Internap Corporation
INTERNAP NETWORK SERVICES CORP (Form: DEF 14A, Received: 04/29/2011 10:25:59)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
 
(Rule 14a-101)
 
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Internap Network Services Corporation
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GRAPHIC
Internap Network Services Corporation
250 Williams Street, Suite E-100
Atlanta, Georgia 30303
 
NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS
 
To our Stockholders ,
 
We invite you to attend Internap’s 2011 Annual Meeting of Stockholders at our corporate headquarters located at 250 Williams Street, Suite E-100, Atlanta, Georgia, on Thursday, June 16, 2011, at 10:00 a.m. local time. At the meeting, stockholders will:
 
 
1.
vote on the election of the two director nominees named in this proxy statement for three-year terms expiring in 2014;
 
 
2.
vote on amendments to our Amended and Restated 2005 Incentive Stock Plan;
 
 
3.
vote on the ratification of the Audit Committee’s appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for our fiscal year ending December 31, 2011;
 
 
4.
vote on an advisory resolution approving compensation for our named executive officers;
 
 
5.
vote on how frequently we should seek future advisory votes on compensation of our named executive officers; and
 
 
6.
transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof.
 
You can vote at the annual meeting and any adjournment if you were a stockholder of record on April 22, 2011.
 
 
By order of the Board of Directors,
   
  -S- J. ERIC COONEY
 
J. Eric Cooney
   
 
Chief Executive Officer and President
 
Atlanta, Georgia
April 29, 2011
 
 
Your Vote is Important to Us. Even if You Plan to Attend the Meeting in Person,
 
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY OR
 
VOTE BY TELEPHONE OR THE INTERNET.
 
 
Important Notice Regarding the Availability of Proxy Materials for the Annual
Meeting of Stockholders to be Held On June 16, 2011.
 
Our proxy statement for the 2011 Annual Meeting of Stockholders and the Annual
Report to Stockholders for the fiscal year ended December 31, 2010 are available at
http://ir.internap.com/proxy11.cfm
 
 
 

 
 
INTERNAP NETWORK SERVICES CORPORATION
250 Williams Street, Suite E-100
Atlanta, Georgia 30303
 
2011 ANNUAL MEETING OF STOCKHOLDERS
 
June 16, 2011
 
PROXY STATEMENT
 
This proxy statement and enclosed proxy card are being furnished to you in connection with the solicitation of proxies by our Board of Directors for use at the annual meeting. Distribution of this proxy statement and enclosed proxy card to stockholders is scheduled to begin on or about April 29, 2011.
 
Information About the Proxy Materials and Our 2011 Annual Meeting of Stockholders
 
Q:
Why am I receiving these materials?
 
A:
Our Board of Directors is providing these proxy materials to you in connection with its solicitation of proxies for use at the Internap 2011 Annual Meeting of Stockholders, which will take place on June 16, 2011, at our corporate headquarters located at 250 Williams Street, Suite E-100, Atlanta, Georgia, at 10:00 a.m. local time. You are invited to attend the annual meeting and are requested to vote upon the proposals described in this proxy statement.
 
Q:
What information is contained in these materials?
 
A:
The information included in this proxy statement relates to the proposals to be voted upon at the annual meeting, the voting process, the compensation of our directors and named executive officers and certain other required information. Our Annual Report to Stockholders for the year ended December 31, 2010, which includes our audited consolidated financial statements for the years ended December 31, 2010, 2009 and 2008, is included in these proxy materials. Your proxy, which you may use to vote, is also enclosed.
 
Q:
What proposals will be voted upon at the annual meeting?
 
A:
There are five proposals scheduled to be voted upon at the annual meeting:
 
 
election of the two director nominees named in this proxy statement for three-year terms expiring in 2014;
 
amendments to our Amended and Restated 2005 Incentive Stock Plan;
 
ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2011;
 
advisory resolution approving compensation for our named executive officers; and
 
advisory vote on how frequently we should seek future advisory votes on compensation of our named executive officers.
 
In addition, we will consider and vote upon such other business as may properly come before the annual meeting. We are not currently aware of any other matters to be considered and voted upon at the meeting.
 
Q:
How does Internap’s Board of Directors recommend that I vote?
 
A:
Your Board of Directors recommends that you vote your shares “FOR” each of the named nominees to the Board of Directors, “FOR” approval of the amendments to our Amended and Restated 2005 Incentive Stock Plan, “FOR” ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2011, “FOR” the advisory resolution on compensation for our named executive officers and “EVERY THREE YEARS” for the advisory vote on how frequently we should seek future advisory votes on compensation of our named executive officers.
 
Q:
Who may vote?
 
A:
You may vote at the annual meeting or by proxy if you were a stockholder of record at the close of business on April 22, 2011. Each stockholder is entitled to one vote per share on each matter presented. As of April 22, 2011, there were 52,262,023 shares of our common stock outstanding.
 
 
 

 
 
Q:
How do I vote before the annual meeting?
 
A:
We offer the convenience of voting by mail-in proxy, telephone or the Internet as described in more detail below. See the enclosed proxy for voting instructions. If you properly sign and return the proxy in the form we have provided or properly vote by telephone or the Internet, your shares will be voted at the annual meeting and at any adjournment of that meeting.
 
Q:
What if I return my proxy but do not provide voting instructions?
 
A:
If you specify a choice, your proxy will be voted as specified. If you return a signed proxy but do not specify a choice, your shares will be voted “for” each of the named nominees to the Board of Directors, “for” approval of the amendments to our Amended and Restated 2005 Incentive Stock Plan, “for” ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2011, “for” the advisory resolution approving compensation of our named executive officers and “every three years” for the advisory vote on how frequently we should seek future advisory votes on compensation of our named executive officers. In all cases, your proxy will be voted in the discretion of the individuals named as proxies on the proxy card with respect to any other matters that may come before the annual meeting.
 
Q:
Can I change my mind after I vote?
 
A:
You may revoke your proxy at any time before it is exercised by delivering written notice of revocation to our Corporate Secretary or by attending and voting at the annual meeting.
 
Q:
How can I vote my shares in person at the annual meeting?
 
A:
Shares held directly in your name as the stockholder of record may be voted in person at the annual meeting. If you choose to vote in person, please bring the enclosed proxy card and proof of identification. Even if you plan to attend the annual meeting in person, we recommend that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the annual meeting. Shares held in “street name” through a brokerage account or by a bank or other nominee may be voted in person by you if you obtain a signed proxy from the record holder giving you the right to vote the shares.
 
Q:
What is the quorum requirement for the annual meeting?
 
A:
The presence in person or by proxy of the holders of a majority of the shares entitled to vote at the annual meeting is necessary to constitute a quorum. If a registered stockholder indicates on his or her proxy card that the stockholder wishes to abstain from voting, or a beneficial owner instructs its bank, broker or other nominee that the stockholder wishes to abstain from voting, these shares are considered present and entitled to vote at the annual meeting. These shares will count toward determining whether or not a quorum is present.
 
Q:
What is the voting requirement to approve each of the proposals?
 
A:
A plurality of the shares voting is required to elect directors. This means that the nominees who receive the most votes will be elected. In counting votes on the election of directors, only votes “for” or “withheld” affect the outcome. Broker non-votes (which are explained below) will be counted as not voted and will be deducted from the total shares of which a plurality is required.
 
Each other matter requires the affirmative vote of a majority of the shares voting upon the particular proposal. In counting votes on these matters, abstentions and broker non-votes will not be counted as votes cast and therefore will have no effect on the outcome of a particular proposal.
 
Q:
What are broker non-votes and what effect do they have on the proposals ?
 
A:
Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because (a) the broker has not received voting instructions from the beneficial owner and (b) the broker lacks discretionary voting power to vote those shares.
 
 
If you do not vote your proxy and your shares are held in street name, your brokerage firm may either vote your shares on routine matters or leave your shares unvoted. On non-routine matters, if the brokerage firm has not received voting instructions from you, the brokerage firm cannot vote your shares on that proposal, which is considered a “broker non-vote.” Broker non-votes will be counted for purposes of establishing a quorum to conduct business at the annual meeting. The proposal for the ratification of the appointment of our independent registered public accounting firm is routine. All of the other proposals in this proxy statement are non-routine. The New York Stock Exchange has eliminated broker discretionary voting for the election of directors. Therefore, your broker is not able to vote uninstructed shares on your behalf in any director election. These rules apply to us even though our common stock is traded on The NASDAQ Global Market (“Nasdaq”). Accordingly, brokers that do not receive instructions will be entitled to vote on the ratification of the appointment of our independent registered public accounting firm at the annual meeting, but may not vote for the election of directors or for approval of any other proposal in this proxy statement. Therefore, we encourage you to sign and return your proxy, with voting instructions, before the annual meeting so that your shares will be represented and voted at the meeting even if you cannot attend in person.
 
 
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Q :
What does it mean if I receive more than one proxy or voting instruction card?
 
A:
It means that your shares are registered differently or are in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive.
 
Q:
Where can I find the voting results of the annual meeting?
 
A:
We will announce preliminary voting results at the annual meeting and publish final results in a current report on Form 8-K shortly after the meeting.
 
PROPOSAL 1—ELECTION OF DIRECTORS
 
Our Board of Directors currently consists of nine members. Dr. Eugene Eidenberg will be retiring from our Board immediately before our annual meeting as required by the retirement policy in our Corporate Governance Guidelines. Upon his retirement, the size of our Board will be reduced to eight members. Our bylaws provide that the Board is divided into three classes, with each class to be as nearly equal number as possible. Each class serves a term of office of three years, with the term of one class expiring at the annual meeting in each successive year.
 
We seek to achieve an appropriate level of diversity in the membership of our Board of Directors and to assemble a broad range of skills, expertise, knowledge and contacts to benefit our business. The Nominations and Governance Committee and the full Board annually assess the current make-up of the Board, considering diversity across many dimensions, including gender, race, age, industry experience, functional areas (e.g., technology and finance), geographic scope, public and private company experience, academic background and director experience in the context of an assessment of the current and expected needs of the Board. The Nominations and Governance Committee reviews director candidates based on the Board’s needs as identified through this assessment and other factors, including their relative skills and characteristics, their exemplification of the highest standards of personal and professional integrity, their independence under Nasdaq listing standards, their potential contribution to the composition and culture of the Board and their ability and willingness to actively participate in the Board and committee meetings and to otherwise devote sufficient time to their Board duties. In particular, the Board and the Nominations and Governance Committee believe that sound governance of our company in an increasingly complex marketplace requires a wide range of viewpoints, backgrounds, skills and experiences. Although the Board does not have a formal policy regarding Board diversity, the Board believes that having such diversity among its members enhances the Board’s ability to make fully informed, comprehensive decisions.
 
We provide information technology infrastructure services. Given the nature of our business, we believe it is important for members of the Board of Directors collectively to have experience in the industry in which we operate as well as corporate or other relevant leadership experience, public company officer and director experience and public company finance and accounting experience, including experience serving on other public company audit, compensation and governance committees and experience in senior finance roles at public companies. We believe that our Board collectively possesses these types of experience. Below is a summary of each director’s most relevant experience.
 
As recommended by the Nominations and Governance Committee, our Board of Directors has nominated Daniel C. Stanzione and Debora J. Wilson as Class III directors for terms expiring at the 2014 annual meeting of stockholders. Each proposed nominee is willing to serve as a director if elected. However, if one of these nominees is unable to serve or is otherwise unavailable for election, which is not contemplated, our incumbent Board may or may not select a substitute nominee. If a substitute nominee is selected, your shares will be voted for the substitute nominee (unless you give other instructions). If a substitute nominee is not selected, your shares will be voted for the remaining nominee. Proxies will not be voted for more than two nominees.
 
Biographical information for each nominee and each current director who will continue to serve after the annual meeting is presented below. Except as otherwise indicated, all have had the same principal positions and employment for over five years.
 
 
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Nominees for Terms Expiring in 2014 (Class III)
 
Daniel C. Stanzione , 65, has served as a director since 2004 and our non-executive Chairman since 2009. Dr. Stanzione brings more than 30 years of experience in technology and communications companies, including service as Chief Operating Officer, Chief Technology Officer and general manager of a large telecommunications company. Dr. Stanzione’s business management, leadership and problem-solving skills developed as an executive and director of other public and private companies, and specific experience in various areas including technology, corporate governance, accounting and finance, brings valuable skills to our Board of Directors. Dr. Stanzione is President Emeritus of Bell Laboratories as well as an independent consultant. Dr. Stanzione retired from Lucent Technologies Inc. in 2000 where he served as Chief Operating Officer and as President of Bell Laboratories. At Lucent’s formation in 1995, Dr. Stanzione was President of Network Systems, Lucent’s largest business unit that sold products and services to telecommunication service providers around the world. Dr. Stanzione is currently the Lead Independent Director of Quest Diagnostics Inc. and a director of two private companies. Dr. Stanzione is currently a consultant and serves on the Network Advisory Board at Accenture plc. Dr. Stanzione previously served as a director of Avaya Inc. from 2000 until 2007 and on various private company boards. Dr. Stanzione holds a B.S. in Electrical Engineering, a M.S. in Environmental Systems Engineering and a Ph.D. in Electrical and Computer Engineering, all from Clemson University.
 
