Internap Corporation
INTERNAP NETWORK SERVICES CORP (Form: DEF 14A, Received: 04/09/2014 11:29:47)
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
(Rule 14a-101)
 
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Internap Network Services Corporation
 
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Internap Network Services Corporation
One Ravinia Drive, Suite 1300
Atlanta, Georgia 30346
NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS
To our Stockholders ,
We invite you to attend Internap’s 2014 Annual Meeting of Stockholders at the Crowne Plaza Atlanta Perimeter at Ravinia, 4355 Ashford Dunwoody Road, Maplewood Conference Room, Atlanta, Georgia 30346, on Friday, May 30, 2014, at 10:00 a.m. local time. At the meeting, stockholders will:
1.
  • vote on the election of the two director nominees named in this proxy statement for three-year terms expiring in 2017;
2.
  • vote on the approval of the Internap Network Services Corporation 2014 Stock Incentive Plan;
3.
  • vote on the ratification of the Audit Committee’s appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for our fiscal year ending December 31, 2014;
4.
  • vote on an advisory resolution approving compensation of our named executive officers; and
5.
  • 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 2, 2014.
By order of the Board of Directors,
[MISSING IMAGE: SG_ERICCOONEY-BW.JPG]
J. Eric Cooney
Chief Executive Officer and President
Atlanta, Georgia
April 9, 2014
 
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 May 30, 2014.
Our proxy statement for the 2014 Annual Meeting of Stockholders and the Annual
Report to Stockholders for the fiscal year ended December 31, 2013 are available at
http:/​/​ir.internap.com/​proxy13.cfm

INTERNAP NETWORK SERVICES CORPORATION
One Ravinia Drive, Suite 1300
Atlanta, Georgia 30346
2014 ANNUAL MEETING OF STOCKHOLDERS
May 30, 2014
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 9, 2014.
Information About the Proxy Materials and Our 2014 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 2014 Annual Meeting of Stockholders, which will take place on May 30, 2014, at the Crowne Plaza Atlanta Perimeter at Ravinia, 4355 Ashford Dunwoody Road, Maplewood Conference Room, 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 important information. Our Annual Report to Stockholders for the year ended December 31, 2013, which includes our audited consolidated financial statements for the years ended December 31, 2013, 2012 and 2011, 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 four proposals scheduled to be voted upon at the annual meeting:
  • election of the two director nominees named in this proxy statement for three-year terms expiring in 2017;
  • approval of the Internap Network Services Corporation 2014 Stock Incentive Plan;
  • ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2014; and
  • advisory resolution approving compensation of our named executive officers.
In addition, we will consider and vote upon such other business as may properly come before the annual meeting. We are not currently aware of any other matters to be considered and voted upon at the meeting.
Q:
  • How does Internap’s Board of Directors recommend that I vote?
A:
  • Your Board of Directors recommends that you vote your shares “ FOR ” each of the named nominees to the Board, “ FOR approval of the Internap Network Services Corporation 2014 Stock Incentive Plan, “ FOR ” ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2014 and “ FOR ” the advisory resolution approving compensation of our named executive officers.
Q:
  • Who may vote?
A:
  • You may vote at the annual meeting or by proxy if you were a stockholder of record at the close of business on April 2, 2014. Each stockholder is entitled to one vote per share on each matter presented. As of April 2, 2014, there were 54,312,564 shares of our common stock outstanding.

Q:
  • How do I vote before the annual meeting?
A:
  • We offer the convenience of voting by mail-in proxy, telephone or the Internet as described in more detail below. See the enclosed proxy for voting instructions. If you properly sign and return the proxy in the form we have provided or properly vote by telephone or the Internet, your shares will be voted at the annual meeting and at any adjournment of that meeting.
Q:
  • What if I return my proxy but do not provide voting instructions?
A:
  • If you specify a choice, your proxy will be voted as specified. If you return a signed proxy but do not specify a choice, your shares will be voted “for” each of the named nominees to the Board of Directors, “for” approval of the Internap Network Services Corporation 2014 Stock Incentive Plan, “for” ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2014 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.
PROPOSAL 1
ELECTION OF DIRECTORS
Our Board of Directors currently consists of seven members. Our bylaws provide that the Board is divided into three classes, with each class to be as nearly equal in 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.
The Board of Directors prides itself on its ability to recruit and retain directors who have the highest personal and professional integrity, have demonstrated exceptional ability and judgment and effectively serve our stockholders’ long-term interests. 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, which is comprised of all independent members of the Board, 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.
Among other things, the Board of Directors believes it is important to have individuals with one or a combination of the following skills and experiences on the Board:
  • Information Technology Infrastructure Services Experience . We provide information technology infrastructure services. Given the nature of our business, we believe it is important for members of the Board collectively to have experience in the industry in which we operate to provide insights into areas that are critical to our success.
  • Leadership Experience . The Board believes that directors with significant leadership experience, including chief executive officer, chief operating officer and chief technology officer experience, provide it with special insights, including organization development and leadership practices, and individuals with this experience help the company identify and develop its own leadership talent. They demonstrate a practical understanding of organizations, process, strategy, risk management and the methods to drive change and growth. These individuals also provide the company with a valuable network of contacts and relationships.
  • Finance Experience . The company uses financial metrics in managing its overall operations and the operations of its business units. The company and its stockholders value accurate and insightful financial tracking and reporting. The Board seeks directors that understand finance and financial reporting processes, including directors who qualify as audit committee financial experts. Experience as members of audit committees of other boards of directors also gives directors insight into best audit committee practices.

