Most stock option grants to executive officers occur in conjunction with the executive officer’s acceptancecommencement of employment with us. The Compensation Committee, however, also reviews stock optionlong-term incentive levels for all executive officers throughout each fiscal year in light of long-term strategic and performance objectives, each executive officer’s current and anticipated contributions to our future performance and the value of such executive’s current stock optionequity package. When determining the number of stock options or restricted shares to be awarded to an executive officer, the Compensation Committee considers (1) the executive officer’s current contribution to our performance,performance; (2) the value already accumulated by the executive officer’s past option awards and their current value,officer from previous grants; (3) the executive officer’s anticipated contribution in meeting our long-term strategic performance goalsgoals; and (4) comparisons to formal and informal surveys of executive stock option grants made bylong-term incentive awards relative to the median of the peer group, as well as a larger group of other Internet infrastructuresimilarly sized technology companies. This is the same approach as used for other employees.
a base salaryto receive severance payments and reimbursement for certain health insurance premiums as described in the section of $350,000. In addition, he received a bonus of $210,000 on February 27, 2003, payable in bi-monthly installments commencing in April 2003, and relocation benefits, including gross-up payments of $245,222.the proxy statement entitled “Executive Compensation — Executive Employment Agreements.” The Compensation Committee awardedtotal compensation paid to Mr. Peters options to purchase $4,000,000 shares of our common stock atduring his tenure as Chief Executive Officer in 2005 is set forth in the then-current market price of $0.44 per share, options to 1,000,000 shares of our common stock at the then-current market price of $0.43 per share and options to purchase 2,238,796 shares of our common stock at the then current market price of $2.16 per share.
Summary Compensation Table.
Limitations on the Deductibility of Executive Compensation Compensation payments in excess of $1 million to the Chief Executive Officer or the other five most highly compensated executive officers are subject to a limitation on deductibility by us under Section 162(m) of the Internal Revenue Code of 1986, as amended. Certain performance-based compensation is not subject to the limitation on deductibility. The Compensation Committee does not expect cash compensation in 20032005 to our Chief Executive Officer or any other executive officer to be in excess of $1 million. We intend to maintain qualification of our 20022005 Incentive Stock Compensation Plan, Amended and Restated 1998 Stock Option/Stock Issuance Plan, and Amended 1999 Equity Incentive Plan for the performance-based exception to the $1 million limitation on deductibility of compensation payments.
The Compensation Committee believes its executive compensation philosophy serves Internap’s interests and the interests of our stockholders.
Compensation Committee:
Charles B. Coe
Fredric W. Harman
Robert D. Shurtleff, Jr.
| Compensation Committee:
Charles B. Coe Fredric W. Harman Patricia L. Higgins |
The foregoing report of the Compensation Committee shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act” and, together with the Securities Act, the “Acts”), unless we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.
21
Compensation Committee Interlocks and Insider Participation None of the members of the Compensation Committee is a former or current officer or employee of the Company or any of its subsidiaries. None of our executive officers or directors serve as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of our board of directors or Compensation Committee.
CERTAIN RELATIONSHIPS AND TRANSACTIONS In 2003 and 2002, we engaged Korn/Ferry International, a national executive recruiting firm, to assist in the identification and recruitment of senior executives. For 2003 and 2002, we paid Korn/Ferry $3,178 and $262,096, respectively, in connection with executive placements. As of December 31, 2003, the Company owed $75,000 to Korn/Ferry, and that amount was paid in the first quarter of 2004 after approval by the Audit Committee of our board of directors. Gregory A. Peters, our president and chief executive officer, is the son-in-law of a managing director of Korn/Ferry.
We have entered into indemnification agreements with our directors and executive officers for the indemnification of and advancement of expenses to such persons to the fullest extent permitted by law. We also intend to enter into these agreements with our future directors and executive officers.
Our common stock is listed on the AMEX under the symbol “IIP” and has traded on the AMEX since February 18, 2004. Our common stock traded on the Nasdaq SmallCap Market from October 4, 2002 until February 17, 2004, when we voluntarily delisted our common stock from the Nasdaq SmallCap Market. Prior to that, our common stock traded on the Nasdaq National Market from September 29, 1999, the date of our initial public offering, until October 4, 2002, when we fell below certain listing criteria of the Nasdaq National Market.
The graph set forth below compares cumulative total return to our stockholders from an investment in our common stock with the cumulative total return of the Nasdaq Composite Index and the Goldman/Sachs Internet Index, resulting from an initial assumed investment of $100 in each on September 29, 1999, the date of our initial public offering, andDecember 31, 2000, assuming the reinvestment of any dividends, ending at December 31, 2000, December 31, 2001, December 31, 2002, December 31, 2003, December 31, 2004 and December 31, 2003,2005, respectively.
| | Dec-00 | Dec-01 | Dec-02 | Dec-03 | Dec-04 | Dec-05 |
| Internap Network Services Corp. | $100 | $16 | $5 | $34 | $13 | $6 |
| NASDAQ Composite Index | $100 | $79 | $55 | $82 | $89 | $91 |
| Goldman Sachs Internet Index | $100 | $58 | $41 | $80 | $98 | $113 |
The foregoing stock performance graph shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act or the Exchange Act, unless we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.
22
The primary function of the Audit Committee is to assist the board of directors in its oversight and monitoring of our financial reporting and auditing process. In April 2004, our board of directors adopted an updated Audit Committee Charter that sets forth the responsibilities of the Audit Committee. A copy of the Audit Committee Charter is filed as Appendix A to this proxy statement.
Management has primary responsibility for our financial statements and the overall reporting process, including our system of internal controls. The independent auditorsregistered public accountants audit the annual financial statements prepared by management and express an opinion as to whether those financial statements fairly present our financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States,States. The independent registered public accountants also audit Management’s Report on Internal Control over Financial Reporting and discuss with the Audit Committee any issues that come about in conjunction with the audits that they believe should be raised with the Audit Committee. The Audit Committee monitors these processes, relying, without independent verification, on the information provided to it and on the representations made by management and the independent auditors.registered public accountants.
Representatives of PricewaterhouseCoopers LLP, our independent auditors,registered public accountants, attended each meetingfive regular meetings of the Audit Committee. The Audit Committee reviewed and discussed with management and PricewaterhouseCoopers LLP our audited financial statements for the year ended December 31, 20032005 and our unaudited quarterly financial statements for the quarters ended March 31, June 30 and September 30, 2003.2005. The Audit Committee also discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees).
The Audit Committee also received the written disclosures and the letter from PricewaterhouseCoopers LLP, that are required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with PricewaterhouseCoopers LLP its independence. The Audit Committee considered whether the services provided by PricewaterhouseCoopers LLP for the year ended December 31, 20032005 are compatible with maintaining their independence. The Audit Committee has determined to engage PricewaterhouseCoopers LLP as our independent auditorsregistered public accountants for the year ending December 31, 2004.2006.