Debora J. Wilson , 53, has served as a director since January 1, 2010. Ms. Wilson brings more than 30 years of experience managing key operational functions including sales, marketing, product development and management, business development, technology, human resources and finance/accounting. Ms. Wilson gained valuable executive management, business and leadership skills during her service as Chief Executive Officer of a technology-driven company. Ms. Wilson also brings in-depth knowledge of corporate governance and finance matters based on her experience as a director and committee member of several public and private company boards of directors. Ms. Wilson served as President and Chief Executive Officer of The Weather Channel from 2004 to 2009 and in other positions including Senior Vice President, Executive Vice President and Chief Operating Officer from 1994 to 2004. Before joining The Weather Channel, Ms. Wilson spent 15 years in the telecommunications industry at Bell Atlantic (now Verizon) and held management positions in network operations and new product development. Ms. Wilson is a member of the board of directors of Markel Corporation and ARRIS Group, Inc. Ms. Wilson has a B.S. in Business Administration from George Mason University in Virginia.
 
Your Board of Directors unanimously recommends that you vote FOR each of the above-listed nominees.
 
Continuing Directors with Terms Expiring in 2012 (Class I)
 
J. Eric Cooney , 45, has been our Chief Executive Officer and President and a director since March 2009. Mr. Cooney brings valuable experience creating stockholder value as a public-company Chief Executive Officer in the telecommunications, media and technology industry. Further, Mr. Cooney’s practical experience includes: conceiving and executing a business turnaround, leading global organizations, executing buy-side and sell-side mergers and acquisitions transactions and rebuilding sales and engineering teams. Mr. Cooney joined the global digital video business of NDS, Inc. (a News Corporation company) in April 1997, which was acquired by TANDBERG Television, in October 1999. Mr. Cooney held a number of positions including Vice President/General Manager Americas and Chief Operating Officer, before assuming his role as President and Chief Executive Officer of TANDBERG Television in June 2003. TANDBERG Television was acquired by the Ericsson Group in early 2007 and Mr. Cooney continued his role as Chief Executive Officer of the television business unit within Ericsson until he joined our company in 2009. Prior to his career in the digital video industry, Mr. Cooney spent several years working in systems engineering and sales in the computer process control industry and also spent five years as a U.S. Naval officer. Mr. Cooney received post graduate education in Nuclear Engineering from the U.S. Navy, a B.S. from the University of Rochester and an M.B.A. from the University of Southern California.
 
Charles B. Coe , 63, has served as a director since 2003. Mr. Coe is a 28-year veteran of the telecommunications industry, including 15 years with BellSouth Corporation. Mr. Coe brings a wealth of management, leadership and business skills from his professional experience as well as his service on another public company board. During his tenure at BellSouth, Mr. Coe served as President of BellSouth Network Services, President of BellSouth Telecommunications, President of BellSouth International and Group President of Customer Operations for BellSouth Telecommunications. Previously, Mr. Coe served in various management positions with AT&T Communications and American Telesystems Corporation. Mr. Coe is currently a director of Dycom Industries, Inc. Mr. Coe holds a M.B.A. from Georgia State University and a B.S. from The Citadel.
 
Patricia L. Higgins , 61, has served as a director since 2004. Ms. Higgins has over 30 years of experience in the telecommunications industry, including experience as Chief Executive Officer in the colocation industry and service as Chief Information Officer for a Fortune 100 company. Ms. Higgins bring leadership, business and management skills developed as an executive and director of other public companies, including serving as chairwoman of audit, compensation, finance and governance committees. From 2000 until her retirement in 2004, Ms. Higgins served as President, Chief Executive Officer and a member of the board of directors of Switch & Data Facilities Company, Inc., a provider of neutral interconnection and colocation services. From 1999 to 2000, Ms. Higgins served as Executive Vice President of the Gartner Group and Chairwoman and Chief Executive Officer of The Research Board, a segment of the Gartner Group, a consulting and research services company for information technology. From 1997 to 1999, Ms. Higgins was the Chief Information Officer of Alcoa Inc., and from 1995 to 1997, she served as Vice President and President (Communications Market Business Unit) of UNISYS Corporation. From 1977 to 1995, Ms. Higgins served in various managerial positions, including as Corporate Vice President and Group Vice President (State of New York) for Verizon (NYNEX) and Vice President, International Sales Operations (Lucent) for AT&T Corporation/Lucent. Ms. Higgins currently serves on the board of directors of The Travelers Companies, Inc.; Barnes & Noble, Inc.; and Dycom Industries, Inc. Ms. Higgins also served as a director of Visteon Corporation from 2004 to 2010; Delta Airlines, Inc. from 2005 until 2007; SpectraSite, Inc. from 2004 until 2005 and The Williams Companies, Inc. from 1995 to 2000. Ms. Higgins holds a B.A. degree from Montclair State University and attended Harvard Business School’s Advanced Management Program.
 
 
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Continuing Directors with Terms Expiring in 2013 (Class II)
 
Kevin L. Ober , 50, has served as a director since 1997. Mr. Ober brings more than 15 years of broad technology, business and investment experience to our Board of Directors. Mr. Ober’s extensive investment experience in the markets in which we operate, including collocation, CDN, managed services and cloud technologies, is valuable to our Board because it closely aligns with our operations, and his investment experience facilitates an in-depth understanding of our finances. Mr. Ober is a Managing Partner of Divergent Venture Partners. Mr. Ober currently leads Divergent’s investment in Pliant Technology, Inc. and SpaceCurve, Inc. Prior to Divergent, Mr. Ober spent seven years with Vulcan Ventures, a national venture capital firm owned by Paul Allen, co-founder of Microsoft Corporation. While with Vulcan, Mr. Ober led investments in Internet infrastructure companies such as Nexabit Networks, Wavtrace, Inc. and Net Perceptions, as well as Internap. Prior to working at Vulcan, Mr. Ober served in various positions at Conner Peripherals, Inc., a computer hard disk drive manufacturer in San Jose, California. Mr. Ober holds a B.S. in Business Administration from St. John’s University and an M.B.A. from Santa Clara University.
 
Gary M. Pfeiffer , 61, has served as a director since 2007. Mr. Pfeiffer’s extensive experience includes public company officer, finance and accounting experience, corporate leadership experience, international operations experience, public sector experience as well as service on the boards of directors of other public companies, including service as non-executive chairman of the board of directors and chairman of audit, compensation and executive committees. This experience includes services as Chief Financial Officer and in other senior finance roles and in senior roles involving executive management during his more than 32 years with E. I. du Pont de Nemours and Company (DuPont), a large, complex, technology-based, multinational science-based products and services company. During his career with DuPont, Mr. Pfeiffer held a variety of financial and business leadership positions in the United States, Brazil and Japan. From 1997 to 2006, Mr. Pfeiffer served as Senior Vice President and Chief Financial Officer of DuPont. Mr. Pfeiffer also served as Secretary of Finance for the State of Delaware from January 2009 through June 2009. Mr. Pfeiffer is a member of the board of directors of Quest Diagnostics, Inc. and serves as non-executive chairman of the board of directors of The Talbots, Inc. Mr. Pfeiffer also is a member of the board of directors of Christiana Care Health System, a not-for-profit regional hospital system and serves as non-executive chairman elect.  Mr. Pfeiffer holds a B.A. and an M.B.A. from the College of William and Mary in Virginia. Mr. Pfeiffer’s background and skills have qualified him to chair our Audit Committee and to serve as our Audit Committee financial expert.
 
Michael A. Ruffolo , 49, has served as a director since January 1, 2010. Mr. Ruffolo has more than 27 years of broad business experience, including six years as a technology-company Chief Executive Officer, service as a Chief Information Officer of a Fortune 500 company as well as Chief Operating Officer of an Internet services company that experienced significant turnaround growth during his tenure. These varied positions provide Mr. Ruffolo with insight into various areas of our business, including sales, marketing, services, information technology and operations. In addition to his business experience, Mr. Ruffolo has served as a board member of other public companies as well as chairman of a compensation committee, all of which makes him a valuable addition to our Board of Directors. Mr. Ruffolo currently serves as Chief Executive Officer and President of Crossbeam Systems, Inc., a network security platform provider. From 2004 to February 2010, Mr. Ruffolo served as Chairman and Chief Executive Officer of Liquid Machines, Inc., a provider of enterprise rights management solutions. Mr. Ruffolo served as Executive Vice President and Chief Operating Officer of Akamai Technologies, Inc. from 2001 until 2004. From 2000 to 2001, Mr. Ruffolo served as Executive Vice President of Global Sales, Services and Marketing of EMC Corporation. From 1998 to 1999, Mr. Ruffolo served as President of the Document Solutions Group at Xerox Corporation. From 1988 to 1998, Mr. Ruffolo served in various capacities at NCR Corporation, a global technology company, including Vice President and Chief Information Officer from 1996 to 1998. Mr. Ruffolo serves as a director of a private company. Mr. Ruffolo served as a director of Pomeroy IT Solutions, Inc. from 2007 to 2009. Mr. Ruffolo holds an M.B.A. from Harvard Graduate School of Business Administration and a B.S. from the University of Dayton. Mr. Ruffolo also has post graduate education in advanced management from the European Institute of International Business in Fountainebleau, France.
 
BOARD AND COMMITTEE MEMBERSHIP AND MEETINGS
 
Our stockholders elect the Board of Directors to oversee management of our company. The Board delegates authority to the Chief Executive Officer and senior management to pursue the company’s mission and oversees the Chief Executive Officer’s and senior management’s conduct of our business. In addition to its general oversight function, the Board reviews and assesses the company’s strategic and business planning and senior management’s approach to addressing significant risks and has additional responsibilities including, but not limited to, the following:
 
 
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reviewing and approving the company’s key objectives and strategic business plans and monitoring implementation of those plans and our success in meeting identified objectives;
 
reviewing the company’s financial objectives and major corporate plans, business strategies and actions;
 
approving the company’s annual corporate budget and major capital expenditures and purchase commitments;
 
selecting, evaluating and compensating the Chief Executive Officer and overseeing Chief Executive Officer succession planning;
 
providing advice and oversight regarding the selection, evaluation, development and compensation of senior management;
 
reviewing significant risks confronting our company and alternatives for their mitigation; and
 
assessing whether adequate policies and procedures are in place to safeguard the integrity of our business operations and financial reporting and to promote compliance with applicable laws and regulations, and monitoring management’s administration of those policies and procedures.
 
During 2010, our Board held 11 meetings. In 2010, each director then serving on the Board attended the 2010 Annual Meeting of Stockholders in person and all directors attended at least 75% of the meetings of the Board and the committees on which they served.
 
We have three standing committees of the Board of Directors: the Audit Committee, the Compensation Committee and the Nominations and Governance Committee. Members of each committee are appointed by the Board and the authority, duties and responsibilities of each committee are governed by written charters approved by the Board. These charters can be found on the Corporate Governance section of the Investors Services section of our website at www.internap.com . In addition to regular meetings of the Board and committees, we have regular scheduled executive sessions for non-management directors.
 
The current membership for each of the standing committees is as follows:
 
Audit Committee
 
Compensation Committee
 
Nominations and Governance Committee
         
Gary M. Pfeiffer (Chair)
 
Charles B. Coe (Chair)
 
Patricia L. Higgins (Chair)
Eugene Eidenberg
 
Patricia L. Higgins
 
Charles B. Coe
Kevin L. Ober
 
Michael A. Ruffolo
 
Gary M. Pfeiffer
Debora J. Wilson
 
Daniel C. Stanzione
 
Daniel C. Stanzione
 
Effective June 16, 2011, the membership for each of the standing committees will be as follows:
 
Audit Committee
 
Compensation Committee
 
Nominations and Governance Committee
         
Gary M. Pfeiffer (Chair)
 
Charles B. Coe (Chair)
 
Patricia L. Higgins (Chair)
Kevin L. Ober
 
Patricia L. Higgins
 
Charles B. Coe
Debora J. Wilson
 
Michael A. Ruffolo
 
Gary M. Pfeiffer
   
Daniel C. Stanzione
 
Daniel C. Stanzione
 
Audit Committee
 
The Board of Directors has determined that all members of the Audit Committee are independent as defined by Nasdaq rules and the Sarbanes-Oxley Act of 2002, as applicable to audit committee members. The Board has determined that Mr. Pfeiffer, the committee Chairman, is an “audit committee financial expert” under rules of the Securities and Exchange Commission (the “SEC”). The Audit Committee met nine times in 2010. The Audit Committee:
 
 
appoints, retains, compensates, oversees, evaluates and, if appropriate, terminates our independent registered public accounting firm;
 
annually reviews the performance, effectiveness, objectivity and independence of our independent registered public accounting firm and our internal audit function;
 
establishes procedures for the receipt, retention and treatment of complaints regarding accounting and auditing matters;
 
reviews with our independent registered public accounting firm the scope and results of its audit;
 
approves all audit services and pre-approves all permissible non-audit services to be performed by our independent registered public accounting firm;
 
assesses and provides oversight to management relating to identification and evaluation of major risks inherent in our business and the control processes with respect to such risks;
 
oversees the financial reporting process and discusses with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;
 
reviews and monitors our accounting principles, policies and financial and accounting processes and controls; and
 
oversees the internal auditor and reviews and approves the annual internal audit plan.
 