  • Public and Private Company Experience . The company has been listed on Nasdaq since 1996. Although the company’s business units operate as part of a public company, management expects them to drive growth in their business units using the entrepreneurial spirit of private company leadership. The Board believes it is important to have directors who are familiar with the regulatory requirements and environment for publicly traded companies, and to have directors who have experience applying an entrepreneurial focus to building a company or a business unit.
We believe that our Board of Directors collectively possesses these types of experience. Below is a summary of each director’s most relevant experience.
As recommended by the Nominations and Governance Committee, our Board of Directors has nominated Daniel C. Stanzione and Debora J. Wilson as Class III directors for terms expiring at the 2017 annual meeting of stockholders. Each proposed nominee is willing to serve as a director if elected. However, if one of these nominees is unable to serve or is otherwise unavailable for election, which is not contemplated, our incumbent Board may or may not select a substitute nominee. If a substitute nominee is selected, your shares will be voted for the substitute nominee (unless you give other instructions). If a substitute nominee is not selected, your shares will be voted for the remaining nominee. Proxies will not be voted for more than two nominees.
Biographical information for each nominee and each current director who will continue to serve after the annual meeting is presented below.
Nominees for Terms Expiring in 2017 (Class III)
Daniel C. Stanzione , 68, 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 , 56, 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 holds a B.S. in Business Administration from George Mason University in Virginia.
Your Board of Directors unanimously recommends that you vote FOR each of the above-listed nominees.
Continuing Directors with Terms Expiring in 2015 (Class I)
Charles B. Coe , 66, 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. Mr. Coe’s background and skills qualify him to chair our Compensation Committee.
J. Eric Cooney , 48, 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 and holds a B.S. from the University of Rochester and an M.B.A. from the University of Southern California.
Continuing Directors with Terms Expiring in 2016 (Class II)
Gary M. Pfeiffer , 64, 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. Mr. Pfeiffer also is non-executive Chairman of the board of directors of Christiana Care Health System, a not-for-profit regional hospital system. Mr. Pfeiffer previously served as a director of The Talbots, Inc. from 2004 to May 2012, having last served as its non-executive Chairman of the board of directors. 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 qualify him to chair our Audit Committee and to serve as our Audit Committee financial expert.
Michael A. Ruffolo , 52, has served as a director since 2010. Mr. Ruffolo has more than 28 years of broad business experience, including eight 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, 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 member of our Board of Directors. Mr. Ruffolo recently served as Chief Executive Officer and President of Crossbeam Systems, Inc., a network security platform provider from 2010 to 2012. From 2004 to 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 is chairman of the board of directors of Edgeware and 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.
Patricia L. Higgins , 64, 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 brings leadership, business and management skills developed as an

executive and director of other public companies, including serving as lead director and chairwoman of audit, compensation, finance, governance and corporate responsibility 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. Ms. Higgins background and skills qualify her to chair our Nominations and Governance Committee.
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 other executive officers to pursue the company’s mission and oversees the Chief Executive Officer’s and executive officers’ conduct of our business. In addition to its general oversight function, the Board reviews and assesses the company’s strategic and business planning and the executive officers’ approach to addressing significant risks and has additional responsibilities including the following:
  • reviewing and approving the company’s key objectives and strategic business plans and monitoring implementation of those plans and the company’s 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 executive officers;
  • 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 2013, our Board of Directors held 15 meetings. In 2013, each director serving on the Board attended the 2013 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: 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 in the “Corporate Governance” section on the Investor Relations page of our website at www.internap.com . In addition to regular meetings of the Board and committees, we have regular scheduled executive sessions for non-management directors.
The current membership for each of the standing committees is as follows:
 
Audit Committee
Compensation Committee
Nominations and
Governance Committee
Gary M. Pfeiffer (Chair)
Charles B. Coe (Chair)
Patricia L. Higgins (Chair)
Daniel C. Stanzione
Patricia L. Higgins
Charles B. Coe
Debora J. Wilson
Michael A. Ruffolo
Gary M. Pfeiffer
Michael A. Ruffolo
Daniel C. Stanzione
Debora J. Wilson

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 seven times in 2013. 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;
  • 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 our internal audit function 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 eight times during 2013. 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 executive officers 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 goals relevant to executive officers, evaluates the performance of such executive officers in light of these goals and approves the compensation of the executive officers based on the evaluation (other than for the Chief Executive Officer, whose compensation is recommended by the Compensation Committee for approval by the Board);
  • 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 proxy statement;
  • reviews and recommends employment agreements and severance arrangements for executive officers, including change in control provisions;
  • reviews the compensation of directors for service on the Board and committees and makes recommendations to the Board regarding such compensation; and
  • engages, determines compensation for and oversees the work of any consultants and advisors retained by the Compensation Committee, at the expense of the company, and oversees compliance with applicable requirements relating to the independence of such consultants or advisors.
See the “Compensation Discussion and Analysis” section below for more information regarding the Compensation Committee’s processes and procedures.

