this median.
We
believe that the compensation of our named executive officers should be
predominately performance-based because these individuals have the greatest
ability to influence our performance. To that end, our compensation practices
provide ong-term award opportunities to reflect the strategic roles of our named
executive officers in leading us toward long-term growth, increasing
profitability and stockholder value creation. Accordingly, the
Committee does not target a particular mix of compensation elements and the
amounts awarded or paid pursuant to each element do not affect decisions
regarding the other elements.
A
description of these three components and related programs follows.
13
Executive
Summary
The total
compensation of our President and Chief Executive Officer, Jim DeBlasio, was
$1,750,408, which consisted of base salary of $425,000, awards of
restricted stock of $524,831, awards of stock options of $435,452, and a bonus
of $337,663 of which $297,500 was paid in cash and $40,163 was paid in shares of
common stock. The cash component of Mr. DeBlasio’s compensation
equals approximately 41% of his total compensation and the equity component of
his compensation equals approximately 59% of his total
compensation.
The total
compensation of our former Chief Financial Officer, David Buckel, was $750,248,
which consisted of salary of $240,333, which is a prorated amount of his base
salary of $260,000 for the portion of the year he was employed by the Company,
awards of restricted stock of $222,204 and awards of stock options of
$287,711. The cash component of Mr. Buckel’s compensation equals
approximately 32% of his total compensation and the equity component of his
compensation equals approximately 68% of his total compensation.
The total
compensation of our Chief Operating Officer, Vincent Molinaro, was $661,336,
which consisted of salary of $247,917, which is a prorated amount of his base
salary of $350,000 for the portion of the year he was employed by the Company, a
portion of his signing bonus of $13,333, awards of restricted stock of $325,086,
and a cash bonus of $75,000. The cash component of Mr. Molinaro’s
compensation equals approximately 51% of his total compensation and the equity
component of his compensation equals approximately 49% of his total
compensation.
The total
compensation of our Vice President and General Counsel, Richard Dobb, was
$381,363, which consisted of salary of $180,000, which is a prorated amount of
his base salary of $240,000 for the portion of the year he was employed by the
Company, awards of restricted stock of $78,783 and a bonus of $122,580 of which
$108,000 was paid in cash and $14,180 was paid in shares of common
stock. The cash component of Mr. Dobb’s compensation equals
approximately 76% of his total compensation and the equity component of his
compensation equals approximately 24% of his total compensation.
The total
compensation of our Vice President and Chief Strategy Officer, Phil Kaplan, was
$726,137, which consisted of base salary of $230,808, which is a prorated amount
of his base salary of $235,000 for the portion of the year he was employed by
the Company, awards of stock options of $396,641 and a bonus of $98,688 of which
$87,000 was paid in cash and $11,688 was paid in shares of common
stock. The cash component of Mr. Kaplan’s compensation equals
approximately 44% of his total compensation and the equity component of his
compensation equals approximately 56% of his total compensation.
The total
compensation of our Vice President and Principal Accounting Officer, Tamara
Augustyn, was $347,428, which consisted of base salary of $172,500 awards of
restricted stock of $42,987, awards of stock options of $41,941, and a cash
bonus of $90,000. The cash component of Ms. Augustyn’s compensation
equals approximately 76% of her total compensation and the equity component of
her compensation equals approximately 24% of her total
compensation.
|
1.
|
Base
Salary
|
The
Committee establishes base salaries that are sufficient to attract and retain
individuals with the qualities it believes are necessary for our long-term
financial success and that are competitive in the marketplace. A named executive
officer’s base salary generally reflects the officer’s responsibilities, tenure,
job performance, special circumstances, and direct competition for the officer’s
services. In other cases, the Committee determines salaries in negotiations to
recruit certain highly qualified executives for key positions, after
consideration of, with no specific weighting, the importance of the position
being filled, the experience and background of the candidate, the level of
compensation required to induce the candidate to leave his or her current
position, and the compensation historically paid to others in that
position.
The
Committee reviews the salaries of our executive officers annually. In addition
to these periodic reviews, the Committee may at any time review the salary of an
executive who has received a significant promotion, whose responsibilities have
been increased significantly or who is a retention risk. Salaries for the named
executive officers generally are based upon their personal performance in light
of individual levels of responsibility, our overall performance and
profitability during the preceding year, economic trends that may affect us, and
the competitiveness of the executive’s salary with the salaries of executives in
comparable positions at companies of comparable size or with operational
characteristics. While the Committee considered each of these factors, it did
not assign a specific value to each factor.
14
As part
of the compensation setting process for the named executive officers other than
the Chief Executive Officer, the Committee met with our Chief Executive Officer
and reviewed the performance of each of the other named executive officers. The
Committee considered the recommendations of the Chief Executive Officer along
with the competitiveness of the named executive officer’s salary compared to
salaries of executives of our peer group. The base salary component of our
executive compensation provides each named executive officer with a fixed
minimum amount of annual cash compensation. Set forth below and effective as of
January 2007 are the fiscal year 2007 base salaries for our named executive
officers:
|
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
|
|
|
(1)
|
Mr. Buckel
resigned his position as Chief Financial Officer in November
2007.
|
In
December 2007, the Board conducted its annual review of the salaries of the
named executive officers. The Board compared each named executive officer’s base
salary to market median levels and considered 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.
|
2.
|
Annual
Cash Incentives
|
We
believe that our compensation program should focus the named executive officers
and other key executives on our annual financial performance and should reward
individual performance. To that end, we have adopted the 2007 Executive Bonus
Award Incentive Plan, or the Plan. Named executive officers and other executives
participate in the Plan and our Chief Executive Officer may recommend to the
Committee that other key contributors participate in the Plan.
The
purpose of the Plan is to:
|
•
|
Focus
participants’ actions on the achievement of annual revenue growth and
profitability goals;
|
|
•
|
Align
participants’ actions on the accomplishment of key operational and
strategic goals;
|
|
•
|
Encourage
and reward participants for the achievement of specific objectives;
and
|
|
•
|
Maintain
a competitive range of incentive compensation
opportunities.
|
Each
named executive officer’s award is based on the following three
criteria:
|
1.
|
Achievement
of revenue goals by us, which comprises 25% of the potential
award;
|
|
2.
|
Achievement
of adjusted EBITDA goals by us, which comprises 50% of the potential
award; and
|
|
3.
|
Achievement
of individual goals by the named executive officer, which comprises 25% of
the potential award.
|
15
We must
meet a threshold of financial performance based on revenue, adjusted EBITDA and
net income, which excludes equity compensation expenses, for the year in order
for any awards to be made pursuant to the Plan. The Board established this
minimum financial performance in November of 2006 as part of our business plan
for 2007. In addition, a named executive officer must achieve a certain rating
in his or her performance review, which includes attaining his or her individual
and department budget objectives, to receive any award pursuant to the
Plan.
We choose
to base awards pursuant to the Plan on adjusted EBITDA and revenue because we
believe they are accurate measurements of our core performance. We chose to base
the majority of awards pursuant to the Plan based on adjusted EBITDA because
adjusted EBITDA has become a commonly used metric, especially for
capital-intensive technology companies such as ours, for assessing operating
performance, liquidity and valuations by investors, analysts and
banks.
For 2007,
the adjusted EBITDA target was $36.1 million and the revenue target was $235.0
million, compared to an adjusted EBITDA target of $18.8 million and revenue
target of $160.1 million for 2006. The change in these targets from 2006 to 2007
represents an approximately 92% increase in adjusted EBITDA and a 46% increase
in revenue.
The
Committee chose these revenue and adjusted EBITDA targets because they reflected
the substantial growth the Company expected in 2007, particularly in light of
its acquisition of VitalStream Holdings, Inc. Further, these targets
complemented the earnings guidance the Company issued, which was adjusted EBITDA
of $34-37 million and revenue of $235 million.
With
respect to individual goals, the Chief Executive Officer establishes his goals
with the Committee and the Chief Executive Officer oversees the establishment of
each of the other named executive officer’s goals for the upcoming year. Upon
completion of the year, the Chief Executive Officer rates each of the other
named executive officer on the attainment of those goals. A named executive
officer receives 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. The Board rates the Chief Executive Officer using the same rating
system. If a named executive officer receives a Needs Improvement rating, he or
she is not eligible for any award pursuant to the Plan, regardless of the
Company’s financial performance.
To be
eligible for awards, a participant must be a full-time employee at the time the
Board determines achievement under the Plan. If an executive joins the Company
mid-year, his or her award is pro-rated for the portion of the year during which
he or she was an executive.
The Board
assigns each executive a target level as a percentage of his or her salary,
which are based on survey analysis. The target award levels for 2007
were:
|
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)
|
|
--
|
%
|
--
|
%
|
|
(1)
|
Mr. Buckel
resigned his position as Chief Financial Officer in November
2007.
|
|
(2)
|
Ms. Augustyn
assumed the role of Principal Accounting Officer following Mr.
Buckel’s resignation in November 2007 and was not a participant in the
Plan when the Board established these
percentages.
|
The Board
retains the sole discretion to determine whether the Company and the named
executive officer have met the objectives.
The Board
established the following four levels for each of the three criteria: threshold,
target, above and maximum.
16
Potential
payment for achievement of the “Threshold” objective for the annual revenue goal
and annual adjusted EBITDA goal equals 40% of each respective criterion’s
allocated percentage of the individual named executive officer’s target award
amount, which is 40% of 25% of the total target award amount in the case of the
annual revenue goal and 40% of 50% of the total target award amount, in the case
of the annual adjusted EBITDA goal. Potential payment for achievement of the
threshold objective for the individual goals is $0.
Potential
payment of achievement of the “Target” objective for the annual revenue goal,
annual adjusted EBITDA goal and individual goals equals 100% of each criterion’s
allocated percentage of the named executive officer’s total target award amount,
which are 25%, 50% and 25% of the total target award amount,
respectively.
Potential
payment for achievement of the “Above” objective for the annual revenue goal,
annual adjusted EBITDA goal and individual goals are 130% of each respective
goal’s allocated portion of the individual’s target award amount.
Potential
payment for achievement of the “Maximum” objective for the annual revenue goal,
annual adjusted EBITDA goal and individual goals is 200% of each such goal’s
allocated portion of the individual’s target award amount.
The Board
determines the potential payment for performance for the annual revenue and
annual adjusted EBITDA goals that fall between the “Target,” “Threshold,”
“Above,” or “Maximum” objectives by interpolating on a straight-line basis to
determine an incentive amount.
The
following table is an illustrative example for a named executive officer whose
salary is $240,000 and whose target award is 45%.
|
|
Weight
|
Threshold
|
Target
|
Above
|
Maximum
|
||||||||||||||
|
Annual
Revenue Bonus Payout
|
|
25
|
%
|
95
|
%
|
100
|
%
|
105
|
%
|
110
|
%
|
||||||||
|
|
$
|
10,800
|
$
|
27,000
|
$
|
35,100
|
$
|
54,000
|
|||||||||||
|
Annual
Adjusted EBITDA Bonus Payout
|
|
50
|
%
|
90
|
%
|
100
|
%
|
110
|
%
|
120
|
%
|
||||||||
|
|
$
|
21,600
|
$
|
54,000
|
$
|
70,200
|
$
|
108,000
|
|||||||||||
|
Individual
Goals Bonus Payout
|
|
25
|
%
|
NI
|
ME
|
OE
|
EE
|
||||||||||||
|
|
$
|
0
|
$
|
27,000
|
$
|
35,100
|
$
|
54,000
|
|||||||||||
If our
annual revenue was 110% of the annual revenue goal established by the Board,
then this named executive officer would receive a bonus for those criteria of
$54,000. If our annual adjusted EBITDA objective was 110% of the adjusted EBITDA
goal established by the Board, then this named executive officer would receive a
bonus of $70,200. If this named executive officer received a rating of Often
Exceeds Expectations, or OE, this named executive officer would receive a bonus
of $35,100. In total, this named executive officer would receive a total bonus
of $159,300.
The Board
decided that the Company would pay the Target Award Level, as defined in the
Plan, in cash and pay the excess of the Target Award Level in shares
of common stock. The Company determined the number of shares of
common stock to be awarded based on the closing price of the Company’s stock
price on the day preceding the date on which the Company paid such
bonus. The Company withheld the number of shares necessary to cover
the taxes each participant owed the Internal Revenue Service as a result of the
vesting of the shares of common stock.
17
In 2007,
the Company’s revenue was $235 million, which equaled the revenue target
established in the Plan, and adjusted EBITDA was $37.7 million, which exceeded
the adjusted EBITDA target established in the Plan. In consideration
of this matrix and as provided in the Plan, the Committee determined in 2008 and
approved bonus payment amounts not directly calculated by reference to the Plan
in excess of the targets established in the Plan for each named executive
officer, other than the Chief Executive Officer, and the Board determined the
bonus payment for the Chief Executive Officer, as follows and paid such amounts
on March 15, 2008:
|
Name:
|
Total
Bonus Amount
|
Cash
Portion
|
Stock
Portion
|
|||||||||
|
James
DeBlasio
|
$ | 337,663 | $ | 297,500 | $ |
40,163,
or 6,638 shares
|
||||||
|
David
Buckel (1)
|
-- | -- | -- | |||||||||
|
Vincent
Molinaro
|
$ | 75,000 | $ | 75,000 | $ | 0 | ||||||
|
Richard
Dobb
|
$ | 122,580 | $ | 108,000 | $ | 14,580, or 2,409 shares | ||||||
|
Phil
Kaplan
|
$ | 98,688 | $ | 87,000 | $ | 11,688, or 1,931 shares | ||||||
|
Tamara
Augustyn (2)
|
$ | 90,000 | $ | 90,000 | $ | 0 | ||||||
|
(1)
|
Mr. Buckel
resigned his position as Chief Financial Officer in November 2007 and
thus, was not eligible for an award pursuant to the
Plan.
|
|
(2)
|
Ms.
Augustyn assumed the role of Principal Accounting Officer following
Mr. Buckel’s resignation in November
2007.
|
In the fourth
quarter of 2007, the Board established the target revenue and target adjusted
EBITDA goals for 2008. The Committee established the following target award
levels for our named executive officers, other than our Chief Executive Officer,
and the Board established the target award level 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)
|
|
--
|
%
|
--
|
%
|
|
(1)
|
Mr. Buckel
resigned his position as Vice President and Chief Financial Officer on
November 18, 2007.
|
|
(2)
|
Mr.
Molinaro resigned his position as Chief Operating Officer on April 7,
2008.
|
|
(3)
|
Ms.
Augustyn will not be a participant in the Plan for
2008.
|
The
changes in performance targets are not an indication of how we will perform in
2008. The sole purpose of these targets, which the Board established in the
fourth quarter of 2007, is to establish internal performance-based goals under
an annual incentive compensation plan. Consistent with our pay-for-performance
compensation philosophy, the Board establishes these goals to align executive
compensation with our performance and to encourage the 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% growth 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.
18
|
3.
|
Long-Term
Equity Incentives
|
Historically,
the primary form of equity compensation that we awarded consisted of
non-qualified stock options. We selected this form because of the favorable
accounting and tax treatments and the near universal expectation by employees in
our industry that they would receive stock options. Beginning in 2006, however,
the accounting treatment for stock options changed as a result of Statement of
Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment
(revised 2004), making the accounting treatment of stock options less attractive
because it required the Company to record an expense related to stock options.
As a result, we assessed the desirability of granting shares of restricted stock
to employees, particularly members of senior management, and concluded that
restricted stock would provide an equally motivating form of incentive
compensation while permitting us to issue fewer shares, thereby reducing
potential dilution. We continue to award stock options to new hires, upon a
promotion, as a result of performance evaluations, and in other special
situations.
The
Committee grants stock options and restricted stock to named executive officers,
other than the Chief Executive Officer, under the Amended and Restated Internap
Network Services Corporation 2005 Incentive Stock Plan, or the Stock Plan, which
our stockholders approved, to provide long-term incentives that are aligned with
the creation of increased stockholder value over time. We believe an executive
who owns options or restricted stock will have an increased personal interest in
our growth and success. Because these awards vest over time, they also serve as
a retention device. The Committee recommends the amounts of the Chief Executive
Officer’s awards to the Board and the Board determines his grants. The strike
price of options is the fair market value of our stock at the date of grant.
Options also typically have a ten-year term and generally vest 25% on the first
anniversary of the grant date and in 36 equal monthly installments thereafter.
Shares of restricted stock typically vest in 16 equal quarterly
installments.