 
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Compensation Committee
 
The Board of Directors has determined that all members of the Compensation Committee are independent as defined by Nasdaq rules. The Compensation Committee met 10 times during 2010. The Compensation Committee:
 
 
assists the Board in discharging its responsibilities relating to executive compensation and fulfilling its responsibilities relating to our compensation and benefit programs and policies;
 
oversees the overall compensation structure, policies and programs, and assesses whether the compensation structure establishes appropriate incentives for senior management and employees;
 
administers and makes recommendations with respect to our incentive compensation plans, including equity-based incentive plans;
 
reviews and approves the compensation of our executive officers, including bonuses and equity compensation;
 
reviews and approves corporate and personal goals and objectives relevant to executive officers other than the Chief Executive Officer, evaluates the performance of such executive officers in light of these goals and objectives and approves the compensation of the executive officers based on the evaluation;
 
reviews corporate and personal goals and objectives relevant to the Chief Executive Officer, evaluates the performance of the Chief Executive Officer in light of these goals and objectives and recommends to the full Board the compensation of the Chief Executive Officer based on the evaluation;
 
reviews and discusses with management our Compensation Discussion and Analysis and related disclosures required by the rules of the SEC and recommends to the Board whether such disclosures should be included in our annual report and proxy statement;
 
reviews and recommends employment agreements and severance arrangements for executive officers, including change in control provisions; and
 
reviews annually the compensation of directors for service on the Board and committees and makes recommendations to the Board regarding such compensation.
 
See the “Compensation Discussion and Analysis” section below for more information regarding the Compensation Committee’s processes and procedures.
 
Nominations and Governance Committee
 
The Board of Directors has determined that all members of the Nominations and Governance Committee are independent as defined by Nasdaq rules. The Nominations and Governance Committee met five times during 2010. The Nominations and Governance Committee:
 
 
assists the Board in fulfilling its responsibilities on matters and issues related to our corporate governance practices;
 
in conjunction with the Board, establishes qualification standards for membership on the Board and its committees;
 
leads the search for individuals qualified to become members of the Board, reviews the qualifications of candidates for election to the Board and assesses the contributions and independence of incumbent directors eligible to stand for re-election to the Board;
 
selects and recommends to the Board the nominees for election or re-election by the stockholders at the annual meeting, and fills vacancies and newly created directorships on the Board;
 
develops and recommends to the Board corporate governance guidelines, reviews the guidelines on an annual basis and recommends any changes to the guidelines as necessary;
 
establishes and recommends to the Board guidelines, in accordance with applicable rules and regulations, to be applied when assessing the “independence” of directors;
 
reviews and approves related person transactions, as defined in applicable SEC rules, and establishes policies and procedures for the review, approval and ratification of related person transactions;
 
annually reviews and makes recommendations to the Board concerning the structure, composition and functioning of the Board and its committees and recommends to the Board directors to serve as committee members and chairpersons;
 
reviews directorships in other public companies held by or offered to directors;
 
develops and recommends to the Board for its approval an annual self-evaluation process for the Board and its committees and oversees the evaluation process; and
 
reviews and reports on all matters generally relating to corporate governance.
 
 
7

 
 
Compensation Committee Interlocks and Insider Participation
 
No current member of the Compensation Committee is a current or former executive officer or employee of our company. None of our executive officers served and currently none of them serves on the board of directors or compensation committee of any other entity with executive officers who have served on our Board of Directors or Compensation Committee.
 
CORPORATE GOVERNANCE
 
Our Board of Directors has adopted Corporate Governance Guidelines that outline the general duties and functions of the Board and management and set forth general principles regarding Board composition, independence, Board meetings and responsibilities, Board committees, annual performance evaluations and management succession. The Corporate Governance Guidelines are attached to the charter of the Nominations and Governance Committee, which can be found on the Corporate Governance section of the Investors Services section of our website at www.internap.com .
 
Our Corporate Governance Guidelines assist our Board of Directors in fulfilling its responsibilities to stockholders and provide a framework for the Board’s oversight responsibilities regarding our business. Our Corporate Governance Guidelines are dynamic and have been developed and revised to reflect changing laws, regulations and good corporate governance practices. The guidelines also provide guidance and transparency to management, employees and stockholders regarding the Board’s philosophy, high ethical standards, expectations for conducting business and decision-making processes.
 
The following is a summary of certain of our policies, guidelines and principles relating to corporate governance. You may access complete current copies of our Code of Conduct, Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter and Nominations and Governance Committee Charter on the Corporate Governance section of the Investors Services section of our website at www.internap.com . Each of these is also available in print to any stockholder upon request to our Corporate Secretary.
 
Identification and Evaluation of Director Candidates
 
The Board of Directors prides itself on its ability to recruit and retain directors who have a diversity of experience, who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who are effective (in conjunction with the other members of the Board) in collectively serving the long-term interests of our stockholders.
 
The Nominations and Governance Committee of the Board of Directors acts as the Board’s nominating committee. All members of the Nominations and Governance Committee are independent as defined by Nasdaq rules. The Nominations and Governance Committee seeks individuals qualified to become directors and recommends candidates for all director openings to the full Board. For a discussion of the Board’s membership criteria and how the company seeks to achieve diversity in Board membership and to attract directors with a broad range of skills, expertise, knowledge and contacts to benefit our business, see “Proposal 1—Election of Directors.” The Nominations and Governance Committee considers director candidates in anticipation of upcoming director elections and other potential or expected Board vacancies.
 
The Nominations and Governance Committee considers director candidates suggested by directors, senior management and stockholders and evaluates all nominees for director in the same manner. Stockholders may recommend individual nominees for consideration by the Nominations and Governance Committee by communicating with the committee as discussed below in “Stockholder Communications with the Board of Directors.” The Board of Directors ultimately determines individuals to be nominated at each annual meeting. Stockholders must comply with the procedures described below under “Stockholder Nominations.” From time-to-time, 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.
 
Stockholder Nominations
 
Stockholders who wish to recommend nominees for consideration by the Nominations and Governance Committee must submit their nominations in writing to our Corporate Secretary. Submissions must include sufficient biographical information concerning the recommended individual, including age, five-year employment history with employer names and a description of the employer’s business, whether such individual can read and comprehend basic financial statements and other board memberships, if any, held by the recommended individual. The submission must be accompanied by a written consent of the individual to stand for election if nominated by the Board of Directors and to serve if elected by the stockholders. The Nominations and Governance Committee may consider such stockholder recommendations when it evaluates and recommends nominees to the full Board for submission to the stockholders at each annual meeting. Stockholder nominations made in accordance with these procedures and requirements must be addressed to the attention of Tashia L. Rivard, Corporate Secretary, Internap Network Services Corporation, 250 Williams Street, Suite E-100, Atlanta, Georgia 30303.
 
 
8

 
 
In addition, stockholders may nominate directors for election without consideration by the Nominations and Governance Committee. Any stockholder may nominate an individual by complying with the eligibility, advance notice and other provisions set forth in our bylaws. A written notice of nomination must be received by our Corporate Secretary at our executive offices in Atlanta, Georgia, not less than 90 nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting, except in certain circumstances. For purposes of our annual meeting to be held in 2012, such notice must be received not later than March 19, 2012 and not earlier than February 17, 2012. You should address any stockholder nomination to the attention of Tashia L. Rivard, Corporate Secretary, Internap Network Services Corporation, 250 Williams Street, Suite E-100, Atlanta, Georgia 30303 and include the information and comply with the requirements set forth in our bylaws. Our bylaws provide that any notice of nomination for director must describe various matters regarding the nominee and the stockholder including, among other things, the name, address, class and number of our shares that are owned beneficially and of record, any relevant agreements, arrangements or understandings between the stockholder and any affiliates or associates, and any arrangements having the effect of mitigating a decrease in our share price or affecting the voting power of the stockholder, including derivative positions.
 
Our bylaws contain specific eligibility requirements that each nominee for director must satisfy. Each nominee must:
 
 
complete and return a written questionnaire with respect to the background and qualifications of such nominee and the background of any other person or entity on whose behalf the nomination is being made; and
 
provide a written representation and agreement that the nominee would comply with applicable law and our policies and guidelines if elected as a director and that the nominee is not and will not become a party to: (a) any voting commitment that has not been disclosed to us or that could limit the nominees ability to comply with applicable fiduciary duties; and (b) any agreement, arrangement or understanding with any person or entity other than us regarding indirect compensation, reimbursement or indemnification in connection with service as a director.
 
Board Leadership Structure
 
Our Board of Directors does not have a formal policy with respect to whether the Chief Executive Officer should also serve as Chairman of the Board. Our Board makes the decision regarding leadership structure based on its evaluation of the experience, skills and personal interaction between persons in leadership roles as well as the needs of our company at any point in time. When making this decision, the Board considers factors such as:
 
 
the person filling each role and his or her experience at the company and/or in the industry in which the company operates;
 
the composition, independence and effectiveness of the entire Board;
 
other corporate governance structures in place;
 
the compensation practices used to motivate our leadership team;
 
our leadership succession plan; and
 
the competitive and economic environment facing the company.
 
The Board periodically reviews its leadership structure to ensure that it remains the optimal structure for our company and our stockholders.
 
Since April 2002, we have had different individuals serving as our Chairman of the Board of Directors and Chief Executive Officer. Currently, Daniel C. Stanzione is our Chairman and J. Eric Cooney is our Chief Executive Officer. As Chairman, Dr. Stanzione leads the Board in its role to provide general oversight of strategic planning for the company and to provide guidance and support for the Chief Executive Officer. Further, the Chairman sets the agenda for and presides over meetings of the full Board. As Chief Executive Officer, Mr. Cooney is responsible for developing and executing the corporate strategy, as well as for overseeing the day-to-day operations and performance of the company.
 
We believe that separating the roles of Chairman and Chief Executive Officer represents an appropriate allocation of roles and responsibilities at this time given, among other things, the benefits of Dr. Stanzione’s experience, independence and tenure as a director of the company, which dates back to 2004. Mr. Cooney is well-positioned as the leader to develop and execute the company’s corporate strategy and is free to focus on day-to-day challenges.
 
The company believes this separation of responsibility is appropriate to provide independent Board oversight of and direction for the company’s executive management team, led by Mr. Cooney. Further, the company believes that having an independent Chairman provides for more effective monitoring and objective evaluation of the Chief Executive Officer’s performance which enables more direct accountability for the Chief Executive Officer’s performance.
 
Our Corporate Governance Guidelines provide that if our Chairman is not independent, the Board of Directors may designate a Lead Director who will be independent. The Board, however, has not determined it necessary to designate a Lead Director as the company feels our current structure, as described above, functions well and provides the necessary separation of roles.
 
 
9

 
 
Independence
 
The Board of Directors annually assesses the independence of all directors. No director qualifies as “independent” unless the Board affirmatively determines that the director is independent under the listing standards of Nasdaq. Our Corporate Governance Guidelines require that a majority of our directors be independent. Our Board of Directors believes that the independence of directors and committee members is important to assure that the Board and its committees operate in the best interests of the stockholders and to avoid any appearance of conflict of interest.
 
Under Nasdaq standards, our Board of Directors has determined that the following eight directors are independent: Charles B. Coe, Eugene Eidenberg, Patricia L. Higgins, Kevin L. Ober, Gary M. Pfeiffer, Michael A. Ruffolo, Daniel C. Stanzione and Debora J. Wilson. Mr. Cooney is not independent because he currently serves as our Chief Executive Officer and President. For over 11 years, we have functioned with not more than two active or former management employees as directors. In 2010, only one current employee, Mr. Cooney, and one former employee, Dr. Eidenberg (who served as our Chief Executive Officer from July 2001 until April 2002), served as directors. Dr. Eidenberg will be retiring from our Board immediately before our annual meeting as required by the retirement policy in our Corporate Governance Guidelines.
 
Risk Oversight by our Board of Directors
 
While risk management is primarily the responsibility of our management team, our Board of Directors is responsible for the overall supervision of our risk management activities. The Board implements its risk oversight function both at the full Board level and through delegation to various committees. These committees meet regularly and report back to the full Board. The Audit Committee has primary oversight responsibility not only for financial reporting with respect to our major financial exposures and the steps management has taken to monitor and control such exposures, but also for the effectiveness of management’s Enterprise Risk Management process that monitors and manages key business risks facing our company. The Audit Committee also oversees our procedures for the receipt, retention and treatment of complaints relating to accounting and auditing matters and oversees management of our legal and regulatory compliance systems. The Compensation Committee oversees risks relating to our compensation plans and programs.
 
Management provides updates throughout the year to the respective committees regarding the management of the risks they oversee and each of these committees reports on risk to the full Board of Directors at regular meetings of the Board. At least once every year, the Audit Committee reviews the allocation of risk responsibility among the Board’s committees and implements any changes that it deems appropriate. In addition to the reports from the committees, the Board receives presentations throughout the year from various department and business unit leaders that include discussion of significant risks as appropriate. At each Board meeting, the Chairman and Chief Executive Officer address, in a director-only session, matters of particular importance or concern, including any significant areas of risk that require Board attention. Additionally, through dedicated sessions focusing entirely on corporate strategy, the full Board reviews in detail the company’s short- and long-term strategies, including consideration of significant risks facing us and how the risks could impact our business.
 
Our Vice President of Internal Audit coordinates the day-to-day risk management process for our company and reports directly to the Chief Financial Officer and to the Audit Committee. The Vice President of Internal Audit updates the Audit Committee at least quarterly and updates the full Board regarding the company’s risk analyses and assessments and risk mitigation strategies and activities.
 
We believe that our approach to risk oversight, as described above, optimizes our ability to assess inter-relationships among the various risks, make informed cost-benefit decisions and approach emerging risks in a proactive manner for the company. We also believe that our risk structure complements our current Board of Directors leadership structure, as it allows our independent directors, through the three fully-independent Board committees, to exercise effective oversight of the actions of management in identifying risks and implementing effective risk management policies and controls.
 