Nominations and Governance Committee
The Board of Directors has determined that all members of the Nominations and Governance Committee are independent as defined by Nasdaq rules. The Nominations and Governance Committee met four times during 2013. 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 selects and recommends to the Board individuals to fill 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;
  • assists the Board in developing and evaluating candidates for executive positions, including the Chief Executive Officer, and overseeing development of executive succession plans;
  • 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 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 in the Corporate Governance section on the Investor Relations page 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 and guidelines 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 in the Corporate Governance section on the Investor Relations page of our website at www.internap.com . Each of these is also available in print to any stockholder upon request to our Corporate Secretary.

Identification and Evaluation of Director Candidates
The Board of Directors prides itself on its ability to recruit and retain directors who have a diversity of experience, who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who are effective (in conjunction with the other members of the Board) in collectively serving the long-term interests of our stockholders.
The Nominations and Governance Committee of the Board of Directors acts as the Board’s nominating committee. All members of the Nominations and Governance Committee are independent as defined by Nasdaq rules. The Nominations and Governance Committee seeks individuals qualified to become directors and recommends candidates for all director openings to the full Board. For a discussion of the Board’s membership criteria and how the company seeks to achieve diversity in Board membership and to attract directors with a broad range of skills, expertise, knowledge and contacts to benefit our business, see “Proposal 1  —  Election of Directors.” The Nominations and Governance Committee considers director candidates in anticipation of upcoming director elections and other potential or expected Board vacancies.
The Nominations and Governance Committee considers director candidates suggested by directors, executive officers 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 under the heading “Stockholder Communications with the Board of Directors.” 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 2014, such notice must be received not later than March 2, 2015 and not earlier than January 30, 2015. 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 nominee’s 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 information technology infrastructure services industry;
  • the composition, independence and effectiveness of the entire Board;
  • other corporate governance structures in place;
  • the compensation practices used to motivate our executive leadership team;
  • our leadership succession plan; and
  • the competitive and economic environment facing the company.
The Board periodically reviews its leadership structure to ensure that it remains the optimal structure for our company and our stockholders.
Since 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 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 and opportunities.
The company believes this separation of responsibility is appropriate to provide independent Board oversight of and direction for the company’s executive leadership 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 six directors are independent: Charles B. Coe, Patricia L. Higgins, 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 14 years, we have functioned with not more than two active or former management employees as directors. In 2013, only one current employee, Mr. Cooney, served as a director. Dr. Eugene Eidenberg, a former director who served from 1997 until his retirement in 2011, served as our Chief Executive Officer from July 2001 until April 2002.
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. The Nominations and Governance Committee regularly reviews our governance structure, practices and policies to improve governance of our company and our engagement efforts with our stockholders with a goal to promote the long-term interests of our stockholders.
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. The Board periodically 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 annually updates the full Board regarding the company’s risk analyses and assessments and risk mitigation strategies and activities.
We believe that our approach to risk oversight, as described above, optimizes our ability to assess inter-relationships among the various risks, make informed cost-benefit decisions and approach emerging risks in a proactive manner. We also believe that our risk structure complements the current leadership structure of our Board of Directors, as it allows our independent directors, through the three fully-independent standing Board committees, to exercise effective oversight of the actions of management in identifying risks and implementing effective risk management policies and controls.
We conducted a risk assessment of our 2013 compensation plans and programs to identify potential risks associated with the design of the plans and programs 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 and programs do not contain risks that are reasonably likely to cause a material adverse effect on the company. We evaluated each plan and program independently and as part of our overall compensation framework. In general, our compensation plans and programs:
  • 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 our independent 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 the company. The stock ownership guidelines are further described below in “Non-Employee Director Compensation  —  Stock Ownership Guidelines for Non-Employee Directors” and “Compensation Discussion and Analysis  —  Stock Ownership Guidelines for Named Executive Officers.”

Code of Conduct and Ethics Hotline
We have a Code of Conduct that covers our directors, officers (including our Chief Executive Officer and Chief Financial/Accounting Officer) and employees and satisfies the requirements for a “code of ethics” within the meaning of SEC rules. A copy of the code is posted in the “Corporate Governance” section on the Investor Relations page of our website at www.internap.com . 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
Attendance at Board of Directors and committee meetings is central to the proper functioning of our Board and is a priority. Directors are expected to make every effort to attend all meetings of the Board, meetings of committees on which they serve and the annual meeting of stockholders.
Board and Company Culture
Our Corporate Governance Guidelines are coupled with a robust, open and effective Board environment that promotes respect, trust and candor, fosters a culture of open dissent and permits each director to express opinions and contribute to the Board process. Directors are expected to have unrestricted access to management and any company information they believe is necessary and appropriate to perform their roles as directors. The participation of Board members and the open exchange of opinions are further encouraged at the Board committee level through the periodic rotation of Board members among its standing committees. This open and candid operating environment is shared by management and the Board and is essential to fully realize the benefits of our Corporate Governance Guidelines, committee charters and other policies governing our company.
Stockholder Communications with the Board of Directors
Stockholders and interested parties may communicate with our Board of Directors by sending correspondence to the Board, a specific Board committee or a director c/o Corporate Secretary, Internap Network Services Corporation, 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.