The
Committee reviews long-term incentive levels for all named executive officers
each fiscal year in light of long-term strategic and performance objectives and
each named executive officer’s current and anticipated contributions to our
future performance. When determining the number of stock options or restricted
shares to be awarded to a named executive officer, the Committee considers:
(1) the named executive officer’s current contribution to our performance;
(2) the named executive officer’s anticipated contribution in meeting
our long-term strategic performance goals and (3) comparisons to formal
surveys of executive long-term incentive awards relative to the median of the
peer group, as well as a larger group of other similarly sized technology
companies.
With the
exception of significant promotions and new hires, we generally make these
awards at the first meeting of the Committee each year following the
availability of the financial results for the prior year. These grants were made
on March 15, 2007 for our 2006 fiscal year and March 20, 2008 for our 2007
fiscal year. We selected this timing in March because it enables us to consider
both the Company’s performance and the named executive officer’s performance for
the previous year, as well as to consider our expectations for the current year.
The Committee’s schedule is determined several months in advance and the
proximity of any awards to earnings announcements or other market events is
coincidental.
We do not
time, and have never timed, the grant of stock options or restricted stock in
coordination with the release of material non-public information nor have we
timed our release of non-public information for the purpose of affecting the
value of executive compensation. Although our Chief Executive Officer may
recommend the amount of stock awards granted to management, the Committee, or in
the case of awards to our Chief Executive Officer, the Board, approves the grant
of all stock awards and does not delegate the timing of grants. We have retained
a third party service provider to administer the day-to-day activities of the
Stock Plan, but the provider does not determine the recipient of stock awards,
the amount of stock awards granted to a participant, the exercise price, or
vesting of stock awards.
Prior to
the scheduled meeting of the Committee in March, our Chief Executive Officer
provided a list of recommended incentive restricted stock grants for the other
named executive officers to the Committee. The following paragraph describes the
formula he used to determine the number of shares restricted stock he
recommended that the other named executive officers receive.
The named
executive officer’s base salary is multiplied by the target bonus percentage
established by the Board for that named executive officer for 2007 to arrive at
a target bonus. The target bonus percentage is multiplied by a market
competitive multiple, which Aon developed based on its analysis. Based on this
analysis, the Committee determined that our chief executive officer would
receive a multiple of 6.0. Other executives receive a lower multiple, which is
expressed in increments of 0.5 based on his or her decreasing level of
responsibilities from the chief executive officer. These multiples of target
bonus reinforce our named executive officers’ strategic role in driving the
achievement of our long-term performance objectives and the creation of
stockholder value. We calculated the target long-term incentive opportunities
for our named executive officers using the following multiples of their target
bonus percentages:
|
Name
|
|
Multiple
|
|
James
DeBlasio
|
|
6.0
|
|
David
Buckel (1)
|
|
--
|
|
Vince
Molinaro
|
|
5
|
|
Richard
Dobb
|
|
4
|
|
Phil
Kaplan
|
|
4
|
|
Tamara
Augustyn
|
|
1.5
|
|
(1)
|
Mr. Buckel
resigned his position as Vice President and Chief Financial Officer on
November 18, 2007 prior to the Board’s determination of awards and
thus, was not eligible for an award pursuant to the Stock
Plan.
|
19
The
target bonus percentage multiplied by this multiple yields a target long-term
incentive as a percentage of target salary. This percentage of target salary is
then multiplied by the named executive officer’s 2007 base salary to yield a
target long-term incentive amount. This target long-term incentive amount is
then divided by the volume-weighted average price of our common stock from March
19, 2007 to March 19, 2008 to yield a target number of restricted shares. Our
Chief Executive Officer then presented his recommendations to the
Committee.
The
calculation of these awards is materially different from such calculation in
2007 in that the Committee chose to use the volume-weighted average price of our
common stock from March 19, 2007 to March 19, 2008 rather than the closing price
of the stock on the day before the grant. Using the volume-weighted
average price rather than the closing price the day before reduced the number of
shares granted by approximately 66%. In making its determination to
use the volume-weighted average price, the Committee considered the unusual
volatility of the stock price and that the closing price of the Company’s stock
on March 19, 2007 was $16.49, while the closing price on March 19, 2008 was
$4.09. Given this decline in value, the Committee concluded that using the
closing price the day before rather than the volume-weighted average price would
result in equity awards that do not reflect the goal of paying for
performance.
The Board
concluded that half of each award should be time-based and half should be
performance-based in order to tie the long term incentive to
performance. Previous equity awards were all
time-based. The Board made this change to further align the interest
of our named executive officers with our stockholders’ interests. For the
time-based portion, the shares vest in 16 equal quarterly
installments. For the performance-based portion, the shares vest in
33% annual increments starting with the year that includes the first anniversary
of the grant date. Executives earn annual tranches of awards, which
vest on each of the first three anniversaries from the date of grant, to the
extent that the Company achieves certain revenue and EBITDA targets established
by the Board of Directors for each respective year in the performance
cycle. The Company will either meet or not meet both goals in a given
year. With respect to all shares of performance-based restricted
stock that do not vest during any of the three years, 50% of such shares will
vest on the fourth anniversary of the date of the grant.
The vesting
of any restricted stock (including both time-based and performance-based) is
subject to the executive being an employee in good standing on the date of
vesting.
The
Committee considered the recommendation in light of the named executive
officer’s contribution and anticipated contribution and the results provided
from Aon’s competitive market survey. In making its determination of both cash
incentives and long-term incentive awards and its recommendation to the Board
for Mr. DeBlasio’s awards, the Committee considered the Company’s
performance in 2007 and granted each named executive officer, other than the
Chief Executive Officer, a target award based on the above-described
matrix.
The Board
then considered the number of shares of restricted stock to grant to our Chief
Executive Officer. The Board applied the same process as described above, and
granted Mr. DeBlasio 149,776 shares, as indicated in the following
table.
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
|
--
|
|
(1)
|
Mr. Buckel
resigned his position as Vice President and Chief Financial Officer on
November 18, 2007 prior to the Board’s determination of awards and
thus, was not eligible for an award pursuant to the Stock
Plan.
|
Stock
Retention Guidelines
On March 20,
2008, the Board adopted stock retention guidelines for certain
executives. The stock retention guidelines are based on net
shares obtained from option exercises or vesting of restricted shares after
costs of exercise and taxes. The percentage of net shares obtained from option
exercises or vesting of restricted shares after costs of exercise and taxes that
each executive is to retain and the time in which he or she is to hold such
shares are set forth in the following table:
|
Position
|
Retention
Ratio
|
Time
to Retain
|
||
|
Chief
Executive Officer
|
50.0%
|
5
Years from date of
acquisition
|
||
|
Chief
Operating Officer
|
33.3%
|
4
Years from date of
acquisition
|
||
|
Chief
Financial Officer
|
33.3%
|
4
Years from date of
acquisition
|
||
|
Chief
Technology Officer
|
25.0%
|
3
Years from date of
acquisition
|
||
|
Chief
Strategy Officer
|
25.0%
|
3
Years from date of
acquisition
|
||
|
Vice
President, Human Resources
|
25.0%
|
3
Years from date of
acquisition
|
||
|
Vice
President and General Counsel
|
25.0%
|
3
Years from date of
acquisition
|
||
|
Vice
President, Sales
|
25.0%
|
3
Years from date of
acquisition
|
These
guidelines apply to the grants made pursuant to the Stock Plan on March 20, 2008
described above and will apply to all future grants. The enumerated
executives are subject to these guidelines for as long as he or she is an
employee of the Company.
The Board
concluded that the emerging best practices in corporate governance include such
guidelines and and adopted these stock retention guidelines to further align the
interests of the executives with our stockholders’ interests.
Perquisites;
Other Compensation
We
annually review any perquisites that our named executive officers may receive.
In general, we do not provide our named executive officers with many of the
types of perquisites that other companies offer their executives. As reflected
in our 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.
21
We
provide named executive officers with the same benefit package available to all
of our salaried employees. This package includes:
|
•
|
Health
and dental insurance;
|
|
•
|
Basic
life insurance;
|
|
•
|
Long-term
disability insurance; and
|
|
•
|
Participation
in our 401(k) plan, including matching
contributions.
|
Limitations
on the Deductibility of Executive Compensation
Compensation
payments in excess of $1 million to the chief executive officer or the other
five most highly compensated executive officers are subject to a limitation on
deductibility by us under Section 162(m) of the Internal Revenue Code of
1986, as amended. Certain performance-based compensation is not subject to the
limitation on deductibility. The Committee does not expect cash compensation in
2007 to our Chief Executive Officer or any other named executive officer to be
in excess of $1 million. We intend to maintain qualification of the Amended and
Restated Internap Network Services Corporation 2005 Incentive Stock Plan for the
performance-based exception to the $1 million limitation on deductibility of
compensation payments.
Summary
Compensation Table
The
following table sets forth total compensation for 2007 for our named executive
officers.
|
Name
and Principal
Position
|
Year
|
Salary
$(1)
|
Bonus
$
|
Stock
Awards
$(2)
|
Option
Awards
$ (2)
|
Non-Equity
Incentive Plan
Compensation(3)
$
|
Change
in
Pension
Value
&
Non-Qualified
Deferred
Compensation
Earnings
$
|
All
Other
Compensation
$
|
Total
$
|
|||||||||||||||||
|
James
DeBlasio
Chief
Executive Officer
|
2007
|
425,000
|
—
|
524,831
|
435,452
|
337,663
|
—
|
27,462
|
1,750,408
|
|||||||||||||||||
|
2006
|
350,000
|
—
|
119,918
|
435,452
|
—
|
—
|
47,599
|
952,969
|
||||||||||||||||||
|
David
Buckel (4)
Chief
Financial Officer
|
2007
|
240,333
|
—
|
222,204
|
287,711
|
—
|
—
|
—
|
750,248
|
|||||||||||||||||
|
2006
|
235,385
|
—
|
70,097
|
390,611
|
100,000
|
—
|
—
|
796,093
|
||||||||||||||||||
|
Vincent
Molinaro
Chief
Operating Officer
|
2007
|
247,917
|
13,333
|
325,086
|
—
|
75,000
|
—
|
—
|
661,336
|
|||||||||||||||||
|
2006
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
|
Richard
Dobb
Vice
President and
General
Counsel
|
2007
|
180,000
|
—
|
78,783
|
—
|
122,580
|
—
|
—
|
381,363
|
|||||||||||||||||
|
2006
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
|
Philip
Kaplan
Chief
Strategy Officer
|
2007
|
230,808
|
—
|
—
|
396,641
|
98,688
|
—
|
—
|
726,137
|
|||||||||||||||||
|
2006
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
|
Tamara
Augustyn
Vice
President and Principal
Accounting
Officer
|
2007
|
172,500
|
—
|
42,987
|
41,941
|
90,000
|
—
|
—
|
347,428
|
|||||||||||||||||
|
2006
|
152,274
|
—
|
14,902
|
41,227
|
50,000
|
—
|
—
|
202,274
|
||||||||||||||||||
|
(1)
|
The
salary of each of Mr. Buckel, Mr. Molinaro, Mr. Dobb, and Mr.
Kaplan is prorated for the portion of the year he was employed by the
Company.
|
|||||||||||||||||||||||||||
|
(2)
|
Represents
the proportionate amount of the total fair value of stock and option
awards recognized by the Company as an expense in 2007 and 2006 for
inancial
accounting purposes, excluding forfeitures related to service-based
vesting conditions. The fair values of these awards and the amounts
expensed were
determined in accordance with FAS 123R. The awards for which expense is
shown in this table include the awards described in the Grants of
Plan-Based Awards
table of this Proxy Statement, as well as awards granted in prior years
for which the Company continued to recognize expense in 2007 and 2006.
The
assumptions used in determining the grant date fair values of these awards
are set forth in the notes to the Company’s consolidated financial
statements, which
are included in our Annual Report on Form 10-K for the year ended
December 31, 2007.
|
|||||||||||||||||||||||||||
|
(3)
|
As
provided in the Plan, the Committee determined and approved bonus payments
in 2008 in excess of the targets established in the Plan
for each named executive officer, other than the Chief Executive Officer,
and the Board determined the bonus payment for the Chief
Executive Officer, and paid such excess in shares of common stock on
March 15, 2008. Mr. DeBlasio’s bonus consisted of $297,500 paid in
cash
and $40,163 paid in shares of common stock. Mr. Dobb’s bonus
consisted of $108,000 paid in cash and $14,180 paid in shares of common
stock. Mr. Kaplan’s
bonus consisted of $87,000 paid in cash and $11,688 paid in shares of
common stock. The amounts reported in this column include the value of
such shares. The
value of these shares is not, however, reflected in column
(e).
|
|||||||||||||||||||||||||||
|
(4)
|
Mr.
Buckel resigned as Chief Financial Officer in November of 2007. As a
result, he forfeited 9,375 options that were a part of a grant made on May
12, 2004, 1,597 options
that were part of a grant made on September 28, 2006, 1,298 options that
were part of a second grant made on September 28, 2006, 5,090 options that
were part of
a third grant made on September 28, 2006, as well as 30,934 shares of
restricted common stock that were part of an award made on January 18,
2006 and 65,625 shares of
restricted common stock that were part of an award made on March 15,
2007. The aggregate amount of this forfeiture is $249,525.60
based on the assumptions delineated
in footnote (2) above.
|
|||||||||||||||||||||||||||
22
All Other
Compensation
|
Name
and Principal Position
|
|
Perquisites
and
Other
Personal
Benefits
$
|
Tax
Reimburse-
ments
$
|
|
Dividend
Equivalents
$
|
|
Payments/
Accruals
on
Termination
Plans
$
|
|
Registrant
Contributions
to
Defined
Contribution
Plans
$
|
|
Insurance
Premiums
$
|
|
Other
$
|
|||||||||||||||||||||||||
|
James
DeBlasio
Chief
Executive Officer
|
|
27,462
|
(1)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
||||||||||||||||||||||||
|
David
Buckel
Chief
Financial Officer
|
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|||||||||||||||||||||||||
|
Vincent
Molinaro
Chief
Operating Officer
|
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|||||||||||||||||||||||||
|
Richard
Dobb
Vice
President and General Counsel
|
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|||||||||||||||||||||||||
|
Philip
Kaplan
Chief
Strategy Officer
|
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|||||||||||||||||||||||||
|
Tamara
Augustyn
Vice
President and Principal
Accounting
Officer
|
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|||||||||||||||||||||||||
|
(1)
|
The
amounts shown for fiscal 2007 include personal use of corporate housing of
$18,900 and car service of $8,562.
|
Grants
of Plan-Based Awards Table
The
following table sets forth information regarding grants of annual incentive
awards and stock based compensation for 2007 for each named executive
officer.
|
Grant
Date
|
Estimated
Future Payouts
Under
Non-Equity Incentive
Plan
Awards
|
Estimated
Future Payouts
Under
Equity Incentive Plan
Awards
|
All
Other
Stock
Awards:
Number
of
Shares
of
Stock
or
Units
#
|
All
Other
Stock
Awards:
Number
of
Securities
Underlying
Options
#
|
Exercise
or
Base
Price
of
Option
Awards
$/Sh
|
Grant
Date
Fair
Value
of
Stock
and
Option
Awards
|
||||||||||||||||||||||
|
Name
and Principal
Position
|
Threshold
$
|
Target
$
|
Maximum
$
|
Threshold
#
|
Target
#
|
Maximum
#
|
||||||||||||||||||||||
|
James
DeBlasio
Chief
Executive Officer
|
3/15/2007
|
|
—
|
—
|
|
—
|
—
|
—
|
—
|
125,000
|
—
|
|
—
|
$
|
2,082,500
|
|||||||||||||
|
3/15/2008
|
(1)
|
—
|
—
|
—
|
6,638
|
40,160
|
||||||||||||||||||||||
|
David
Buckel
Chief
Financial Officer
|
3/15/2007
|
—
|
—
|
—
|
—
|
—
|
—
|
75,000
|
—
|
—
|
1,249,500
|
|||||||||||||||||
|
Vincent
Molinaro
Chief
Operating Officer
|
4/24/2007
|
—
|
—
|
—
|
—
|
—
|
—
|
125,000
|
—
|
—
|
2,005,000
|
|||||||||||||||||
| Richard Dobb | 4/23/2007 | — | — |
—
|
— | — | — | 30,000 |
—
|
— | 474,600 | |||||||||||||||||
|
Vice
President and
General
Counsel
|
3/15/2008
|
(1)
|
—
|
—
|
—
|
—
—
|
—
—
|
—
—
|
2,409
|
—
|
—
|
14,574
|
||||||||||||||||
|
Philip
Kaplan
|
6/22/2007
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
30,000
|
13.64
|
409,200
|
|||||||||||||||||
|
Chief
Strategy Officer
|
3/15/2008
|
(1)
|
—
|
—
|
—
|
—
|
—
|
—
|
1,931
|
—
|
—
|
11,683
|
||||||||||||||||
23
|
Tamara
Augustyn
Vice
President and Principal Accounting Officer
|
03/15/07
12/19/2007
|
—
|
—
—
|
—
—
|
—
—
|
—
—
|
—
—
|
7,500
—
|
—
10,000
|
—
9.15
|
124,950
91,500
|
|||||||||||||||||||
(1) As provided in the Plan, the Committee determined and
approved bonus payments in 2008 in excess of the targets established in the Plan
for each named executive officer, other than the Chief Executive Officer, and
the Board determined the bonus payment for the Chief
Executive Officer, and paid such excess in shares of common stock on
March 15, 2008. Mr. DeBlasio’s bonus consisted of $297,500 paid in
cash and
$40,163 paid in shares of common stock, or 6,638 shares. Mr. Dobb’s bonus
consisted of $108,000 paid in cash and $14,180 paid in shares of common
stock, or
2,409 shares. Mr. Kaplan’s bonus consisted of $87,000 paid in cash and $11,688
paid in shares of common stock, or 1,931 shares. The Company included
these
shares even though the Company did not award these shares in fiscal year 2007 to
enhance the overall disclosure of our executive compensation
policies.