Based upon its review of the audited financial statements, including Management’s Report on Internal Control over Financial Reporting, and the discussions noted above, the Audit Committee recommended that the board of directors include the audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 20032005 for filing with the SEC.
Audit Committee:
James P. DeBlasio | Audit Committee:
Patricia L. Higgins William J. Harding Kevin L. Ober |
William J. Harding
Kevin L. Ober
The foregoing report of the Audit Committee Report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act or the Exchange Act, unless we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.
23
PROPOSAL 2 — ADOPTION- APPROVAL OF THE 2004 EMPLOYEEAMENDMENT TO CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK PURCHASE PLANSPLIT
In April 2004,
Our board of directors has deemed it advisable and in our stockholders’ best interests to seek the approval of our stockholders of this Proposal 2, authorizing the board of directors to amend our certificate of incorporation to effect a reverse stock split of our common stock at a specific ratio to be determined by the board of directors within a range from one-for-five to one-for-twenty. Our board of directors’ intent is to effect a reverse stock split after our annual meeting, and your approval of this proposal would give our board of directors adopted the 2004 Internap Network Services Corporation Employee Stock Purchase Plan, orauthority to effect a reverse stock split based on one of the Plan, subject toratios as set forth below as soon as reasonably practicable.
If this Proposal 2 is approved and after our board of directors selects the exchange ratio for the reverse stock split, then all of the outstanding shares of our outstanding common stock on the date of the reverse stock split will be automatically converted into a smaller number of shares, at the reverse stock split ratio selected by the board of directors, as more fully described below. The ratio will be no greater than one-for-five, and no less than one-for-twenty. The reverse stock split will also reduce the number of shares of our common stock authorized for issuance at the same ratio. After stockholder approval of this Proposal 2, the board will select, at its discretion, the ratio of the reverse stock split, which will be within the range of one-for-five to one-for-twenty, inclusive. In determining the reverse stock split ratio, our stockholders. board of directors will consider numerous factors, including the historical and projected performance of our common stock before and after the reverse stock split, prevailing market conditions and general economic trends, as well as the projected impact of the reverse stock split on the trading liquidity of our common stock, our ability to continue to maintain our common stock’s listing on national securities exchanges, and investor interest in our stock.
This proposal, if approved, will authorize our board of directors to select the reverse stock split ratio from within a range. We are proposing that our board of directors have this discretion, rather than proposing that stockholders approve a specific ratio at this time, in order to give the board the flexibility to implement a reverse stock split at a ratio that reflects the board’s then-current assessment of the factors described above, including our then-current stock price. The reverse stock split would become effective upon the filing of a Certificate of Amendment of our Certificate of Incorporation with the Secretary of State of the State of Delaware. The form of the Certificate of Amendment to effect the reverse stock split is attached to this proxy statement as Appendix A. The following discussion is qualified in its entirety by the full text of the Certificate of Amendment, which is hereby incorporated by reference.
Purpose of Reverse Stock Split
The board of directors believes that the proposed reverse stock split, at a ratio ranging from one-for-five and one-for-twenty, is advisable to reduce the number of our outstanding common shares in order to increase the trading price of such shares on the American Stock Exchange. The board’s reasons for approving this proposal, as well as the possible disadvantages to a reverse stock split that the board took into account, are summarized below.
Determination of Ratio
The ratio of the reverse stock split, if approved and implemented, will be an integral number between and including five and twenty, as determined by our board of directors in its sole discretion. In determining the reverse stock split ratio, our board of directors will consider numerous factors including:
| · | the historical and projected performance of our common stock and volume level before and after the reverse stock split, |
| · | prevailing market conditions, |
| · | general economic and other related conditions prevailing in our industry and in the marketplace generally, |
| · | the projected impact of the selected reverse stock split ratio on trading liquidity in our common stock and our ability to continue our common stock’s listing on the American Stock Exchange, as well as our ability to attract and retain employees, |
| · | our capitalization (including the number of shares of our common stock issued and outstanding), |
| · | the prevailing trading price for our common stock and the volume level thereof, and |
| · | potential devaluation of our market capitalization as a result of a reverse stock split. |
The purpose of asking for authorization to implement reverse stock split at a ratio to be determined by our board of directors, as opposed to a ratio fixed in advance, is to give our board of directors the Planflexibility to take into account then-current market conditions and changes in our stock price and to respond to other developments that may be deemed relevant, when considering the appropriate ratio.
Effects of Reverse Stock Split
A reverse stock split refers to a reduction in the number of outstanding shares of a class of a corporation’s capital stock, which may be accomplished, as in this case, by reclassifying and combining all of our outstanding shares of common stock into a proportionately smaller number of shares. For example, if our board decides to implement a one-for-ten reverse stock split of our common stock, then a stockholder holding 1000 shares of our common stock before the reverse stock split would instead receive 100 shares of our common stock afterwards. Each stockholder’s proportionate ownership of our outstanding shares of common stock would remain the same, except that stockholders that would otherwise receive fractional shares as a result of the reverse stock split will receive cash payments in lieu of fractional shares. All shares of our common stock will remain fully paid and non-assessable.
The primary purpose of the proposed reverse stock split of our common stock is to combine the issued and outstanding shares of our common stock into a smaller number of shares so that the shares of our common stock will trade at a higher price per share than their recent trading prices. Although we expect the reverse stock split will result in an increase in the market price of our common stock, the reverse stock split may not increase the market price of our common stock in proportion to the reduction in the number of shares of our common stock outstanding or result in the permanent increase in the market price, which is dependent upon many factors, including our performance, prospects and other factors detailed from time to time in our SEC reports. The history of similar reverse stock splits for companies in like circumstances is varied. If the reverse stock split is effected and the market price of our common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of a reverse stock split.
In addition to increasing the market price of our common stock, a reverse stock split will also affect the presentation of stockholders’ equity on our balance sheet. Specifically, because the par value per share of our common stock will not change, the reduction in the number of outstanding shares of common stock will cause our stated capital account to be reduced, and our additional paid-in capital to be increased by an equivalent amount. Total stockholders’ equity will remain unchanged.