NON-EMPLOYEE DIRECTOR COMPENSATION
In 2013, we compensated non-employee directors as follows:
 
Cash
($)
Restricted Stock
($) (1)
Newly appointed or elected director
Number of
restricted shares equal to $90,000
Annual director retainer
$ 20,000
Number of
restricted shares equal to $90,000
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 (2)
50,000
 
(1) All shares of restricted stock vest on the date of the annual meeting of stockholders held the following year. 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 substantially approximate, but may not equal, those disclosed in the table below.
(2) 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. Mr. Cooney does not receive any additional compensation for serving on the Board.
The following table lists the compensation paid to our non-employee directors during 2013:
 
Name
Fees Earned or
Paid in Cash (1)
Stock
Awards (2)(3)
Total
Charles B. Coe
$
 55,250
$
 93,951
$
 149,201
Patricia L. Higgins
57,750
93,951
151,701
Gary M. Pfeiffer
60,250
93,951
154,201
Michael A. Ruffolo
48,250
93,951
142,201
Daniel C. Stanzione
82,875
93,951
176,826
Debora J. Wilson
48,750
93,951
142,701
 
(1) Listed amounts include the annual retainers and meeting fees.
(2) Represents the full grant date fair value of restricted stock granted in 2013, 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 13 to our Consolidated Financial Statements for the fiscal years ended December 31, 2013, 2012 and 2011. The values in this column may not correspond to the actual value that the non-employee directors will realize 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, 2013. 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
41,920
49,560
Patricia L. Higgins
60,279
72,560
Gary M. Pfeiffer
51,622
38,560
Michael A. Ruffolo
57,877
16,290
Daniel C. Stanzione
55,550
72,560
Debora J. Wilson
57,877
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.
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.
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, 2013:
 
Common Stock
Beneficially Owned
Name and Address of Beneficial Owner
Number of
Shares
Percent of
Class (1)
Avenir Corporation (2)
8,071,758
14.85%
BlackRock, Inc. (3)
3,383,004
6.22%
Dimensional Fund Advisors LP (4)
2,975,575
5.47%
GAMCO Investors, Inc. (5)
9,932,939
18.27%
Kornitzer Capital Management, Inc. (6)
5,133,094
9.44%
 
(1) As of March 1, 2014, based on 54,366,008 shares outstanding on that date.
(2) Based on information set forth in Amendment No. 3 to Schedule 13G filed February 13, 2014. The Schedule 13G indicates that Avenir Corporation has sole voting and dispositive power over 8,071,758 shares of our common stock. The business address of Avenir Corporation is 1775 Pennsylvania Avenue NW, Suite 650, Washington, DC 20006.
(3) Based on information set forth in Amendment No. 4 to Schedule 13G filed January 29, 2014. The Schedule 13G indicates that BlackRock, Inc. has sole voting power over 3,224,198 shares of our common stock and sole dispositive power over 3,383,004 shares of our common stock. The business address of BlackRock, Inc. is 40 East 52 nd Street, New York, New York 10022.
(4) Based on information set forth in Amendment No. 3 to Schedule 13G filed February 10, 2014. The Schedule 13G indicates that Dimensional Fund Advisors LP has sole voting power over 2,885,847 shares of our common stock and sole dispositive power over 2,975,575 shares of our common stock. The business address of Dimensional Fund Advisors LP is Palisades West, Building One, 6300 Bee Cave Road, Austin, Texas 78746.
(5) Based on information set forth in Amendment No. 12 to Schedule 13D filed July 17, 2013. The Schedule 13D indicates that Gabelli Funds, LLC has sole voting and dispositive power over 2,558,062 shares of our common stock; GAMCO Asset Management, Inc. has sole voting power over 6,484,612 shares of our common stock and sole dispositive power over 6,687,317 shares of our common stock; Teton Advisors, Inc. has sole voting and dispositive power over 659,560 shares of our common

stock; Gabelli Securities, Inc. has sole voting and dispositive power over 26,000 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.
(6) Based on information set forth in Amendment No. 5 to Schedule 13G filed January 16, 2014. The Schedule 13G indicates that Kornitzer Capital Management, Inc. has sole voting power over 5,133,094 shares of our common stock, sole dispositive power over 4,943,669 shares of our common stock and shared dispositive power over 189,425 shares of our common stock. The business address of Kornitzer Capital Management, Inc. is 5420 West 61st Place, Shawnee Mission, Kansas 66205.
Stock Ownership of Management
The following table sets forth the number of shares of common stock beneficially owned as of March 1, 2014 by each of our directors and named executive officers (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 of Beneficial Owner
Number of
Shares (1)
Percent of
Class (2)
Charles B. Coe
91,480
*
J. Eric Cooney
1,948,672
3.52
%
Patricia L. Higgins
132,839
*
Gary M. Pfeiffer
90,182
*
Michael A. Ruffolo
74,167
*
Daniel C. Stanzione
147,110
*
Debora J. Wilson
118,082
*
Kevin M. Dotts
167,245
*
Steven A. Orchard
286,072
*
Stephen D. Callahan (3)
12,500
*
Richard A. Shank (4)
19,433
*
All directors and executive officers as a group (11 persons)
3,087,782
5.52
%
 
* 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 March 1, 2014 as follows:
 
Name
Options (#)
Charles B. Coe
49,560
J. Eric Cooney
1,057,368
Patricia L. Higgins
72,560
Gary M. Pfeiffer
38,560
Michael A. Ruffolo
16,290
Daniel C. Stanzione
72,560
Debora J. Wilson
16,290
Kevin M. Dotts
59,695
Steven A. Orchard
204,754
Stephen D. Callahan
16,625
Richard A. Shank
Directors and executive officers as a group
1,604,262