Outstanding
Equity Awards Table
The
following table provides a detail of outstanding stock options and restricted
stock awards for each named executive officer as of December 31,
2007.
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||
|
Name
and Principal
Position
|
Number
of
Securities
Underlying
Unexercised
Options
#
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
#
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
#
|
Option
Exercise
Price
$
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
#
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested (1)
$
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
#
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
$
|
|||||||||||||||
|
James
DeBlasio
Chief
Executive Officer
|
8,000
17,000
2,000
2,000
312,5000
|
(2)
|
—
—
—
—
—
|
—
—
—
—
—
|
|
13.50
13.50
14.90
4.60
4.80
|
9/16/2013
9/16/2013
5/27/2014
6/23/2015
9/30/2015
|
33,330
101,562
—
—
—
|
(3)
(4)
|
|
277,639
846,011
—
—
—
|
—
—
—
—
—
|
—
—
—
—
—
|
|||||||||||
|
David
Buckel
Chief
Financial Officer
|
15,000
65,625
903
734
2,877
|
(5)
|
—
—
—
—
—
|
—
—
—
—
—
|
11.10
14.30
14.46
14.46
14.46
|
10/31/2013
5/12/2014
9/28/2016
9/28/2016
9/28/2016
|
—
—
—
—
—
|
—
—
—
—
—
|
—
—
—
—
—
|
—
—
—
—
—
|
||||||||||||||
|
Vincent
Molinaro
Chief
Operating Officer
|
—
|
—
|
—
|
—
|
—
|
125,000
|
(6)
|
1,041,250
|
—
|
—
|
||||||||||||||
|
Richard
Dobb
Vice
President and
General
Counsel
|
—
|
—
|
—
|
—
|
—
|
30,000
|
(7)
|
249,900
|
—
|
—
|
||||||||||||||
|
Philip
Kaplan
Chief
Strategy Officer
|
25,569
13,471
24,056
|
(8)
|
—
13,471
52,924
|
—
—
—
|
4.06
10.53
17.31
|
12/2/2014
12/16/2015
07/13/2016
|
—
—
—
|
—
—
—
|
—
—
—
|
—
—
—
|
||||||||||||||
| 30,000 |
(9)
|
—
|
13.64
|
6/22/2017
|
—
|
—
|
—
|
—
|
||||||||||||||||
|
Tamara
Augustyn
Vice
President and Principal
|
13,125
479
|
1,875
521
|
(10)
|
—
—
|
12.10
5.30
|
6/30/2014
1/18/2016
|
6,250
6,094
|
(11)
(12)
|
52,063
50,763
|
—
—
|
—
—
|
|||||||||||||
|
Accounting
Officer
|
—
|
10,000
|
—
|
9.15
|
12/19/2017
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
(1)
|
The
fair market value of a share of Internap stock on the last day of the 2007
fiscal year was $8.33.
|
|
(2)
|
Mr.
DeBlasio was granted 500,000 options on September 30, 2005. 25% vested
immediately, but were not exercisable until September 30, 2006 with the
remaining shares
vesting annually over a four-year period beginning September 30, 2005, and
the other options were granted for Mr. DeBlasio’s service as a
Director.
|
|
(3)
|
Mr. DeBlasio
was awarded restricted shares on September 30, 2005. 50% of those
shares vested on September 30, 2006, with the remaining shares
vesting annually over
a three-year period beginning September 30,
2006.
|
24
|
(4)
|
Mr.
DeBlasio was granted 125,000 shares of restricted stock on March 15, 2007
that vest in a series of 16 quarterly installments at
the end of each calendar quarter beginning with the second quarter of
2007.
|
|
(5)
|
Mr.
Buckel was granted options on October 31, 2003, May 12,
2004, January 18, 2006, and three separate grants on
September 29, 2006. The options vest over a four-year
period with the exception of options granted on September 28, 2006.
The options vest monthly over a three-year period.
|
|
(6)
|
Mr.
Molinaro was granted 125,000 shares of restricted common stock on April
24, 2007 of which 25% of the award vests on the
anniversary of grant.
|
|
(7)
|
Mr.
Dobb was granted 30,000 shares of restricted common stock on April 23,
2007 and 25% of the award vests on the anniversary
of grant.
|
|
(8)
|
Mr.
Kaplan was granted options on December 2, 2004, December 16, 2005 and July
13, 2006. One-fourth of the number of shares vested
on the anniversary of the grant date and then vest quarterly over the next
three years.
|
|
(9)
|
Mr.
Kaplan was granted 30,000 options on June 22, 2007. One-fourth
of the number of shares vest on each of the first, second, third,
and fourth anniversary of the grant date.
|
|
(10)
|
Ms.
Augustyn was granted options on June 30, 2004, January 18, 2006 and
December 19, 2007. One-fourth of the number
of shares
vest on the anniversary of the grant date and 1/48 of the
number of shares vest per month thereafter.
|
|
(11)
|
Ms.
Augustyn was granted 10,000 shares of restricted common stock on February
27, 2006. One-eighth of the number of shares vest
every six months after the grant date.
|
|
(12)
|
Ms.
Augustyn was granted 7,500 shares of restricted common stock on March 15,
2007 that vest in a series of 16 quarterly installments
at the end of each calendar quarter beginning with the second quarter of
2007.
|
Option
Exercises and Stock Vesting
The
following table provides information with respect to options exercised during
fiscal 2007.
|
|
Option
Awards
|
|
Stock
Awards
|
|||||||||||||||||||
|
Name
and Principal Position
|
|
Number of Shares
Acquired
on
Exercise
#
|
|
Value Realized
Upon
Exercise
$
|
|
Number of Shares
Acquired
on
Vesting
#
|
Value Realized
On
Vesting
$
|
|||||||||||||||
|
|
|
|
||||||||||||||||||||
|
James
DeBlasio
Chief
Executive Officer
|
|
—
|
|
—
|
|
40,108
|
535,124
|
|||||||||||||||
|
David
Buckel
Chief
Financial Officer
|
|
—
|
|
—
|
|
19,689
|
288,753
|
|||||||||||||||
|
Vincent
Molinaro
Chief
Operating Officer
|
|
—
|
|
—
|
|
—
|
—
|
|||||||||||||||
|
Richard
Dobb
Vice
President and General Counsel
|
|
—
|
|
—
|
|
—
|
—
|
|||||||||||||||
|
Philip
Kaplan
Chief
Strategy Officer
|
|
—
|
|
—
|
|
—
|
—
|
|||||||||||||||
|
Tamara
Augustyn
Vice
President and Principal Accounting Officer
|
|
—
|
|
—
|
|
3,906
|
59,222
|
|||||||||||||||
Pension
Benefits
None of
our named executive officers are covered by a pension plan or other similar
benefit plan that provides for payments or other benefits at, following or in
connection with retirement.
Nonqualified
Deferred Compensation
None of
our named executive officers are covered by a nonqualified defined contribution
or other nonqualified plan that provides for the deferral of
compensation.
Employment
Agreements and Potential Payments Upon Termination or Change in
Control
We have
entered into an employment security plan with Mr. Molinaro, Mr. Dobb, Mr.
Kaplan, and certain other officers and an employment agreement with Mr. DeBlasio
that provide for payments in the event of a change in control or termination of
the officer’s employment. We believe that we should protect these individuals in
the event of a change in control. We also believe that the interests of our
stockholders will be best served if the interests of these officers are aligned
with them. Providing change in control benefits should eliminate, or at least
reduce, the reluctance of these officers to pursue potential change in control
transactions that may be in the best interests of our stockholders. The
employment security plan and Mr. DeBlasio’s employment agreement are designed to
promote stability and continuity of our officers.
25
Mr. DeBlasio’s
employment agreement provides that if the Company terminates his employment
without cause, as defined in the agreement, or if Mr. DeBlasio terminates his
employment for good reason, also as defined in the agreement, Mr. DeBlasio shall
receive a cash severance payment equal to one and one-half (1-1/2) times his
then-current base salary. If the Company terminates Mr. DeBlasio’s employment
without cause or if Mr. DeBlasio terminates his employment for good reason
within 24 months of a change in control, as such term is defined in the
agreement, instead of the severance benefits previously described,
Mr. DeBlasio shall receive a severance payment equal to two (2) times
the sum of his then-current base salary plus the greater of (A) his maximum
bonus for the year in which the termination occurs and (B) his average bonus
during the prior two completed years (as a percentage of his base salary upon
which his bonus awards were calculated) multiplied by his then-current base
salary, and all of his then-unvested stock options and additional equity
compensation shall vest and become exercisable. In addition, he will continue to
receive health care and life insurance coverage for 18 months as if he were an
active employee, subject to the employee portion of premiums for such
coverage. If Mr. DeBlasio dies while employed pursuant to this
agreement, all of his unvested equity compensation that would, had he not have
died, have become vested within twelve months after the date of his death
(assuming fulfillment of any performance criteria and his continued employment
by the Company) shall become vested, free of restrictions, other than those
imposed by law, and immediately exercisable for a period
ending on the earlier of twelve months after the date of death and the original
expiration date thereof.
On November
14, 2007, the Company entered into an Employment Security Plan for certain
executive officers of the Company (the “Plan”). The
Plan supersedes the employment agreements that were in place for the
executives who executed Joinder Agreements to the Plan, including Mr. Molinaro,
Mr. Dobb and Mr. Kaplan. The Board adopted the Plan in order to bring
consistency to its executives’ agreements and to minimize the negotiation of
individual contracts. The Board and Mr. DeBlasio decided to keep Mr. DeBlasio’s
employment agreement in place rather than have him enter into the Plan in order
to preserve maximum flexibility and to acknowledge the unique relationship of a
chief executive officer with a company.
The purpose
of the Plan is to provide certain benefits in the event an executive’s
employment is terminated, either in connection with or unrelated to a change of
control of the Company.
Upon a
qualifying termination, as defined in the Plan, other than during a protection
period, also as defined in the Plan, a participant will receive severance equal
to his or her then-current base salary. Upon a qualifying termination
during a protection period, a participant will receive severance equal to the
sum of his or her then-current base salary plus maximum bonus for the
participant under the applicable bonus plan as established by Company’s Board of
Directors for the year in which the termination occurs, and all of his or her
unvested equity-based compensation will vest.
A participant
is entitled to severance benefits under the Plan in consideration for his or her
execution of an agreement with terms substantially similar to the terms of the
General Release and Separation Agreement set forth as Exhibit B to the
Plan. The Company’s 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.
The Joinder
Agreement for each of Mr. Molinaro, Mr. Dobb and Mr. Kaplan preserves certain
benefits of each executive’s superseded employment agreement that were greater
than those provided by the Plan.
Upon a
qualifying termination, as defined in the Plan, other than during a protection
period, also as defined in the Plan, Mr. Molinaro receives severance equal to
one and one-half times his then-current base salary. Upon a
qualifying termination during a protection period, he receives severance equal
to the sum of two times his then-current base salary plus maximum bonus for him
under the applicable bonus plan.
Upon a
qualifying termination during a protection period, Mr. Dobb receives severance
equal to the sum of two times his then-current base salary plus maximum bonus
for him under the applicable bonus plan.
Upon a
qualifying termination during a protection period, Mr. Kaplan receives severance
equal to the sum of two times his then-current base salary plus maximum bonus
for him under the applicable bonus plan and the options holds that were
originally granted on December 2, 2004 and December 16, 2005, shall become
vested in their entirety.
The table
below details the calculation of the payments based upon an assumed
January 1, 2008 termination date and assuming the termination was without
cause:
26
Potential
Termination and Change in Control Payments
|
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
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
(1)
|
Mr.
Buckel resigned in November of
2007.
|
Compensation
of Directors
Effective
as of January 1, 2007, compensation for non-employee Directors is as
follows:
|
•
|
The
cash fee for Directors for attendance at a Board meeting in person is
$1,500 and by telephone is $750 per meeting;
|
|
|
•
|
The
cash fee for Directors for attendance at a Committee meeting in person is
$1,000 and by telephone is $750 per meeting;
|
|
|
•
|
The
annual retainer paid to each Director is $20,000.
|
|
|
|
•
|
An
annual stock option grant to each Director of 5,000 shares of the
Company’s common stock. The options have an exercise price equal to 100%
of the fair market value of our common stock on the date of grant and are
fully vested and exercisable as of the date of
grant;
|
|
•
|
An
annual grant of 2,500 restricted stock units, which vests ratably over a
three-year period, subject to the terms in the stock grant agreement and
Stock Plan under which the restricted stock units are
granted;
|
|
•
|
The
Chair of the Compensation Committee of the Board of Directors receives an
annual retainer of $7,500;
|
|
•
|
Other
members of the Compensation Committee receive an annual retainer of
$2,500;
|
|
•
|
Members
of the Audit Committee, other than the Chair, receive an annual retainer
of $5,000. The Audit Committee Chair’s retainer is
$10,000.
|
|
|
•
|
The
Chair of the Nominations and Governance Committee of the Board of
Directors receives an annual retainer of
$5,000.
|
|
•
|
The
Chairman of the Board of Directors receives an annual retainer of
$40,000.
|
|
•
|
New
non-employee Directors receive a grant of 12,500 restricted stock units,
which vests ratably over a three-year period, subject to the terms of the
stock grant agreement and Stock Plan under which the restricted stock
units are granted.
|
We also
reimburse Directors for certain expenses in connection with attendance at Board
of Director 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.
In
addition, the Board adopted a stock retention policy starting in 2007 that
requires each Director to retain a fixed percentage of the “net shares” he or
she acquires through stock option exercise and vesting of restricted stock
units. 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.
The Board concluded that the best practices emerging in corporate governance
include such retention policies and adopted this stock retention policy to
further align the interests of the Directors with our stockholders’
interests.
27
The
following table provides information concerning the compensation of our
non-employee Directors for our most recently completed fiscal year.
|
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
|
|||||
|
(1)
|
Based
on the grant date fair value of outstanding awards that vested in 2007
computed in accordance with FAS
123R.
|
|
(2)
|
Includes
consulting fees and reimbursement for expenses.
|
|
(3)
|
Mr.
Harman resigned on March 15, 2007.
|
The Board also targets its compensation to the median based on a survey provided
by Aon for software and Internet technology companies with $200 to $499.9
million in revenues.
The
following table lists the number of outstanding stock options and restricted
stock awards held by our non-employee Directors as of December 31,
2007. All outstanding options are fully vested.
|
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
|
||
|
(1)
|
Dr.
Harding retired from Morgan Stanley Venture Partners III, LLC and Morgan
Stanley & Co., Inc. in October of 2007. He assigned all of
his equity compensation received while serving on our Board of Directors
to Morgan Stanley, which consists of 2,500 shares of restricted common
stock and options to purchase 27,000 shares of common stock that are
vested and exercisable. Dr. Harding disclaims beneficial
ownership in all such shares. Because Dr. Harding has retired from Morgan
Stanley, such shares are excluded from the table
above.
|
|
(2)
|
Mr.
