Internap Corporation
INTERNAP NETWORK SERVICES CORP (Form: DEF 14A, Received: 04/27/2012 09:02:40)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
 
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(INTERNAP LOGO)
 
Internap Network Services Corporation
One Ravinia Drive, Suite 1300
Atlanta, Georgia 30346
 
NOTICE OF 2012 ANNUAL MEETING OF STOCKHOLDERS
 
To our Stockholders ,
 
We invite you to attend Internap’s 2012 Annual Meeting of Stockholders at Ravinia Club, Two Ravinia Drive, Suite 100, Atlanta, Georgia, on Thursday, June 14, 2012, at 10:00 a.m. local time. At the meeting, stockholders will:
 
 
1.
vote on the election of the three director nominees named in this proxy statement for three-year terms expiring in 2015;
 
 
2.
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, 2012;
 
 
3.
vote on an advisory resolution approving compensation for our named executive officers; and
 
 
4.
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 23, 2012.
 
  By order of the Board of Directors,
   
  GRAPHIC  
 
J. Eric Cooney
 
Chief Executive Officer and President
 
Atlanta, Georgia
April 27, 2012
 
 
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 14, 2012.
 
Our proxy statement for the 2012 Annual Meeting of Stockholders and the Annual
Report to Stockholders for the fiscal year ended December 31, 2011 are available at
http://ir.internap.com/proxy11.cfm
 
 
 

 
 
INTERNAP NETWORK SERVICES CORPORATION
One Ravinia Drive, Suite 1300
Atlanta, Georgia 30346
 
2012 ANNUAL MEETING OF STOCKHOLDERS
 
June 14, 2012
 
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 27, 2012.
 
Information About the Proxy Materials and Our 2012 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 2012 Annual Meeting of Stockholders, which will take place on June 14, 2012, at Ravinia Club, Two Ravinia Drive, Suite 100, Atlanta, Georgia 30346, 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, 2011, which includes our audited consolidated financial statements for the years ended December 31, 2011, 2010 and 2009, is included in these proxy materials. Your proxy, which you may use to vote, is also enclosed.
 
Q:
What proposals will be voted upon at the annual meeting?
 
A:
There are three proposals scheduled to be voted upon at the annual meeting:
 
 
election of the three director nominees named in this proxy statement for three-year terms expiring in 2015;
 
ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2012; and
 
advisory resolution approving compensation for 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” ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2012 and “FOR” the advisory resolution on compensation for 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 23, 2012. Each stockholder is entitled to one vote per share on each matter presented. As of April 23, 2012, there were 53,050,276 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” ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2012 and “for” the advisory resolution approving 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. 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.
 
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.
 
 
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PROPOSAL 1
ELECTION OF DIRECTORS
 
Our Board of Directors currently consists of 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 listing standards of The NASDAQ Global Market (“Nasdaq”), 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 Charles B. Coe, J. Eric Cooney and Patricia L. Higgins as Class I directors for terms expiring at the 2015 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 three 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.
 
Nominees for Terms Expiring in 2015 (Class I)
 
Charles B. Coe , 64, 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. and Amerisure Mutual Insurance Company. Mr. Coe holds a M.B.A. from Georgia State University and a B.S. from The Citadel.
 
J. Eric Cooney , 46, has been our Chief Executive Officer and President and a director since 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 1997, which was acquired by TANDBERG Television, in 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 2003. TANDBERG Television was acquired by the Ericsson Group in 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.
 
 
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Patricia L. Higgins , 62, 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.
 
Your Board of Directors unanimously recommends that you vote FOR each of the above-listed nominees.
 
Continuing Directors with Terms Expiring in 2013 (Class II)
 
Kevin L. Ober , 51, has served as a director since 1997. Mr. Ober brings more than 25 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 Piston Cloud Computing, 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 , 62, 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 non-executive chairman of the board of directors of Christiana Care Health System, a not-for-profit regional hospital system, and serves on the Advisory Board of Greentech Capital Investments. 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 , 50, has served as a director since 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.
 
 
4

 
 
Continuing Directors with Terms Expiring in 2014 (Class III)
 
Daniel C. Stanzione , 66, 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, an independent consultant, is President Emeritus of Bell Laboratories and serves on the Network Advisory Board at Accenture plc. Dr. Stanzione retired in 2000 from Lucent Technologies Inc., 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, which sold products and services to telecommunication service providers around the world. Dr. Stanzione is the non-executive Chairman of the board of directors of Quest Diagnostics Inc., having previously served as its Lead Independent Director, and a director of a private company. 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 , 54, has served as a director since 2010. Ms. Wilson brings more than 30 years of experience managing key operational functions including sales, marketing, product development and management, business development, technology, human resources and finance/accounting. Ms. Wilson gained valuable executive management, business and leadership skills during her service as Chief Executive Officer of a technology-driven company. Ms. Wilson also brings in-depth knowledge of corporate governance and finance matters based on her experience as a director of several public and private company boards of directors. Ms. Wilson served as President and Chief Executive Officer of The Weather Channel from 2004 to 2009 and in other positions including Senior Vice President, Executive Vice President and Chief Operating Officer from 1994 to 2004. Before joining The Weather Channel, Ms. Wilson spent 15 years in the telecommunications industry at Bell Atlantic (now Verizon) and held management positions in network operations and new product development. Ms. Wilson is a member of the boards of directors of Markel Corporation and ARRIS Group, Inc. Ms. Wilson has a B.S. in Business Administration from George Mason University in Virginia.
 
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:
 
 
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 2011, our Board held 10 meetings. In 2011, each director then serving on the Board attended the 2011 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.
 