Effect on Authorized and Outstanding Shares
The following table illustrates the effects of a one-for-five and a one-for-twenty reverse stock split, without giving effect to any adjustments for fractional shares of our common stock, on our authorized and outstanding shares of our capital stock and on certain per share data:
| | | Number of Shares as of December 31, 2005 | |
| | | Prior to Reverse Stock | | | |
| | | Split | | 1 for 5 | | 1 for 20 | |
| | | | | | | | | | | |
| Authorized Common Stock | | | 600,000,000 | | | 120,000,000 | | | 30,000,000 | |
| Common Stock | | | | | | | | | | |
| Outstanding | | | 341,677,000 | | | 68,335,400 | | | 17,083,850 | |
| Issuable upon exercise of Options and Warrants | | | 50,560,000 | | | 10,112,000 | | | 2,528,000 | |
| Stockholder equity at December 31, 2005 | | $ | 109,727,478 | | $ | 109,727,478 | | $ | 109,727,478 | |
| Stockholder equity per share at December 31, 2005 | | $ | 0.32 | | $ | 1.61 | | $ | 6.42 | |
| Net loss for year ended December 31, 2005 | | $ | 4,962,911 | | $ | 4,962,911 | | $ | 4,962,911 | |
| Basic and diluted net loss per share for year ended December 31, 2005 | | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.29 | ) |
Effect on Outstanding Options and Warrants
The reverse stock split, when implemented, will affect the outstanding options and warrants to purchase our common stock, which contain anti-dilution provisions. All of our equity incentive plans include provisions requiring appropriate adjustments to the number of shares of common stock covered by the plans and by stock options and other grants under those plans, as well as option exercise prices. For example, if we implement a one-for-ten reverse stock split, each of our outstanding stock options would thereafter evidence the right to purchase one-tenth as many shares of our common stock (rounding any fractional shares down to the nearest whole share) and the exercise price per share would be ten times the previous exercise price. Further, the number of shares of our common stock reserved for issuance (including the number of shares subject to automatic annual increase and the maximum number of shares that may be subject to options) under our existing stock option plans and employee stock purchase plans will be reduced by the same ratio as selected for the reverse stock split.
No Fractional Shares
No fractional shares of common stock will be issued in connection with the reverse stock split. If as a result of the reverse stock split, a stockholder of record would otherwise hold a fractional share, the stockholder will receive a cash payment in lieu of the issuance of any such fractional share in an amount per share equal to the closing price per share on the American Stock Exchange on the trading day immediately preceding the effective date of the reverse stock split (as adjusted to give effect to the reverse stock split), without interest. The ownership of a fractional interest will not give the holder thereof any voting, dividend or other right except to receive the cash payment therefor. The terms of some of our stock option plans do not require us to, and we therefore would not expect to, pay cash to option holders in lieu of any fraction of a share issuable upon the exercise of an option.
Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where we are domiciled and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective time may be required to be paid to the designated agent for each such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.
Accounting Matters
The par value of the shares of our common stock is not changing as a result of the implementation of the reverse stock split. Our stated capital, which consists of the par value per share of our common stock multiplied by the aggregate number of shares of our common stock issued and outstanding, will be reduced proportionately on the effective date of the reverse stock split. Correspondingly, our additional paid-in capital, which consists of the difference between our stated capital and the aggregate amount paid to us upon the issuance of all currently outstanding shares of our common stock, will be increased by a number equal to the decrease in stated capital. Further, net loss per share and book value per share will be increased as result of the reverse stock split because there will be fewer shares of common stock outstanding.
Implementation of Reverse Stock Split; Certificate of Amendment
If our stockholders approve this Proposal 2, we will file the Certificate of Amendment included as Appendix A to this proxy statement (as completed to reflect the reverse stock split ratio as determined by the board of directors, in its discretion, within the range of 1-for-five to 1-for-20 in order to give effect to the reverse stock split). The Certificate of Amendment will become effective when it is filed with the Secretary of State of the State of Delaware.
Reasons For Reverse Stock Split
The board of directors believes that a reverse stock split is desirable for the following reasons:
The anticipated increase in the per share market price of our common stock should also enhance the acceptability of our common stock by the financial community and the investing public.
A variety of brokerage house policies and practices tend to discourage individual brokers within those firms from dealing with lower priced stocks. Some of these policies and practices pertain to the payment of brokers’ commissions and to time-consuming procedures that make the handling of lower priced stock economically unattractive to brokers and therefore difficult for holders of common stock to manage. The expected increase in the per share price of our common stock may help alleviate some of these issues.
The structure of trading commissions also tends to have an adverse impact upon holders of lower priced stock because the brokerage commission on a sale of lower priced stock generally represents a higher percentage of the sales prices than the commission on a relatively higher priced issue, which may discourage trading in lower priced stock. A reverse stock split could result in a price level for our common stock that may reduce, to some extent, the effect of these policies and practices of brokerage firms and diminish the adverse impact of trading commissions on the market for our common stock.
Possible Disadvantages of Reverse Stock Split
Even though our board of directors believes that the potential advantages of a reverse stock split outweigh any disadvantages that might result, the following are some of the possible disadvantages of a reverse stock split:
The reduced number of shares of our common stock resulting from a reverse stock split could adversely affect the liquidity of our common stock.
A reverse stock split could result in a significant devaluation of our market capitalization and our share price, on an actual or an as-adjusted basis, based on the experience of other companies that have effected reverse stock splits.
A reverse stock split may leave certain stockholders with one or more “odd lots,” which are stock holdings in amounts of less than 100 shares of our common stock. These odd lots may be more difficult to sell than shares of our common stock in even multiples of 100. Additionally, any reduction in brokerage commissions resulting from the reverse stock split, as discussed above, may be offset, in whole or in part, by increased brokerage commissions required to be paid by stockholders selling odd lots created by the reverse stock split.
There can be no assurance that the total market capitalization of our common stock (the aggregate value of all our common stock at the then market price) after the proposed reverse stock split will be equal to or greater than the total market capitalization before the proposed reverse stock split or that the per share market price of our common stock following the reverse stock split will either equal or exceed the current per share market price.
There can be no assurance that the market price per new share of our common stock after the reverse stock split will remain unchanged or increase in proportion to the reduction in the number of old shares of our common stock outstanding before the reverse stock split. For example, based on the market price of our common stock on March 29, 2006 of $0.90 per share, if the stockholders approve this Proposal 2 and the Board of Directors select a reverse stock split ratio of one-for-ten, there can be no assurance that the post-split market price of our common stock would be $9.00 per share or greater.
Accordingly, the total market capitalization of our common stock after the proposed reverse stock split may be lower than the total market capitalization before the proposed reverse stock split and, in the future, the market price of our common stock following the reverse stock split may not exceed or remain higher than the market price prior to the proposed reverse stock split.
If the reverse stock split is effected, the resulting per-share stock price may not attract institutional investors or investment funds and may not satisfy the investing guidelines of such investors and, consequently, the trading liquidity of our common stock may not improve.
While the Board of Directors believes that a higher stock price may help generate investor interest, there can be no assurance that the reverse stock split will result in a per-share price that will attract institutional investors or investment funds or that such share price will satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of our common stock may not necessarily improve.
A decline in the market price of our common stock after the reverse stock split may result in a greater percentage decline than would occur in the absence of a reverse stock split, and the liquidity of our common stock could be adversely affected following such a reverse stock split.
If the reverse stock split is effected and the market price of our common stock declines, the percentage decline may be greater than would occur in the absence of a reverse stock split. The market price of our common stock will, however, also be based on our performance and other factors, which are unrelated to the number of shares outstanding. Furthermore, the liquidity of our common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.
Exchange of Stock Certificates
If this proposal authorizing the board of directors to amend our certificate of incorporation to effect a reverse stock split of our common stock is approved by our stockholders, and after our board of directors determines the exchange ratio for a reverse stock split, we will instruct our transfer agent to act as our exchange agent and to act for holders of common stock in implementing the exchange of their certificates.