Harman resigned on March 15,
2007.
|
Compensation
Committee Report
The
Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis and, based on this review and discussion,
recommends that the Compensation Discussion and Analysis be included in the
proxy statement and filed with the Securities and Exchange
Commission.
|
|
The
Compensation Committee
|
|
|
Charles
B. Coe
|
|
|
Patricia
L. Higgins
|
|
|
Gary
Pfeiffer
|
|
|
Daniel
Stanzione
|
Note that
Mr. Harman served as a member of the Compensation Committee and resigned
from the Board of Directors on March 15, 2007. Accordingly, he did not
review the Compensation Discussion and Analysis and did not sign the
Compensation Committee Report.
Compensation
Committee Interlocks and Insider Participation
None of
the members of the Compensation Committee is a former or current officer or
employee of the Company or any of its subsidiaries. None of our executive
officers or Directors serves as a member of the board of directors or
compensation committee of any entity that has one or more of its executive officers serving as a member of
our Board of Directors or Compensation Committee.
28
CERTAIN
RELATIONSHIPS AND TRANSACTIONS
We have
entered into indemnification agreements with our Directors and executive
officers for the indemnification of and advancement of expenses to such persons
to the fullest extent permitted by law. We also intend to enter into these
agreements with our future Directors and executive officers.
There are
no transactions, since the beginning of our last fiscal year, or any currently
proposed transaction, in which the Company was or is to be a participant and the
amount involved exceeds $120,000, and in which any related person had or will
have a direct or indirect material interest.
We do not
have policies and procedures for the review, approval, or ratification of any
transactions with related persons because we have never had occasion to consider
a related party transaction.
The
primary function of the Audit Committee is to assist the Board of Directors in
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 forth the responsibilities of the Audit
Committee.
Management
has primary responsibility for our financial statements and the overall
reporting process, including our system of internal controls. The independent
registered public accountants audit the annual financial statements prepared by
management and express an opinion as to whether those financial statements
fairly present our financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States.
The independent registered public accountants also audit Management’s Report on
Internal Control over Financial Reporting and discuss with the Audit Committee
any issues that come about in conjunction with the audits that they believe
should be raised with the Audit Committee. The Audit Committee monitors these
processes, relying, without independent verification, on the information
provided to it and on the representations made by management and the independent
registered public accountants.
Representatives
of PricewaterhouseCoopers LLP, our independent registered public accounting
firm, attended 10 regular meetings of the Audit Committee. The Audit Committee
reviewed and discussed with management and PricewaterhouseCoopers LLP our
audited financial statements for the year ended December 31, 2007 and our
unaudited quarterly financial statements for the quarters ended
March 31, June 30 and September 30, 2007. The Audit
Committee also discussed with PricewaterhouseCoopers LLP the matters required to
be discussed by Statement on Auditing Standards No. 61, as amended
(Communication With Audit Committees).
The Audit
Committee also received the written disclosures and the letter from
PricewaterhouseCoopers LLP that are required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees) and has
discussed with PricewaterhouseCoopers LLP its independence. The Audit Committee
considered whether the services provided by PricewaterhouseCoopers LLP for the
year ended December 31, 2007 are compatible with maintaining their
independence. The Audit Committee has determined to engage
PricewaterhouseCoopers LLP as our independent registered public accounting
firm for the year ending December 31, 2008.
Based
upon its review of the audited financial statements, including Management’s
Report on Internal Control over Financial Reporting, and the discussions noted
above, the Audit Committee recommended that the Board of Directors include the
audited financial statements in our Annual Report on Form 10-K for the year
ended December 31, 2007 for filing with the SEC.
|
|
Audit
Committee
|
|
|
Patricia
L. Higgins
|
|
|
William
J. Harding
|
|
|
Kevin
L. Ober
|
|
|
Gary
Pfeiffer
|
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.
29
PROPOSAL
2 - APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
Overview
On June 21,
2006, our stockholders approved an amendment of 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
Certificate of Amendment.
Prior to the
one-for-ten reverse stock split, the total number of shares that the Company was
authorized to issue was 800,000,000, consisting of 600,000,000 shares of common
stock and 200,000,000 shares of preferred stock. The authorized
number of shares of common stock was reduced to 60,000,000 in the Certificate of
Amendment by the one-for-ten reverse stock split. The authorized
number of shares of preferred stock, however, was not accordingly reduced and
remains at 200,000,000 shares. As a result, the Company’s authorized
capital stock is now 260,000,000, consisting of 60,000,000 shares of common
stock and 200,000,000 shares of preferred stock. 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 60,000,000 shares of
common stock and 20,000,000 shares of preferred stock as originally
intended.
The
Certificate of Amendment also amends and restates Article IV.A of the Company’s
Certificate of Incorporation, but does not purport to replace Sections B or C of
such Article IV. These Sections B and C of Article IV establish
series A convertible preferred stock and delineate the rights and preferences of
that series. Effective September 14, 2004, all shares of our
outstanding shares of series A convertible preferred stock were mandatorily
converted into common stock. Accordingly, the Company intended for
the Certificate of Amendment to restate all of Article IV and not just Article
IV.A.
Therefore,
our Board of Directors has deemed it advisable and in our stockholders’ best
interests to seek the approval of our stockholders of this Proposal 2,
authorizing the Board of Directors to amend our certificate of incorporation to
effect the afore-mentioned changes. Our Board of Directors’ intent is
to affect these changes after our annual meeting, and your approval of this
proposal would give our Board of Directors the authority to file a certificate
of amendment to our certificate of incorporation as soon as
reasonably practicable.
The form of
the certificate of amendment to affect these corrections is attached to this
proxy statement as Appendix A. The following discussion is qualified in its
entirety by the full text of the certificate of amendment, which is hereby
incorporated by reference.
Purpose
of Amendment
The Board of
Directors believes that the proposed certificate of amendment is advisable to
clarify that no series A convertible preferred stock is outstanding and to
reduce the number of shares of authorized shares, which should decrease the
Company’s franchise tax obligations. The Board of Director’s reasons for
approving this amendment, as well as the possible disadvantages to the amendment
that the Board of Directors took into account, are summarized
below.
Effects
of Proposed Amendment
The proposed
amendment should reduce the amount of franchise tax the state of Delaware
assesses the Company each year.
Effect
on Authorized and Outstanding Shares
The
proposed amendment will reduce the number of shares authorized for issuance from
260,000,000 to 80,000,000. The proposed amendment will have no effect
on the number of shares of common stock the Company is authorized to issue, but
will reduce the number of shares of preferred stock that the Company is
authorized to issue from 200,000,000 to 20,000,000.
Effect on Outstanding Options and
Warrants
The
proposed amendment will not affect the outstanding options and warrants to
purchase our common stock.
Accounting
Matters
The par value
of the shares of our authorized capital stock is not changing as a result of the
implementation of the certificate of amendment. Further, the proposed
certificate of amendment does not change the number of shares of the Company’s
stock that are outstanding.
Implementation
of Amendment
If our
stockholders approve this Proposal 2, we will file the certificate of amendment
included as Appendix A to this proxy statement. The certificate of amendment
will become effective when it is filed with the Secretary of State of the State
of Delaware.
30
Reasons
For Amendment
The Board of
Directors believes that the proposed certificate of amendment is desirable for
the following reasons:
The proposed
certificate of amendment should result in a tax savings.
The proposed
certificate of amendment should also clarify to the investing public that no
shares of series A convertible preferred stock are outstanding.
Possible
Disadvantages of Amendment
Even
though our Board of Directors believes that the potential advantages of the
proposed certificate of amendment outweigh any disadvantages that might result,
the following are some of the possible disadvantages of the proposed certificate
of amendment:
The
Company will recognize the anticipated tax savings on a prospective basis and
not retroactively.
The
certificate of amendment increased the complexity and costs of this
proxy.
Vote Required
In order to
be adopted, this Proposal 2 must receive the affirmative vote of a majority of
the shares of our common stock that are issued and outstanding.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3 – INCREASING THE NUMBER OF
SHARES RESERVED FOR ISSUANCE UNDER THE AMENDED AND RESTATED INTERNAP NETWORK
SERVICES CORPORATION 2005 INCENTIVE STOCK PLAN
The
Board of Directors and the stockholders have approved the Amended and Restated
Internap Network Services Corporation 2005 Incentive Stock Plan (the “Stock
Plan”). The Board of Directors has approved increasing the number of
shares reserved for issuance under the Stock Plan by four million
shares. The Board of Directors recommends that stockholders vote for
approval of the increase in the number of shares reserved for issuance under the
Stock Plan by four million shares.
Reasons For
Increase
The Board of
Directors believes that the proposed increase in the number of shares reserved
for issuance under the Stock Plan by four million shares is desirable for the
following reasons:
The Company
may deplete the number of shares reserved for issuance under the Stock Plan
prior to the 2009 annual meeting of stockholders. The Board of
Directors believes that the Company needs an adequate number of shares reserved
for issuance in order to: (1) to attract and retain eligible employees and
outside directors of Internap; (2) to provide an incentive to eligible employees
and outside directors to work to increase the value of Internap’s common stock;
and (3) to provide eligible employees and outside directors with a stake in the
future of Internap which corresponds to the stake of each of Internap’s
stockholders.
Possible
Disadvantages of Increase
Even
though our Board of Directors believes that the potential advantages of the
proposed increase outweigh any disadvantages that might result, the following
are some of the possible disadvantages of the proposed increase:
Holders
of our stock options and shares of restricted stock may exercise their options
or vest in the shares of restricted common stock, which would increase the
number of outstanding shares of common stock in the future. The issuance of our
common stock upon the exercise of options and vesting of restricted stock could
depress the market price of the common stock by increasing the number of shares
of common stock outstanding on an absolute basis or as a result of the timing of
additional shares of common stock becoming available on the market.
Vote Required
In
order to be adopted, this Proposal 3 must receive the affirmative vote of a
majority of the shares of our coomon stock present, in person or by proxy, at
the annual meeting.
31
Summary
of the Stock Plan
The
following discussion summarizes the material terms of the Stock Plan. This
discussion does not purport to be complete and is qualified in its entirety by
reference to the Stock Plan, a copy of which is attached hereto as Appendix
B. The Company and its stockholders adopted this Stock Plan prior to the
one-for-ten reverse stock split, which the Company’s stockholders approved on
June 21, 2006. The Stock Plan attached hereto as Appendix B does not
reflect such split.
Administration
The
Stock Plan is administered by the Compensation Committee of Internap’s Board of
Directors, which has at least two members, each of whom shall be a non-employee
director within the meaning of Rule 16b-3 and an outside director under Section
162(m) of the Internal Revenue Code of 1986, as amended, or the “Code”.
The Committee may appoint a delegate and authorize such delegate to make grants
to eligible employees who are not “insiders” within the meaning of Rule 16b-3 or
“covered employees” under Section 162(m) of the Code. Each grant under the
Stock Plan is evidenced by a certificate that incorporates such terms and
conditions as the Committee or its delegate deems necessary or
appropriate.
Coverage,
Eligibility and Grant Limits
The
Stock Plan provides for the grant of stock options (“Options”), stock grants
(“Stock Grants”), stock units (“Stock Units”), and stock appreciation rights
(“SARs”) to certain eligible employees and to outside directors. An
eligible employee is any employee of Internap or any subsidiary, parent or
affiliate of Internap who has been designated by the Committee to receive a
grant under the Stock Plan. As of December 31, 2007, Internap had
approximately 420 eligible employees and 7 outside directors. No
eligible employee or outside director in any calendar year may be granted an
Option to purchase more than 500,000 shares of common stock or an SAR based on
the appreciation with respect to more than 500,000 shares of common stock or may
be granted Stock Grants or Stock Units where the number of shares of common
stock subject to such grant exceeds 500,000 shares. No more than 2,000,000
shares of common stock are available for Stock Grants under the Stock
Plan.
Shares
Available for Issuance
When
adopted, 7.4 million shares were reserved for issuance under the Stock Plan,
which included 2.0 million newly authorized shares and 5.4 million shares that
remained available for issuance under (a) the Switchsoft Systems, Inc.
Founders 1996 Stock Option Plan, (b) the Internap Network Services Corporation
2002 Stock Compensation Plan, (c) the Amended 1999 Equity Incentive Plan, (d)
the 1999 Stock Incentive Plan for Non-Officers, (e) the Amended and Restated
1998 Stock Option/Stock Issuance Plan, and (f) the Switchsoft Systems, Inc. 1997
Stock Option Plan, including shares with respect to which options or other
awards had been granted under these plans if such options or other awards have
not been exercised as of the effective date of the Stock Plan. Any shares
of stock issued pursuant to an Option, a Stock Appreciation Right or a Stock
Grant which are later forfeited shall again become available for issuance under
the Stock Plan. As of
January 31, 2008, approximately 1.7 million shares were available for issuance
under the Stock Plan.
Options
Under
the Stock Plan, non-incentive stock options (“Non-ISOs”) may be granted to
eligible employees or outside directors, but ISOs, which are intended to qualify
for special tax treatment under Section 422 of the Code, can only be granted to
eligible employees of Internap or a subsidiary or parent of Internap. Each
Option granted under the Stock Plan entitles the optionee to purchase the number
of shares of common stock specified in the grant at the exercise price specified
in the related stock option certificate. The terms and conditions of each
Option granted under the Stock Plan will be determined by the Committee, or in
the case of certain grants to eligible employees who are not “insiders” within
the meaning of Rule 16b-3 or “covered employees” under Section 162(m) of the
Code, the Committee’s delegate, but no Option will be granted at an exercise
price which is less than the fair market value of the common stock as determined
on the grant date in accordance with the Stock Plan. In addition, if the
Option is an ISO that is granted to a ten percent stockholder of Internap, the
exercise price may be no less than 110% of the fair market value of the shares
of common stock on the grant date. Moreover, no eligible employee may be
granted ISOs which are first exercisable in any calendar year for stock having
an aggregate fair market value (determined as of the date that the ISO was
granted) that exceeds $100,000.
Each
Option granted under the Stock Plan shall be exercisable as provided in the
related Option certificate. If the only condition to the exercise of an
Option is the completion of a period of service, such period of service shall
not be less than one year, starting on the date the Option is granted unless the
Committee (or, if applicable, its delegate) determines that a shorter period of
service (or no period of service) better serves Internap’s interest. No
Option may be exercisable more than ten years from the grant date or, if the
Option is an ISO granted to a ten percent stockholder of Internap, it may not be
exercisable more than five years from the grant date.
32
Stock
Appreciation Rights
SARs
may be granted by the Committee to eligible employees and outside directors
under the Stock Plan, or in the case of certain grants to eligible employees who
are not “insiders” within the meaning of Rule 16b-3 or “covered employees” under
Section 162(m) of the Code, by the Committee’s delegate, either as part of an
Option or as stand alone SAR. The terms and conditions for an SAR granted
as part of an Option will be set forth in the Option certificate for the related
Option while the terms and conditions for a stand alone SAR will be set forth in
a SAR certificate. SARs entitle the holder to receive the appreciation of
the fair market value of one share of common stock as of the date such right is
exercised over the baseline price specified in the Option or SAR certificate
(the “SAR Value”), multiplied by the number of shares of common stock in respect
of which the SAR is being exercised. The SAR Value for an SAR must equal
or exceed the fair market value of a share of common stock as determined on the
grant date in accordance with the Stock Plan. If an SAR is granted
together with an Option, then the exercise of the SAR shall cancel the right to
exercise the related Option, and the exercise of a related Option shall cancel
the right to exercise the SAR. An SAR granted as a part of an Option shall
be exercisable only while the related Option is exercisable. A stand alone
SAR shall be exercisable as provided in the related SAR certificate. The
Committee (or, if applicable its delegate) in its discretion may require
completion of a period of service as an eligible employee or outside director
before an SAR may be exercised, but if the only condition to the exercise of an
SAR is the completion of a period of service, such period of service shall not
be less than one year, starting on the date the SAR is granted unless the
Committee (or, if applicable, its delegate) determines
that a shorter period of service (or no period of service) better serves
Internap’s interest. At the discretion of the Committee or its delegate,
any payment due to the eligible employee or director upon the exercise of an SAR
can be made in cash or in the form of common stock.
Stock
Grants are grants which are designed to result in the issuance of common stock
to the eligible employee or outside director to whom the grants are made, and
Stock Grants may be granted by the Committee, or in the case of certain grants
to eligible employees who are not “insiders” within the meaning of Rule 16b-3 or
“covered employees” under Section 162(m) of the Code, by the Committee’s
delegate, subject to such terms and conditions, if any, as the Committee (or, if
applicable its delegate) acting in its absolute discretion deems
appropriate. The Committee or its delegate, in its discretion, may
prescribe that an eligible employee’s or outside director’s rights in a Stock
Grant will be nontransferable or forfeitable or both unless certain conditions
are satisfied. These conditions may include, for example, a requirement
that the eligible employee continue employment or the outside director continue
service with Internap for a specified period or that Internap or the eligible
employee achieve stated performance or other objectives. If the only
condition to the forfeiture of a Stock Grant is the completion of a period of
service, such period of service shall not be less than three years, starting on
the date the Stock Grant is made unless the Committee (or, if applicable, its
delegate) determines that a shorter period of service (or no period of service)
better serves Internap’s interest. Each Stock Grant shall be evidenced by
a certificate which will specify what rights, if any, an eligible employee or
outside director has with respect to such Stock Grant as well as any conditions
applicable to the Stock Grant.