During 2010, we conducted a risk assessment of our compensation plans to identify any potential risks associated with the design of the plans and assess the controls in place to mitigate risks, if any, to an acceptable level. Based on this assessment, management has concluded that our compensation plans do not contain risks that are reasonably likely to cause a material adverse effect on us. We evaluated each plan independently and as part of our overall compensation framework. In general, our compensation plans:
 
  are well documented, appropriately communicated, consistently applied and reviewed annually by the Compensation Committee;
  are based on both individual performance and company performance metrics that are tied to the strategic goals and objectives of the company;
  balance short- and long-term rewards, with compensation capped at levels consistent with industry standards;
 
 
10

 
 
  do not encourage excessive risk taking, do not focus on short-term gains rather than long-term value creation, do not reward circumvention of controls or do not contain unrealistic goals and/or targets; and
  are compared to industry standards and peer companies on an on-going basis by both the internal compensation department as well as the Compensation Committee’s independent compensation consultant and amended periodically to maintain consistency with common practices.
 
Based on these factors, the absence of any identified incentives for risk taking above the level associated with our business model, the involvement of the Compensation Committee and our overall culture and control environment, we have concluded our compensation plans do not promote excessive risk taking.
 
Stock Ownership Guidelines for Directors and Executive Officers
 
The Board of Directors believes that directors and management should have a significant financial stake in our company to align their interests with those of our stockholders. In that regard, the Board has adopted stock ownership guidelines that require directors and executive officers to own specified amounts of our stock granted to them in connection with their service to us. The stock ownership guidelines are further described below in “Non-Employee Director Compensation” and “Compensation Discussion and Analysis.”
 
Code of Conduct and Ethics Hotline
 
We have a Code of Conduct that covers our directors, officers and employees and satisfies the requirements for a “code of ethics” within the meaning of SEC rules. This group includes, without limitation, our chief executive officer and chief financial/accounting officer. A copy of the code is posted on our website, www.internap.com under “Investor Services.” The code is available in print to any person without charge, upon request sent to our Corporate Secretary at Internap Network Services Corporation, 250 Williams Street, Suite E-100, Atlanta, Georgia 30303. We will disclose, in accordance with all applicable laws and regulations, amendments to, or waivers from, our Code of Conduct.
 
Any suggestions, concerns or reports of misconduct at our company or complaints or concerns regarding our financial statements and accounting, auditing, internal control and reporting practices can be reported by submitting a report on https://internap.alertline.com/gcs/welcome (anonymously, if desired) or by calling our third-party provider, Global Compliance, at (800) 323-6182.
 
Attendance
 
Our Board of Directors prides itself on its ability to recruit and retain directors who have a diversity of experience, who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who are effective (in conjunction with the other members of the Board) in collectively serving the long-term interests of the stockholders. Board and committee attendance is central to the proper functioning of our Board and is a priority. Directors are expected to make every effort to attend all meetings of the Board, meetings of committees on which they serve and the annual meeting of stockholders.
 
Board and Company Culture
 
Our Corporate Governance Guidelines are coupled with a robust, open and effective Board environment that promotes respect, trust and candor, fosters a culture of open dissent and permits each director to express opinions and contribute to the Board process. Directors are expected to have unrestricted access to management and any company information they believe is necessary and appropriate to perform their roles as directors. The participation of Board members and the open exchange of opinions are further encouraged at the Board committee level through the periodic rotation of Board members among its standing committees. This open and candid operating environment is shared by management and the Board and is essential to fully realize the benefits of our Corporate Governance Guidelines, committee charters and other policies governing our company.
 
Stockholder Communications with the Board of Directors
 
Stockholders and interested parties may communicate with our Board of Directors by sending correspondence to the Board, a specific Board committee or a director c/o Corporate Secretary, Internap Network Services Corporation, 250 Williams Street, Suite E-100, Atlanta, Georgia 30303 or by sending electronic mail to corpsec@internap.com .
 
The Corporate Secretary reviews all communications to determine whether the contents include a message to a director and will provide a summary and copies of all correspondence (other than solicitations for services, products or publications) to the applicable directors at each regularly scheduled meeting. The Corporate Secretary will alert individual directors to items which warrant a prompt response from the individual director prior to the next regularly scheduled meeting. Items warranting prompt response, but not addressed to a specific director, will be routed to the applicable committee chairperson.
 
 
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Any suggestions, concerns or reports of misconduct at our company or complaints or concerns regarding our financial statements and accounting, auditing, internal control and reporting practices can be reported by submitting a report on https://internap.alertline.com/gcs/welcome (anonymously, if desired) or by calling our third-party provider, Global Compliance, at (800) 323-6182.
 
NON-EMPLOYEE DIRECTOR COMPENSATION
 
The compensation of our non-employee directors is as follows:
             
   
Cash
($)
 
Stock Options (1)(3)
($)
 
Restricted Stock (2)(3)
($)
               
Newly appointed or elected director
   
 
 
Number of restricted shares
equal to $75,000
Annual director retainer
 
$
20,000
 
Number of options
equal to $37,500
 
Number of restricted shares
equal to $37,500
Board meeting attendance fee – scheduled to be held in person
   
1,500
 
 
Committee meeting attendance fee – scheduled to be held in person
   
1,000
 
 
Board or Committee meeting attendance fee – scheduled to be held by telephone
   
750
 
 
Audit Committee chairperson annual retainer
   
15,000
 
 
Audit Committee member annual retainer
   
7,500
 
 
Compensation Committee chairperson annual retainer
   
10,000
 
 
Compensation Committee member annual retainer
   
5,000
       
Nominations and Governance Committee chairperson annual retainer
   
7,500
 
 
Chairman annual retainer (4)
   
50,000
 
 
 

(1) All stock options are fully vested and have an exercise price equal to 100% of the fair market value on the grant date, which is the closing price of our common stock reported on Nasdaq on that date.
(2) All shares of restricted stock vest in three annual installments on the anniversary of grant.
(3) The Compensation Committee’s independent compensation consultant determines the number of options and shares of restricted stock based on the fair market value of our common stock on the grant date.
(4) Our Chairman, Daniel C. Stanzione, receives the listed amount in lieu of the retainer of $20,000 paid to all other directors and receives the standard director fees for attendance at Board and committee meetings as well as the equity grants made to all other directors.
 
We also pay director expenses associated with attending Board of Directors and committee meetings. Directors who are also employees do not receive any additional compensation for serving on the Board or any of its committees.
 
 
12

 
 
The following table lists the compensation paid to our non-employee directors during 2010:
                         
Name
 
Fees Earned or
Paid in Cash (1)
   
Stock Awards (2)(3)
   
Option
Awards (2)(3)
   
Total
 
Charles B. Coe
  $ 55,750     $ 42,415     $ 50,372     $ 148,537  
Eugene Eidenberg (4)
    49,750       42,415       50,372       142,537  
Patricia L. Higgins
    58,250       42,415       50,372       151,037  
Kevin L. Ober
    48,750       42,415       50,372       141,537  
Gary M. Pfeiffer
    62,250       42,415       50,372       155,037  
Michael A. Ruffolo (5)
    46,250       117,413       50,372       214,035  
Daniel C. Stanzione
    83,000       42,415       50,372       175,787  
Debora J. Wilson (5)
    47,500       117,413       50,372       215,285  
 

(1) Listed amounts include the annual retainers and meeting fees.
(2) Represents the full grant date fair value of restricted stock and stock options granted in 2010, calculated in accordance with FASB ASC Topic 718. We value restricted stock using the closing price of our common stock reported on Nasdaq on the grant date. We value stock options using the Black-Scholes model. For additional valuation assumptions, see Note 16 to our Consolidated Financial Statements for the fiscal year ended December 31, 2010. The values in this column may not correspond to the actual value that will be realized by the non-employee directors at the time that the restricted stock vests.
(3) The following table lists the number of outstanding stock options and restricted stock awards held by our non-employee directors as of December 31, 2010. The reported numbers reflect only grants made by the company and do not include any other stock that a director may have acquired on the open market:
               
 
Name
 
Options
(#) (a)
   
Restricted
Stock
(#) (b)
 
 
Charles B. Coe
    74,560       21,850  
 
Eugene Eidenberg
    171,559       20,185  
 
Patricia L. Higgins
    72,560       26,579  
 
Kevin L. Ober
    36,423       17,449  
 
Gary M. Pfeiffer
    38,560       29,768  
 
Michael A. Ruffolo
    16,290       24,177  
 
Daniel C. Stanzione
    72,560       21,850  
 
Debora J. Wilson
    16,290       24,177  
 

 
(a)
All outstanding options are fully vested.
 
(b)
Shares reported are net of any shares withheld at the election of a director to satisfy minimum statutory tax obligations upon vesting of restricted stock. Some of the reported grants remain subject to time-based vesting.
(4) Dr. Eidenberg will be retiring from our Board immediately before our annual meeting as required by the retirement policy in our Corporate Governance Guidelines.
(5) Mr. Ruffolo and Ms. Wilson joined our Board on January 1, 2010. The reported values of restricted stock and stock options include both new director grants made when each individual joined our Board as well as annual grants.
 
Stock Ownership Guidelines for Non-Employee Directors
 
The Board of Directors adopted new stock ownership guidelines in 2010 that require each director to beneficially own a number of shares of company common stock equal to five times the annual director retainer as identified above. We believe that these guidelines further align the interests of directors and stockholders. Please see “Compensation Discussion and Analysis—Stock Ownership Guidelines for Named Executive Officers” for additional information regarding the guidelines.
 
 
13

 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND OFFICERS AND DIRECTORS
 
Five Percent Stockholders
 
The following table sets forth information as to those holders known to us to be the beneficial owners of more than 5% of our outstanding shares of common stock as of December 31, 2010:
             
   
Common Stock Beneficially
Owned
 
Name and Address of Beneficial Owner
 
Number of
Shares
   
Percent of
Class (1)
 
BlackRock, Inc. (2)
    3,124,875       5.98 %
Dimensional Fund Advisors LP (3)
    2,807,750       5.37 %
Kornitzer Capital Management, Inc. (4)
    3,647,807       6.98 %
 

(1) As of April 1, 2011, based on 52,273,845 shares outstanding on that date.
(2) Based on information set forth in Amendment No. 1 to Schedule 13G filed February 4, 2011. The Schedule 13G indicates that BlackRock, Inc. has sole voting and dispositive power over the 3,124,875 shares of our common stock. The business address of BlackRock, Inc. is 40 East 52 nd Street, New York, New York 10022.
(3) Based on information set forth in Amendment No. 1 to Schedule 13G filed February 11, 2011. The Schedule 13G indicates that Dimensional Fund Advisors LP has sole voting power over 2,672,013 shares of our common stock and sole dispositive power over 2,807,750 shares of our common stock. The business address of Dimensional Fund Advisors LP is Palisades West, Building One, 6300 Bee Cave Road, Austin, Texas 78746.
(4) Based on information set forth in Amendment No. 2 to Schedule 13G filed January 21, 2011. The Schedule 13G indicates that Kornitzer Capital Management, Inc. has sole voting power over 3,647,807 shares of our common stock, sole dispositive power over 3,529,332 shares of our common stock and shared dispositive power over 118,475 shares of our common stock. The business address of Kornitzer Capital Management, Inc. is 5420 West 61st Place, Shawnee Mission, Kansas 66205.
 
Stock Ownership of Management
 
The following table sets forth the number of shares of common stock beneficially owned as of April 1, 2011 by each of our directors and named executive officers (as defined below under “Compensation Discussion and Analysis”) and all of our directors and named executive officers as a group. The address of each current director and named executive officer is c/o Internap Network Services Corporation, 250 Williams Street, Suite E-100, Atlanta, Georgia 30303.
 
To our knowledge, except under community property laws or as otherwise noted, the persons and entities named in the table have sole voting and sole investment power over their shares of our common stock.
             
   
Common Stock Beneficially
Owned
 
Name and Address of Beneficial Owner
 
Number of
Shares (1)
   
Percent of
Class (2)
 
Charles B. Coe
    111,410       *  
J. Eric Cooney
    1,191,002       2.27 %
Eugene Eidenberg (3)
    301,422       *  
Patricia L. Higgins
    99,139       *  
Kevin L. Ober
    53,872       *  
Gary M. Pfeiffer
    68,328       *  
Michael A. Ruffolo
    40,467       *  
Daniel C. Stanzione
    108,410       *  
Debora J. Wilson
    53,467       *  
George E. Kilguss III
    289,986       *  
Steven A. Orchard
    90,528       *  
Randal R. Thompson
    134,369       *  
Richard P. Dobb (4)
    49,039       *  
All directors and executive officers as a group (13 persons)
    2,591,439       4.87 %
 

* Represents beneficial ownership of less than 1%.
 
 
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(1) Includes shares that may be acquired by the exercise of stock options granted under our stock option plans within 60 days after April 1, 2011 as follows:
         
 
Name
 
Options
 
 
Charles B. Coe
    74,560  
 
J. Eric Cooney
    252,759  
 
Eugene Eidenberg
    171,559  
 
Patricia L. Higgins
    72,560  
 
Kevin L. Ober
    36,423  
 
Gary M. Pfeiffer
    38,560  
 
Michael A. Ruffolo
    16,290  
 
Daniel C. Stanzione
    72,560  
 
Debora J. Wilson
    16,290  
 
George E. Kilguss III
    69,132  
 
Steven A. Orchard
    52,837  
 
Randal R. Thompson
    44,020  
 
Richard P. Dobb
     
 
Directors and executive officers as a group
    917,550  
(2) As of April 1, 2011, based on 52,273,845 outstanding on that date.
(3) Includes 13,236 shares of common stock held by Dr. Eidenberg; 85,077 shares of common stock held by Dr. Eidenberg, as trustee of the Eugene Eidenberg Trust dated 9/97; 2,799 shares of common stock held by Eugene Eidenberg, as trustee of the Anna M. Chavez Educational Trust and 8,566 shares held by Anna M. Chavez. Dr. Eidenberg will be retiring from our Board immediately before our annual meeting as required by the retirement policy in our Corporate Governance Guidelines.
(4) The employment of Mr. Dobb, our former Chief Administrative Officer, was terminated February 1, 2011. The number of shares reported in the table above reflects the number of vested shares of restricted stock that he held on his termination date, which may not reflect his current holdings.
 