Commencing on the effective date of a reverse stock split, stockholders will be notified and requested to surrender their certificates representing shares of our common stock to the exchange agent in exchange for certificates representing post-reverse split common stock. One share of new common stock will be issued in exchange for the number of presently issued and outstanding pre-split shares of our common stock determined by the board of directors between the range of five and twenty approved by the stockholders. Beginning on the effective date of a reverse stock split, each certificate representing shares of our common stock will be deemed for all corporate purposes to evidence ownership of shares of our post-reverse split common stock. Holders of warrants and other securities exercisable for shares of our common stock will not be requested to exchange those securities in connection with a reverse stock split. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
Federal Income Tax Consequences
The following summary of the federal income tax consequences of a reverse stock split is based on current law, including the Internal Revenue Code of 1986, as amended, and is for general information only. The tax treatment of a stockholder may vary depending upon the particular facts and circumstances of such stockholder, and the discussion below may not address all the tax consequences for a particular stockholder. For example, foreign, state and local tax consequences are not discussed below. Accordingly, notwithstanding anything to the contrary, each stockholder should consult his or her tax advisor to determine the particular tax consequences to him or her of a reverse stock split, including the application and effect of federal, state, local and/or foreign income tax and other laws.
Generally, a reverse stock split will not result in the recognition of gain or loss for federal income tax purposes (except with respect to any cash received in lieu of a fractional share as described below). The adjusted basis of the new shares of our common stock will be the same as the adjusted basis of our common stock exchanged for such new shares of our common stock. The holding period of the new, post-split shares of our common stock resulting from implementation of the reverse stock split will include the stockholder’s respective holding periods for the pre-split shares of our common stock exchanged for the new shares of our common stock.
A stockholder who receives cash in lieu of a fractional share will be treated as if we had issued a fractional share to the stockholder and then immediately redeemed the fractional share for cash. Such stockholder should generally recognize gain or loss, as the case may be, measured by the difference between the amount of cash received and the basis of such stockholder’s pre-split shares of our common stock corresponding to the fractional share, had such fractional share actually been issued. Such gain or loss will be capital gain or loss (if such stock was held as a capital asset), and any such capital gain or loss will generally be long-term capital gain or loss to the extent such stockholder’s holding period exceeds 12 months.
No Dissenters’ Rights
The holders of shares of our common stock will have no dissenters’ rights of appraisal under Delaware law, our certificate of incorporation or our by-laws with respect to the Certificate of Amendment effectuating a reverse stock split.
Vote Required
In order to be adopted, this Proposal 2 must receive the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3 - APPROVAL OF STOCK OPTION REPRICING THROUGH AN OPTION EXCHANGE PROGRAM
Overview
On March 15, 2006, our board of directors approved, subject to stockholder approval, this Proposal 3, for the repricing of certain outstanding options to purchase shares of our common stock under our existing equity incentive plans. Our board of directors authorized and directed the compensation committee of the board of directors to make a recommendation to the board on the options eligible for repricing as well as the employees whose options would be eligible for repricing.
On April 6, 2006, on the recommendation of the compensation committee, the board of directors approved, subject to stockholder approval, this Proposal 3, for the repricing of options with an exercise price per share equal to or greater than $1.30. We refer to these options as the “Eligible Options.” (If Proposal 3 is approved by the stockholders and we subsequently complete a reverse stock split, the foregoing $1.30 exercise price per share threshold will be proportionately increased to reflect the reverse stock split.) The repricing applies to Eligible Options held by all persons who are currently employed by us and are employed by us at the time of the exchange, other than our chief executive officer and members of our board of directors. We refer to these persons as “Eligible Participants.”
If approved by stockholders, our board of directors would be authorized to implement the repricing through an option exchange program, under which Eligible Participants will be offered the opportunity to exchange each of their Eligible Options for new options to purchase shares of our common stock. Each new option issued in the exchange program will have substantially the same terms and conditions as the Eligible Option cancelled in exchange for the new option, except as follows:
the exercise price per share for each new option will be equal to an average of the closing prices of our common stock as reported by the American Stock Exchange for the 15 consecutive trading days ending immediately prior to the grant date of the new option (proportionately adjusted, if necessary, to reflect any reverse stock split occurring after the commencement date and before the expiration date of the option exchange program);
with respect to all Eligible Options with an exercise price per share greater than or equal to $2.00 (on a pre-reverse stock split basis), the exchange ratio will be 1-for-2, meaning the aggregate number of shares of common stock underlying the new options issued in replacement of these Eligible Options will be 50% less than the aggregate number of shares of common stock underlying their Eligible Options; and
each new option will have a three (3) year vesting period, vesting in equal monthly installments over the three years, so long as the grantee continues to be a full-time employee of the company and a ten (10) year term.
If the price of our common stock decreases prior to the commencement date of the option exchange program, we will not expand the option exchange program beyond options with an exercise price per share equal to or greater than $1.30 (on a pre-reverse stock split basis). However, if the price of our common stock increases prior to the commencement date of our option exchange program (other than as a result of any reverse stock split), we will exclude from the option exchange program any options whose exercise price per share is less than the price of our common stock as of the commencement date.
Under the terms of our equity incentive plans and applicable American Stock Exchange rules, stockholder approval is required to implement the repricing.
We previously allowed employees to cancel outstanding stock options to purchase 8.9 million shares and 2.0 million shares of common stock in 2001 and 2003, respectively, in return for the same number of options to be granted six months and one day after the cancellation. The exercise price of each new grant was the fair value of our common stock on the date of grant. The participating employees did not receive any additional grants of options prior to the future grant date, and were required to remain employed by us in order to receive the new grant. No compensation expense resulted from these previous repricings.
Reasons for the Proposal and Summary of Effects of the Approval of Proposal 3
After careful consideration, our board of directors has determined that it would be in our best interest and in the best interest of our stockholders to implement the proposed repricing of our “underwater” stock options. Stock options are intended to encourage our employees to act as owners, which helps align their interests with those of stockholders. The objective of our equity incentive plans is to encourage ownership of our common stock by eachkey personnel whose long-term employment or service is considered essential to our continued progress. Our board of directors believes that our eligible employees by permitting eligible employeesequity incentive plans have proven to purchasebe an effective tool that encourages stock option recipients to act in the stockholders’ interest and enables the recipients to have an economic stake in our commonsuccess.
Like many other companies in the technology services industry, our stock atprice has been volatile in recent years and has experienced a discount. Although we previously adopted, and our stockholders approved,substantial decline since January 2004, in particular. As of March 15, 2006, the 1999 Employee Stock Purchase Plan, there are no shares remaining available for issuance under that Plan. Accordingly,date our board of directors determinedapproved this Proposal 3, subject to stockholder approval, 44% of our outstanding stock options had an exercise price above $0.74 per share. On that date, our common stock’s last reported sale price per share, as quoted on the American Stock Exchange, was $0.74. We believe that these numbers illustrate that a substantial number of our outstanding stock options are underwater and no longer serve as an effective tool to retain and motivate employees. Our board of directors believes that it is critical to our future success to revitalize the incentive value of our stock option program to retain, motivate and reward employees. Our board of directors believes that the failure to address the underwater option issue in the best interest ofnear to medium term will make it more difficult for us to retain our company and our stockholderskey employees.