Except
as otherwise set forth in the related Stock Grant certificate, if a cash
dividend is paid on common stock subject to a Stock Grant while such Stock Grant
remains subject to forfeiture conditions or restrictions on transfer, then the
cash dividend will be paid in cash directly to the eligible employee or outside
director. Except as otherwise set forth in the related Stock Grant
certificate, if a stock dividend is paid on common stock subject to a Stock
Grant while such common stock remains subject to forfeiture conditions or
restrictions on transfer, then the stock dividend will be held by Internap
subject to the same conditions or restrictions as the related Stock Grant.
Except as otherwise set forth in the related Stock Grant certificate, an
eligible employee or outside director shall have the right to vote common stock
issued under a Stock Grant while such common stock remains subject to forfeiture
conditions or restrictions on transfer.
Stock
Units
Stock
Units are grants which are designed to result in cash payments to the eligible
employees and outside directors to whom grants are made based on the fair market
value of the common stock underlying the grant, and Stock Units may be granted
by the Committee, or in the case of certain grants to eligible employees who are
not “insiders” within the meaning of Rule 16b-3 or “covered employees” under
Section 162(m) of the Code, by the Committee’s delegate, subject to such terms
and conditions, if any, as the Committee (or, if applicable, its delegate)
acting in its absolute discretion deems appropriate. The terms and
conditions for a Stock Unit grant will be set forth in the certificate
evidencing the grant and may include, for example, a requirement that the
eligible employee continue employment or the outside director continue service
with Internap for a specified period or that Internap or the eligible employee
achieve stated performance or other objectives. If the only condition to
the forfeiture of a Stock Unit is the completion of a period of service, such
period of service shall not be less than three years, starting on the date the
Stock Unit is granted unless the Committee (or, if applicable, its delegate)
determines that a shorter period of service (or no period of service) better
serves Internap’s interest.
Transferability
Absent
consent of the Committee, no Option, SAR, Stock Grant or Stock Unit grant made
to an eligible employee or outside director is transferable by such eligible
employee or outside director other than by will or by the laws of descent and
distribution. Absent consent of the Committee, an Option or SAR shall be
exercisable during an eligible employee’s or outside director’s lifetime only by
such eligible employee or outside director.
33
Change in
Control
If
there is a change in control of Internap, then all conditions to the exercise of
all outstanding Options and SARs and all issuance or forfeiture conditions on
all outstanding Stock Grants and Stock Unit grants will be deemed
satisfied. However, any condition to the exercise of an outstanding Option
or any issuance or forfeiture condition on a Stock Grant or Unit Grant which
relates to satisfying a performance goal will be deemed satisfied only to the
extent that such performance goal has been met on or before the effective time
of the change in control. The Board of Directors shall have the right, to
the extent required as a part of the change in control transaction, to cancel
all outstanding Options, SARs and Stock Grants after giving eligible employees
and outside directors a reasonable period of time to exercise their outstanding
Options and SARs or to take such other action as is necessary to receive common
stock subject to Stock Grants.
A
change in control means, generally, (1) the acquisition by any person (except
for a signatory to the agreement described below) of 30% or more of the
outstanding shares of common stock, (2) the current members of Internap’s Board
of Directors, or their approved successors, ceasing to be a majority of the
Board of Directors during any period of two years or less, (3) a reorganization,
merger, consolidation or sale or disposition of substantially all of the assets
of Internap, unless Internap shareholders control the resulting company, or (4)
the approval by shareholders of a complete liquidation or dissolution of
Internap, (5) any other event the Committee determines is a change in
control.
Amending
or Terminating the Stock Plan
The
Stock Plan may be amended by the Board to the extent it deems necessary or
appropriate, but no amendment may be made on or after the effective date of a
change on control to the section of the Stock Plan governing a change in control
which might adversely affect any rights that would otherwise vest on a change in
control. The Stock Plan may also be terminated by the Board at any
time. The Board may not unilaterally modify, amend or cancel any Option,
SAR, Stock Grant or Stock Unit previously granted without the consent of the
holder of such Option, SAR, Stock Grant or Stock Unit or unless there is a
dissolution or liquidation of Internap or a similar transaction. No
amendment shall be made absent the approval of the stockholders of Internap to
the extent such approval is required under applicable law or the rules of the
stock exchange on which shares of common stock are listed.
Adjustment
of Shares
Capital
Structure. The number, kind or class of shares of common stock
reserved for issuance under the Stock Plan, the annual grant caps, the number,
kind or class of shares of common stock subject to Options or SARs granted under
the Stock Plan, and the option price of the Options and the SAR Value of the
SARs, as well as the number, kind or class of shares of common stock granted
pursuant to Stock Grants under the Stock Plan and the payment due under Stock
Unit grants under the Stock Plan, shall be adjusted by the Committee in a
reasonable and equitable manner to reflect any change in the capitalization of
Internap. No approval of Internap’s stockholders is required for such adjustment
unless such approval is required under applicable law or the rules of the stock
exchange on which the common stock of Internap is traded.
Mergers. The
Committee as part of any transaction described in Code Section 424(a) which is
not a change in control shall have the right to adjust (in any manner which the
Committee in its discretion deems consistent with Code Section 424(a)) the
number, kind or class of shares of common stock reserved for issuance under the
Stock Plan, the number, kind or class of shares of common stock underlying any
Stock Grants previously made under the Stock Plan and any related grant and
forfeiture conditions, and the number, kind or class of shares of common stock
subject to Option and SAR grants previously made under the Stock Plan and the
related option price of the Options and SAR Value of the SARs and cash payment
under Stock Unit grants previously made under the Stock Plan, and, further,
shall have the right to make (in any manner which the Committee in its
discretion deems consistent with Code Section 424(a)) Stock Grant, Stock Unit,
Option and SAR grants to effect the assumption of, or the substitution for,
stock grants, option and stock appreciation right grants previously made by any
other corporation to the extent that such transaction calls for the substitution
or assumption of such grants. Further, if the Committee makes any such
grants as a part of a transaction described in Section 424(a) of the Code, the
Committee shall have the right to increase the number of shares of Internap’s
common stock available for issuance under the Stock Plan by the number of shares
subject to such grants without seeking shareholder approval unless approval of
Internap’s shareholders required under applicable law or the rules of the stock
exchange on which the common stock of Internap is traded.
Federal
Income Tax Consequences
The
rules concerning the federal income tax consequences with respect to grants made
pursuant to the Stock Plan are technical, and reasonable persons may differ on
the proper interpretation of such rules. Moreover, the applicable
statutory and regulatory provisions are subject to change, as are their
interpretations and applications, which may vary in individual
circumstances. Therefore, the following discussion is designed to provide
only a brief, general summary description of the federal income tax consequences
associated with such grants, based on a good faith interpretation of the current
federal income tax laws, regulations (including certain proposed regulations)
and judicial and administrative interpretations. The following discussion
does not set forth (1) any federal tax consequences other than income tax
consequences or (2) any state, local or foreign tax consequences that may
apply.
34
ISOs. In
general, an eligible employee will not recognize taxable income upon the grant
or the exercise of an ISO. For purposes of the alternative minimum tax,
however, the eligible employee will be required to treat an amount equal to the
difference between the fair market value of the common stock on the date of
exercise over the exercise price as an item of adjustment in computing the
eligible employee’s alternative minimum taxable income. If the eligible
employee does not dispose of the common stock received pursuant to the exercise
of the ISO within either (1) two years after the date of the grant of the ISO or
(2) one year after the date of exercise of the ISO, a subsequent disposition of
the common stock will generally result in long-term capital gain or loss to such
individual with respect to the difference between the amount realized on the
disposition and the exercise price. Internap will not be entitled to any
income tax deduction as a result of such disposition. Internap normally
will not be entitled to take an income tax deduction upon either the grant or
the exercise of an ISO.
If
the eligible employee disposes of the common stock acquired upon exercise of the
ISO within either of the above-mentioned time periods, then in the year of such
disposition, such individual generally will recognize ordinary income, and
Internap will be entitled to an income tax deduction (provided Internap
satisfies applicable federal income tax reporting requirements), in an amount
equal to the lesser of (1) the excess of the fair market value of the common
stock on the date of exercise over the exercise price or (2) the amount
realized upon disposition over the exercise price. Any gain in excess of such
amount recognized by the eligible employee as ordinary income would be taxed to
such individual as short-term or long-term capital gain (depending on the
applicable holding period).
Non-ISOs.
An eligible employee or an outside director will not recognize any taxable
income upon the grant of a Non-ISO, and Internap will not be entitled to take an
income tax deduction at the time of such grant. Upon the exercise of a Non-ISO,
the eligible employee or outside director generally will recognize ordinary
income and Internap will be entitled to take an income tax deduction (provided
Internap satisfies applicable federal income tax reporting requirements) in an
amount equal to the excess of the fair market value of the common stock on the
date of exercise over the exercise price. However, if an eligible employee
or outside director is subject to Section 16(b) of the Securities and Exchange
Act of 1934, as amended (the “1934 Act”) and cannot sell the common stock
purchased after the exercise of the Non-ISO without being subject to liability
under such section, the stock will be treated as subject to a substantial risk
of forfeiture for six months or until the stock can be sold without any such
liability, whichever comes first, and the eligible employee or outside director
will be taxable on such spread at that time. Upon a subsequent sale of the
common stock by the eligible employee or outside director, such individual will
recognize short-term or long-term capital gain or loss (depending on the
applicable holding period). However, if the sale of the common stock at a
profit within six months after the “purchase” of the common stock could subject
the eligible employee or outside director to a suit under Section 16(b) of the
1934 Act, then the eligible employee or outside director either will need to
make an election to be taxed on the ordinary income determined at the time of
such purchase pursuant to Section 83(b) of the Code or will recognize ordinary
income equal to the fair market value of the common stock less the exercise
price for the common stock, determined as of the earlier of the end of such six
month period or the first date within such six month period on which the
eligible employee or outside director could sell the common stock at a profit
without being subject to such a suit. The U.S. Tax Court has held that the
“purchase” of shares subject to a Non-ISO for this purpose occurs when the
Non-ISO is granted.
SARs. An
eligible employee will recognize ordinary income for federal income tax purposes
upon the exercise of an SAR under the Stock Plan for cash, common stock or a
combination of cash and common stock, and the amount of income that the eligible
employee will recognize will depend on the amount of cash, if any, and the fair
market value of the common stock, if any, that the eligible employee receives as
a result of such exercise. Internap generally will be entitled to a
federal income tax deduction in an amount equal to the ordinary income
recognized by the eligible employee in the same taxable year in which the
eligible employee recognizes such income, if Internap satisfies applicable
federal income tax reporting requirements. Recent guidance from the IRS
provides that SAR grants will be subject to taxation under the new rules for
taxing deferred compensation unless an eligible employee can only receive Common
Stock upon the exercise of the SAR. If an eligible employee can receive
cash, the SAR will need to satisfy the requirements under the new rules.
If the SAR fails to satisfy the requirements under the new rules, the eligible
employee will be subject to tax at his or her standard rate plus
20%.
Stock
Grants. An eligible
employee or outside director is not subject to any federal income tax upon the
grant of a Stock Grant, nor does the grant of a Stock Grant result in an income
tax deduction for Internap, unless the restrictions on the stock do not present
a “substantial risk of forfeiture” or the stock is “transferable”, each within
the meaning of Section 83 of the Code. Stock which is subject to a
substantial risk of forfeiture within the meaning of Section 83 of the Code is
transferable within the meaning of Section 83 if the transferee would not be
subject to such risk of forfeiture after such transfer. In the year that
the Stock Grant is either no longer subject to a substantial risk of forfeiture
or is transferable, the eligible employee or outside director will recognize
ordinary income in an amount equal to the excess, if any, of the fair market
value of the shares of common stock transferred to the eligible employee or
outside director, generally determined on the date the Stock Grant is no longer
subject to a substantial risk of forfeiture, or is transferable, whichever comes
first, over the amount, if any, paid for such shares. If an eligible
employee or outside director is subject to Section 16(b) of the 1934 Act and
cannot sell the common stock without being subject to liability under such
section after the common stock is no longer subject to a substantial risk
of forfeiture or is
transferable, the common stock will be treated as subject to a substantial risk
of forfeiture and non-transferable for six months or until the stock can be sold
without any such liability, whichever comes first. If the Stock Grant is
forfeited, the eligible employee or outside director will recognize no
gain.
35
Stock
Units. An eligible employee or outside director is not subject to
any federal income tax upon the grant of a Stock Unit, nor does the grant of a
Stock Unit result in an income tax deduction for Internap. In the year
that the Stock Unit is either redeemed for cash or transferable, the eligible
employee or outside director will recognize ordinary income in an amount equal
to the amount of the payment made under the Stock Unit or received in the
transfer. Recent guidance from the IRS provides that Stock Unit grants
will be subject to taxation under the new rules for taxing deferred
compensation. If the Stock Unit grant fails to satisfy the requirements
under the new rules, the eligible employee will be subject to tax at his or her
standard rate plus 20%. If the Stock Unit is forfeited, the eligible
employee or outside director will recognize no gain.
NEW
PLAN BENEFITS
Amended and Restated Internap Network Services Corporation
2005 Incentive Stock Plan
|
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 | |||||
The Board of Directors
unanimously recommends that you vote “For” increasing the number of shares
reserved for issuance under the Stock Plan by four million
shares.
Our Audit
Committee has appointed PricewaterhouseCoopers LLP to serve as our independent
registered public accounting firm for the fiscal year ending December 31,
2008. 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.
36
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, 2007 and 2006.
|
|
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
|
|
(1)
|
Fees
related to the audit of Internap’s annual financial statements, including
the audit of the effectiveness of internal control over financial
reporting and the reviews of the quarterly financial statements filed on
Forms 10-Q, and, for 2006, included the audit of management’s assessment
of internal control over financial reporting.
|
||||||||
|
(2)
|
Fees
primarily related to international statutory filings and, in 2006, also
included registration statements.
|
||||||||
|
(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 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.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION
OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP TO SERVE AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDED DECEMBER 31,
2008.
Section 16(a)
of the Exchange Act and regulations of the SEC thereunder require our Directors,
officers and persons who own more than 10% of our common stock, as well as
certain affiliates of such persons, to file initial reports of their ownership
of our common stock and subsequent reports of changes in such ownership with the
SEC. Directors, officers and persons owning more than 10% of our common stock
are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file.
Based
solely on our review of these reports or of certifications to us that no report
was required to be filed, we believe that all of our Directors and executive
officers complied with all Section 16(a) filing requirements applicable to
them during the 2007 fiscal year, except: Mr. Buckel, who filed two late
Form 4s in connection with the sale of shares of his common stock; Mr.
Abrahamson, who resigned in August of 2007, who filed one late Form 4 in
connection with his exercise of stock options prior 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 grant of stock options; and Ms.
Augustyn, who filed one late Form 4 in connection with her grant of stock
options.
STOCKHOLDERS’
PROPOSALS FOR 2009 ANNUAL MEETING
Proposals
of stockholders, including nominations for the Board of Directors, intended to
be presented at the 2009 annual meeting must be received by us at our executive
offices in Atlanta, Georgia, on or before December 28, 2008 to be eligible
for inclusion in our proxy statement and form of proxy relating to that meeting
and to be introduced for action at the meeting. In accordance with our bylaws,
for business to be properly brought before a meeting, but not included in the
proxy, a stockholder must submit a proposal, including nominations for the Board
of Directors, not earlier than February 20, 2009 and not later than
March 22, 2009 and must comply with the eligibility, advance notice and
other provisions of our bylaws. A copy of our bylaws is available upon request
to the address below.