EXECUTIVE OFFICERS
 
Executive Officers
 
In addition to Mr. Cooney, our Chief Executive Officer and President, whose biographical information appears under “Proposal 1—Election of Directors,” set forth below are the names, ages and biographical information for each of our current executive officers.
         
Name
 
Age
 
Position
J. Eric Cooney
 
45
 
Chief Executive Officer and President
George E. Kilguss III
 
50
 
Chief Financial Officer
Steven A. Orchard
 
39
 
Senior Vice President, Operations and Support
Randal R. Thompson
 
43
 
Senior Vice President, Global Sales 
 
George E. Kilguss III has been our Chief Financial Officer since 2008 and manages all of our finance, accounting, treasury, information technology and real estate activities. Prior to joining us, Mr. Kilguss served as Chief Financial Officer of Towerstream Corporation from 2004 to 2007. From November 2000 until December 2003, Mr. Kilguss was a private investor. From September 1998 until October 2000, Mr. Kilguss was Chief Financial Officer of Stratos Global Corporation, a publicly traded company on the Toronto Stock Exchange. Mr. Kilguss was also an Executive Vice President of Stratos Global Corporation and served on its board of directors from April 1999 until October 2000. Mr. Kilguss holds an M.B.A. in finance and accounting from the University of Chicago’s Graduate School of Business and a B.S. in economics and finance from the University of Hartford.
 
Steven A. Orchard has been our Senior Vice President, Operations and Support since 2009, where he leads our operations and customer support programs. Mr. Orchard originally joined us in 1999 and has previously served as Senior Manager, IP Operations from 2005 until 2006; Director, Network Operations from 2006 until 2007 and Vice President, Network Operations from 2007 until 2009. Prior to joining us, Mr. Orchard held systems positions with Codesic, Inc. and Oasis Systems, Inc. Mr. Orchard holds a B.S. from the University of Oregon.
 
Randal R. Thompson has been our Senior Vice President of Global Sales since 2009 and leads our worldwide sales organization, strategy and programs. Mr. Thompson originally joined us in 2003 as Market Manger and previously served as our regional Vice President Sales for mid-America and Europe from 2006 to 2007 and Vice President, Global Sales from 2007 through 2009. Prior to joining us, Mr. Thompson served as Director of Sales for Major and National Accounts at MCI WorldCom. Mr. Thompson holds a B.S. from the University of New Haven.
 
 
15

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 
Executive Summary
 
We seek to closely align the interests of our named executive officers with the interests of our stockholders. Our compensation programs are designed to reward named executive officers for the achievement of short-term and long-term strategic and operational goals, while at the same time avoiding the encouragement of excessive risk-taking. Our named executive officers’ total compensation is comprised of a mix of base salary, short-term (annual) cash incentive awards and long-term equity incentive awards.
 
In 2010, we achieved a number of important milestones in the turnaround of our business. We made strategic investments to drive innovation, enhance our competitiveness, solidify our growth and expand the value of our company. In 2010, specific accomplishments included the following:
 
 
Highest Profitability in Company History . We delivered the highest profitability in company history in 2010: adjusted EBITDA was $39.2 million, a 40% increase from 2009. Adjusted EBITDA is a non-GAAP financial measure, and is defined as loss from operations plus (a) depreciation and amortization, (b) loss on disposals of property and equipment, (c) impairments and restructuring and (d) stock-based compensation.
 
High Total Stockholder Return . Our total stockholder return increased 29.4% in 2010 compared to the Nasdaq market index increase of 16.9%.  
 
Expansion of Company Data Centers . We added approximately 30,000 net sellable square feet of company-controlled data center space, an increase of 26% compared to our footprint in 2009.
 
Expanded Product Line . We enhanced and expanded our IT infrastructure services capabilities by adding new enterprise-grade server, storage and security options in our managed hosting business and launching our innovative accelerated IP service, XIP TM .
 
While we are pleased with these accomplishments, we are also mindful of our failure to achieve our revenue target for 2010. The Compensation Committee is satisfied that the design, implementation and execution of our compensation programs achieved an appropriate balance between rewarding success while not rewarding failure. Thus, the named executive officers did not receive their total target incentive compensation for 2010 because we did not meet our 2010 revenue target (the range of incentive compensation received was 55% to 70% of target). In summary, we set aggressive corporate financial goals and paid for performance against these goals.
 
Significant Compensation Practices and Recent Modifications
 
We target the elements of our compensation program to provide all employees, including our named executive officers, with a total compensation program that is market competitive and rewards individual performance. This is intended to ensure that we maintain an appropriate cost structure while attracting, motivating and retaining talented professionals.
 
In setting the compensation of our named executive officers, we use peer group data prepared by third parties to assess the competitiveness of our compensation levels and provide a target range for our compensation programs. More specifically, we aim to keep the compensation levels of our named executive officers within a range around the median compensation for our peer group. Where appropriate, we adjust compensation to account for factors such as the individual’s level of experience, responsibilities, performance and expected future contributions. Ultimately, the determination of the compensation level for any named executive officer is not formulaic but is developed with balanced consideration of the above elements.
 
We review and evaluate our compensation programs, practices and policies on an ongoing basis. We modify our compensation programs to address evolving best practices. We have provided below some of the more significant practices and recent modifications.
 
 
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Base Salaries . After due consideration, the Board of Directors determined not to increase the base salary of our Chief Executive Officer in 2011 based on competitive market data demonstrating that his base salary was already at a competitive level. Similarly, the Compensation Committee considered the base salaries of our other named executive officers and, in part based on the Chief Executive Officer’s recommendations, determined to increase their base salaries between 2.2% to 7.7% in 2011.
 
 
 
Performance-Based Compensation . Our philosophy is to pay for performance. In that regard, both short-term and long-term incentive awards for named executive officers are impacted by both corporate and individual performance. For 2010, 72% of our Chief Executive Officer’s total compensation was incentive compensation. For our other named executive officers, the percentages were between 56% to 65%. Please see the graph on page 20 for additional information on the allocation of our compensation.
 
 
 
 
 
Short-Term (Annual) Incentive Compensation . Our Chief Executive Officer and Chief Financial Officer will be eligible to receive an award under our short-term incentive plan for performance in 2011 based on attainment of revenue and/or EBITDA targets. Our Compensation Committee believes revenue and EBITDA are the most appropriate targets to align individual incentives with the creation of stockholder value. The Chief Executive Officer and Chief Financial Officer do not have individual objectives tied to short-term incentives in 2011. The remaining named executive officers share the same revenue and EBITDA targets, but will also have one or more individual objectives related to their specific area of responsibility. In addition to motivating these individuals toward the same corporate financial targets, the Compensation Committee felt it important to have a mechanism to cascade critical, non-financial objectives throughout our company. These individual non-financial objectives will help drive key corporate objectives and include engineering development deliverables, customer satisfaction metrics and operational availability targets.
 
 
 
 
Long-Term Incentive Compensation . Long-term incentive compensation through equity awards continues to be an important component of the compensation for each of our named executive officers. Our equity incentive awards are comprised of stock options and restricted stock, the value of which is closely linked to our total stockholder return. Grants are made at fair market value and vest over four years, and if Proposal 2 is approved, we will not be able to reuse shares that are withheld for the payment of taxes on the vesting of restricted stock. We believe long-term incentive compensation both aligns the interests of our employees with that of our stockholders and provides an appropriate tool for employee retention and motivation.
 
No Perquisites . We do not provide our named executive officers with any perquisites.
 
 
Stock Ownership Guidelines . In 2010, our Board of Directors approved stock ownership guidelines for senior management (including named executive officers) and non-employee directors to further align senior management, non-employee director and stockholder interests. These individuals are required to beneficially own a number of shares of company common stock as determined below:
     
    Individual     Multiple  
    Chief Executive Officer     6.0x base salary  
    Chief Financial Officer     3.0x base salary  
   
All Other Senior Vice Presidents 
    2.0x base salary  
    Non-Employee Directors     5.0x annual retainer  
   
 
   
The guidelines require these individuals to retain 100% of the shares granted to them by the company (net of applicable taxes) until the guidelines are achieved.
 
Double Trigger Change in Control Agreements . Our named executive officers will receive specified payments and acceleration of vesting of equity in the event of a change in control of our company. The payments and acceleration of vesting are considered “double trigger,” that is, a named executive officer will only be entitled to a change in control payment and acceleration of vesting if the company has undergone a change in control and that named executive officer’s employment is terminated following such change in control.
 
Clawback Policy . Our clawback policy allows us to “clawback” compensation paid to any employee (and not just members of senior management) who has engaged in fraud or intentional misconduct in the event of a financial restatement.
     
 
 
   
   
 
 
 
 
 
   
 
 
 
 
 
 
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No Speculative Transactions. All of our employees (including named executive officers) and directors are prohibited from engaging in any speculative transactions in company securities, including engaging in any prepaid forward contracts, equity swaps, collars and exchange funds or any other transaction in which the person could profit if the value of our stock falls.
 
 
Repricing of Stock Options . Proposal No. 2 would strengthen the prohibition against repricing of stock options. If Proposal No. 2 is approved by our stockholders, we will not be permitted to reprice stock options without explicit stockholder approval.
 
 
Limit on Full Value Awards in Equity Plan . If Proposal No. 2 is approved by our stockholders, we will be limited in our ability to grant full value awards (i.e., restricted stock) to 50% of the total number of shares available under our equity plan.
 
 
Limit on Incentive Awards . The total amount of   awards that may be paid to named executive officers under our short-term (annual) incentive plan in 2011 are limited to the following percentages of base salary: Chief Executive Officer: 200%; Chief Financial Officer: 130% (an increase from 100% for 2010) and between 80% to 100% for our other named executive officers.
 
 
 
Compensation Risk Assessment . Our Compensation Committee annually reviews and approves the company’s compensation strategy, which includes a review of compensation-related risk management. In this review, the Compensation Committee analyzes our executive compensation program, including the short-term (annual) incentive plan and long-term incentive compensation. The Compensation Committee does not believe that our compensation program encourages excessive or unnecessary risk-taking.
 
Independent Compensation Committee . Our Compensation Committee is comprised solely of independent directors as defined by Nasdaq and our director independence standards.
 
 
Independent Compensation Consultant . Our independent compensation consultant is retained directly by the Compensation Committee and performs no other consulting or other services for our company. The independent compensation consultant had no relationship with any named executive officer prior to the engagement.
     
 
We encourage you to read this Compensation Discussion and Analysis for a detailed discussion and analysis of our executive compensation program, including information about the 2010 compensation of our named executive officers.
 
Overview of Our Executive Compensation Program
 
The principal components of our executive compensation program are base salary, a short-term (annual) cash incentive based on performance and a long-term equity incentive consisting of stock options and restricted stock. We benchmark our executive compensation program against the median compensation at a group of peer companies (as described below) as well as the median level of compensation derived from broad-based surveys of companies of similar size to us. We use this market compensation information to evaluate the competitiveness of our executive compensation program relative to our peers.
 
This section refers to the compensation of our “named executive officers” unless we note otherwise:
 
 
J. Eric Cooney, Chief Executive Officer and President
 
George E. Kilguss III, Chief Financial Officer
 
Steven A. Orchard, Senior Vice President, Operations and Support
 
Randal R. Thompson, Senior Vice President, Global Sales
 
Richard P. Dobb, former Chief Administrative Officer. Mr. Dobb’s employment terminated February 1, 2011, but he did serve as a named executive officer for all of 2010.
 
Compensation Committee
 
The Compensation Committee reports to our Board of Directors on all compensation matters for our senior management, including our named executive officers. You may learn more about the Compensation Committee’s responsibilities by reading the Compensation Committee’s charter, which is available in the “Corporate Governance” section on the “Investor Services” page of our website at www.internap.com .
 
The Compensation Committee annually reviews and approves the compensation of our named executive officers, other than the Chief Executive Officer, and annually reviews and makes recommendations to the full Board of Directors regarding the compensation of our Chief Executive Officer. A majority of the independent directors of the full Board must approve the compensation of our Chief Executive Officer.
 
 
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Compensation Objectives
 
We design and manage our company-wide compensation programs to align with our overall business strategy and to create value for our stockholders. We believe it is important that our compensation programs:
 
 
 
Are competitive .  Our programs are designed to attract, motivate and retain talented individuals at all levels of our company. We structure our compensation programs to be competitive with the compensation paid by similar companies.
     
 
 
Are linked to performance .  Most of our employees, including our named executive officers, are eligible to receive short-term (annual) incentive and long-term equity incentive compensation upon achievement of corporate and/or individual performance goals. We select performance goals that, to the extent achieved, we believe will facilitate the long-term profitable growth of our company and, thus, contribute to long-term value for our stockholders. We believe that linking compensation to performance rewards our employees, including named executive officers, for achieving and exceeding performance goals, without creating a sense of entitlement and without encouraging excessive risk taking.
     