In determining to adopt the Plan.
The following is a summary of the principal features of the Plan. However, the summary does not purport to be a complete description of all the provisions of the Plan, and a copy of the Plan is attached to this proxy statement as Appendix B. Assumingrecommend that our stockholders approve the adoption of the Plan at the annual meeting, the effective date of the Plan will be June 15, 2004.
Shares Reserved Under the Plan
If adoption of the Plan is approved by our stockholders, there will be 6,000,000 shares of our common stock reserved for issuance under the Plan.
Eligibility to Participate in the Plan
The Plan is intended to qualify as an “employee stock purchase plan” within the meaning of section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). All employees who work for us or a participating subsidiary corporation more than 20 hours per week on a regular basis are eligible to participate in the Plan, other than (1) an employee who customarily is employed for 5 months or less in any calendar year, (2) an employee who is a citizen of a country that prohibits grants of options to such employee, (3) an employee who is a “highly compensated employee” (as defined in Code section 414(q)) and who is in a category of employees that the plan administrator has determined to exclude or (4) an employee who would own, immediately after the right to purchase stock under the Plan is granted, stock possessing 5% or more of the total voting power or value of all of our stock. Participation in the Plan is voluntary. As of March 31, 2004, approximately 300 employees would have been eligible to participate in the Plan.
Administration of the Plan
The plan administrator, who is a person or entity designated bythis Proposal 3, our board of directors will administer the Plan. The plan administrator, acting in its absolute discretion, shall exercise such powersconsidered several alternatives to provide competitive compensation to our employees. To replace equity incentives, we believe we would need to increase base and take such action as expressly called for under the Plantarget bonus compensation. These increases would increase our cash compensation expenses and has the powerreduce our cash flow from operations. We continue to interpret the Plan and to take such other action in the administration and operation of the Plan as it deems equitable under the circumstances. Our board of directors has designated the Compensation Committeebelieve that stock options are an important component of our board of directorsemployees’ total target compensation, and that replacing this component with additional cash compensation to remain competitive would not be as beneficial as repricing the “plan administrator”.
Terms of Participation in the Plan
Eligible employees may elect to participate in the Plan for two consecutive calendar quarters, referred to as a “purchase period,” by properly completing and filing an election form at any time during a designated period immediately preceding the purchase period. A participation election is in effect until it is amended or revoked by the participating employee. The eligible employee must authorize us to withhold a minimum of $10.00 per pay period of his or her compensation during the purchase period, subject to a maximum of $12,500 during any purchase period. A participating employee may not make any contribution under the Plan except through payroll deduction.
On the last day of each purchase period, unless a participating employee has withdrawn all of the contributions credited to the account established for him or her by the plan administrator, the participating employee’s payroll deductions automatically will be used to exercise an “option” granted to the participant under the Plan to purchase shares of our common stock from us at the purchase price, up to the maximum number of shares permitted under the Plan. The maximum amount that can be purchased during any purchase period also may be limited by the number of authorized shares remaining for sale under the Plan. In addition, in accordance with section 423 of the Code,
24
in no event may a participating employee purchase more than $25,000 of common stock under the Plan during any calendar year.
The purchase price for shares of common stock under the Plan for a purchase period will be the lesser of 85% of the closing sale price per share of common stock as reported byThe Wall Street Journal on the first day of the offering period or 85% of such closing price as reported byThe Wall Street Journal on the last day of the purchase period.
A participating employee may amend his or her payroll deduction election form during a purchase period to reduce or stop his or her payroll deductions. A participating employee also has the right at any time on or before the last day of the purchase period to withdraw the entire balance credited to his or her account. If a participating employee makes such a withdrawal election, such balance will be paid to him or her in cash (without interest) as soon as practicable after the plan administrator receives his or her withdrawal election.
If a participating employee’s status as an eligible employee terminates for any reason during a purchase period, cash credited to such participating employee’s account will be refunded to the participating employee without interest.
If a participating employee’s account has a cash balance remaining at the end of a purchase period (other than a balance that represents the value of a fractional share), such balance will be refunded to the participating employee in cash following the purchase period. Any balance representing the value of a fractional share will be carried forward to the next purchase period.
Termination of employment for any reason during a purchase period automatically will be treated as an election by a participating employee to withdraw the cash balance credited to his or her account at that time.
Transfer of Balances Under the Plan
No participating employee may assign, transfer or otherwise dispose of the balance credited to his or her account or his or her right to purchase our common stock under the Plan except by will or the applicable laws of descent and distribution.
Adjustments for Changes in Capitalization
Upon a change in our capitalization, such as a stock dividend or stock split, the plan administrator will adjust the shares reserved for issuance under the Plan, the shares covered by outstanding elections of participating employees and the purchase price for such elections as it determines equitable.
Amendment and Termination
Our board of directors may amend the Plan to the extent that the board deems necessary or appropriate in light of, and consistent with, section 423 of the Code, the laws of Delaware. Any such amendment will be subject to stockholder approval to the extent such approval is required under section 423, the laws of Delaware or other applicable law.Options. Our board of directors also may terminateconsidered granting employees greater amounts of additional stock options at current market prices. However, these additional grants would increase our total number of outstanding stock options, or “overhang.”
Our board of directors believes that the Planrepricing provides an opportunity to motivate our employees to create stockholder value. By more closely aligning the exercise prices of previously granted stock options with the current value of our common stock, we believe that our equity incentive plans will become a more useful tool to help retain our employees, reward their continued loyalty to us, and motivate them to create stockholder value. In addition, the repricing allows us to conserve cash resources and potentially reduce the overhang depending on the level of participation by Eligible Participants, since the exchange ratio with respect to all Eligible Options with an exercise price per share greater than or equal to $2.00 (on a pre-reverse stock split basis) will be 1-for-2. Accordingly, if all Eligible Participants accept the offer in full, the aggregate number of shares of common stock underlying the new options issued in replacement of such Eligible Options will be approximately 9% less than the aggregate number of shares of common stock underlying their Eligible Options.
The option repricing will likely have a dilutive effect on our existing stockholders’ percentage ownership of us. If the option repricing is effected and Eligible Options are tendered for new options, the new options will have an exercise price equal to an average of the closing prices of our common stock as reported by the American Stock Exchange for the 15 consecutive trading days ending immediately prior to the grant date of the new options (proportionately adjusted, if necessary, to reflect any offering made under the Plan at any time; provided, however, the board may not modify, cancel, or amend anyreverse stock purchase right for a purchase periodsplit occurring after the beginningcommencement date and before the expiration date of the purchase period unless (1) each participating employee consentsoption exchange program). As a result, the new options will be more likely to be exercised than the Eligible Options that they replace, which will result in writingdilution to our stockholders. In addition, the trading price of our common stock may decline due to the modification, amendment or cancellation, (2) the modification only accelerates the purchase date for the purchase period, or (3) the board acting in good faith deems that such action is required under applicable law.