Stockholder
proposals should be sent to:
|
|
Internap
Network Services Corporation
|
|
|
250
Williams Street, Suite E-100
|
|
|
Atlanta,
Georgia 30303
|
|
|
Attention:
Corporate Secretary
|
HOUSEHOLDING
As
permitted under the Exchange Act, only one copy of this proxy statement is being
delivered to stockholders residing at the same address, unless such stockholders
have notified Internap of their desire to receive multiple copies of this proxy
statement. Internap will promptly deliver, upon oral or written request, a
separate copy of this proxy statement to any stockholder residing at an address
to which only one copy was mailed. Requests for additional copies should be
directed to Internap Network Services Corporation, 250 Williams Street, Atlanta,
Georgia 30303, Attention: Investor Relations. Stockholders residing at the same
address and currently receiving only one copy of the proxy statement may contact
Investor Relations at the address above to request multiple copies of the proxy
statement in the future. Stockholders residing at the same address and currently
receiving multiple copies of the proxy statement may contact Investor Relations
at the address above to request that only a single copy of the proxy statement
by mailed in the future.
37
Appendix
A
CERTIFICATE
OF AMENDMENT
OF
CERTIFICATE
OF INCORPORATION OF
INTERNAP
NETWORK SERVICES CORPORATION
Internap Network Services Corporation,
a corporation organized and existing under the laws of the State of Delaware,
hereby certifies as follows:
FIRST:The
name of the corporation is Internap Network Services Corporation.
SECOND:At
a meeting of the Board of Directors of Internap Network Services Corporation,
resolutions were duly adopted declaring the advisability of an amendment to the
Certificate of Incorporation, as follows, and providing that:
Article
IV of the Certificate of Incorporation of Internap Network Services Corporation
shall be hereby amended and restated to read as follows:
“IV.
A. This
Corporation is authorized to issue two classes of stock to be designated,
respectively, “Common Stock” and “Preferred Stock.” The total number of shares
which the Corporation is authorized to issue is 80,000,000 shares of stock. Such
shares shall be divided into two classes as follows:
(i)
60,000,000 shares of common stock (“Common Stock”), each having a par value of
one-tenth of one cent ($0.001).
(ii)
20,000,000 shares of preferred stock (“Preferred Stock”), each having a par
value of one-tenth of one cent ($0.001).
B. The
Preferred Stock may be issued from time to time in one or more series. The Board
of Directors is hereby authorized, by a filing a certificate (a “Preferred Stock
Designation”) pursuant to Delaware General Corporation Law (“DGCL”), to fix or
alter from time to time the designation, powers, preferences and rights of the
shares of each such Series And the qualifications, limitations or restrictions
of any wholly unissued series of Preferred Stock, and to establish from time to
time the number of shares constituting any such series or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
THIRD:
That thereafter, pursuant to resolution of its Board Directors, a meeting of the
stockholders of said corporation was duly called and held, upon notice in
accordance with Section 222 of the General Corporation Law of the State of
Delaware, at which meeting the necessary number of shares as required by statute
were voted in favor of the amendment.
FOURTH:
This Certificate of Amendment of Certificate of Incorporation was duly adopted
at said meeting of the stockholders in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware.
FIFTH:In
accordance with Section 103(b) of the General Corporation Law of the State of
Delaware, this Certificate of Amendment of Certificate of Incorporation shall be
effective upon filing with the Secretary of State of the State of
Delaware.
IN WITNESS WHEREOF, this
Certificate has been subscribed this day
of ,
2008 by the undersigned who affirms that the statements made herein are true and
correct.
INTERNAP
N ETWORK SERVICES CORPORATION
By:
Richard
P. Dobb, Vice President and General Counsel
A-1
Appendix
B
Note—The
Company and its stockholders adopted this Amended and Restated Internap Network
Services Corporation 2005 Incentive Stock Plan prior to the one-for-ten reverse
stock split, which the Company’s stockholders approved on June 21,
2006. The Amended and Restated Internap Network Services Corporation
2005 Incentive Stock Plan reproduced here as Appendix B does not reflect such
split.
AMENDED
AND RESTATED
INTERNAP
NETWORK SERVICES CORPORATION
2005
INCENTIVE STOCK PLAN
(amended
and restated as of March 15, 2006)
B-1
TABLE OF
CONTENTS
|
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
|
i
B-2
|
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
|
ii
B-3
|
Other
Conditions
|
34
|
|
|
16.6
|
Rule
16b-3
|
34
|
|
16.7
|
Coordination
with Employment Agreements and Other Agreements
|
34
|
iii
B-4
BACKGROUND AND
PURPOSE
The
purpose of this Plan is to promote the interest of the Company by authorizing
the Committee to grant Options and Stock Appreciation Rights and to make Stock
Grants and Stock Unit Grants to Eligible Employees and Directors in order
(1) to attract and retain Eligible Employees and Directors, (2) to
provide an additional incentive to each Eligible Employee or Director to work to
increase the value of Stock and (3) to provide each Eligible Employee or
Director with a stake in the future of the Company which corresponds to the
stake of each of the Company’s shareholders.
§ 2.
DEFINITIONS
2.1 Affiliate -- means
any organization (other than a Subsidiary) that would be treated as under common
control with the Company under § 414(c) of the Code if “50 percent” were
substituted for “80 percent” in the income tax regulations under § 414(c)
of the Code.
2.2 Board -- means the
Board of Directors of the Company.
2.3 Change Effective Date
-- means either the date which includes the “closing” of the transaction which
makes a Change in Control effective if the Change in Control is made effective
through a transaction which has a “closing” or the date a Change in Control is
reported in accordance with applicable law as effective to the Securities and
Exchange Commission if the Change in Control is made effective other than
through a transaction which has a “closing”.
B-5
2.4 Change in Control --
means the happening of any of the following events:
|
(a)
|
An
acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the 1934 Act) (an “Entity”) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the 1934
Act) of 30% or more of either (i) the then outstanding shares of Stock
(the “Outstanding Stock”) or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors (the “Outstanding Voting Securities”);
excluding, however, the following: (A) any acquisition directly from the
Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself
acquired directly from the Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by
the Company, or (D) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) of this Section;
|
|
(b)
|
A
change in the composition of the Board such that the individuals who, as
of the Change Effective Date, constitute the Board (such Board shall be
hereinafter referred to as the “Incumbent
Board”),
|
-2-
B-6
|
|
cease
for any reason to constitute at least a majority of the Board; provided,
however, that for purposes of this definition, any individual who becomes
a member of the Board subsequent to the Change Effective Date, whose
election, or nomination for election, by the Company’s stockholders was
approved by a vote of at least a majority of those individuals who are
members of the Board and who were also members of the Incumbent Board (or
deemed to be such pursuant to this proviso), shall be considered as though
such individual were a member of the Incumbent Board; and provided,
further however, that any such individual whose initial assumption of
office occurs as a result of or in connection with either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of an
Entity other than the Board shall not be so considered as a member of the
Incumbent Board;
|
|
(c)
|
The
approval by the stockholders of the Company of a merger, reorganization or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company (each, a “Corporate Transaction”) or, if
consummation of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or governmental
agency, the obtaining
|
-3-
B-7
|
|
of
such consent either explicitly or implicitly by consummation); excluding
however, such a Corporate Transaction pursuant to which (i) all or
substantially all of the individuals and entities who are the beneficial
owners, respectively, of the Outstanding Stock and Outstanding Voting
Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of, respectively,
the outstanding shares of common stock, and the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Corporate Transaction (including, without limitation, a Parent)
in substantially the same proportions as their ownership, immediately
prior to such Corporate Transaction, of the Outstanding Stock and
Outstanding Voting Securities, as the case may be, (ii) no Entity (other
than the Company, any employee benefit plan (or related trust) of the
Company, such corporation resulting from such Corporate Transaction or, if
reference was made to equity ownership of any Parent for purposes of
determining whether clause (i) above is satisfied in connection with the
applicable Corporate Transaction, such Parent) will beneficially own,
directly or indirectly, 50% or more of, respectively, the outstanding
shares of common stock of the corporation
resulting
|
-4-
B-8
|
|
from
such Corporate Transaction or the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally in the
election of directors unless such ownership resulted solely from ownership
of securities of the Company prior to the Corporate Transaction, and (iii)
individuals who were members of the Incumbent Board will immediately after
the consummation of the Corporate Transaction constitute at least a
majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction (or, if reference was made to
equity ownership of any Parent for purposes of determining whether clause
(i) above is satisfied in connection with the applicable Corporate
Transaction, of the Parent); or
|
|
(d)
|
The
approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.
|
2.5 Code -- means the
Internal Revenue Code of 1986, as amended.
2.6 Committee -- means
the Compensation Committee of the Board which shall have at least 2 members,
each of whom shall be appointed by and shall serve at the pleasure of the Board
and shall come within the definition of a “non-employee director” under Rule
16b-3 and an “outside director” under § 162(m) of the
Code.
-5-
B-9
2.7 Company -- means
Internap Network Services Corporation and any successor to Internap Network
Services Corporation.
2.8 Director -- means any
member of the Board who is not an employee of the Company or a Parent or
Subsidiary or affiliate (as such term is defined in Rule 405 of the 1933 Act) of
the Company.
2.9 Eligible Employee --
means an employee of the Company or any Subsidiary or Parent or Affiliate to
whom the Committee decides for reasons sufficient to the Committee to make a
grant under this Plan.
2.10 Fair Market Value --
means either (a) the closing price on any date for a share of Stock as
reported by The Wall
Street Journal or, if The Wall Street
Journal no longer reports such closing price, such closing price as
reported by a newspaper or trade journal selected by the Committee or, if no
such closing price is available on such date, (b) such closing price as so
reported in accordance with § 2.10(a) for the immediately preceding
business day, or, if no newspaper or trade journal reports such closing price or
if no such price quotation is available, (c) the price which the Committee
acting in good faith determines through any reasonable valuation method that a
share of Stock might change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell and both having reasonable
knowledge of the relevant facts or, (d) in the discretion of the Committee, any
stock valuation method which complies with the requirements of Section 409A or
Section 422 of the Code, as applicable, based on the provisions of such
statutory provision and any formal guidance issued by the Internal Revenue
Service.
-6-
B-10
2.11 ISO -- means an
option granted under this Plan to purchase Stock which is intended to satisfy
the requirements of § 422 of the Code.
2.12 1933 Act -- means the
Securities Act of 1933, as amended.
2.13 1934 Act -- means the
Securities Exchange Act of 1934, as amended.
2.14 Non-ISO -- means an
option granted under this Plan to purchase Stock which is intended to fail to
satisfy the requirements of § 422 of the Code.
2.15 Option -- means an
ISO or a Non-ISO which is granted under § 7.
2.16 Option Certificate --
means the certificate (whether in electronic or written form) which sets forth
the terms and conditions of an Option granted under this Plan.
2.17 Option Price -- means
the price which shall be paid to purchase one share of Stock upon the exercise
of an Option granted under this Plan.
2.18 Parent -- means any
corporation which is a parent corporation (within the meaning of § 424(e)
of the Code) of the Company.
2.19 Plan -- means this
Internap Network Services Corporation 2005 Incentive Stock Plan as effective as
of the date approved by the shareholders of the Company and as amended from time
to time thereafter.
2.20 Preexisting Plan --
means each of the following plans, as each such plan has been amended from time
to time up to the date this Plan is effective (a) Switchsoft Systems, Inc.
Founders 1996 Stock Option Plan, (b) Internap Network Services Corporation 2002
Stock Compensation Plan, (c) Amended 1999 Equity
-7-
B-11
Incentive
Plan, (d) 1999 Stock Incentive Plan for Non-Officers, (e) Amended and Restated
1998 Stock Option/Stock Issuance Plan, and (f) the Switchsoft Systems, Inc. 1997
Stock Option Plan.
2.21 Rule 16b-3 -- means
the exemption under Rule 16b-3 to Section 16(b) of the 1934 Act or any
successor to such rule.
2.22 SAR Value -- means
the value assigned by the Committee to a share of Stock in connection with the
grant of a Stock Appreciation Right under § 8.
2.23 Stock -- means the
common stock of the Company.
2.24 Stock Appreciation
Right -- means a right which is granted under § 8 to receive the
appreciation in a share of Stock.
2.25 Stock Appreciation Right
Certificate -- means the certificate (whether in electronic or written
form) which sets forth the terms and conditions of a Stock Appreciation Right
which is not granted as part of an Option.
2.26 Stock Grant -- means
a grant under § 9 which is designed to result in the issuance of the number
of shares of Stock described in such grant rather than a payment in cash based
on the Fair Market Value of such shares of Stock.
2.27 Stock Grant
Certificate -- means the certificate (whether in electronic or written
form) which sets forth the terms and conditions of a Stock Grant or a Stock Unit
Grant.
2.28 Stock Unit Grant --
means a grant under § 9 which is designed to result in the payment of cash
based on the Fair Market Value of the number of shares of
-8-
B-12
Stock
described in such grant rather than the issuance of the number of shares of
Stock described in such grant.
2.29
Subsidiary --
means a corporation which is a subsidiary corporation (within the meaning of
§ 424(f) of the Code) of the Company.
2.30
Ten Percent
Shareholder -- means a person who owns (after taking into account the
attribution rules of § 424(d) of the Code) more than ten percent of the
total combined voting power of all classes of stock of either the Company, a
Subsidiary or Parent.
§ 3.
SHARES AND GRANT
LIMITS
3.1
Shares Reserved
.. There shall (subject to § 13) be reserved for issuance under this Plan
(a) 20,000,000 shares of Stock plus (b) the number of shares of Stock which
remained available for issuance under each Preexisting Plan (including any
shares with respect to which options or other awards have been granted if the
shares underlying such options or other awards have not been issued as of the
effective date of this Plan); provided, however, (c) no more than the number of
shares of Stock described in § 3.1(a) shall be issued in connection with
the exercise of ISOs.
3.2 Source of Shares .
The shares of Stock described in § 3.1 shall be reserved to the extent that
the Company deems appropriate from authorized but unissued shares of Stock and
from shares of Stock which have been reacquired by the Company. All shares of
Stock described in § 3.1 shall remain available for issuance under this
Plan until issued pursuant to the exercise of an Option or a Stock
-9-
B-13
Appreciation
Right or issued pursuant to a Stock Grant, and any such shares of stock which
are issued pursuant to an Option, a Stock Appreciation Right or a Stock Grant
which are forfeited thereafter shall again become available for issuance under
this Plan. Finally, if the Option Price under an Option is paid in whole or in
part in shares of Stock or if shares of Stock are tendered to the Company in
satisfaction of any condition to a Stock Grant, such shares thereafter shall
become available for issuance under this Plan and shall be treated the same as
any other shares available for issuance under this Plan.
3.3 Use of Proceeds . The
proceeds which the Company receives from the sale of any shares of Stock under
this Plan shall be used for general corporate purposes and shall be added to the
general funds of the Company.
3.4 Grant Limits . No
Eligible Employee or Director in any calendar year shall be granted an Option to
purchase (subject to § 13) more than 1,400,000 shares of Stock or a Stock
Appreciation Right based on the appreciation with respect to (subject to
§ 13) more than 1,400,000 shares of Stock, and no Stock Grant or Stock Unit
Grant shall be made to any Eligible Employee or Director in any calendar year
where the Fair Market Value of the Stock subject to such grant on the date of
the grant exceeds $3,000,000. No more than 700,000 non-forfeitable shares of
Stock shall (subject to § 13) be issued pursuant to Stock Grants under
§ 9.
3.5
Preexisting
Plan . No grants shall be made under any Preexisting Plan on or after the
date this Plan becomes effective, but the terms of any grant made under a
Preexisting Plan prior to the date this Plan becomes effective shall
be
-10-
B-14
interpreted
under the terms of the Preexisting Plan under which such grant was made and not
under this Plan. Each Preexisting Plan is hereby made a part of this Plan so
that the shares available for issuance under this Plan may be issued in
connection with grants made under any Preexisting Plan.
§ 4.
EFFECTIVE
DATE
The
effective date of this Plan shall be the date the shareholders of the Company
(acting at a duly called meeting of such shareholders) approve the adoption of
this Plan.
§ 5.
COMMITTEE
This
Plan shall be administered by the Committee. The Committee acting in its
absolute discretion shall exercise such powers and take such action as expressly
called for under this Plan and, further, the Committee shall have the power to
interpret this Plan and (subject to § 14 and § 15 and Rule 16b-3) to
take such other action in the administration and operation of this Plan as the
Committee deems equitable under the circumstances, which action shall be binding
on the Company, on each affected Eligible Employee or Director and on each other
person directly or indirectly affected by such action. Furthermore, the
Committee as a condition to making any grant under this Plan to any Eligible
Employee or Director shall have the right to require him or her to execute an
agreement which makes the Eligible Employee or Director subject to
non-
-11-
B-15
competition
provisions and other restrictive covenants which run in favor of the
Company.
§ 6.