 
 
Align the interests of our named executive officers with those of our stockholders .  Our annual performance goals are intended to support the creation of long-term stockholder value. Long-term equity incentive compensation vests over a four-year period and the value of such compensation increases or decreases with changes in the price of our common stock over time. In combination with our minimum stock ownership guidelines, our long-term equity incentive compensation further aligns the interests of our named executive officers and stockholders.
 
Components of Executive Compensation
 
The components of our executive compensation program, the primary purpose of each component and the form of compensation for each component are described in the following table.
 
Component
 
Primary Purpose
 
Form of Compensation
         
Base Salary
 
Provides base compensation for day-to-day performance of job responsibilities
 
Cash
         
Short-Term (Annual) Incentive Compensation
 
Rewards annual performance based on achievement of corporate and individual performance goals, as applicable
 
Cash
         
Long-Term Equity Incentive Compensation
 
Provides incentive for long-term performance, retention and motivation, thereby aligning the financial interests of our named executive officers with the interests of our stockholders
 
Stock options, which vest 25% on first anniversary of the grant date and in 36 equal monthly installments thereafter; restricted stock, which vests in four equal annual installments beginning on first anniversary of grant date
 
Allocation of Compensation Components
 
We manage our business with the goal of maximizing stockholder value, and, accordingly, a significant percentage of the compensation of our named executive officers is variable and linked to performance of both the company and/or the individual. The compensation components linked to performance (targeted short-term (annual) incentive compensation and value of long-term equity incentive compensation) of our named executive officers exceeds their annual base salary.
 
The Compensation Committee considers qualitative and quantitative factors when setting compensation for each named executive officer. We do not have a specific formula for the allocation of compensation between fixed (base salary) and variable, nor for the individual elements of compensation (base salary, short-term (annual) incentive and long-term equity incentive). We determine each individual’s allocation between base salary and short-term and long-term incentive compensation based on factors including:
 
  strategic objectives of our business;
  competitive review of the allocation at peer companies;
  broad-based survey data; and
  the named executive officer’s role within our company, experience and performance .
  
 
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The following table illustrates the allocation of the targeted principal compensation components for our named executives for 2010. The percentages reflect the amounts of base salary and targeted short-term (annual) incentive compensation for 2010 and the aggregate grant date fair values of long-term equity compensation (stock options and restricted stock) granted in 2010.
 
ALLOCATION OF TARGETED PRINCIPAL PAY COMPONENTS FOR 2010

  (BAR CHART)
 
 
* The amount reported for Mr. Cooney s long-term equity incentive compensation does not include the grant date fair value of 200,000 shares of restricted stock granted to him in March 2010. These shares were considered granted to him in 2009 when he commenced employment.
 
Compensation Consultant and Benchmarking
 
Compensation Strategies, Inc. (“CSI”) has served as independent compensation consultant to the Compensation Committee since 2009 and assists the Compensation Committee in designing and implementing our executive compensation program.
 
The Compensation Committee and management sought the views of CSI regarding market trends for executive compensation and analysis of specific compensation program components. CSI provided information comparing direct compensation for the named executive officers to market data from a group of peer companies (as described below) as well as other broader-based survey sources. “Direct compensation” encompassed base salary, annual bonus opportunities and long-term compensation in the form of equity grants.
 
Based on CSI’s recommendation, the Compensation Committee selected a group of peer companies for use in establishing 2010 compensation levels for the named executive officers. CSI provided 50 th percentile compensation information from this peer group for base salary and short- and long-term incentive compensation. Consistent with standard practices, due to the varying sizes of the companies included in the peer group, statistical analysis was used to “size-adjust” the market compensation data to reflect our relative annual revenue. This peer group consisted of:
 
Akamai Technologies, Inc.
F5 Networks, Inc.
Rackspace Hosting, Inc.
Aruba Networks, Inc.
InfoSpace, Inc.
Riverbed Technology Inc.
Blue Coat Systems
j2 Global Communications, Inc.
Savvis Inc.
Cbeyond Inc.
Limelight Networks Inc.
Switch & Data Facilities Company, Inc..
Cogent Communications Group
Navisite Inc.
Terremark Worldwide Inc.
Digital River, Inc.
NeuStar, Inc.
Veraz Networks, Inc.
Equinix Inc.
Omniture, Inc.
Websense, Inc.
 
The Compensation Committee selected a similar group of peer companies for use in establishing 2011 compensation levels for the named executive officers, with the elimination of Omniture, Inc. and Switch & Data Facilities Company, Inc., both of which have been acquired.
 
Other than executive and Board compensation consulting, CSI did not provide any other services to the company in 2010. The Compensation Committee has engaged CSI for executive compensation services in 2011.
 
 
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The Compensation Committee considered the market compensation data and the experience levels and responsibilities of the named executive officers as reference points in evaluating the compensation components and levels for the named executive officers. Generally, we target our compensation program to fall within a range around the median of the market compensation data for similarly-sized companies in the telecommunications and technology industries. While we target the median, individual named executive officer compensation may be either below or above the median based on individual circumstances including performance, experience and/or recruiting and retention needs. When our corporate performance exceeds targets established by the Compensation Committee, the total cash compensation paid to our named executive officers, as a group, may exceed targeted total cash compensation levels, which reflects the Compensation Committee’s commitment to pay for performance. When our corporate performance does not meet our established targets, total cash compensation of our named executive officers generally would be below targeted levels, which also reflects a commitment to pay for performance.
 
Principal Components of our Executive Compensation Program
 
Base Salary
 
Base salary is the only fixed component of our named executive officer’s total compensation package. Our annual salary review process is based on our overall annual budget guidelines and is influenced by competitive market data (provided by CSI) as well as individual performance. Our salary increase philosophy provides for larger increases for higher levels of individual performance. Our Compensation Committee approved an overall 2.8% budget for annual salary increases for all employees in both 2010 and 2011.
 
Annual Performance Appraisal.  All employees, including named executive officers, undergo an annual performance appraisal. The employee’s performance for the prior year is evaluated by his or her direct supervisor.
 
Our Chief Executive Officer develops a performance appraisal for each named executive officer, which considers the individual’s overall responsibilities, skills, experience and tenure in the particular position. The Chief Executive Officer uses his judgment in assessing those factors in a qualitative manner. Together with the competitive market data, this appraisal guides the Chief Executive Officer’s recommendation for each named executive officer’s salary increase, if any. In February of each year, our Chief Executive Officer reviews the competitive market data along with his recommendations for salary increases with the Compensation Committee. The Compensation Committee makes the final determination of each named executive officer’s base salary.
 
With regard to the Chief Executive Officer, the Compensation Committee reviews his performance and makes a recommendation to the full Board of Directors as to any change in base salary. After considering the recommendation of the Compensation Committee, the full Board meets in executive session and approves the Chief Executive Officer’s base salary.
 
2010 and 2011 Base Salaries.  In our effort to manage employee-related costs, none of our named executives received a base salary increase in 2009. After due consideration of individual, company and market dynamics discussed above, the Compensation Committee approved salary increases (detailed in the table below) ranging from 2.2% to 7.7% for 2010 and 2011 for our named executives, except Mr. Cooney, as described below. Salary increases are effective April 1 of each calendar year.
                           
     
Salary Increase
   
2010
   
% Salary Increase
   
2011
 
Named Executive
   
for 2010 (%)
   
Base Salary ($)
   
for 2011 (%)
   
Base Salary ($)
 
George E. Kilguss III
      5.5 %     290,000       3.4 %     300,000  
Steven A. Orchard
      5.4 %     195,000       7.7 %     210,000  
Randal R. Thompson
      2.2 %     230,000       2.2 %     235,000  
Richard P. Dobb (1)
      2.6 %     280,000              
 

(1)
Mr. Dobb’s employment terminated on February 1, 2011.
 
The Compensation Committee approved the foregoing increases in base salaries based on the following:
 
 
Mr. Kilguss’ salary was increased to reflect his personal performance and impact to our company as well as the level of competitiveness of his total compensation package.
 
Mr. Orchard’s base salary was increased to reflect his leadership contributions and to better position his total cash compensation relative to our other named executive officers and market.
 
Mr. Thompson’s base salary was increased to reflect his personal performance and to better position his total cash compensation relative to market.
 
The base salaries of these named executive officers are in a range from somewhat below to no more than 15% above their respective market medians.
 
 
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The full Board did not change Mr. Cooney’s base salary primarily due to the current competitive nature of his base salary, which is approximately 30% above his market median. Mr. Cooney’s base salary was established through comprehensive negotiations prior to his employment and was influenced by market levels for his position as well as his experience and professional achievements.
 
Short-Term (Annual) Incentive Compensation
 
Named executive officers can earn an annual cash award under our short-term incentive plan based on achievement of corporate financial targets and achievement of individual targets, as applicable. Our Compensation Committee believes short-term incentive compensation opportunities for named executive officers should be competitive with incentive compensation at comparable peer-group companies of similar size and companies with whom we compete to hire exceptional talent. Our corporate financial targets are based on our financial plan approved by the Board of Directors. This approach ensures alignment and focus among named executive officer around the attainment of corporate financial targets. The Compensation Committee considers each named executive officer’s performance, experience level and potential to impact our short-term performance when setting an individual’s annual incentive compensation opportunity.
 
Our Compensation Committee approves awards to named executive officers, other than Mr. Cooney, and reviews results achieved compared to corporate and individual targets. The Board of Directors (excluding Mr. Cooney) approves any award to Mr. Cooney after receiving recommendations from the Compensation Committee.
 
2010 Short-Term Incentive Plan
 
Our Compensation Committee approved the 2010 Short-Term Incentive Plan (the “2010 STIP”) which awarded participants at or above the vice president level, including named executive officers, for achievement of three criteria:
 
                revenue (30% of potential award);
                adjusted EBITDA (40% of potential award); and
                individual and business unit objectives specific to each individual (30% of potential award).
 
The Compensation Committee, for named executive officers other than our Chief Executive Officer, and the Board of Directors, for our Chief Executive Officer, assigned each individual a target level of incentive compensation potential, expressed as a percentage of base salary. In setting the potential annual incentive compensation each named executive officer could earn at the target award level, the Compensation Committee considered the competitive market data provided by CSI and the experience and responsibilities of the named executive officers.
 
The 2010 STIP incorporated a threshold level of performance for each corporate and individual objective, which had to be exceeded in order for an award to be made. No award would be made to a participant at the threshold level of performance. The award increased linearly from threshold to target and from target to stretch.
 
Our revenue and adjusted EBTIDA targets for the 2010 STIP were as follows:
 
Criteria
 
At Threshold
 
At Target
 
At Stretch
Revenue
 
$ 247.4 million
 
$ 260.4 million
 
$ 273.4 million
Adjusted EBTIDA
 
35.3 million
 
39.2 million
 
 43.1 million
 
Our revenue and adjusted EBITDA for the year ended December 31, 2010 were $244.2 million and $39.2 million, respectively. We did not meet our revenue target, but did meet our adjusted EBITDA target. Accordingly, the named executive officers received an award based on achievement of the target level for adjusted EBITDA plus achievement of individual objectives, as applicable.
 
The table below outlines the potential target levels and the award made (on March 15, 2011) to each named executive officer under the 2010 STIP:
 
Name
 
At
Threshold (1)
   
At
Target
(%)
   
At
Target (2)
($)
   
At
Stretch
(%)
   
At
Stretch
($)
   
2010 STIP
Award
($)
 
J. Eric Cooney
          100   $ 600,000       200   $ 1,200,000     $ 420,000  
George E. Kilguss III
          50     145,000       100     290,000       90,867  
Steven A. Orchard
          40     78,000       80     156,000       54,600  
Randal R. Thompson
          50     115,000       100     230,000       63,250  
Richard P. Dobb (3)
          50 %     140,000       100     280,000        
 

(1) Partial awards could be earned for each goal based on achievement between the threshold and target levels. Threshold levels differ by goal.
(2) The amount that a named executive earned was based on the individuals’ base salary as of December 31, 2010.
(3) Mr. Dobb’s employment terminated on February 1, 2011; as he was not an employee on the award date, he did not receive an award under the 2010 STIP.
 
 
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A named executive officer is only entitled to stretch awards with respect to attainment of corporate financial objectives but not for attainment of individual performance objectives. Thus, the potential stretch awards in the above table could only have been achieved with significant over-achievement of corporate financial objectives. Mr. Cooney’s target percentage was approximately 20 percentage points above his market median. The other named executive officers’ target percentages were within a range of approximately +/- 5 percentage points around their respective market medians.
 
Awards to all of the named executive officers under the 2010 STIP were in part based upon meeting the corporate financial target for adjusted EBITDA. In addition, awards were based on the following personal achievements:
 
 
Mr. Cooney : The Board of Directors considered (a) the successful completion of our program to proactively reduce the number of low profit customer contracts in partner data centers, (b) meeting targeted dates for expansion of company-controlled data centers and (c) enhancement and expansion of our IT infrastructure capabilities, including addition of new enterprise-grade server, storage and security options in our managed hosting business and the launch of our innovative accelerated IP service , XIP TM .
 
Mr. Kilguss : The Compensation Committee considered the achievements of the finance organization, including cost reductions and operational efficiencies.
 
Mr. Orchard : The Compensation Committee considered the achievement of customer service and support metrics.
 
Mr. Thompson : The Compensation Committee considered the achievements of the sales organization, including sales force development and productivity and bookings growth.
 