Federal Income Tax Consequences
The Plan is intended to qualify as an “employee stock purchase plan” under section 423potential dilutive effects of the Code.option repricing.
Information Regarding Stock Options
As of March 24, 2006, options to purchase approximately 32,724,166 shares were outstanding under all of our equity compensation plans, of which options to purchase approximately 7,233,054 shares of common stock, having exercise prices per share ranging from $1.30 to $69.875, constituted Eligible Options held by Eligible Participants. The following table presents summary information concerning the Eligible Options that are eligible for repricing in the option exchange program if Proposal 3 is a general summaryapproved by stockholders.
Name and Position | | Number of Shares Underlying Eligible Options | | Weighted Average Exercise Price Per Share Underlying Eligible Options | | Average Remaining Contractual Life of Eligible Options (Years) | | Maximum Number of Shares Underlying New Options that may be Granted | |
James P. DeBlasio, President, Chief Executive Officer and Director (1) | | | —— | | | —— | | | —— | | | —— | |
| David Abrahamson | | | 1,250,000 | | $ | 2.28 | | | 7.81 | | | 625,000 | |
| David Buckel | | | 1,000,000 | | $ | 1.67 | | | 7.90 | | | 875,000 | |
| Eric Klinker | | | 350,000 | | $ | 2.44 | | | 7.86 | | | 175,000 | |
| Robert Smith | | | 0 | | $ | 0 | | | 0 | | | 0 | |
| Eric Suddith | | | 287,500 | | $ | 2.40 | | | 7.83 | | | 143,750 | |
| All directors who are not executive officers as a group (7 persons) [(2)] | | | —— | | | —— | | | —— | | | —— | |
| All employees who are not executive officers as a group (320 persons) | | | 4,345,554 | | $ | 2.86 | | | 7.05 | | | 2,433,339 | |
Total | | | 7,233,054 | | $ | 2.33 | | | 7.69 | | | 4,252,089 | |
——————
| (1) | Mr. DeBlasio is not eligible to participate in the option exchange program, and therefore all options held by Mr. DeBlasio are not included in the table above. |
| (2) | Our directors are not eligible to participate in the option exchange program, and therefore all options held by them are not included in the table above. |
Accounting Consequences of the federal income tax consequencesOption Repricing
We adopted Statement of the Plan, assuming the Plan satisfies the requirements of Code Section 423,Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS 123(R), on January 1, 2006. Under SFAS 123(R), stock compensation is calculated based on current federal income tax laws, regulations (including proposed regulations) and judicial and administrative interpretations thereof, all of which are frequently amended, and which may be retroactively applied to transactions described herein. Individual circumstances may vary these results. Furthermore, individuals participating in the Plan may be subject to taxes other than federal income taxes, such as federal employment taxes, state and local income taxes and estate or inheritance taxes.
25
The amounts deducted from a participating employee’s pay to purchase shares will be taxable income to the participating employee and must be included in gross income for federal income tax purposes in the year in which the amounts otherwise would have been paid to the employee. A participating employee will not be required to recognize any income for federal income tax purposes upon the purchase of shares. However, the participating employee will determine his or her taxable income for the year in which he or she sells or otherwise disposes of shares purchased under the Plan in accordance with the following paragraphs.
The federal income tax consequences of a sale or disposition of shares acquired under the Plan depend in part on the length of time the shares are held by a participating employee before such sale or disposition. If an eligible employee sells or otherwise disposes of shares acquired under the Plan (other than any transfer resulting from his or her death) within two years after the first day of the offering period for the shares, the participating employee must recognize ordinary income in the year of such sale or disposition in an amount equal to the excess of (1) the fair market value of the shares onawards, and the date the shares were purchased by him or her over (2) his or her purchase price. This amountcancellation of ordinary income is recognizedan award accompanied by the participating employee even if the fair market valueconcurrent grant of (or offer to grant) a replacement award is accounted for as a modification of the shares has decreased since the date the shares were purchased, and the ordinary income recognized is added to his or her basis in the shares. Any gain realized on the sale or disposition in excessterms of the basis incancelled award. Therefore, the shares (after increasing the basis by the amount of the ordinary income recognized) will be taxedincremental compensation cost is measured as capital gain, and any loss realized (after increasing the basis in the shares by the ordinary income recognized) will be a capital loss. Whether the capital gain or loss will be long-term or short-term gain or loss will depend on how long the shares were held.
If a participating employee sells or otherwise disposes of shares acquired under the Plan after holding the shares for two years after the first day of the offering period for the shares, or the participating employee dies, he or she must include as ordinary income in the year of sale (or his or her taxable year ending with his or her death) an amount equal to the lesser of (1) the excess of the fair market value of the shares onreplacement award over the first dayfair value of the offering period over 85%cancelled award, both determined at the modification date. As a result, if the stockholders approve the option repricing, we will incur a non-cash compensation charge for all Eligible Options that are repriced.
The amount of these charges will depend on a number of factors, including:
the exercise price per share of the new options issued in the option exchange program,
the level of participation by Eligible Participants in the option exchange program,
the exercise price per share of Eligible Options cancelled in the option exchange program, and
the remaining term of the new options issued in the option exchange program.
Since these factors cannot be predicted with any certainty at this time and will not be known until the expiration of the option exchange program, we cannot predict the exact amount of the charge that would result from the option exchange program. If all Eligible Participants accept our offer with respect to all Eligible Options and the exercise price per share underlying the new options equals $0.74, the closing sale price of our common stock on March 15, 2006, we would recognize an incremental non-cash compensation expense of approximately $1.3 million, which would be incurred over the vesting period of the new options issued in the option exchange program.
Vote Required
Stockholders are requested in this Proposal 3 to authorize the board of directors to reprice Eligible Options held by Eligible Participants, through the option exchange program, as unanimously approved by our board of directors. Proposal 3 requires the affirmative vote of a majority of the shares onof common stock cast at the first day of the offering period, or (2) the excess of the fair market value of the shares on the date he or she sells or otherwise disposes of the shares, or on the date of his or her death, over the purchase price. Except in the case of a transfer as a result of death, the amount of ordinary income recognized by the employee is added to his or her basis in the shares. The basis of shares transferred as a result of the death of a participating employee will not be increased as a result of the ordinary income recognized by the deceased employee. Any gain realized on the sale or disposition in excess of the participating employee’s basis (after increasing the basis in the shares by the ordinary income recognized) will be taxed as a long-term capital gain. Any loss realized will be treated as long-term capital loss.annual meeting.