ELIGIBILITY
Only
Eligible Employees who are employed by the Company or a Subsidiary or Parent
shall be eligible for the grant of ISOs under this Plan. All Eligible Employees
and all Directors shall be eligible for the grant of Non-ISOs and Stock
Appreciation Rights and for Stock Grants and Stock Unit Grants under this
Plan.
§ 7.
OPTIONS
7.1
Committee
Action . The Committee acting in its absolute discretion shall have the
right to grant Options to Eligible Employees and to Directors under this Plan
from time to time to purchase shares of Stock, but the Committee shall not
(subject to § 13) take any action, whether through amendment, cancellation,
replacement grants, or any other means, to reduce the Option Price of any
outstanding Options absent the approval of the Company’s shareholders. The
Committee may appoint a delegate and authorize such delegate to make grants of
Options to Eligible Employees who are not “insiders” within the meaning of rule
16b-3 or “covered employees” under § 162(m) of the Code. Each grant of an
Option to an Eligible Employee or Director shall be evidenced by an Option
Certificate, and each Option Certificate shall set forth whether the Option is
an ISO or a Non-ISO and shall set forth such other terms and conditions of such
grant as the Committee acting in its absolute discretion deems consistent with
the
-12-
B-16
terms of
this Plan; however, (a) if the Committee grants an ISO and a Non-ISO to an
Eligible Employee on the same date, the right of the Eligible Employee to
exercise the ISO shall not be conditioned on his or her failure to exercise the
Non-ISO and (b) if the only condition to exercise of the Option is the
completion of a period of service, such period of service shall be no less than
the one (1) year period which starts on the
date as of which the Option is granted unless the Committee determines that a
shorter period of service (or no period of service) better serves the Company’s
interest.
7.2
$100,000 Limit
.. No Option shall be treated as an ISO to the extent that the aggregate Fair
Market Value of the Stock subject to the Option which would first become
exercisable in any calendar year exceeds $100,000. Any such excess shall instead
automatically be treated as a Non-ISO. The Committee shall interpret and
administer the ISO limitation set forth in this § 7.2 in accordance with
§ 422(d) of the Code, and the Committee shall treat this § 7.2 as in effect
only for those periods for which § 422(d) of the Code is in
effect.
7.3
Option Price .
The Option Price for each share of Stock subject to an Option shall be no less
than the Fair Market Value of a share of Stock on the date the Option is
granted; provided, however, if the Option is an ISO granted to an Eligible
Employee who is a Ten Percent Shareholder, the Option Price for each share of
Stock subject to such ISO shall be no less than 110% of the Fair Market Value of
a share of Stock on the date such ISO is granted.
7.4
Payment . The
Option Price shall be payable in full upon the exercise of any Option and, at
the discretion of the Committee, an Option Certificate can
-13-
B-17
provide
for the payment of the Option Price either in cash, by check or in Stock which
has been held for at least 6 months and which is acceptable to the Committee, or
through any cashless exercise procedure which is effected by an unrelated broker
through a sale of Stock in the open market and which is acceptable to the
Committee, or in any combination of such forms of payment. Any payment made in
Stock shall be treated as equal to the Fair Market Value of such Stock on the
date the certificate for such Stock (or proper evidence of such certificate) is
presented to the Committee or its delegate in such form as acceptable to the
Committee.
7.5 Exercise
..
|
(a)
|
Exercise
Period. Each Option granted under this Plan shall be
exercisable in whole or in part at such time or times as set forth in the
related Option Certificate, but no Option Certificate shall make an Option
exercisable on or after the earlier of
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|||
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(1)
|
the
date which is the fifth anniversary of the date the Option is granted, if
the Option is an ISO and the Eligible Employee is a Ten Percent
Shareholder on the date the Option is granted, or
|
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|
(2)
|
the
date which is the tenth anniversary of the date the Option is granted, if
the Option is (a) a Non-ISO or (b) an ISO which is granted to
an
|
|||
-14-
B-18
Eligible
Employee who is not a Ten Percent Shareholder on the date the Option is
granted.
|
(b)
|
Termination of Status
as Eligible Employee or Director. Subject to § 7.5(a),
an Option Certificate may provide for the exercise of an Option after an
Eligible Employee’s or a Director’s status as such has terminated for any
reason whatsoever, including death or
disability.
|
§ 8.
STOCK APPRECIATION
RIGHTS
8.1 Committee Action .
The Committee acting in its absolute discretion shall have the right to grant
Stock Appreciation Rights to Eligible Employees and to Directors under this Plan
from time to time. The Committee may appoint a delegate and authorize such
delegate to make grants of Stock Appreciation Rights to Eligible Employees who
are not “insiders” within the meaning of rule 16b-3 or “covered employees” under
§ 162(m) of the Code. Each Stock Appreciation Right grant shall be
evidenced by a Stock Appreciation Right Certificate or, if such Stock
Appreciation Right is granted as part of an Option, shall be evidenced by the
Option Certificate for the related Option.
8.2 Terms and Conditions
..
|
(a)
|
Stock Appreciation
Right Certificate. If a Stock Appreciation Right is granted
independent of an Option, such Stock Appreciation Right shall be evidenced
by a Stock Appreciation Right Certificate,
and
|
-15-
B-19
such
certificate shall set forth the number of shares of Stock on which the Eligible
Employee’s or Director’s right to appreciation shall be based and the SAR Value
of each share of Stock. Such SAR Value shall be no less than the Fair Market
Value of a share of Stock on the date that the Stock Appreciation Right is
granted. The Stock Appreciation Right Certificate shall set forth such other
terms and conditions for the exercise of the Stock Appreciation Right as the
Committee deems appropriate under the circumstances, but no Stock Appreciation
Right Certificate shall make a Stock Appreciation Right exercisable on or after
the date which is the tenth anniversary of the date such Stock Appreciation
Right is granted.
|
(b)
|
Option
Certificate. If a Stock Appreciation Right is granted
together with an Option, such Stock Appreciation Right shall be evidenced
by an Option Certificate, the number of shares of Stock on which the
Eligible Employee’s or Director’s right to appreciation shall be based
shall be the same as the number of shares of Stock subject to the related
Option, and the SAR Value for each such share of Stock shall be no less
than the Option Price under the related Option. Each such Option
Certificate shall provide that the exercise of the Stock Appreciation
Right with respect to any share of Stock shall cancel the Eligible
Employee’s or Director’s right to
exercise
|
-16-
B-20
his or
her Option with respect to such share and, conversely, that the exercise of the
Option with respect to any share of Stock shall cancel the Eligible Employee’s
or Director’s right to exercise his or her Stock Appreciation Right with respect
to such share. A Stock Appreciation Right which is granted as part of an Option
shall be exercisable only while the related Option is exercisable. The Option
Certificate shall set forth such other terms and conditions for the exercise of
the Stock Appreciation Right as the Committee deems appropriate under the
circumstances.
|
(c)
|
Minimum Period of
Service. If the only condition to exercise of a Stock
Appreciation Right is the completion of a period of service, such period
of service shall be no less than the one (1) year period which starts on
the date as of which the Stock Appreciation Right is granted unless the
Committee determines that a shorter period of service (or no period of
service) better serves the Company’s
interest.
|
8.3
Exercise . A
Stock Appreciation Right shall be exercisable only when the Fair Market Value of
a share of Stock on which the right to appreciation is based exceeds the SAR
Value for such share, and the payment due on exercise shall be based on such
excess with respect to the number of shares of Stock to which the exercise
relates. An Eligible Employee or Director upon the exercise of his or her Stock
Appreciation Right shall receive a payment from the Company in cash or in
Stock
-17-
B-21
issued
under this Plan, or in a combination of cash and Stock, and the number of shares
of Stock issued shall be based on the Fair Market Value of a share of Stock on
the date the Stock Appreciation Right is exercised. The Committee acting in its
absolute discretion shall have the right to determine the form and time of any
payment under this § 8.3.
§ 9.
STOCK
GRANTS
9.1
Committee
Action . The Committee acting in its absolute discretion shall have the
right to make Stock Grants and Stock Unit Grants to Eligible Employees and to
Directors. The Committee may appoint a delegate and authorize such delegate to
make Stock Grants and Stock Unit Grants to Eligible Employees who are not
“insiders” within the meaning of rule 16b-3 or “covered employees” under
§ 162(m) of the Code. Each Stock Grant and each Stock Unit Grant shall be
evidenced by a Stock Grant Certificate, and each Stock Grant Certificate shall
set forth the conditions, if any, under which Stock will be issued under the
Stock Grant or cash will be paid under the Stock Unit Grant and the conditions
under which the Eligible Employee’s or Director’s interest in any Stock which
has been issued will become non-forfeitable.
9.2
Conditions
..
|
(a)
|
Conditions to Issuance
of Stock. The Committee acting in its absolute discretion
may make the issuance of Stock under a Stock Grant subject to the
satisfaction of one, or more than one, condition which the Committee deems
appropriate under the
|
-18-
B-22
circumstances
for Eligible Employees or Directors generally or for an Eligible Employee or a
Director in particular, and the related Stock Grant Certificate shall set forth
each such condition and the deadline for satisfying each such condition. Stock
subject to a Stock Grant shall be issued in the name of an Eligible Employee or
Director only after each such condition, if any, has been timely satisfied, and
any Stock which is so issued shall be held by the Company pending the
satisfaction of the forfeiture conditions, if any, under § 9.2(b) for the
related Stock Grant.
|
(b)
|
Conditions on
Forfeiture of Stock or Cash Payment. The Committee acting in
its absolute discretion may make any cash payment due under a Stock Unit
Grant or Stock issued in the name of an Eligible Employee or Director
under a Stock Grant non-forfeitable subject to the satisfaction of one, or
more than one, objective employment, performance or other condition that
the Committee acting in its absolute discretion deems appropriate under
the circumstances for Eligible Employees or Directors generally or for an
Eligible Employee or a Director in particular, and the related Stock Grant
Certificate shall set forth each such condition, if any, and the deadline,
if any, for satisfying each such condition. An Eligible Employee’s or a
Director’s non-forfeitable interest in the shares of Stock underlying a
Stock Grant or the
|
-19-
B-23
cash
payable under a Stock Unit Grant shall depend on the extent to which he or she
timely satisfies each such condition. If a share of Stock is issued under this
§ 9.2(b) before an Eligible Employee’s or Director’s interest in such share
of Stock is non-forfeitable, (1) such share of Stock shall not be available for
re-issuance under § 3 until such time, if any, as such share of Stock
thereafter is forfeited as a result of a failure to timely satisfy a forfeiture
condition and (2) the Company shall have the right to condition any such
issuance on the Eligible Employee or Director first signing an irrevocable stock
power in favor of the Company with respect to the forfeitable shares of Stock
issued to such Eligible Employee or Director in order for the Company to effect
any forfeiture called for under the related Stock Grant
Certificate.
|
(c)
|
Minimum Period of
Service. If the only condition to the forfeiture of a Stock
Grant or a Stock Unit Grant is the completion of a period of service, such
period of service shall be no less than the three (3) year period which
starts on the date as of which the Stock Grant or Stock Unit Grant is made
unless the Committee determines that a shorter period of service (or no
period of service) better serves the Company’s
interest.
|
-20-
B-24
9.3
Dividends, Voting
Rights and Creditor Status .
|
(a)
|
Cash
Dividends. Except as otherwise set forth in a Stock Grant
Certificate, if a dividend is paid in cash on a share of Stock after such
Stock has been issued under a Stock Grant but before the first date that
an Eligible Employee’s or a Director’s interest in such Stock (1) is
forfeited completely or (2) becomes completely non-forfeitable, the
Company shall pay such cash dividend directly to such Eligible Employee or
Director.
|
|
|
(b)
|
Stock
Dividends. If a dividend is paid on a share of Stock in
Stock after such Stock has been issued under a Stock Grant but before the
first date that an Eligible Employee’s or a Director’s interest in such
Stock (1) is forfeited completely or (2) becomes completely
non-forfeitable, the Company shall hold such dividend Stock subject to the
same conditions under § 9.2(b) as the related Stock
Grant.
|
|
|
(c)
|
Other.
If a dividend (other than a dividend described in § 9.3(a) or
§ 9.3(b)) is paid with respect to a share of Stock after such Stock
has been issued under a Stock Grant but before the first date that an
Eligible Employee’s or a Director’s interest in such Stock (1) is
forfeited completely or (2) becomes completely non-forfeitable,
the
|
-21-
B-25
|
|
Company
shall distribute or hold such dividend in accordance with such rules as
the Committee shall adopt with respect to each such
dividend.
|
|
(d)
|
Voting.
Except as otherwise set forth in a Stock Grant Certificate, an Eligible
Employee or a Director shall have the right to vote the Stock issued under
his or her Stock Grant during the period which comes after such Stock has
been issued under a Stock Grant but before the first date that an Eligible
Employee’s or Director’s interest in such Stock (1) is forfeited
completely or (2) becomes completely non-forfeitable.
|
|
|
(e)
|
General Creditor
Status. Each Eligible Employee and each Director to whom a
Stock Unit grant is made shall be no more than a general and unsecured
creditor of the Company with respect to any cash payable under such Stock
Unit Grant.
|
9.4
Satisfaction of
Forfeiture Conditions. A share of Stock shall cease to be subject to a
Stock Grant at such time as an Eligible Employee’s or a Director’s interest in
such Stock becomes non-forfeitable under this Plan, and the certificate or other
evidence of ownership representing such share shall be transferred to the
Eligible Employee or Director as soon as practicable thereafter.
9.5
Income Tax
Deduction .
|
(a)
|
General.
The Committee shall (where the Committee under the circumstances deems in
the Company’s best interest) either (1) make Stock Grants and Stock Unit
Grants to Eligible Employees
|
-22-
B-26
subject
to at least one condition related to one, or more than one, performance goal
based on the performance goals described in § 9.5(b) which seems likely to
result in the Stock Grant or Stock Unit Grant qualifying as “performance-based
compensation” under § 162(m) of the Code or (2) make Stock Grants and Stock Unit
Grants to Eligible Employees under such other circumstances as the Committee
deems likely to result in an income tax deduction for the Company with respect
such Stock Grant or Stock Unit Grant. A performance goal may be set in any
manner determined by the Committee, including looking to achievement on an
absolute or relative basis in relation to peer groups or indexes, and no change
may be made to a performance goal after the goal has been set.
|
(b)
|
Performance
Goals. A performance goal is described in this § 9.5(b)
if such goal relates to (1) the Company’s return over capital costs or
increases in return over capital costs, (2) the Company’s total earnings
or the growth in such earnings, (3) the Company’s consolidated earnings or
the growth in such earnings, (4) the Company’s earnings per share or the
growth in such earnings, (5) the Company’s net earnings or the growth in
such earnings, (6) the Company’s earnings before interest expense, taxes,
depreciation, amortization and one-time charges or the growth in such
earnings, (7) the Company’s earnings before interest and taxes or the
growth
|
-23-
B-27
in such
earnings, (8) the Company’s consolidated net income or the growth in such
income, (9) the value of the Company’s stock or the growth in such value, (10)
the Company’s stock price or the growth in such price, (11) the Company’s return
on assets or the growth on such return, (12) the Company’s cash flow or the
growth in such cash flow, (13) the Company’s total shareholder return or the
growth in such return, (14) the Company’s expenses or the reduction of such
expenses, (15) the Company’s revenue growth, (16) the Company’s overhead ratios
or changes in such ratios, (17) the Company’s expense-to-sales ratios or
the changes in such ratios, or (18) the Company’s economic value added or
changes in such value added.
|
(c)
|
Adjustments.
When the Committee determines whether a performance goal has been
satisfied for any period, the Committee where the Committee deems
appropriate may make such determination using calculations which
alternatively include and exclude one, or more than one, “extraordinary
items” as determined under U.S. generally accepted accounting principles,
and the Committee may determine whether a performance goal has been
satisfied for any period taking into account the alternative which the
Committee deems appropriate under the circumstances. The Committee also
may take into account any other unusual or
non-
|
-24-
B-28
recurring
items, including, without limitation, the charges or costs associated with
restructurings of the Company, discontinued operations, and the cumulative
effects of accounting changes and, further, may take into account any unusual or
non-recurring events affecting the Company, changes in applicable tax laws or
accounting principles or such other factors as the Committee may determine
reasonable and appropriate under the circumstances (including, without
limitation, any factors that could result in the Company’s paying non-deductible
compensation to an Eligible Employee).
§ 10.