2011 Short-Term Incentive Plan
 
The 2011 Short-Term Incentive Plan (the “2011 STIP”) operates similarly to the 2010 STIP, except as noted below. Any award under the 2011 STIP to our Chief Executive Officer and Chief Financial Officer will be based solely on the achievement of one or both of the following two corporate financial targets:
 
 
revenue (40% of potential award); and
 
adjusted EBITDA (60% of potential award).
 
All other eligible employees at or above the vice president level, including our other named executive officers, will be eligible to receive an award based on achievement of one or more of the following three criteria:
 
 
revenue (30% of potential award);
 
adjusted EBITDA (40% of potential award); and
 
individual and business unit objectives specific to each individual (30% of potential award).
 
Our Compensation Committee believes that it is important to align the interests of our senior management with those of our stockholders. For that reason, they have removed the individual objectives for our Chief Executive Officer and Chief Financial Officer. No award will be made to them under the 2011 STIP unless the company meets one or both of the corporate financial targets. For our other named executive officers, the Compensation Committee felt it important to have a mechanism to cascade critical, non-financial targets throughout our company. These non-financial individual targets will help drive key corporate objectives and include engineering development deliverables, customer satisfaction metrics and operational availability targets.
 
The table below outlines the potential target levels and awards that may be earned by the named executive officers under the 2011 STIP:
 
Name
 
At
Threshold (1)
   
At
Target
(%)
   
At Target (2)
($)
   
At
Stretch
(%)
   
At
Stretch
($)
 
J. Eric Cooney
          100   $ 600,000       200 %   $ 1,200,000  
George E. Kilguss III
          65 %     195,000       130 %     390,000  
Steven A. Orchard
          40     84,000       80 %     168,000  
Randal R. Thompson
          50     117,500       100 %     235,000  
 

(1) Partial awards may be earned for each goal based on achievement between the threshold and target levels. Threshold levels differ by objective.
(2) The amount that a named executive can earn will be based on the individual’s actual base salary earned during 2011.
 
Mr. Cooney’s target award percentage for 2011 is unchanged from his 2010 level and is approximately 15 percentage points above his market median. Mr. Cooney’s target award percentage was established through comprehensive negotiations and is set forth in his offer letter. The other named executive officers’ target award percentages are within a range of approximately +/- 5 percentage points around their respective market medians.
 
Our Compensation Committee reviews the structure and parameters of our short-term incentive plan annually in light of current corporate performance and objectives, industry conditions and other relevant factors. The Compensation Committee will then make adjustments to the plan that it believes are necessary to align the short-term incentives with the appropriate corporate objectives for the next year.
 
 
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Long-Term Equity Incentive Compensation
 
We grant long-term equity incentive compensation annually under our 2005 Incentive Stock Plan. Our long-term equity compensation program for senior management, including our named executive officers, consists of stock options and restricted stock. We believe this structure appropriately aligns employee interests with those of our stockholders, encourages retention and rewards employees for sustained performance results. Our stock option program has historically been the primary means by which we grant long-term equity compensation to a broad group of employees to focus their efforts on our long-term performance and stock price improvement. Our restricted stock program is designed for a more select group of key employees and rewards achievement of performance goals and appreciation in our stock price.
 
Equity Grant Practices . Our Compensation Committee administers our 2005 Incentive Stock Plan and approves the amount of and terms applicable to grants and awards, other than grants and awards to our Chief Executive Officer, which our full Board of Directors approves. In addition to annual grants and awards, the Compensation Committee may approve special grants or awards to named executive officers, such as a grant or award to a new hire or for a promotion.
 
Our Compensation Committee annually reviews long-term equity incentive levels for all named executive officers in light of long-term strategic and performance objectives and each named executive officer’s role within our company and current and anticipated contributions to our future performance. In determining the aggregate value of stock option and restricted stock awards for an individual, the Compensation Committee considers the individual’s position, responsibilities, tenure and performance, as well as the competitive market data provided by CSI. The Compensation Committee then determines the appropriate allocation of the value between stock option and restricted stock awards. Our Chief Executive Officer provides input to these decisions, except in the case of his own compensation.
 
In 2010, the Compensation Committee approved annual grants of stock options and restricted stock at its regularly-scheduled meeting in February 2010, which had been previously scheduled to occur before the release of financial results in 2010. In 2011, the Compensation Committee reviewed its approach to annual equity grants and determined that it would approve such grants after the release of financial results for 2010, which it did in February 2011. The Compensation Committee expects to continue this practice in future years and will attempt to schedule regular meetings to accommodate this practice.
 
Stock Options . The number of stock options granted to a named executive officer is based upon the individual’s position and level of responsibility considering competitive market data. In accordance with our stock plan, the option exercise price is the fair market value of our common stock on the grant date, which is the closing price reported on Nasdaq on that date. Stock options generally vest 25% on the first anniversary of the grant date and in 36 equal monthly installments thereafter. We do not reprice stock options, and if Proposal 2 is approved by our stockholders, we would have to stockholder approval to reprice stock options in the future.
 
Restricted Stock.  R estrictions on restricted stock generally lapse in four equal annual installments beginning on the first anniversary of the grant date.
 
In 2010, the Compensation Committee approved award values and split the value of each individual’s equity award into 20% restricted stock and 80% stock options based on competitive market data. In 2011, we followed a similar allocation, except for grants made to our Chief Executive Officer, who received 100% of his annual equity grant in the form of stock options. The Board of Directors granted our Chief Executive Officer only stock options and no restricted stock in 2011 after consideration of the most appropriate risk/reward balance for long-term incentives that would align with the interests of our stockholders. The Compensation Committee retains the discretion to change the allocation of future equity awards for individuals or named executive officers as a group.
 
 
24

 
 
The Compensation Committee based 2010 awards on a modified market median method as recommended by CSI to reflect the lagging impact of the economy on published survey data and lowered long-term incentive values reported in competitor proxy materials. For 2010, grant values were equal to their respective adjusted market medians for our Chief Executive Officer and Chief Financial Officer. Grant values ranged from somewhat below median to no more than 10% above median for the other named executive officers based on internal equity considerations.
 
For 2011, grant values for the Chief Executive Officer and Senior Vice President, Global Sales were equal to their respective updated market medians, as provided by CSI. The grant value for the Chief Financial Officer was increased to 25% above the market median to reflect the scope of his responsibilities and individual performance. The grant value for the Senior Vice President, Operations and Support was increased to 50% above the market median to reflect his performance and scope of responsibilities.
 
Named executive officers received the following equity awards in 2010 and 2011:
 
            Name
   
Number of Shares
of Restricted
Stock Granted in
2010
   
Number of
Stock Options
Granted in
2010
   
Number of Shares
of Restricted
Stock Granted in
2011
   
Number of
Stock Options
Granted in
2011
 
J. Eric Cooney
      32,092 (1)     248,830             242,800  
George E. Kilguss III
      13,352       103,530       12,360       101,965  
Steven A. Orchard
      7,597       58,905       8,300       68,469  
Randal R. Thompson
      7,597       58,905       5,062       41,761  
Richard P. Dobb (2)
      7,597       58,905              
 

(1) Pursuant to his offer letter, Mr. Cooney also was granted 200,000 shares of restricted stock on each of March 16, 2010 and 2011. These shares were considered granted to him in 2009 when he commenced employment and, thus, not included in the above table.
(2) Mr. Dobb’s employment was terminated on February 1, 2011; accordingly, he did not receive any grants of restricted stock or stock options in 2011.
 
The Compensation Committee believes that the compensation program for named executive officers provides significant performance incentives. Specifically, the short-term (annual) incentive plan provides incentives for performance and includes defined performance thresholds and maximum opportunity levels for each named executive officer. The restricted stock and stock option grants encompassing our long-term equity incentive program provide longer-term incentives as recipients can benefit from appreciation in our stock price. The level of stock option grants in the equity awards (80% of the value of the total award for named executive officers, other than our Chief Executive Officer who received 100% of his total award in the form of stock options) focuses recipients on stock price appreciation, thus furthering the goal of rewarding performance and aligning the interests of the named executive officers with those of our stockholders. As these awards vest over time, they also serve as a retention device.
 
Stock Ownership Guidelines for Named Executive Officers
 
In 2010, our Board of Directors established stock ownership guidelines for senior management (including named executive officers) and non-employee directors. These new stock ownership guidelines replaced our previous stock retention guidelines and further align the interests of senior management with our stockholders. The ownership guidelines apply to the Chief Executive Officer, Chief Financial Officer, all Senior Vice Presidents and non-employee directors. These individuals are required to beneficially own a number of shares of company common stock having a value equal to or greater than the following thresholds:
 
Individual  
Multiple
 
Chief Executive Officer
6.0x base salary
 
Chief Financial Officer
3.0x base salary
 
All Other Senior Vice Presidents
2.0x base salary
 
Non-Employee Directors
      5.0x annual retainer
 
 
Whether an individual meets his or her guideline is annually determined and calculated as the lesser number of shares from either (a) the individual’s salary/retainer (as of October 22, 2010) times the multiple above, divided by $5.00 (which was the approximate price of our common stock at the time the guidelines were implemented) or (b) the individual’s then-current salary/retainer times the multiple above, divided by the then-current price of our common stock. The Board of Directors will periodically review the stock ownership guidelines and may make adjustments to ensure that the interests of senior management are aligned with our stockholders.
 
 
25

 
 
The guidelines require the listed individuals to retain 100% of the shares granted to them by us (net of applicable taxes) until the guidelines are achieved. Unrestricted stock held by the individual, including shares purchased on the open market, as well as restricted stock subject to time-based vesting (which are credited toward the guideline on a pre-tax basis) are credited toward the satisfaction of the ownership guidelines. Stock options, whether vested or unvested, are not credited toward the satisfaction of the ownership guidelines. All of our named executive officers and non-employee directors meet the required guidelines, other than one named executive officer who is relatively new to his role.
 
No Perquisites
 
We do not provide our named executive officers with any perquisites. We provide named executive officers with the same benefits available to all of our salaried employees, including (a) health and dental insurance; (b) basic life insurance; (c) long-term disability insurance; and (d) participation in our 401(k) plan, including discretionary company-matching contributions.
 
Limitations on the Deductibility of Executive Compensation
 
Generally, compensation payments in excess of $1 million to the Chief Executive Officer or the other four 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. While the Compensation Committee has established procedures to help maximize tax deductibility, the Compensation Committee does not require all executive compensation to be exempt from the limitations on deductions provided under Section 162(m) in order to have the flexibility to design a compensation program that addresses our needs. Certain compensation paid by us in future years may not qualify as performance-based compensation that is excluded from the limitation on deductibility. Because we have available net operating losses, however, the impact of any non-deductibility is expected to be negligible.
 
Employment Arrangement with our Chief Executive Officer
 
Mr. Cooney’s offer letter provided him a base salary, signing bonus and sign on grant of stock options and restricted stock. In addition, his offer letter provided for a grant of 200,000 shares of restricted stock on each of March 16, 2010 and 2011 and an annual incentive bonus based upon criteria established by our Board of Directors, with a target level of 100% of base salary and a maximum level of 200% of base salary. The amounts provided for in Mr. Cooney’s offer letter are described elsewhere in this “Compensation Discussion and Analysis” and “Summary Compensation Table.” Mr. Cooney also participates in our Employment Security Plan discussed below. The terms of Mr. Cooney’s employment were set through comprehensive negotiations prior to his employment and were influenced by market levels for his position as well as his experience and professional achievements.
 
Potential Payments Upon Termination or Change in Control
 
Our named executive officers participate in an Employment Security Plan that provides for payments in the event of termination of employment or in connection with a change in control. We believe that the interests of our stockholders are best served if the interests of our named executive officers are aligned with them in the event of a change in control. Providing change in control benefits are intended to eliminate, or at least reduce, the reluctance of these named executive officers to pursue potential change in control transactions that may be in the best interests of our stockholders. The Employment Security Plan is designed to promote stability and continuity of senior management and was adopted to bring consistency to individual agreements and to minimize the negotiation of individual contracts.
 
Upon a qualifying termination, as defined in the Employment Security Plan, other than during a protection period (which is as defined as a period beginning six months prior to a change of control event and ending 24 months after the change of control event), a participant will receive severance equal to the participant’s then-current base salary for the year in which the termination occurs. Upon a qualifying termination during a protection period, a participant will receive severance equal to the sum of the participant’s then-current base salary plus the maximum bonus for the participant under the applicable bonus plan as established by our Board of Directors for the year in which the termination occurs, and all of the participant’s unvested equity-based compensation will vest. If the amounts payable to a participant under the Employment Security Plan result in the participant becoming liable for the payment of any excise taxes pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended, the participant will receive the greater on an after-tax basis of (a) the severance benefits payable or (b) a reduced severance benefit to avoid the imposition of the 280G excise tax.
 
An individual will receive the foregoing severance benefits only if he or she delivers a general release and separation agreement. Our obligation to provide such severance benefits is also conditioned upon the individual’s continued compliance with confidentiality, non-competition, non-solicitation and non-disparagement covenants.
 
Certain of the named executive officers have joinder agreements which modify specific provisions of the Employment Security Plan as follows:
 
 
26

 
 
J. Eric Cooney . Upon a qualifying termination during a protection period, Mr. Cooney will receive severance equal to the sum of two and one-half times his then-current base salary plus two and one-half times the maximum bonus for him under the applicable bonus plan established by the Board of Directors for the year in which the termination occurs. If the amounts payable to Mr. Cooney under the Employment Security Plan would constitute an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, the amounts payable will be grossed-up for the payment of taxes. We believe that it is particularly important for the Chief Executive Officer’s interests to be aligned with those of our stockholders in a change of control since that position is of critical importance to the process and is often at-risk of termination following a change of control. As such, additional protections for Mr. Cooney, including the tax gross-up, were deemed appropriate.
 