Recommendation of the Board of Directors
The board of directors unanimously recommends that you vote “For” the adoption of the 2004 Employee Stock Purchase Plan.THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
26
A VOTE IN FAVOR OF PROPOSAL 3 —
PROPOSAL 4 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORSREGISTERED PUBLIC ACCOUNTING FIRM Our Audit Committee has appointed PricewaterhouseCoopers LLP, our independent registered public accounting firm, to serve as our independent auditorsregistered public accounting firm for the fiscal year ending December 31, 2004.2006. PricewaterhouseCoopers LLP has audited our financial statements since our inception in 1996. Representatives of PricewaterhouseCoopers LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
Stockholder ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditorsregistered public accounting firm is not required by our bylaws or otherwise. However, the board of directors is submitting the selection of PricewaterhouseCoopers LLP to our stockholders for ratification as a matter of good corporate governance. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether to retain that firm. Even if the selection is ratified, the Audit Committee in their discretion may direct the appointment of different independent auditorsregistered public accounting firm at any time during the year if they determine that such a change would be in the best interests of us and our stockholders.
The following table shows the fees paid or accrued by us for the audit and other services provided by PricewaterhouseCoopers LLP for the fiscal years ended December 31, 20032005 and 2002.2004.
| | | | 2003
| | 2002
|
|---|
Audit Fees(1) | | | | $ | 423,289 | | | $ | 217,099 | |
Audit-Related Fees(2) | | | | | 285,631 | | | | — | |
Tax Fees(3) | | | | | 23,953 | | | | 30,711 | |
All Other Fees(4) | | | | | 1,400 | | | | 219,527 | |
| Total | | | | $ | 734,273 | | | $ | 467,337 | |
| | | 2005 | | 2004 | |
Audit Fees(1) | | $ | 1,176,287 | | $ | 1,582,467 | |
Audit-Related Fees(2) | | | 46,720 | | | 219,156 | |
Tax Fees(3) | | | 51,397 | | | 93,678 | |
All Other Fees(4) | | | 1,500 | | | 1,400 | |
| Total | | $ | 1,275,904 | | $ | 1,896,701 | |
(1) | (1) | Fees related to the audit of Internap’s annual financial statements, including the audit of internal control over financial reporting and the audit of management’s assessment of internal control over financial reporting, and the reviews of the quarterly financial statements filed on Forms 10-Q. |
(2) | (2) | Fees primarily related to services performed in conjunction with international statutory filings and registration statements. |
(3) | (3) | Fees primarily related to tax compliance, advice and planning. |
(4) | (4) | Fees related to services performed in conjunction with other professional services. |
Approval of Audit and Permissible Non-Audit Services Section 10A(i)(1) of
Our Audit Committee Charter requires the Exchange ActAudit Committee to review and related SEC rules require thatapprove all auditingaudit services and all permissible non-audit services to be performed for us by a company’s principalour independent registered public accountants, be approved in advance byand the Audit Committee of the Board of Directors, subject to a de minimus exception set forth in thewill not approve any services that are not permitted by SEC rules (the “De Minimis Exception”). Pursuant to Section 10A(i)(3) of the Exchange Act and related SEC rules, the Audit Committee has established procedures by which the Audit Committee may review and pre-approve such services provided that the pre-approval is detailed as to the particular service or category of services to be rendered. None of the audit-related or non-audit services described above were performed pursuant to the De Minimis Exception during the periods in which the pre-approval requirement has been in effect.rules.
The board of directors unanimously recommends that you vote “For” the ratification of the appointment of PricewaterhouseCoopers LLP to serve as our independent auditorsregistered public accounting firm for the fiscal year endingended December 31, 2004.2006.
SECTION 16(a)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, and regulations of the SEC thereunder require our directors, officers and persons who own more than 10% of our common stock, as well as certain affiliates of such persons, to file initial reports of their ownership of our common stock and subsequent reports of changes in such ownership with the SEC. Directors, officers and persons owning more than 10% of our common stock are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file.
Based solely on aour review of the copiesthese reports or of such reports furnishedcertifications to us and written representations that no other reports werereport was required during the fiscal year ended December 31, 2003,to be filed, we believe that all of our directors and executive officers complied with all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent stockholders were complied with,them during the 2005 fiscal year, except for Ali Marashi, our Chief Technology Officer,Mr. Harman, who did not timely file threefiled one late Form 4s4 in connection with respect to the exercisea grant of non-statutory stock options, to acquire 124,200 sharesMr. Ober, who filed one late Form 4 in connection with a sale of our common stock and the subsequent dispositionMr. Smith, who filed one late Form 4 in connection with a purchase of these shares.common stock.
STOCKHOLDERS’ PROPOSALS FOR 20052007 ANNUAL MEETING Proposals of stockholders, including nominations for the board of directors, intended to be presented at the 20052007 annual meeting must be received by us at our executive offices in Atlanta, Georgia, on or before Wednesday, December 29, 2004January 2, 2007 to be eligible for inclusion in our proxy statement and form of proxy relating to that meeting and to be introduced for action at the meeting. In accordance with our bylaws, for business to be properly brought before a meeting, but not included in the proxy, a stockholder must submit a proposal, including nominations for the board of directors, not earlier than Thursday, January 27, 2005February 21, 2007 and not later than Saturday, February 26, 2005March 23, 2007 and must comply with the eligibility, advance notice and other provisions of our bylaws. A copy of our bylaws is available upon request to the address below.
Stockholder proposals should be sent to:
Internap Network Services Corporation
250 Williams Street
Atlanta, Georgia 30303
Attention: Corporate Secretary
28
APPENDIX A
AMENDED AND RESTATED CHARTER OF THE AUDIT COMMITTEE
March 2004
PURPOSE
The purpose of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Internap Network Services Corporation, a Delaware corporation (the “Company”), will be to (i) study, review and evaluate the Company’s accounting, auditing and reporting practices, including internal audit and control functions; (ii) serve as a focal point for communication between non-committee directors, the independent accountants and the Company’s management; and (iii) monitor transactions between the Company and its employees, officers and members of the Board, or any affiliates of the foregoing.
COMPOSITION
The Audit Committee shall consist of at least three members of the Board of Directors. The members of the Committee will be appointed by and serve at the discretion of the Board and shall satisfy the independence and experience requirements of the federal securities laws, the Securities and Exchange Commission and the American Stock Exchange (“AMEX”). Specifically, each member of the Audit Committee shall be “independent”, pursuant to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and as defined in Section 10A3 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and the rules and regulations promulgated by the AMEX, and be financially literate and at least one member of the Audit Committee shall be a “financial expert”, as such term is used in Section 407 of the Sarbanes-Oxley Act and in the Exchange Act.
FUNDING
The Company shall provide for appropriate funding, as determined by the Committee, for the payment of compensation (1) to the registered public accounting firm employed by the Company for the purpose of rendering or issuing an audit report, and (2) to any other advisors employed by the Committee.