 
5

 
 
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)
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 2011. The Audit Committee:
 
 
appoints, retains, compensates, oversees, evaluates and, if appropriate, terminates our independent registered public accounting firm;
 
annually reviews the performance, effectiveness, objectivity and independence of our independent registered public accounting firm and our internal audit function;
 
establishes procedures for the receipt, retention and treatment of complaints regarding accounting and auditing matters;
 
reviews with our independent registered public accounting firm the scope and results of its audit;
 
approves all audit services and pre-approves all permissible non-audit services to be performed by our independent registered public accounting firm;
 
assesses and provides oversight to management relating to identification and evaluation of major risks inherent in our business and the control processes with respect to such risks;
 
oversees the financial reporting process and discusses with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;
 
reviews and monitors our accounting principles, policies and financial and accounting processes and controls; and
 
oversees the internal auditor and reviews and approves the annual internal audit plan.
 
Compensation Committee
 
The Board of Directors has determined that all members of the Compensation Committee are independent as defined by Nasdaq rules. The Compensation Committee met 11 times during 2011. 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.
 
 
6

 
 
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 2011. The Nominations and Governance Committee:
 
 
assists the Board in fulfilling its responsibilities on matters and issues related to our corporate governance practices;
 
in conjunction with the Board, establishes qualification standards for membership on the Board and its committees;
 
leads the search for individuals qualified to become members of the Board, reviews the qualifications of candidates for election to the Board and assesses the contributions and independence of incumbent directors eligible to stand for re-election to the Board;
 
selects and recommends to the Board the nominees for election or re-election by the stockholders at the annual meeting, and fills vacancies and newly created directorships on the Board;
 
develops and recommends to the Board corporate governance guidelines, reviews the guidelines on an annual basis and recommends any changes to the guidelines as necessary;
 
establishes and recommends to the Board guidelines, in accordance with applicable rules and regulations, to be applied when assessing the “independence” of directors;
 
reviews and approves related person transactions, as defined in applicable SEC rules, and establishes policies and procedures for the review, approval and ratification of related person transactions;
 
annually reviews and makes recommendations to the Board concerning the structure, composition and functioning of the Board and its committees and recommends to the Board directors to serve as committee members and chairpersons;
 
reviews directorships in other public companies held by or offered to directors;
 
develops and recommends to the Board for its approval an annual self-evaluation process for the Board and its committees and oversees the evaluation process; and
 
reviews and reports on all matters generally relating to corporate governance.
 
Compensation Committee Interlocks and Insider Participation
 
No current member of the Compensation Committee is a current or former executive officer or employee of our company. None of our executive officers served and currently none of them serves on the board of directors or compensation committee of any other entity with executive officers who have served on our Board of Directors or Compensation Committee.
 
CORPORATE GOVERNANCE
 
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.
 
 
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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, One Ravinia Drive, Suite 1300, Atlanta, Georgia 30346.
 
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 2013, such notice must be received not later than March 18, 2013 and not earlier than February 14, 2013. You should address any stockholder nomination to the attention of Tashia L. Rivard, Corporate Secretary, Internap Network Services Corporation, One Ravinia Drive, Suite 1300, Atlanta, Georgia 30346 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.
 
 
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Since 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.
 
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 seven directors are independent: Charles B. Coe, 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 12 years, we have functioned with not more than two active or former management employees as directors. In 2011, 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 retired from our Board immediately before our 2011 annual meeting as required by the retirement policy in our Corporate Governance Guidelines. Following Dr. Eidenberg’s retirement, only one current employee, Mr. Cooney, served as a director.
 
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 regularly-scheduled 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.
 
 
9

 
 
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 2011, we conducted a risk assessment of our compensation plans to identify potential risks associated with the design of the plans and assess the controls in place to mitigate risks, if any, to an acceptable level. Based on this assessment, management has concluded that our compensation plans do not contain risks that are reasonably likely to cause a material adverse effect on us. We evaluated each plan independently and as part of our overall compensation framework. In general, our compensation plans:
 
 
are well documented, appropriately communicated, consistently applied and reviewed annually by the Compensation Committee;
 
are based on both individual performance and company performance metrics that are tied to the strategic goals and objectives of the company;
 
balance short- and long-term rewards, with compensation capped at levels consistent with industry standards;
 
do not encourage excessive risk taking, 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 appropriate for 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, One Ravinia Drive, Suite 1300, Atlanta, Georgia 30346. 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.
 
 
10

 
 
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, One Ravinia Drive, Suite 1300, Atlanta, Georgia 30346 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.
 
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
($)
   
Restricted Stock
($)
 
Newly appointed or elected director
       
Number of restricted shares
equal to $75,000
 
Annual director retainer
  $ 20,000    
Number of restricted shares
equal to $75,000
(1)(2)
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 (3)
    50,000        
      

(1) All shares of restricted stock vest on the date of the annual meeting of stockholders held the following year.
(2) The Compensation Committee’s independent compensation consultant determines the number of shares of restricted stock based on a proprietary valuation methodology which takes into account the vesting and termination provisions of the award, and as a result, the values listed above do not necessarily equal those disclosed in the table below.
(3) 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.
 
 
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The following table lists the compensation paid to our non-employee directors during 2011:
 
Name
 
Fees Earned or
Paid in Cash (1)
   
Stock
Awards (2)(3)
   
Option
Awards (3)
   
Total
 
Charles B. Coe
  $ 54,750     $ 73,008     $     $ 127,758  
Eugene Eidenberg
    16,375 (4)           24,450 (5)     40,825  
Patricia L. Higgins
    57,750       73,008             130,758  
Kevin L. Ober
    48,250       73,008             121,258  
Gary M. Pfeiffer
    60,250       73,008             133,258  
Michael A. Ruffolo
    48,000       73,008             121,008  
Daniel C. Stanzione
    83,000       73,008             156,008  
Debora J. Wilson
    44,500       73,008             117,508  
 

(1) Listed amounts include the annual retainers and meeting fees.
(2) Represents the full grant date fair value of restricted stock granted in 2011, 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. For additional valuation assumptions, see Note 17 to our Consolidated Financial Statements for the fiscal year ended December 31, 2011. 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 restricted stock awards and stock options held by our non-employee directors as of December 31, 2011. 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
 
Restricted
Stock
(#) (a)
   
Options
(#) (b)
 
 
Charles B. Coe
    32,250       74,560  
 
Eugene Eidenberg (c)
    14,756       16,290  
 
Patricia L. Higgins
    36,979       72,560  
 
Kevin L. Ober
    27,849       34,423  
 
Gary M. Pfeiffer
    38,464       38,560  
 
Michael A. Ruffolo
    34,577       16,290  
 
Daniel C. Stanzione
    32,250       72,560  
 
Debora J. Wilson
    34,577       16,290  
 

 
(a)
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.
 