Steven A. Orchard . Mr. Orchard’s joinder agreement requires him to provide us two months prior written notice of his intention to terminate employment. If accepted by us, we will pay Mr. Orchard’s base salary and health benefits during the two-month notice period.
 
The terms of Messrs. Kilguss’ and Thompson’s joinder agreements do not modify the amounts provided to each individual for a termination of employment.
 
The following table sets forth the benefits potentially payable to each named executive officer in the event of a change of control of our company. These amounts are calculated on the assumption that a qualifying termination and the change of control event took place on December 31, 2010. Restricted shares are valued and the option spread determined using a value of $6.08, the closing price of our common stock on December 31, 2010.
 
Name
 
Severance
Payment
($)
   
Accelerated
Vesting of
Equity
Awards
($)
 
J. Eric Cooney
    4,500,000 (1)     4,336,391 (2)
George E. Kilguss III
    580,000       1,105,005  
Steven A. Orchard
    351,000       285,805  
Randal R. Thompson
    460,000       429,348  
Richard P. Dobb (3)
    1,120,000       543,874  
 

(1) The severance pay reflected for Mr. Cooney does not include any payment for the gross-up of taxes which could be triggered in the event of a change in control.
(2) Mr. Cooney’s March 2009 offer letter provided for a grant of 200,000 shares of restricted stock on each of the first anniversary and second anniversary of his commencement date. Only the restricted shares granted to him on the first anniversary of his commencement date (March 16, 2010) would have been accelerated as of December 31, 2010 and, therefore, are included in the reported column. The restricted shares that we granted to him on March 16, 2011 would not have been accelerated as of December 31, 2010 and no amount is reported in this column for these shares.
(3) Mr. Dobb’s employment terminated on February 1, 2011; accordingly he is not entitled to receive any severance payment reported in this table, unless we have a change in control within six months of his termination date. We discuss the payments made to him in connection with his termination of employment immediately below in “Severance Agreements for Former Named Executive Officer.”
 
Severance Agreement for Former Named Executive Officer
 
Richard P. Dobb . Mr. Dobb served as our Chief Administrative Officer until February 1, 2011. Pursuant to the terms of his separation agreement, Mr. Dobb received (a) a cash payment of $280,000 to be made in 12 equal monthly installments and (b) if he elected, continued health, dental and vision insurance coverage under our group health plan for 18 months at his cost. All unvested equity grants previously made to Mr. Dobb expired on February 1, 2011. The receipt of these benefits by Mr. Dobb is contingent on continuing non-disclosure and non-solicitation obligations. These separation terms were consistent with Mr. Dobb’s joinder agreement under the Employment Security Plan, which we have previously disclosed.
 
 
27

 
 
Summary Compensation Table
 
The following table presents information regarding compensation for our named executive officers for services rendered during 2010, 2009 and 2008.
 
Name and Principal
Position
 
Year
 
Salary
   
Bonus
   
Stock
Awards (1)
   
Option
Awards (2)
   
Non-Equity
Incentive
Plan
Compensation (3)
   
All Other
Compensation (4)
   
Total
 
J. Eric Cooney
Chief Executive Officer and    President (5)
 
2010
  $ 600,000     $     $ 161,423     $ 766,148     $ 420,000     $ 7,631     $ 1,955,202  
 
2009
    475,000       300,000 (6)     1,568,000 (7)     838,440       200,000       41       3,381,481  
                                                           
                                                             
George E. Kilguss III
Chief Financial Officer
 
 
2010
    286,250             67,161       318,769       90,867       7,486       770,533  
 
2009
    275,000             95,758       107,479       97,103       7,404       582,744  
 
2008
    202,196             962,000                   91,837       1,256,033  
                                                             
Steven A. Orchard
Senior Vice President,
  Operations and Support
 
2010
    192,500             38,213       181,369       54,600       7,441       474,123  
 
2009
    176,421             53,280       66,949       62,577       5,347       364,574  
 
2008
    160,095             10,088                   3,179       173,362  
                                                             
Randal R. Thompson
Senior Vice President,
  Global Sales
 
2010
    228,750             61,840 (8)     181,369       63,250       2,238       537,447  
 
2009
    211,458             70,996 (8)     66,324       36,885       5,132       390,795  
 
2008
    200,000             80,006 (8)                 4,479       284,485  
                                                             
Richard P. Dobb
Former Chief Administrative
  Officer
 
2010
    278,200             67,509 (8)     181,369       (9)     7,331       534,409  
 
2009
    272,800             109,647 (8)     106,687       55,768       7,404       552,306  
 
2008
    260,400             113,780 (8)                 6,954       381,134  
 

(1) Represents the full grant date fair value of restricted stock awards granted in the years shown, calculated in accordance with FASB ASC Topic 718. We value restricted stock based on the closing market price of our common stock reported on Nasdaq on the various grant dates. For valuation assumptions, see Note 16 to our Consolidated Financial Statements for the fiscal years ended December 31, 2010, 2009 and 2008.
(2) Represents the full grant date fair value of stock options granted in the years shown, calculated in accordance with FASB ASC Topic 718. Stock options were valued using the Black-Scholes model. For additional valuation assumptions, see Note 16 to our Consolidated Financial Statements for the fiscal years ended December 31, 2010, 2009 and 2008.
(3) Represents amounts earned under our annual short-term incentive plans. We did not pay bonuses in 2009 based on our 2008 performance. The amounts reported for 2010 were earned under our 2010 STIP and paid in March 2011 and the amounts reported for 2009 were earned under our 2009 STIP and paid in March 2010.
(4) The compensation listed in this column for 2010 includes: (a) $7,350 in matching contributions under our 401(k) savings plan to the accounts of each of Messrs. Cooney, Kilguss and Orchard; $2,130 for Mr. Thompson; and $7,200 for Mr. Dobb; and (b) premiums on life insurance policies for each of the named executive officers as follows: $281 for Mr. Cooney; $136 for Mr. Kilguss; $91 for Mr. Orchard; $108 for Mr. Thompson and $131 for Mr. Dobb.
(5) Mr. Cooney’s employment began in March 2009.
(6) We paid this sign-on bonus to Mr. Cooney in connection with his commencement of employment.
(7) Mr. Cooney’s March 2009 offer letter provided for a grant of 200,000 shares of restricted stock on each of the first anniversary and second anniversary of his commencement date. The amount reported in this column includes the grant date fair value of $896,000 attributable to these 400,000 shares of restricted stock which we considered granted per his offer letter. These grants were made on each of March 16, 2010 and 2011. We valued his restricted stock at $2.24 per share, the closing price of our common stock reported on Nasdaq on the grant date.
(8) Amounts reported include the grant date fair value of performance-based restricted stock awards considered granted in March of 2010, 2009 and 2008 calculated in accordance with FASB ASC Topic 718. Our Board of Directors established revenue and EBITDA targets in 2010, 2009 and 2008 which would either be met or not met in the particular year. If the revenue and EBITDA targets were met for a particular year, 100% of the award for that year would vest in March of the following year. If the revenue and EBITDA targets were not met for a particular year, 50% of the award for that year was forfeited and the remaining 50% of the award vests in March 2012. For 2010, the amounts reported include $23,627 for Mr. Thompson and $29,296 for Mr. Dobb, valued at $5.08 per share, the closing price of our common stock reported on Nasdaq on the date the 2010 targets were established. The revenue and EBITDA targets were not met in 2010, 2009 or 2008, which resulted in forfeiture of 50% of the award reported for each individual.
(9) Mr. Dobb’s employment terminated February 1, 2011. Given that he was not employed on the payment date under our 2010 STIP, he did not receive non-equity incentive plan compensation in 2011 for service in 2010. In addition, he forfeited the grants of stock options and restricted stock made to him in 2010 given that they had not vested as of his termination date.
 
 
28

 
 
Grants of Plan-Based Awards
 
The following table provides information about plan-based awards granted to the named executive officers in 2010:
 
                             
All
                   
                             
Other
               
Grant
 
                             
Stock
               
Date
 
                             
Awards:
   
All Other
         
Fair
 
           
Estimated Future Payouts
   
Number
   
Stock
         
Value
 
           
Under Non-Equity Incentive
   
of
   
Awards:
   
Exercise
   
of
 
           
Plan Awards (1)
   
Shares
   
Number of
   
or Base
   
Stock
 
                             
of Stock
   
Securities
   
Price of
   
and
 
Name and
                           
or
   
Underlying
   
Option
   
Option
 
Principal
 
Award
 
Grant
 
Threshold
   
Target
   
Maximum
   
Units (2)
   
Options (3)
   
Awards (4)
   
Awards (5)
 
Position
 
Type
 
Date
 
($)
   
($)
   
($)
    (#)     (#)    
($/Sh)
   
($)
 
J. Eric Cooney
 
Restricted Stock
 
2/26/2010
                      32,092                     161,423  
Chief Executive Officer
 
Stock Option
 
2/26/2010
                              248,830       5.03       766,148  
and President (6)
 
2010 STIP
 
2/24/2010
          600,000       1,200,000                                  
                                                                 
George E. Kilguss, III
 
Restricted Stock
 
2/26/2010
                            13,352                       67,161  
Chief Financial Officer
 
Stock Option
 
2/26/2010
                                    103,530       5.03       318,769  
   
2010 STIP
 
2/24/2010
          145,000       290,000                                  
                                                                 
Steven A. Orchard
 
Restricted Stock
 
2/26/2010
                            7,597                       38,213  
Senior Vice President,     
 
Stock Option
 
2/26/2010
                                    58,905       5.03       181,369  
Operations and Support
 
2010 STIP
 
2/24/2010
          78,000       156,000                                  
                                                                 
Randal R. Thompson
 
Restricted Stock
 
2/26/2010
                            7,597                       38,213  
Senior Vice President, Global Sales
 
Stock Option
 
2/26/2010
                                    58,905       5.03       181,369  
   
Performance Shares
 
2/24/2010
                            4,652 (7)                     23,627  
   
2010 STIP
 
2/24/2010
          115,000       230,000                                  
                                                                 
Richard P. Dobb
 
Restricted Stock
 
2/26/2010
                            7,597 (8)                     38,213  
Former Chief
 
Stock Option
 
2/26/2010
                                    58,905 (8)     5.03       181,369  
Administrative Officer
 
Performance Shares
 
2/24/2010
                            5,768 (8)                     29,296  
   
2010 STIP
 
2/24/2010
          140,000       280,000                                  
 

(1) Amounts in these columns represent the threshold, target and maximum awards set for the 2010 STIP. The actual amount of awards paid for 2010 performance is included in the Summary Compensation Table above under the column entitled “Non-Equity Incentive Plan Compensation.”
(2) We granted restricted stock awards under our 2005 Incentive Stock Plan for all named executive officers. The shares of restricted stock vest annually in four equal installments beginning on the first anniversary of the grant date.
(3) We granted stock options under our 2005 Incentive Stock Plan for all named executive officers. The stock options vest 25% on the first anniversary of the grant date and in 36 equal monthly installments thereafter.
(4) The exercise price of stock options is equal to the closing price of our common stock reported on Nasdaq on the grant date.
(5) Represents the full grant date fair value of restricted stock, stock options and performance shares granted in 2010, calculated in accordance with FASB ASC Topic 718. For valuation assumptions, see footnotes 1 and 2 to the Summary Compensation Table.
(6) The table does not include the grant of 200,000 shares of restricted stock to Mr. Cooney in March 2010. These shares were considered granted to him in 2009 per his offer letter when he commenced employment.
(7) Mr. Thompson forfeited one-half of the awards in March 2011 when it was determined that the 2010 EBITDA and revenue targets were not met.
(8) Mr. Dobb forfeited all awards granted to him in 2010 upon his termination of employment.
 
 
29

 
 
Outstanding Equity Awards At Fiscal Year-End
 
The following table lists the outstanding stock options and restricted stock awards for each named executive officer as of December 31, 2010:
 
  Option Awards  
Stock Awards
 
Name and Principal
Position
 
Grant
Date
 
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
   
Number of
Securities
Underlying
Unexercised
Options
Unexercisable (1)
(#)
   
Option
Exercise
Price
($)
 
Option
Expiration
Date
 
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested (2)
(#)
   
Market
Value of
Shares
or
Units of
Stock
That
Have
Not
Vested (3)
($)
   
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
   
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
 
J. Eric Cooney
Chief Executive Officer and President
 
2/26/2010
          248,830       5.03  
2/25/2020
                       
 
2/26/2010
                              32,092       195,119              
 
3/16/2009
    112,500       337,500       2.24  
3/15/2019
                           
 
3/16/2009
                              225,000       1,368,000              
 
3/16/2009
                              400,000       2,432,000              
                                                           
George E. Kilguss, III
Chief Financial Officer
 
2/26/2010
          103,530       5.03  
2/25/2020
                           
 
2/26/2010
                              13,352       81,180              
 
3/25/2009
    29,706       38,194       2.54  
3/24/2019
                           
 
3/25/2009
                              28,275       171,912              
 
4/30/2008
                              100,000       608,000              
                                                           
Steven A. Orchard
Senior Vice President, Operations and Support
 
2/26/2010
          58,905       5.30  
2/25/2020
                           
 
2/26/2010
                              7,597       46,190              
 
7/14/2009
    5,383       9,817       2.94  
7/13/2019