(2) As of March 1, 2014, based on 54,366,008 outstanding on that date.
(3) Mr. Callahan’s employment ended March 21, 2014. The number of shares reported in the table above includes the number of vested shares of restricted stock that he held on his termination date, which may not reflect his current holdings.
(4) Mr. Shank’s employment ended November 1, 2013. The number of shares reported in the table above reflects the number of vested shares of restricted stock that he held on his termination date, which may not reflect his current holdings.
EXECUTIVE OFFICERS
Executive Officers
In addition to Mr. Cooney, our Chief Executive Officer and President, whose biographical information appears under “Proposal 1  —  Election of Directors,” set forth below are the names, ages and biographical information for each of our current executive officers.
 
Name
Age
Position
J. Eric Cooney
48
Chief Executive Officer and President
Kevin M. Dotts
50
Chief Financial Officer
Steven A. Orchard
42
Senior Vice President and General Manager, Data Center and Network Services
Kevin M. Dotts has been our Chief Financial Officer since 2012 and manages all of our finance, accounting, treasury, information technology and real estate activities. Prior to joining us, Mr. Dotts served as Chief Financial Officer and Executive Vice President of Culligan International Company since 2011. From 2009 to 2010, Mr. Dotts served as Chief Financial Officer and Director of Gas Turbine Efficiency PLC, a global energy technology development company. Prior to that time, Mr. Dotts served EarthLink, Inc. as Chief Financial Officer and Executive Vice President from 2004 to 2009 and as Vice President Finance from 2002 until 2004. Mr. Dotts began his career at General Electric Company in 1987 and served in increasingly senior financial roles during his 15 years of tenure, including leadership positions at GE Plastics Europe, GE Plastics Americas, NBC and GE Energy. A graduate of General Electric’s Financial Management Program at GE Aerospace, Mr. Dotts was a leader of General Electric’s Corporate Audit Staff. Mr. Dotts is an Advisory Board member of the Atlanta CFO Roundtable and Emerge Scholarships, and holds a B.S. in Finance and Computer Information Systems Management from Drexel University.
Steven A. Orchard has been our Senior Vice President and General Manager, Data Center and Network Services since January 2014, where he leads our data center and network services businesses, including the product management, business development, research and development, operations and customer support functions for our colocation, IP services and content delivery network offerings. From 2012 until January 2014, Mr. Orchard served as our Senior Vice President, Development and Operations, where he led our service delivery, operations and customer support functions and was responsible for research, architecture and development of our full suite of IT infrastructure solutions. 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; Vice President, Network Operations from 2007 until 2009 and our Senior Vice President, Operations and Support from 2009 until 2012. 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.
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
We seek to closely align the economic interests of our named executive officers with the interests of our stockholders. Accordingly, our executive compensation program is designed to reward the achievement of corporate financial targets and to incent our executive officers, including our named executive officers, to achieve our short-term (annual) corporate goals and focus on our long-term strategic goals, while at the same time avoiding the encouragement of excessive risk-taking. Total compensation for our executive officers, including our named executive officers, is comprised of a mix of base salary, annual cash incentive and equity incentive grants which are reinforced by our stock ownership guidelines. Our named executive officers participate in the benefit programs generally available to all other eligible employees. We do not provide separate executive benefit or perquisite programs.

In 2013, we achieved a number of important milestones positioning our company for future growth and success. We made strategic investments to drive innovation, enhance our competitiveness, solidify our growth and expand the value of our company, most notably with our acquisition of iWeb Group Inc., based in Montreal, Quebec, Canada (“iWeb”) in late November 2013. In 2013, specific accomplishments included the following:
  • Highest Levels of Revenue and Profitability in Company History . We delivered the highest revenue and adjusted EBITDA in our history in 2013. Our revenue increased to $283.3 million compared to $273.6 million in 2012. Full year adjusted EBITDA increased 12% year-over-year to $58.0 million (excluding transactional costs related to iWeb), which is our fourth consecutive year of adjusted EBITDA growth. Adjusted EBITDA margin expanded by 150 basis points to 20.5%. 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. Adjusted EBITDA margin is adjusted EBITDA as a percentage of revenues. For a reconciliation of adjusted EBITDA to income from operations and a discussion of why we present adjusted EBITDA, please see page 21 of our Annual Report on Form 10-K for the year ended December 31, 2013.
  • Continued Progress in our Strategy to Become a Leading Global Supplier of IT Infrastructure Services . We continue to execute on our strategy to deliver profitable growth by leveraging our investments in colocation, hosting and cloud services. The strategic shift we have made in focusing on higher-margin company-controlled data center hosting and cloud services is delivering results and remains a key driver for our long-term profitable growth.
  • Completed Strategic Acquisition . In furtherance of our focus on our data center services, we completed our acquisition of iWeb, a provider of hosting and cloud services, on November 26, 2013. This acquisition expands our geographic reach and addressable market for data center services.
  • Expansion of Company Data Centers . In December 2013, we opened a new company-controlled data center to expand our capacity in the New York metro market. This facility will add 55,000 net sellable square feet at full deployment and features the latest in data center design elements. We also successfully expanded our existing facilities in Santa Clara, California and Boston, Massachusetts.
While we are pleased with our accomplishments, and believe we are well positioned for continued operational and financial growth in 2014, we are also mindful that we did not achieve our internal targeted level of financial performance (revenue, adjusted EBITDA and bookings net of churn) for 2013. The Compensation Committee is satisfied that, on balance, the design, implementation and execution of our executive compensation program achieved an appropriate balance between rewarding success while not rewarding our failure to achieve targeted levels of performance. Accordingly, our executive officers, including our named executive officers, received 30.73% of their total target incentive compensation for 2013. In summary, we set aggressive corporate financial targets and paid only for partial achievement of those targets.
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 individuals for achievement of corporate, business unit and personal performance, as applicable. 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 through equity grants from our long term incentive plan, which, with our executive stock ownership guidelines, provides linkage between our executive compensation program and the interests of our stockholders.
In setting the compensation of our named executive officers, the Compensation Committee uses peer group data prepared by third parties and analysis conducted by Compensation Strategies, Inc. (“CSI”), the independent compensation consultant to our Compensation Committee, 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 within an acceptable 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, but at least annually. We modify our compensation programs to address evolving best practices and factors we believe will motivate our executive officers, including named executive officers, to perform in the best interests of our stockholders. We have provided below some of the more significant practices and recent modifications.