(b)
All outstanding options are fully vested.
 
(c)
Dr. Eidenberg retired from our Board immediately before our 2011 annual meeting as required by the retirement policy in our Corporate Governance Guidelines. In connection with his retirement, the exercise period of the stock option granted to him in 2010 was extended to the full term of the option and all outstanding shares of restricted stock were immediately vested.
 
(4) See footnote 3(c) above. The amount reported for Dr. Eidenberg reflects Board fees paid to Dr. Eidenberg for his partial year service.
(5) See footnote 3(c) above. The amount reported for Dr. Eidenberg reflects the incremental fair value of the stock option modification calculated in accordance with FASB ASC Topic 718.
 
Stock Ownership Guidelines for Non-Employee Directors
 
The Board of Directors has implemented stock ownership guidelines 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.
 
 
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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, 2011:
 
   
Common Stock Beneficially
Owned
 
Name and Address of Beneficial Owner
 
Number of
Shares
   
Percent of
Class (1)
 
BlackRock, Inc. (2)
    2,895,793       5.46 %
Dimensional Fund Advisors LP (3)
    2,767,287       5.21 %
GAMCO Investors, Inc. (4)
    5,908,766       11.13 %
Kornitzer Capital Management, Inc. (5)
    3,840,650       7.24 %
 

(1) As of April 1, 2012, based on 53,067,770 shares outstanding on that date.
(2) Based on information set forth in Amendment No. 2 to Schedule 13G filed February 13, 2012. The Schedule 13G indicates that BlackRock, Inc. has sole voting and dispositive power over 2,895,793 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. 2 to Schedule 13G filed February 14, 2012. The Schedule 13G indicates that Dimensional Fund Advisors LP has sole voting power over 2,650,546 shares of our common stock and sole dispositive power over 2,767,287shares 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. 5 to Schedule 13D filed February 8, 2012. The Schedule 13D indicates that Gabelli Funds, LLC has sole voting and dispositive power over 1,030,051 shares of our common stock; GAMCO Asset Management, Inc. has sole voting power over 4,490,215   shares of our common stock   and sole dispositive power over 4,506,715   shares of our common stock; Teton Advisors, Inc. has sole voting and dispositive power over 340,000   shares of our common stock; Gabelli Securities, Inc. has sole voting and dispositive power over 30,000   shares of our common stock; and Mario J. Gabelli has sole voting and dispositive power over 2,000   shares of our common stock. According to the filing, the business address for each of the foregoing entities and Mr. Gabelli is One Corporate Center, Rye, New York 10580.
(5) Based on information set forth in Amendment No. 3 to Schedule 13G filed January 20, 2012. The Schedule 13G indicates that Kornitzer Capital Management, Inc. has sole voting power over 3,840,650 shares of our common stock, sole dispositive power over 3,707,325 shares of our common stock and shared dispositive power over 133,325 shares of our common stock. The business address of Kornitzer Capital Management, Inc. is 5420 West 61st Place, Shawnee Mission, Kansas 66205.
 
 
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Stock Ownership of Management
 
The following table sets forth the number of shares of common stock beneficially owned as of April 1, 2012 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, One Ravinia Drive, Suite 1300, Atlanta, Georgia 30346.
 
To our knowledge, except under community property laws, 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
    121,810       *  
J. Eric Cooney
    1,503,125       2.80 %
Patricia L. Higgins
    109,539       *  
Kevin L. Ober
    62,272       *  
Gary M. Pfeiffer
    77,024       *  
Michael A. Ruffolo
    50,867       *  
Daniel C. Stanzione
    123,810       *  
Debora J. Wilson
    74,782       *  
George E. Kilguss III (3)
    361,437       *  
Steven A. Orchard
    166,098       *  
Richard A. Shank
    42,730       *  
Randal R. Thompson (4)
    53,393       *  
All directors and executive officers as a group (12 persons)
    2,746,887       5.07 %
 

* Represents beneficial ownership of less than 1%.
 
(1) Includes shares that may be acquired by the exercise of stock options granted under our equity compensation plans within 60 days after April 1, 2012 as follows:
 
 
Name
 
Options
 
 
Charles B. Coe
    74,560  
 
J. Eric Cooney
    540,841  
 
Patricia L. Higgins
    72,560  
 
Kevin L. Ober
    34,423  
 
Gary M. Pfeiffer
    38,560  
 
Michael A. Ruffolo
    16,290  
 
Daniel C. Stanzione
    72,560  
 
Debora J. Wilson
    16,290  
 
George E. Kilguss III
    143,853  
 
Steven A. Orchard
    98,459  
 
Richard A. Shank
     
 
Randal R. Thompson
     
 
Directors and executive officers as a group
    1,108,396  
 
(2) As of April 1, 2012, based on 53,067,770 outstanding on that date.
(3) Mr. Kilguss has resigned effective May 8, 2012. In connection with his termination of employment, Mr. Kilguss will forfeit all unvested shares of restricted stock and stock options previously granted to him.
(4) The employment of Mr. Thompson, our former Senior Vice President, Global Sales, was terminated October 31, 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.
 
 
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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
 
46
 
Chief Executive Officer and President
George E. Kilguss III
 
51
 
Chief Financial Officer and Senior Vice President
Steven A. Orchard
 
40
 
Senior Vice President, Operations and Support
Richard A. Shank
 
44
 
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. Mr. Kilguss has resigned effective May 8, 2012.
 
Steven A. Orchard has been our Senior Vice President, Operations and Support since 2009, where he leads our operations and customer support functions. 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.
 