NON-TRANSFERABILITY
No
Option, Stock Grant, Stock Unit Grant or Stock Appreciation Right shall (absent
the Committee’s consent) be transferable by an Eligible Employee or a Director
other than by will or by the laws of descent and distribution, and any Option or
Stock Appreciation Right shall (absent the Committee’s consent) be exercisable
during an Eligible Employee’s or Director’s lifetime only by the Eligible
Employee or Director. The person or persons to whom an Option or Stock Grant or
Stock Unit Grant or Stock Appreciation Right is transferred by will or by the
laws of descent and distribution (or with the Committee’s consent) thereafter
shall be treated as the Eligible Employee or Director.
-25-
B-29
§ 11.
SECURITIES
REGISTRATION
As
a condition to the receipt of shares of Stock under this Plan, the Eligible
Employee or Director shall, if so requested by the Company, agree to hold such
shares of Stock for investment and not with a view of resale or distribution to
the public and, if so requested by the Company, shall deliver to the Company a
written statement satisfactory to the Company to that effect. Furthermore, if so
requested by the Company, the Eligible Employee or Director shall make a written
representation to the Company that he or she will not sell or offer for sale any
of such Stock unless a registration statement shall be in effect with respect to
such Stock under the 1933 Act and any applicable state securities law or he or
she shall have furnished to the Company an opinion in form and substance
satisfactory to the Company of legal counsel satisfactory to the Company that
such registration is not required. Certificates or other evidence of ownership
representing the Stock transferred upon the exercise of an Option or Stock
Appreciation Right or upon the lapse of the forfeiture conditions, if any, on
any Stock Grant may at the discretion of the Company bear a legend to the effect
that such Stock has not been registered under the 1933 Act or any applicable
state securities law and that such Stock cannot be sold or offered for sale in
the absence of an effective registration statement as to such Stock under the
1933 Act and any applicable state securities law or an opinion in form and
substance satisfactory to the Company of legal counsel satisfactory to the
Company that such registration is not required.
-26-
B-30
§ 12.
LIFE OF
PLAN
No
Option or Stock Appreciation Right shall be granted or Stock Grant or Stock Unit
Grant made under this Plan on or after the earlier of:
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(1)
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the
tenth anniversary of the effective date of this Plan (as determined under
§ 4), in which event this Plan otherwise thereafter shall continue in
effect until all outstanding Options and Stock Appreciation Rights have
been exercised in full or no longer are exercisable and all Stock issued
under any Stock Grants under this Plan have been forfeited or have become
non-forfeitable, or
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(2)
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the
date on which all of the Stock reserved under § 3 has (as a result of
the exercise of Options or Stock Appreciation Rights granted under this
Plan or the satisfaction of the forfeiture conditions, if any, on Stock
Grants) been issued or no longer is available for use under this Plan, in
which event this Plan also shall terminate on such
date.
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§ 13.
ADJUSTMENT
13.1
Capital
Structure . The grant caps described in § 3.4, the number, kind or class
(or any combination thereof) of shares of Stock subject to outstanding Options
and Stock Appreciation Rights granted under this Plan and the Option Price
of
-27-
B-31
such
Options and the SAR Value of such Stock Appreciation Rights as well as the
number, kind or class (or any combination thereof) of shares of Stock subject to
outstanding Stock Grants and Stock Unit Grants made under this Plan shall be
adjusted by the Committee in a reasonable and equitable manner to preserve
immediately after
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(a)
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any
equity restructuring or change in the capitalization of the Company,
including, but not limited to, spin offs, stock dividends, large
non-reoccurring dividends, rights offerings or stock splits,
or
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(b)
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any
other transaction described in § 424(a) of the Code which does not
constitute a Change in Control of the
Company
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the
aggregate intrinsic value of each such outstanding Option, Stock Appreciation
Right, Stock Grant and Stock Unit Grant immediately before such restructuring or
recapitalization or other transaction.
13.2
Available Shares . If
any adjustment is made with respect to any outstanding Option, Stock
Appreciation Right, Stock Grant or Stock Unit Grant under § 13.1, then the
Committee shall adjust the number, kind or class (or any combination thereof) of
shares of Stock reserved under § 3.1 so that there is a sufficient number,
kind and class of shares of Stock available for issuance pursuant to each such
Option, Stock Appreciation Right, Stock Grant and Stock Unit Grant as adjusted
under § 13.1 without seeking the approval of the Company’s shareholders for
such adjustment unless such approval is required under applicable law or the
rules of the stock exchange on which shares of Stock are traded. Furthermore,
the Committee shall have the absolute discretion to further adjust such number,
kind or class (or any combination thereof) of
-28-
B-32
shares of
Stock reserved under § 3.1 in light of any of the events described in
§ 13.1(a) and § 13.1(b) to the extent the Committee acting in good
faith determinates that a further adjustment would be appropriate and proper
under the circumstances and in keeping with the purposes of this Plan without
seeking the approval of the Company’s shareholders for such adjustment unless
such approval is required under applicable law or the rules of the stock
exchange on which shares of Stock are traded.
13.3
Transactions Described in
§ 424 of the Code . If there is a corporate transaction described in
§ 424(a) of the Code which does not constitute a Change in Control of the
Company, the Committee as part of any such transaction shall have right to make
Stock Grants, Stock Unit Grants and Option and Stock Appreciation Right grants
(without regard to any limitations set forth under 3.4 of this Plan) to effect
the assumption of, or the substitution for, outstanding stock grants, stock unit
grants and option and stock appreciation right grants previously made by any
other corporation to the extent that such corporate transaction calls for such
substitution or assumption of such outstanding stock grants, stock unit grants
and stock option and stock appreciation right grants. Furthermore, if the
Committee makes any such grants as part of any such transaction, the Committee
shall have the right to increase the number of shares of Stock available for
issuance under § 3.1 by the number of shares of Stock subject to such
grants without seeking the approval of the Company’s shareholders for such
adjustment unless such approval is required under applicable law or the rules of
the stock exchange on which shares of Stock are traded.
-29-
B-33
13.4
Fractional Shares .
If any adjustment under this § 13 would create a fractional share of Stock
or a right to acquire a fractional share of Stock under any Option, Stock
Appreciation Right or Stock Grant, such fractional share shall be disregarded
and the number of shares of Stock reserved under this Plan and the number
subject to any Options or Stock Appreciation Right grants and Stock Grants shall
be the next lower number of shares of Stock, rounding all fractions downward. An
adjustment made under this § 13 by the Committee shall be conclusive and
binding on all affected persons.
§ 14.
CHANGE IN
CONTROL
In
the event of (i) a sale, lease or other disposition of all or substantially all
of the assets of the Company, (ii) a consolidation or merger of the Company
with or into any other corporation or other entity or person, or any other
corporate reorganization, in which the Stockholders of the Company immediately
prior to such consolidation, merger or reorganization, own less than 50% of the
Company’s outstanding voting power of the surviving entity (or its parent)
following the consolidation, merger or reorganization or (iii) any
transaction (or series of related transactions involving a person or entity, or
a group of affiliated persons or entities) in which in excess of fifty percent
(50%) of the Company’s outstanding voting power is transferred (“a Corporate
Transaction”), then any surviving corporation or acquiring corporation shall
assume any Option, Stock Appreciation Right, Stock Grant or Stock Unit Grant
(collectively “Stock Awards”) outstanding under the Plan or shall substitute
similar stock awards (including an award
-30-
B-34
to be
settled in cash or to acquire the same consideration paid to the Stockholders in
the Corporate Transaction for those outstanding under the Plan). In the event
any surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, then with respect to Stock Awards held by Participants whose employment or
service with the Company has not terminated, the vesting of such Stock Awards
(and, if applicable, the time during which such Stock Awards may be exercised)
shall be accelerated in full and, if applicable, be exercisable for a reasonable
period of time immediately prior to the effective date of the Corporate
Transaction, subject to the transaction occurring, and the Stock Awards shall
terminate if not exercised (if applicable) at or prior to such event; provided,
that (1) if any issuance or forfeiture condition described in a Stock Award
relates to satisfying any performance goal and there is a target for such
performance goal, such issuance or forfeiture condition shall be deemed
satisfied under this § 14 only to the extent of such target unless such target
has been exceeded before the effective date of the Corporate Transaction, in
which event such issuance or forfeiture condition shall be deemed satisfied to
the extent such target had been so exceeded, and (2) a Corporate Transaction
shall affect a Stock Appreciation Right or Stock Unit Grant which is subject to
§ 409A of the Code only if the Corporate Transaction also constitutes a change
in the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company within the meaning of §
409A(a)(2)(A)(v) of the Code. With respect to any other Stock Awards outstanding
under the Plan, such Stock Awards shall terminate if not exercised (if
applicable) prior to such event.
-31-
B-35
§ 15.
AMENDMENT OR
TERMINATION
This
Plan may be amended by the Board from time to time to the extent that the Board
deems necessary or appropriate; provided, however, (a) no amendment shall be
made absent the approval of the shareholders of the Company to the extent such
approval is required under applicable law or the rules of the stock exchange on
which shares of Stock are listed and (b) no amendment shall be made to § 14
on or after the date of any Corporate Transaction which might
adversely affect any rights which otherwise would vest on the related Change
Effective Date. The Board also may suspend granting Options or Stock
Appreciation Rights or making Stock Grants or Stock Unit Grants under this Plan
at any time and may terminate this Plan at any time; provided, however, the
Board shall not have the right unilaterally to modify, amend or cancel any
Option or Stock Appreciation Right granted or Stock Grant made before such
suspension or termination unless (1) the Eligible Employee or Director
consents in writing to such modification, amendment or cancellation or
(2) there is a dissolution or liquidation of the Company or a transaction
described in § 13.1 or § 14.
§ 16.
MISCELLANEOUS
16.1
Shareholder Rights .
No Eligible Employee or Director shall have any rights as a shareholder of the
Company as a result of the grant of an Option or a Stock Appreciation Right
pending the actual delivery of the Stock subject to such Option or Stock
Appreciation Right to such Eligible Employee or Director. An
Eligible
-32-
B-36
Employee’s
or a Director’s rights as a shareholder in the shares of Stock which remain
subject to forfeiture under § 9.2(b) shall be set forth in the related
Stock Grant Certificate.
16.2
No Contract of
Employment . The grant of an Option or a Stock Appreciation Right or a
Stock Grant or Stock Unit Grant to an Eligible Employee or Director under this
Plan shall not constitute a contract of employment or a right to continue to
serve on the Board and shall not confer on an Eligible Employee or Director any
rights upon his or her termination of employment or service in addition to those
rights, if any, expressly set forth in this Plan or the related Option
Certificate, Stock Appreciation Right Certificate, or Stock Grant
Certificate.
16.3
Withholding . Each
Option, Stock Appreciation Right, Stock Grant and Stock Unit Grant shall be made
subject to the condition that the Eligible Employee or Director consents to
whatever action the Committee directs to satisfy the minimum statutory federal
and state tax withholding requirements, if any, which the Company determines are
applicable to the exercise of such Option or Stock Appreciation Right or to the
satisfaction of any forfeiture conditions with respect to Stock subject to a
Stock Grant or Stock Unit Grant issued in the name of the Eligible Employee or
Director. No withholding shall be effected under this Plan which exceeds the
minimum statutory federal and state withholding requirements.
16.4
Construction . All
references to sections (§) are to sections (§) of this Plan unless otherwise
indicated. This Plan shall be construed under the laws of the State of Delaware.
Each term set forth in § 2 shall, unless otherwise stated, have
the
-33-
B-37
meaning
set forth opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular. Finally, if there is any conflict between the terms of this Plan
and the terms of any Option Certificate, Stock Appreciation Right Certificate or
Stock Grant Certificate, the terms of this Plan shall control.
16.5
Other Conditions .
Each Option Certificate, Stock Appreciation Right Certificate or Stock Grant
Certificate may require that an Eligible Employee or a Director (as a condition
to the exercise of an Option or a Stock Appreciation Right or the issuance of
Stock subject to a Stock Grant) enter into any agreement or make such
representations prepared by the Company, including (without limitation) any
agreement which restricts the transfer of Stock acquired pursuant to the
exercise of an Option or a Stock Appreciation Right or a Stock Grant or provides
for the repurchase of such Stock by the Company.
16.6
Rule 16b-3 . The
Committee shall have the right to amend any Option, Stock Grant or Stock
Appreciation Right to withhold or otherwise restrict the transfer of any Stock
or cash under this Plan to an Eligible Employee or Director as the Committee
deems appropriate in order to satisfy any condition or requirement under Rule
16b-3 to the extent Rule 16 of the 1934 Act might be applicable to such grant or
transfer.
an
outstanding Option, Stock Appreciation Right, Stock Grant or Stock Unit Grant or
for the extension of the deadline to exercise any rights under an outstanding
Option, Stock Appreciation Right, Stock Grant or Stock Unit Grant, any such
acceleration or extension shall be deemed effected pursuant to, and in
accordance with, the terms of such outstanding Option, Stock Appreciation Right,
Stock Grant or Stock Unit Grant and this Plan even if such employment agreement
or other agreement is first effective after the date the outstanding Option or
Stock Appreciation Right was granted or the Stock Grant or Stock Unit Grant was
made.
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INTERNAP
NETWORK SERVICES CORPORATION
By:__________________________________
Date:______________________
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C/O
American Stock Transfer
59
Maiden Lane
New
York, NY 10038
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VOTE
BY INTERNET - www.proxyvote.com
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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.
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ELECTRONIC
DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS
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If
you would like to reduce the costs incurred by Internap Network Services
Corporation in mailing proxy materials, you can consent to receiving all
future proxy statements, proxy cards and annual reports electronically via
e-mail or
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 stockholder communications electronically in future
years.
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VOTE
BY PHONE - 1-800-690-6903
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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.
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VOTE
BY MAIL
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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 Corporation, c/o
Broadridge, 51 Mercedes Way, Edgewood, NY
11717.
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TO
VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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INSC01
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KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
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INTERNAP
NETWORK SERVICES CORPORATION
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THE
BOARD OF DIRECTORS RECOMMENDS A VOTE
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“FOR”
EACH OF THE BELOW-LISTED PROPOSALS.
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Vote On
Directors
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(1)
|
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To
elect three Directors to serve until the 2011 annual meeting and one
Director to serve until the 2010 annual meeting and until their successors
are elected and qualified, or until such Director’s earlier death,
resignation or removal (except as indicated to the contrary on the
right).
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For
All
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Withhold
All
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For All
Except
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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.
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¨
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¨
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¨
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01)
Eugene Eidenberg
for a term to expire at the 2011 annual meeting
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02)
William Harding
for a term to expire at the 2011 annual meeting
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03)
Daniel Stanzione
for a term to expire at the 2011 annual meeting
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04)
Gary Pfeiffer for
a term to expire at the 2010 annual
meeting
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For
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Against
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Abstain
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| Vote On Proposal |
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| (2) |
To
amend the Certificate of Incorporation;
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¨
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¨
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¨
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| (3) |
To
increase the number of shares available for issuance pursuant to the
Amended and Restated Internap Network Services Corporation 2005 Incentive
Stock Plan by four million shares;
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¨
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¨
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¨
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| (4) |
To
ratify the appointment of PricewaterhouseCoopers LLP as the independent
registered public accounting firm of the Company for the fiscal year
ending December 31, 2008.
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¨
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¨
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¨
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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.
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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 and
FOR Proposals 2, 3 and 4.
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Please
indicate if you plan to attend the annual meeting
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¨
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¨
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Yes
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No
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Signature
[PLEASE SIGN WITHIN BOX]
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Date
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Signature
(Joint Owners)
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Date
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INTERNAP
NETWORK SERVICES CORPORATION
PROXY
SOLICITED BY THE BOARD OF DIRECTORS FOR THE
2008
ANNUAL MEETING OF STOCKHOLDERS
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Revocable
Proxy
|
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COMMON
STOCK
|
The
undersigned hereby appoints George Kilguss and Richard 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 “Company”) that the undersigned is entitled to vote at the 2008
Annual Meeting of Stockholders of the Company, to be held on Thursday,
June 19, 2008, at 10:00 a.m., Eastern Time, at 250 Williams Street,
Atlanta, Georgia, and at any and all adjournments thereof, with all powers that
the undersigned would possess if personally present, upon and in respect of the
matters listed on the reverse side and in accordance with the instructions
listed on the reverse side, with discretionary authority as to any and all other
matters that may properly come before the meeting.
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 “FOR” each of the proposals listed on the reverse side
of this proxy card. If any other business is presented at the annual meeting,
this proxy card will be voted by the proxies in their best judgment. At the
present time, the Board of Directors knows of no other business to be presented
at the annual meeting.
The
undersigned may elect to withdraw this proxy card at any time prior to its use
by: (i) giving written notice to 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)