  • Base Salaries . After due consideration, the Board of Directors increased the base salary of our Chief Executive Officer 0% in 2013 and 3.3% in 2014. 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, increased their base salaries between 2.0% to 2.8% in 2013 and 3.0% in 2014.
  • Performance-Based Approach . Our philosophy is to pay our executive officers, including named executive officers, for performance. In that regard, short-term incentive awards for named executive officers are determined solely by corporate performance and long term-incentive awards for named executive officers are largely determined by individual performance and role and responsibility. For 2013, 74% of our Chief Executive Officer’s total compensation was incentive compensation. For our other named executive officers, the percentages ranged from 60% to 68%. Please see the graph on page xx for additional information on the allocation of our compensation.
  • Short-Term (Annual) Incentive Compensation . Each of our executive officers, including our named executive officers, were eligible to receive an award under our short-term incentive plan for performance in 2013 based solely on attainment of revenue, adjusted EBITDA and bookings net of churn targets. We have maintained this same approach for 2014. Our Compensation Committee believes it is appropriate to similarly align all executive officers toward the same corporate goals and that revenue, EBITDA and bookings net of churn are the most appropriate targets to align individual incentives with the creation of stockholder value.
  • Long-Term Incentive Compensation . Long-term incentive compensation through equity awards continues to be an important component of the compensation for our executive officers, including our named executive officers. In 2014, our long-term incentive awards were comprised of stock options (70%) and restricted stock (30%). In 2013, our long-term incentive awards were comprised solely of stock options. Grants are made at fair market value and vest over four years. The Compensation Committee reviews the types of equity awards used on an annual basis to determine the appropriate focus on stock price appreciation and retention, while continuing to maximize motivation and align named executive officers with stockholder interests. We believe that our approach to long-term incentive compensation reflects those goals.
  • No Perquisites . We do not provide our named executive officers with any executive benefit or perquisite programs.
  • Stock Ownership Guidelines . In 2010, our Board of Directors approved stock ownership guidelines for executive officers, including named executive officers, and non-employee directors to further align executive, 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 to executive officers) 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 maximum potential payout to named executive officers under our short-term (annual) incentive plan in 2014 is limited to the following percentages of base salary: Chief Executive Officer: 200%; Chief Financial Officer: 130% and 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 . The Compensation Committee has directly retained its compensation consultant, who performs no other consulting or other services for our company. Our Compensation Committee has evaluated the independence of its compensation consultant and determined that the consultant can provide independent and objective advice and its engagement does not present any conflicts of interest.

We hold an advisory stockholder vote on our executive compensation practices (“say-on-pay”) at each annual stockholders meeting. After consideration of this stockholder vote at our 2013 annual stockholders meeting and given the substantial support received from stockholders at such meeting (over 92% of the votes cast were 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.
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 2013 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 corporate financial performance and a long-term equity incentive consisting of stock options and restricted stock. As previously noted, in 2013, our long-term equity incentive consisted only of stock options. Our executive compensation program is benchmarked 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
  • Kevin M. Dotts, Chief Financial Officer
  • Steven A. Orchard, Senior Vice President and General Manager, Data Center and Network Services
  • Stephen D. Callahan, former Senior Vice President, Global Sales
  • Richard A. Shank, former Senior Vice President, Global Sales
Compensation Committee
The Compensation Committee reports to our Board of Directors on all compensation matters for our executive officers, 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 Relations” 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 companies of similar size in the technology industry.
  • Are linked to performance . Many of our employees, including all of our named executive officers, are eligible to participate in our short-term (annual) incentive plan and long-term equity incentive compensation program. 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. All of our executive officers, including our named executive officers, are eligible to receive an award under our short-term incentive plan based solely on achievement of corporate financial targets.
  • 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.

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 goals
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. Grants may consist of one or both in any given year.
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 corporate performance (targeted short-term (annual) incentive compensation and value of long-term equity incentive compensation) of our named executive officers are targeted to exceed their annual base salary. Whether named executive officers receive the targeted incentive compensation is dependent on the overall performance of our company.
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). However, our expectation is that the short- and long-term incentive components of the named executive officer’s total compensation package will comprise the majority of their total targeted compensation. 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, 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 executive officers for 2013. The percentages reflect the amounts of base salary and targeted short-term (annual) incentive compensation for 2013 and the aggregate grant date fair values of long-term equity compensation granted in 2013.