Richard A. Shank has been our Senior Vice President of Global Sales since September 2011 and leads our worldwide sales and solution engineering organization, channels and strategy. Prior to joining us, Mr. Shank served as Vice President of Sales Operations for Carter’s, Inc. from 2010 to 2011. Mr. Shank previously served as Sales Center Vice President at AT&T from 2001 to 2010 and as General Manager and Director of Sales at XO Communications from 1999 to 2001. Mr. Shank led a sales team at Sprint from 1997 to 1999. Mr. Shank holds an M.B.A. from the Fuqua School of Business at Duke University and a B.S. in Mechanical Engineering from the University of Notre Dame. Mr. Shank received his Professional Engineer Certification from the Commonwealth of Virginia in 1994 and received post graduate Nuclear Engineering Certification in 2001 from the United States Navy, where he served as an Officer for five years.
 
COMPENSATION DISCUSSION AND ANALYSIS
 
Executive Summary
 
We seek to closely align the interests of our named executive officers with the interests of our stockholders. Accordingly, our compensation programs are designed to incentivize and reward our named executive officers for the achievement of short-term operational and long-term strategic 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, supported by our stock ownership guidelines.
 
In 2011, we achieved a number of important milestones in the turnaround of our business positioning it for future growth. We made strategic investments to drive innovation, enhance our competitiveness, solidify our growth and expand the value of our company. In 2011, specific accomplishments included the following:
 
 
Highest Profitability in Company History . We delivered the highest adjusted EBITDA in company history in 2011: $44.0 million (excluding transactional costs related to the Voxel acquisition described below), an 11% increase from 2010. 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.
 
 
Expansion of Company Data Centers . We added 25,000 net sellable square feet of company-controlled data center space, an increase of 19% compared to our footprint in 2010.
 
 
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Expanded Managed Hosting and Cloud Product Lines . We enhanced and expanded our IT Infrastructure services capabilities by adding new enterprise private and public cloud services on both the VMware and OpenStack platforms and integrating our accelerated IP service, XIP TM into our global Content Delivery Network for improved application performance.
 
 
Completed Strategic Acquisition . On December 30, 2011, we acquired Voxel Holdings, Inc., a global provider of scalable hosting and cloud services. Voxel’s offerings are complementary to our existing portfolio and provide a level of automation and self-service that will be available to our customer base and also extend our addressable market, enabling us to better serve early- to mid-stage IT Infrastructure customers seeking dedicated hosting services.
 
While we are pleased with these accomplishments, we are also mindful that we did not achieve the targeted level of financial performance (revenue and adjusted EBTIDA) for 2011. The Compensation Committee is satisfied that, on balance, the design, implementation and execution of our compensation programs achieved an appropriate balance between rewarding success while not rewarding failure to achieve targeted levels of performance. Accordingly, the named executive officers did not receive their total target incentive compensation for 2011 (the incentive compensation received ranged from 35% to 85% of target). In summary, we set aggressive corporate financial goals and paid for attainment 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. For named executive officers, we target base salaries and short- and long-term components of the total compensation program to be market competitive. This is intended to ensure that we maintain an appropriate cost structure while at the same time attracting, motivating and retaining talented professionals. We seek to provide our named executive officers with significant wealth creation opportunities based on the growth of our stock price which provides linkage between our executive compensation program and the interests of our stockholders.
 
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 target the compensation levels of our named executive officers to be, on average, 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 merely formulaic but is developed using a 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 either 2011 or 2012 based on competitive market data which indicated that his base salary was at a competitive level with our peer group. 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 and between 0% and 5% in 2012.
 
 
Performance-Based Compensation . Our philosophy is to pay for performance. In that regard, short-term and long-term incentive awards for named executive officers are impacted by corporate and, for some named executive officers, individual performance. For 2011, 73% of our Chief Executive Officer’s total compensation was incentive compensation. For our other named executive officers, the percentages were between 61% to 85%. 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 2012 based solely 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 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. 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.
 
 
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 . We are not permitted to reprice stock options without explicit stockholder approval.
 
 
Limit on Full Value Awards in Equity Plan . We are 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 we could pay to named executive officers under our short-term (annual) incentive plan in 2012 is limited to the following percentages of base salary: Chief Executive Officer: 200%; Chief Financial Officer: 130% 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 held the first advisory stockholder vote on our executive compensation practices (“say-on-pay”) at the 2011 stockholders meeting, as required by the Dodd-Frank legislation. After consideration of this stockholder vote and given the substantial support received from stockholders (nearly 90% of the votes were cast in favor of our executive compensation program), the Compensation Committee continues to apply the same general principles described in this Compensation Discussion and Analysis in its determination of the amounts and types of executive compensation.
 
 
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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 2011 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, President and Chief Executive Officer
 
George E. Kilguss III, Senior Vice President and Chief Financial Officer
 
Steven A. Orchard, Senior Vice President, Operations and Support
 
Richard A. Shank, Senior Vice President, Global Sales
 
Randal R. Thompson, former Senior Vice President, Global Sales. Mr. Thompson’s employment terminated October 31, 2011.
 
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.
 
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 participate in our short-term (annual) incentive and long-term equity incentive compensation programs. 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 grants increases or decreases based on changes in the price of our common stock over time. In 2010, we implemented minimum stock ownership guidelines at the senior vice president level and above. We believe that our long-term equity incentive compensation program further aligns the interests of our named executive officers and stockholders.
 
 
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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 establishing compensation for each named executive officer. We do not have a specific formula for the allocation of the various compensation elements between fixed (base salary) and variable pay, nor for the individual elements of compensation (base salary, short-term (annual) incentive and long-term equity incentive). We determine the compensation structure for each individual based on our assessment of a number of factors including:
 
 
the long-term strategic and shorter term operational objectives of our business;
 
an analysis of the compensation components at peer companies;
 
broad-based survey data from companies in our industry and of like size; and
 
the named executive officer’s role within our company, his or her experience and performance of the individual and the relevant business unit.
 
The following table illustrates the allocation of the targeted principal compensation components for our named executives for 2011. The percentages reflect the amounts of base salary and targeted short-term (annual) incentive compensation for 2011 and the aggregate grant date fair values of long-term equity compensation (stock options and restricted stock) granted in 2011.
 
 
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ALLOCATION OF TARGETED PRINCIPAL PAY COMPONENTS FOR 2011
 
(BAR CHART)
 
* The amount reported for Mr. Cooney’s long-term equity incentive compensation for 2011 does not include the grant date fair value of 200,000 shares of restricted stock granted to him in March 2011. These shares were considered granted to him in 2009 when he commenced employment.
 
Compensation Consultant and Benchmarking
 
Compensation Strategies, Inc. (“CSI”) has served as the independent compensation consultant to the Compensation Committee since 2009. CSI assists the Compensation Committee in designing and implementing our executive compensation program and provides analytical review and assessment of our executive compensation program and its ongoing relevance.
 
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 2011 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.
 
Terremark Worldwide Inc.
Cogent Communications Group
 
Navisite Inc.
 
Veraz Networks, Inc.
Digital River, Inc.
 
NeuStar, Inc.
 
Websense, Inc.
Equinix Inc.
       
 
 
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The Compensation Committee modified the group of peer companies for use in establishing 2012 compensation levels for the named executive officers, based on merger and acquisition activity as well as relative changes in peer company revenue and market capitalization that rendered certain companies more or less relevant for statistical analysis purposes. The revised peer group is as follows:
 
Abovenet, Inc.
 
Digital River, Inc.
 
Neutral Tandem, Inc.
Acme Packet, Inc.
 
Earthlink, Inc.
 
NIC Inc.
Aruba Networks, Inc.
 
F5 Networks, Inc.
 
Rackspace Holdings, Inc.
BigBand Networks, Inc.
 
InfoSpace, Inc.
 
Rightnow Technologies, Inc.
Blue Coat Systems, Inc.
 
J2 Global Communications, Inc.
 
Riverbed Technology, Inc.
Cbeyond, Inc.
 
LogMein, Inc.
 
Virtusa Corporation
Cogent Communications Group, Inc.
 
Limelight Networks, Inc.
 
Web.com Group, Inc.
Digi International Inc.
 
NeuStar, Inc.
 
Websense, Inc.
 
Other than executive and Board compensation consulting, CSI did not provide any other services to the company in 2011. The Compensation Committee has engaged CSI for executive compensation services in 2012.
 
The Compensation Committee considered the market compensation data provided by CSI, the experience level of each named executive officer and the responsibilities associated with a particular named executive officer’s role as multiple reference points in evaluating the compensation components and aggregate compensation package for each of the named executive officers. Generally, we target our compensation program to fall within a reasonable range around the median of the market compensation data for similarly-sized companies in the industries in which we compete (telecommunications, technology, data center and cloud computing industries). While we target the median in aggregate, 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 budget for annual salary increases for all employees of 2.8% in 2011 and 2.5% in 2012.
 
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, results 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. 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 performance assessment of the Chief Executive Officer, the Compensation Committee reviews his performance against his pre-defined goals and objectives together with competitive market data 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.
 
2011 and 2012 Base Salaries. In our continued effort to manage employee-related costs, the Compensation Committee approved only modest base salary increases in recent years for select individuals. After due consideration of individual, company and market dynamics discussed above, the Compensation Committee approved salary increases (detailed in the table below) ranging from 0.0% to 7.7% for 2011 and 0.0% to 5.0% for 2012 for our named executives, including our Chief Executive Officer, as described below. Salary increases are effective April 1 of each calendar year.
 
 
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Name
 
Salary Increase
for 2011 (%)
   
2011
Base Salary ($)
   
% Salary Increase
for 2012 (%)
   
2012
Base Salary ($)
 
J. Eric Cooney
          600,000             600,000  
George E. Kilguss III
    3.4 %     300,000       2.8 %     308,400  
Steven A. Orchard
    7.7 %     210,000       5.0 %     220,500  
Richard A. Shank (1)
 
NA
      240,000             240,000  
Randal R. Thompson (2)
    2.2 %     235,000              
 

(1)
Mr. Shank’s employment began on September 19, 2011.
(2)
Mr. Thompson’s employment terminated on October 31, 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, impact to our company, leadership role in both our acquisition of Voxel and amendment to our credit facility, as well as the level of competitiveness of his total compensation package.
 
Mr. Orchard’s base salary was increased to reflect his leadership contributions to our customer support and operations areas and to better position his total cash compensation relative to our other named executive officers and market.
 
The base salaries of the named executive officers (other than our Chief Executive Officer) are in a range from somewhat below to no more than 15% above their respective market medians. Mr. Shank’s base salary remained unchanged given his relatively brief tenure with us.
 
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 as measured by CSI. 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 at other companies 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/business unit targets, as applicable. Of the aggregate amount that a named executive officer (other than the Chief Executive Officer and Chief Financial Officer) may be eligible to earn, 70% is attributable to achievement of corporate financial targets and 30% is attributable to achievement of individual business unit targets. As such, any awards that may be paid to a named executive officer are primarily driven by our overall level of corporate financial success and the individual’s personal contributions to such success. The Chief Executive Officer and Chief Financial Officer will earn an award only for achievement of corporate financial targets.
 
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 for 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.
 
2011 Short-Term Incentive Plan
 
Our Compensation Committee approved the 2011 Short-Term Incentive Plan (the “2011 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).
 
 
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Awards to our Chief Executive Officer and Chief Financial Officer under the 2011 STIP were based on achievement of corporate financial targets in the ratio of 40% related to achievement of the revenue target and 60% related to achievement of the adjusted EBITDA target.
 