[MISSING IMAGE: T1400602_CHRT-COLSLR.JPG]
The amount reported for the named executive officers in “Average of Other Named Executive Officers” does not include compensation for Mr. Callahan, our former Senior Vice President, Global Sales, as he did not participate in the 2013 Short Term Incentive Plan.
Compensation Consultant and Benchmarking
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. In connection with its engagement of CSI, the Compensation Committee considered various factors bearing upon CSI’s independence including, but not limited to, the amount of fees received by CSI from us as a percentage of CSI’s total revenue, CSI’s policies and procedures designed to prevent conflicts of interest and the existence of any business or personal relationship that could impact CSI’s independence. After reviewing these and other factors, the Compensation Committee determined that CSI was able to provide independent and objective advice and that its engagement did not present any conflicts of interest. Other than executive and Board compensation consulting, CSI did not provide any other services to the company in 2013. The Compensation Committee has engaged CSI for executive compensation services in 2014.
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 2013 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, CSI used statistical analysis to “size-adjust” the market compensation data to reflect our relative annual revenue. This peer group consisted of:
 
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.
The Compensation Committee modified the group of peer companies for use in establishing 2014 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 for 2014 is as follows:

 
Active Network, Inc.
Digital River, Inc.
Inteliquent, Inc.
Aruba Networks, Inc.
j2 Global Communications, Inc.
Riverbed Technology, Inc.
Bottomline Technologies, Inc.
Keynote Systems, Inc.
Synchronoss Technologies, Inc.
Cbeyond, Inc.
Limelight Networks, Inc.
Virtusa Corporation
Cogent Communications Group, Inc.
LogMeIn, Inc.
Web.com Group, Inc.
Coresite Realty Corp.
Neustar, Inc.
Websense, Inc.
Digi International Inc.
NIC, Inc.
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 3.0% in each of 2013 and 2014.
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 manager.
Our Chief Executive Officer develops a performance appraisal rating for each named executive officer, which considers the individual’s overall responsibilities, specific operational goals and objectives, results and tenure in the particular position. The Chief Executive Officer uses his judgment in assessing those factors in both a quantitative and 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 to determine and approve the Chief Executive Officer’s base salary.
2013 and 2014 Base Salaries. In our continued effort to manage employee-related costs, the Compensation Committee and/or Board of Directors approved only modest base salary increases in recent years for named executive officers. After due consideration of individual, company and market dynamics discussed above, the Compensation Committee approved and/or recommended salary increases (detailed in the table below) ranging from 0% to 2.8% for 2013 and from 3.0% to 3.3% for 2014 for our named executive officers, including our Chief Executive Officer (whose base salary was determined by the Board), as described below. Salary increases are effective April 7, 2014. 

 
Name
2013 Base
Salary Increase (%)
2013
Base Salary ($)
2014 Base
Salary Increase (%)
2014
Base Salary ($)
J. Eric Cooney
$
 600,000
3.3
%
$
 620,000
Kevin M. Dotts
2.0%
316,200
3.0
%
325,686
Steven A. Orchard
2.8%
267,280
3.0
%
275,298
Stephen D. Callahan
Note 1
245,000
Richard A. Shank (2)
2.1%
245,000
 
(1) Mr. Callahan is included among our named executive officers for 2013 due to his service as Senior Vice President, Global Sales beginning November 1, 2013. The 2013 base salary in the table reflects his base salary upon his appointment to the executive officer position of Senior Vice President, Global Sales. Mr. Callahan’s employment ended March 21, 2014.
(2) Mr. Shank’s employment ended November 1, 2013.
The Compensation Committee approved the foregoing increases in base salaries for 2014 based on the following:
  • Mr. Cooney’s base salary was increased to reflect his personal performance and results in transitioning our company as a leading provider of IT infrastructure services, including the acquisition and integration of iWeb.
  • Mr. Dotts’ base salary was increased to reflect his personal performance, efforts relating to our external financing and support of the iWeb acquisition.
  • Mr. Orchard’s base salary was increased to reflect his performance overseeing the operations and support organizations in 2013, support of the iWeb acquisition and new role overseeing our data center and network services business.
The 2014 base salaries of the named executive officers (other than our Chief Executive Officer) are in a range from approximately 0% to 5% above the market median. Mr. Cooney’s 2014 base salary is approximately 23% above the market median and was established, in large part, 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
In 2013, executive officers, including our named executive officers, were eligible to earn an annual cash award under our short-term incentive plan based solely on achievement of corporate financial targets. The Compensation Committee removed individual business unit targets for executive officers, including our named executive officers, in 2013 to further align the interests of our executive officers with those of our stockholders. As such, awards that were paid to a named executive officer in 2014 based on 2013 performance were solely determined and paid based on our overall level of corporate financial achievement.
Our Compensation Committee believes short-term incentive compensation opportunities for executive officers, including 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 officers 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 targets. The Board of Directors (excluding Mr. Cooney) approves any award to Mr. Cooney after receiving recommendations from the Compensation Committee.
2013 Short-Term Incentive Plan . Our Compensation Committee approved the 2013 Short-Term Incentive Plan (the “2013 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)
  • bookings net of churn (30% of potential award)