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 2011 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 2011 STIP were as follows:
 
Criteria
 
At Threshold
 
At Target
 
At Stretch
Revenue
 
$ 244.2 million
 
$ 257.1 million
 
$ 270.0 million
Adjusted EBTIDA
 
41.4 million
 
46.0 million
 
50.6 million
 
Our revenue and adjusted EBITDA for the year ended December 31, 2011 were $244.6 million and $44.0 million (excluding transactional costs related to the Voxel acquisition), respectively. Awards paid to the named executive officers under the 2011 STIP were reduced below the target level awards based on actual results for the revenue and adjusted EBITDA objectives plus achievement of individual objectives, as applicable.
 
The table below outlines the potential target levels and the award made (on March 15, 2012) to each named executive officer under the 2011 STIP:
 
Name
 
At
Threshold (1)
   
At
Target
(%)
   
At
Target (2)
($)
   
At
Stretch
(%)
   
At
Stretch
($)
   
2011 STIP
Award
($)
 
J. Eric Cooney
          100 %   $ 600,000       200 %   $ 1,200,000     $ 210,140  
George E. Kilguss III
          65 %     193,375       135 %     386,750       67,726  
Steven A. Orchard
          40 %     82,500       80 %     165,000       42,029  
Richard A. Shank (3)
          50 %     34,615       100 %     69,230       29,263  
Randal R. Thompson (4)
          50 %     97,292       100 %     194,583        
 

(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 could earn was based on the actual amount of base salary earned during 2011 (rather than base salary at a point in time).
(3) Mr. Shank’s employment began on September 19, 2011. Accordingly, his potential awards were based on fourth quarter objectives.
(4) Mr. Thompson’s employment terminated on October 31, 2011; as he was not an employee on the award date, he did not receive an award under the 2011 STIP.
 
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. Messrs. Cooney’s and Kilguss’ target percentages were approximately 15 percentage points above their respective market medians. 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 2011 STIP were in part based upon exceeding threshold levels of performance for revenue and adjusted EBITDA. In addition, Mr. Orchard’s award was based on achievement of customer service and support target metrics.
 
2012 Short-Term Incentive Plan
 
The 2012 Short-Term Incentive Plan (the “2012 STIP”) operates similarly to the 2011 STIP, except as noted below. Any award under the 2012 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).
 
 
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All other named executive officers will be eligible to receive an award based on achievement of the following criteria:
 
 
revenue (30% of potential award);
 
adjusted EBITDA (40% of potential award); and
 
up to three objectives specific to the individual’s functional area of responsibility (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, as they did under the 2011 STIP, the Compensation Committee has removed the individual objectives for our Chief Executive Officer and Chief Financial Officer. No award will be made to them under the 2012 STIP unless the company achieves a threshold level of performance with respect to 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 and/or business unit results throughout our company and/or specific business units. These targets will help drive key corporate objectives and may 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 2012 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 (3)
          65 %     199,095       130 %     398,190  
Steven A. Orchard
          40 %     87,150       80 %     174,300  
Richard A. Shank
          50 %     120,000       100 %     240,000  
 

(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 actual amount of base salary earned during 2012 (rather than base salary at a point in time).
(3) Mr. Kilguss has resigned effective May 8, 2012. In connection with his termination of employment, Mr. Kilguss will not receive an award under the 2012 STIP.
 
Messrs. Cooney’s and Kilguss’ target award percentage for 2012 is unchanged from the 2011 level and are approximately 10 percentage points above the market medians. 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.
 
Long-Term Equity Incentive Compensation
 
We grant long-term equity incentive compensation annually under our 2005 Incentive Stock Plan, as amended (the “2005 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.
 
Equity Grant Practices . Our Compensation Committee administers our 2005 Stock Plan and approves the amount of and terms applicable to grants and awards to named executive officers, 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.
 
 
24

 
 
For the past two years, the Compensation Committee has approved annual grants of stock options and restricted stock at its regularly-scheduled meetings in February, which have occurred after the release of financial results for the previous year. 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, responsibilities, tenure and performance, as well as the 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 must have stockholder approval to reprice stock options.
 
Restricted Stock. Restrictions on restricted stock generally lapse in four equal annual installments beginning on the first anniversary of the grant date.
 
In 2011, 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, 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.
 
In 2012, the Compensation Committee approved award values and split the value of each individual’s equity award (including our Chief Executive Officer) into 30% restricted stock and 70% stock options based on competitive market data. The Compensation Committee determined it was appropriate to change the allocation of stock options and restricted stock to increase the retentive value of the awards while still maintaining a focus on our stock price to align interests with our stockholders. The Compensation Committee believes that this allocation brings the equity program more in line with the typical market practices in our industry.
 
The Compensation Committee retains the discretion to change the allocation of future equity awards for individuals or named executive officers as a group.
 
For 2011, grant values for the Chief Executive Officer and former Senior Vice President, Global Sales (who subsequently forfeited these grants upon his termination of employment later in the year) 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 and to better align his long-term incentives with other named executive officers.
 
For 2012, grant values for all named executive officers (other than our Chief Financial Officer) were equal to their respective updated market medians. 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.
 
Named executive officers received the following equity awards in 2011 and 2012:
 
Name
 
Number of Shares
of Restricted
Stock Granted in
2011
   
Number of
Stock Options
Granted in
2011
   
Number of Shares
of Restricted
Stock Granted in
2012
   
Number of
Stock Options
Granted in
2012
 
J. Eric Cooney
    (1)     242,800       35,950       172,600  
George E. Kilguss III (3)
    12,360       101,965       18,841       90,447  
Steven A. Orchard
    8,300       68,469       33,449 (2)     40,561  
Richard A. Shank (4)
    35,000       60,000       7,730       37,109  
Randal R. Thompson (5)
    5,062       41,761              
 

(1) Pursuant to his offer letter, Mr. Cooney also was granted 200,000 shares of restricted stock on March 16, 2011. These shares were considered granted to him in 2009 when he commenced employment and, thus, not included in the above table.
(2) Of the reported amount, 25,000 shares of restricted stock were granted to Mr. Orchard in connection with the closing of the Voxel acquisition for the purpose of retention. One-third of these shares will vest on the one-year anniversary of the grant date and the remaining two-thirds will vest on the second anniversary of the grant date.
(3) Mr. Kilguss has resigned effective May 8, 2012. In connection with his termination of employment, Mr. Kilguss will forfeit all unvested shares of restricted stock and stock options previously granted to him.
(4) Mr. Shank’s employment began September 19, 2011. The grants made to him in 2012 were in connection with his commencement of employment.
(5) Mr. Thompson’s employment was terminated on October 31, 2011; accordingly, he did not receive any grants of restricted stock or stock options in 2012.
 
 
25

 
 
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 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 which 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 the date the individual became subject to the guidelines 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.
 
The guidelines require the listed individuals to retain 100% of the shares granted to them by the company (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 Mr. Shank, who joined the company in September 2011 and is, therefore, relatively new to these ownership guidelines.
 
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 and voluntary life insurance; (c) short-term and 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.
 
 
26

 
 
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:
 
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.
 
Mr. Kilguss’ joinder agreement does not modify the amounts provided to him upon a termination of employment. In connection with his resignation, Mr. Kilguss will receive no payments under his joinder agreement.
 
Mr. Shank is party to an Employment Security Agreement, the terms of which are substantially similar to the terms of the Employment Security Plan described above, with the addition of a two-month notice provision as described above for Mr. Orchard.
 
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, 2011. Restricted shares are valued and the option spread determined using a value of $5.94, the closing price of our common stock on December 30, 2011, the last trading day of the year.
 
 
27

 
 
Name
 
Severance
Payment
($)
   
Accelerated
Vesting of
Equity
Awards
($)
 
J. Eric Cooney
    4,500,000 (1)     3,929,373  
George E. Kilguss III (2)
    690,000       665,048  
Steven A. Orchard
    378,000       216,852  
Richard A. Shank
    480,000       250,500  
Randal R. Thompson (3)
    460,000        
 

(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) In connection with his resignation, Mr. Kilguss is not entitled to receive any severance payment reported in this table.
(3) Mr. Thompson’s employment terminated on October 31, 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 Agreement for Former Named Executive Officer.”
 
Severance Agreement for Former Named Executive Officer
 
Randal R. Thompson . Mr. Thompson served as our Senior Vice President, Global Sales until October 31, 2011. Pursuant to the terms of his separation agreement, Mr. Thompson received (a) a cash payment of $235,000 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. Thompson expired on October 31, 2011. The receipt of these benefits by Mr. Thompson is contingent on continuing non-disclosure and non-solicitation obligations. These separation terms were consistent with Mr. Thompson’s joinder agreement under the Employment Security Plan, which we have previously disclosed.
 
 
28

 
 
Summary Compensation Table
 
The following table presents information regarding compensation for our named executive officers for services rendered during 2011, 2010 and 2009.
 
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
 
2011
  $ 600,000     $     $     $ 1,008,785     $ 210,140     $ 7,768     $ 1,826,693  
Chief Executive Officer
 
2010
    600,000             161,423       766,148       420,000       7,631       1,955,202  
 and President (5)
 
2009
    475,000       300,000 (6)     1,568,000 (7)     838,440       200,000       41       3,381,481  
                                                             
George E. Kilguss III
 
2011
    297,500             86,891       423,644       67,726       7,559       883,320  
Chief Financial Officer and
 
2010
    286,250             67,161       318,769       90,867       7,486       770,533  
 Senior Vice President (8)
 
2009
    275,000             95,758       107,479       97,103       7,404       582,744  
                                                             
Steven A. Orchard
 
2011
    206,250             58,349       284,475       42,029       7,496       598,599  
Senior Vice President,
 
2010
    192,500             38,213       181,369       54,600       7,441       474,123  
 Operations and Support
 
2009
    176,421             53,280       66,949       62,577       5,347       364,574  
                                                             
Richard A. Shank
 
2011
    69,230             183,050       185,028       29,263       2,244       468,815  
Senior Vice President,
                                                           
 Global Sales (9)
                                                           
                                                             
Randal R. Thompson
 
2011
    194,583             35,587       173,509       (10)     39,331       443,010  
Former Senior Vice
 
2010
    228,750             61,840 (11)     181,369       63,250       2,238       537,447  
 President, Global Sales
 
2009
    211,458             70,996 (11)     66,324       36,885       5,132       390,795  
 

(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 17 to our Consolidated Financial Statements for the fiscal years ended December 31, 2011, 2010 and 2009.
(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 17 to our Consolidated Financial Statements for the fiscal years ended December 31, 2011, 2010 and 2009.
(3) Represents amounts earned under our annual short-term incentive plans. The amounts reported for 2011 were earned under our 2011 STIP and paid in March 2012, 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 2011 includes: (a) $7,350 in matching contributions under our 401(k) savings plan to the accounts of each of Messrs. Cooney, Kilguss and Orchard and $2,077 for Mr. Shank; and (b) premiums on life insurance policies for each of the named executive officers as follows: $418 for Mr. Cooney; $209 for Mr. Kilguss; $146 for Mr. Orchard; $167 for Mr. Shank and $164 for Mr. Thompson. The compensation listed in this column for Mr. Thompson also includes $39,167 of accrued severance related to his termination of employment on October 31, 2011.
(5) Mr. Cooney’s employment began on March 16, 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) Mr. Kilguss has resigned effective May 8, 2012. In connection with his termination of employment, Mr. Kilguss will forfeit all unvested shares of restricted stock and stock options previously granted to him.
(9) Mr. Shank’s employment began on September 19, 2011.
(10) Mr. Thompson’s employment terminated October 31, 2011. Given that he was not employed on the payment date under our 2011 STIP, he did not receive non-equity incentive plan compensation in 2012 for service in 2011. In addition, he forfeited the grants of stock options and restricted stock made to him in 2011 given that they had not vested as of his termination date.
(11) Amounts reported include the grant date fair value of performance-based restricted stock awards considered granted in March of 2010 and 2009 calculated in accordance with FASB ASC Topic 718. Our Board of Directors established revenue and EBITDA targets in 2010 and 2009 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 was to vest in March 2012. The revenue and EBITDA targets were not met in 2010 or 2009, which resulted in forfeiture of 50% of the award reported. Mr. Thompson forfeited all unvested shares upon his termination of employment on October 31, 2011, including these performance-based restricted stock awards.
 