The Compensation Committee, for named executive officers other than our Chief Executive Officer, and the Board of Directors, for our Chief Executive Officer, assigned each individual a target level of incentive compensation potential, expressed as a percentage of base salary. In setting the potential annual incentive compensation each named executive officer could earn at the target award level, the Compensation Committee considered the competitive market data provided by CSI and the experience and responsibilities of the named executive officer.
The 2013 STIP incorporated a threshold level of performance for each corporate objective, which had to be exceeded in order for an award to be paid. No award would be paid to a participant below the threshold level of performance. The award increased linearly from threshold to target and from target to stretch.
Our revenue, adjusted EBTIDA and bookings net of churn targets for the 2013 STIP were as follows:
 
Criteria
At Threshold
($)
At Target
($)
At Stretch
($)
Revenue
$ 281.5 million
$ 284.6 million
$ 291.7 million
Adjusted EBTIDA
57.0 million
59.2 million
60.7 million
Bookings net of churn
2.1 million
2.6 million
3.0 million
Our revenue, adjusted EBITDA and bookings net of churn for the year ended December 31, 2013 (exclusive of iWeb’s financial results) were $279.7 million, $57.2 million and $0.2 million, respectively. Awards paid to the named executive officers under the 2013 STIP were below the target level awards based on actual results for the adjusted EBITDA objective. No awards were paid for the revenue or bookings net of churn objectives.
The table below outlines the potential target levels and the award made (on March 7, 2014) to each named executive officer under the 2013 STIP:
 
Name
At
Threshold
($)
At
Target
(%)
At
Target (1)
($)
At
Stretch
(%)
At
Stretch
($)
2013 STIP
Award
($)
J. Eric Cooney
$
 450,000
100
%
$
 600,000
200
%
$
 1,200,000
$
 184,388
Kevin M. Dotts
153,392
65
%
204,523
130
%
409,045
62,852
Steven A. Orchard
79,638
40
%
106,184
80
%
212,368
32,632
Stephen D. Callahan (2)
Richard A. Shank (3)
77,272
50
%
103,029
100
%
206,058
 
(1) The amount that a named executive could earn was based on the actual amount of base salary earned during 2013 (rather than base salary at a point in time).
(2) Mr. Callahan was not eligible to receive an award under the 2013 STIP.
(3) Mr. Shank’s employment ended November 1, 2013; because he was not an employee on the award date, he did not receive an award under the 2013 STIP.
A named executive officer is eligible for stretch awards only if we significantly over-achieved corporate financial objectives. Messrs. Cooney’s and Dotts’ target percentages were approximately 10 percentage points above their respective market medians. The other named executive officers’ target percentages were within a range of approximately plus or minus 5 percentage points around their respective market medians.
2014 Short-Term Incentive Plan . The 2014 Short-Term Incentive Plan (the “2014 STIP”) operates similarly to the 2013 STIP. Any award under the 2014 STIP to our executive officers, including our named executive officers, will be based solely on achievement of the following three corporate financial targets:
  • revenue (30% of potential award)
  • adjusted EBITDA (40% of potential award)
  • bookings net of churn (30% of potential award)
Our Compensation Committee believes that it is important to align the interests of our executive officers, including our named executive officers, with those of our stockholders. For that reason, similarly to 2013, no award will be made to the named executive officers under the 2014 STIP unless we achieve a threshold level of performance with respect to one or more of the corporate financial targets.

The table below outlines the potential target levels and awards that may be earned by the named executive officers under the 2014 STIP:
 
Name
At
Threshold (1)
($)
At
Target
(%)
At
Target (2)
($)
At
Stretch
(%)
At
Stretch
($)
J. Eric Cooney
$
 310,000
100
%
$
 620,000
200
%
$
 1,240,000
Kevin M. Dotts
105,848
65
%
211,696
130
%
423,392
Steven A. Orchard
68,825
50
%
137,649
100
%
275,298
 
(1) Partial awards starting at 50% of target 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 officer can earn will be based on the actual amount of base salary earned during 2014 (rather than base salary at a point in time).
Messrs. Cooney’s and Dotts’ target award percentage for 2014 are unchanged from the 2013 level and are approximately 7 and 9 percentage points, respectively, above their respective market medians. Mr. Orchard’s target award percentage for 2014 has increased to 50% from 40% and is equal to his respective market median.
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”). In 2013, our long-term equity compensation program for all employees, including our named executive officers, consisted of stock options. For 2014, our long-term equity compensation program consists of both restricted stock and stock options. We believe this structure appropriately aligns employee interests with those of our stockholders, encourages retention and rewards employees for sustained performance.
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, 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 grants for an individual, the Compensation Committee considers the individual’s position, responsibilities, tenure and performance and internal peer equity, as well as the competitive market data provided by CSI. Our Chief Executive Officer provides input to these decisions, except in the case of his own compensation.
The Compensation Committee approves annual grants at its regularly-scheduled meetings in February, with the goal of making grants 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. 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.
Restricted Stock. Restrictions on restricted stock generally lapse in four equal annual installments beginning on the first anniversary of the grant date.
The Compensation Committee has discretion to change the allocation of future equity awards for individuals or named executive officers as a group.