 
29

 
 
Grants of Plan-Based Awards
 
The following table provides information about plan-based awards granted to the named executive officers in 2011:
 
                             
All
                   
                             
Other
               
Grant
 
                             
Stock
               
Date
 
                             
Awards:
   
All Other
         
Fair
 
                 
Number
   
Stock
         
Value
 
           
Estimated Future Payouts
   
of
   
Awards:
   
Exercise
   
of
 
           
Under Non-Equity Incentive
   
Shares
   
Number of
   
or Base
   
Stock
 
           
Plan Awards (1)
 
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
 
Stock Option
 
2/25/2011
                             
242,800
   
7.03
     
1,008,785
 
Chief Executive Officer
 
2011 STIP
 
2/22/2011
 
   
600,000
   
1,200,000
                                 
   and President
                                                               
                                                                 
George E. Kilguss, III
 
Restricted Stock
 
2/25/2011
                           
12,360
                     
86,891
 
Chief Financial Officer
 
Stock Option
 
2/25/2011
                                   
101.965
     
7.03
     
423,644
 
   and Senior Vice President (6)
 
2011 STIP
 
2/22/2011
   
     
193,375
     
386,750
                                 
                                                                 
Steven A. Orchard
 
Restricted Stock
 
2/25/2011
                           
8,300
                     
58,349
 
Senior Vice President,     
 
Stock Option
 
2/25/2011
                                   
68,469
     
7.03
     
284,475
 
   Operations and Support
 
2011 STIP
 
2/22/2011
   
     
82,500
     
165,000
                                 
                                                                 
Richard A. Shank
 
Restricted Stock
 
9/19/2011
                           
35,000
(7) 
                   
183,050
 
Senior Vice President,
 
Stock Option
 
9/19/2011
                                   
60,000
(7) 
   
5.23
     
185,028
 
   Global Sales
 
2011 STIP (8)
 
9/19/2011
   
     
34,615
     
69,230
                                 
                                                                 
Randal R. Thompson
 
Restricted Stock
 
2/25/2011
                           
5,062
(9)
                   
35,586
 
Former Senior Vice
 
Stock Option
 
2/25/2011
                                   
41,761
(9)
   
7.03
     
173,509
 
   President, Global Sales
 
2011 STIP
 
2/22/2011
   
     
97,292
(10)    
194,583 
(10)                                
 

(1) Amounts in these columns represent the threshold, target and maximum awards set for the 2011 STIP. The actual awards paid for 2011 performance is included in the Summary Compensation Table above under the column entitled “Non-Equity Incentive Plan Compensation.”
(2) We granted restricted stock awards under our 2005 Stock Plan to the identified named executive officers. The shares of restricted stock vest annually in four equal installments beginning on the first anniversary of the grant date.
(3) We granted stock options under our 2005 Stock Plan to 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 and stock options granted in 2011, calculated in accordance with FASB ASC Topic 718. For valuation assumptions, see footnotes 1 and 2 to the Summary Compensation Table.
(6) Mr. Kilguss has resigned effective May 8, 2012. In connection with his termination of employment, Mr. Kilguss will forfeit all unvested shares of restricted stock and stock options previously granted to him.
(7) Mr. Shank began his employment on September 19, 2011. The amounts reported reflect grants made to him upon his commencement of employment.
(8) The amounts reported reflect the potential awards set for Mr. Shank under the 2011 STIP, based solely on his performance in the fourth quarter of 2011.
(9) Mr. Thompson forfeited all awards granted to him in 2011 upon his termination of employment.
(10) Mr. Thompson was not entitled to receive any award under the 2011 STIP since he was not employed by us on the payment date.
 
 
30

 
 
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, 2011:
 
   
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)
($)
 
J. Eric Cooney
 
2/25/2011
   
     
242,800
     
7.03
 
2/24/2021
           
Chief Executive Officer and President
 
2/26/2010
   
114,046
     
134,784
     
5.03
 
2/25/2020
           
 
2/26/2010
                             
24,069
     
142,970
 
 
3/16/2009
   
262,500
     
187,500
     
2.24
 
3/15/2019
               
 
3/16/2009
                             
150,000
     
891,000
 
 
3/16/2009
                             
350,000
     
2,079,000
 
                                               
George E. Kilguss, III
 
2/25/2011
   
     
101,965
     
7.03
 
2/24/2021
               
Chief Financial Officer and
 
2/25/2011
                             
12,360
     
73,418
 
Senior Vice President (4)
 
2/26/2010
   
47,450
     
56,080
     
5.03
 
2/25/2020
               
 
2/26/2010
                             
10,014
     
59,483
 
 
3/25/2009
   
46,681
     
21,219
     
2.54
 
3/24/2019
               
 
3/25/2009
                             
18,850
     
111,969
 
 
4/30/2008
                             
50,000
     
297,000
 
                                               
Steven A. Orchard
 
2/25/2011
   
     
68,469
     
7.03
 
2/24/2021
               
Senior Vice President,
 
2/25/2011
                             
8,300
     
49,302
 
Operations and Support
  
  
 
2/26/2010
   
26,998
     
31,907
     
5.30
 
2/25/2020
               
 
2/26/2010
                             
5,697
     
33,840
 
 
7/14/2009
   
9,183
     
6,017
     
2.94
 
7/13/2019
               
 
7/14/2009
                             
3,100
     
18,414
 
 
3/25/2009
   
17,050
     
7,750
     
2.54
 
3/24/2019
               
   
3/25/2009
                             
6,900
     
40,986
 
   
3/20/2008
                             
147
     
873
 
   
9/28/2006
   
1,794
     
     
14.46
 
9/27/2016
               
   
3/15/2006
   
7,500
     
     
7.40
 
3/14/2016