FUNCTIONS AND AUTHORITY
The operation of the Committee will be subject to the provisions of the Bylaws of the Company, the Delaware General Corporation Law, the federal securities laws and the corporate laws of any other state that may apply to the Company in the future, each as in effect from time to time. The Committee will have the full power and authority to carry out the following responsibilities:
1. | | Appoint annually the firm of certified public accountants to be employed by the Company as its independent auditors for the ensuing year, which firm is ultimately accountable to the Committee as representatives of the Company’s shareholders, and take all appropriate courses of action to be taken in connection with services performed for the Company by the independent auditors. |
2. | | Set policies for the hiring of employees or former employees of the Company’s independent auditor. |
3. | | Review the engagement of the independent auditors, including the scope, extent and procedures of the audit, the compensation to be paid therefor and all other matters the Committee deems appropriate. Such independent auditors shall report directly to the Committee. |
4. | | Evaluate the performance of the independent auditors and, if so determined by the Committee, to replace the independent auditors. The Committee shall be directly responsible for the appointment, compensation and oversight of the independent auditors, including the resolution of any disagreements with management and the auditors regarding financial reporting. |
A-1
5. | | Receive written statements from the independent auditors periodically delineating all relationships between the auditors and the Company consistent with Independence Standards Board Standard No. 1, to consider and discuss with the auditors any disclosed relationships or services that could affect the auditors’ objectivity and independence and otherwise to take appropriate action to oversee the independence of the auditors. |
6. | | Review and discuss the Company’s (A) annual audited financial statements, (B) quarterly unaudited financial statements, (C) Annual Reports on Form 10-K and (D) Quarterly Reports on Form 10-Q with management and the independent auditor, such discussions to include: |
a. | | major issues regarding accounting and auditing principles and practices; |
b. | | the adequacy of internal controls that could significantly affect the Company’s financial statements; |
c. | | an analysis prepared by management and the independent auditor of significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including analysis of the effects of alternative GAAP methods; |
d. | | the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” and |
e. | | the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company. |
7. | | Obtain and review annually a report by the independent auditor describing (1) the independent auditor’s quality-control procedures; (2) material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (3) to further assess the auditor’s independence, all relationships between the independent auditor and the Company. |
8. | | Annually examine whether regular rotation of the lead partner of the Company’s independent auditor has occurred as required by law and consider whether there should be rotation of the independent auditor itself, and present the Committee’s conclusions to the Board. |
9. | | Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit. |
10. | | Meet with the independent auditor prior to the audit to review the planning and staffing of the audit. |
11. | | Obtain from the independent auditor assurance that Section 10A of the Securities Exchange Act of 1934, as amended, has not been implicated. |
12. | | Have familiarity, through the individual efforts of its members, with the accounting and reporting principles and practices applied by the Company in preparing its financial statements, including without limitation, the policies for recognition of revenues in financial statements. |
13. | | Assist and interact with the independent auditors to enable them to perform their duties in the most efficient and cost effective manner. |
14. | | Evaluate the cooperation received by the independent auditors during their audit or quarterly review examination, including their access to all requested records, data and information, and elicit the comments of management regarding the responsiveness of the independent auditors to the Company’s needs. |
15. | | Review the Company’s balance sheet, profit and loss statement and statements of cash flows and stockholders’ equity for each annual and interim period, and any changes in accounting policy that have occurred during such period. |
16. | | Review and approve all professional services provided to the Company by its independent auditors and consider the possible effect of such services on the independence of such auditors. In addition, the Committee shall have the authority to, and shall be required to in its sole discretion, approve (1) all audit |
A-2
| | Internap Network Services Corporation 250 Williams Street, Suite E-100 Atlanta, Georgia 30303 Attention: Corporate Secretary |
 | services and (2) all permissible non-audit services provided to the Company by its outside auditors, as required by Section 202 of the Sarbanes-Oxley Act and Section 10A of the Exchange Act. The Committee shall approve in advance all permissible non-audit services to be provided by the independent auditors. |
17. | | Discuss the Company’s earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies. These discussions may be had generally and need not include advance discussion of each earnings release. Discussions will include the type and presentation of information to be included in earnings press releases, with particular attention to any use of pro forma or adjusted non-GAAP information. |
18. | | Review the appointment of the senior internal auditing executive. |
19. | | Review the significant reports to management prepared by the internal auditing department and management’s responses. |
20. | | Establish procedures for (1) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and (2) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. |
21. | | Engage its own independent legal counsel and other advisers as it deems necessary to carry out its duties. The Company shall provide the necessary funding for the Committee to engage such advisers, as provided above. |
22. | | Consult with the independent auditors and discuss with management the scope and quality of internal accounting and financial reporting controls in effect. |
23. | | Review the reports provided to the Committee by the Company’s outside auditors pursuant to Section 204 of the Sarbanes-Oxley Act. |
24. | | Prepare the report required by the rules of the Securities and Exchange Commission to be included in the Company’s annual proxy statement. |
25. | | Investigate, review and report to the Board the propriety and ethical implications of any transactions, as reported or disclosed to the Committee by the independent auditors, employees, officers, members of the Board or otherwise, between the Company and any employee, officer or member of the Board of the Company or any affiliates of the foregoing. |
26. | | Report regularly to the Board of Directors. |
27. | | Request that the Company file this Charter as an appendix to the Proxy Statement at least once every three years and maintain a copy on the Company’s website. |
28. | | Review and assess the adequacy of this Charter annually and submit it to the Board for approval. |
29. | | Evaluate the performance of the Committee itself. |
30. | | Perform such other functions and have such power as may be necessary or convenient in the efficient and lawful discharge of the foregoing. |
MEETINGS
The Committee will hold at least one regular meeting per calendar quarter and additional meetings as the Committee deems appropriate. The President, Chief Executive Officer, Chairman of the Board and Chief Financial Officer may attend any meeting of the Committee, except for portions of the meetings where his, her or their presence would be inappropriate, as determined by the Committee Chairman. Meet separately, at least quarterly, with management, the internal auditors (or other personnel responsible for the Company’s internal audit function) and the independent auditors.
Unless a Chairman is elected by the full Board, the members of the Committee may designate a Chairman by majority vote of the Committee. Committee members may be removed from the Committee by the Board in its discretion.
A-3
MINUTES AND REPORTS
Minutes of each meeting will be kept and distributed to each member of the Committee, members of the Board who are not members of the Committee and the Secretary of the Company. The Chairman of the Committee will report to the Board from time to time, or whenever so requested by the Board.
A-4
APPENDIX B
2004 INTERNAP NETWORK SERVICES CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
B-1
TABLE OF CONTENTS
| | | |
| | Page
|
|---|
§ 1. | | | | PURPOSE | | | B-4 | |
DEFINITIONS | | B-4 | |
2.1 | | | | Account | | | B-4 | |
2.2 | | | | Authorization | | | B-4 | |
2.3 | | | | Board | | | B-4 | |
2.4 | | | | Code | | | B-4 | |
2.5 | | | | Eligible Employee | | | B-4 | |
2.6 | | | | Exercise Date | | | B-4 | |
2.7 | | | | Fair Market Value | | | B-4 | |
2.8 | | | | Internap | | | B-4 | |
2.9 | | | | 1993 Act | | | B-4 | |
2.10 | | | | 1934 Act | | | B-5 | |
2.11 | | | | Offering Period | | | B-5 | |
2.12 | | | | Option Price | | | B-5 | |
2.13 | | | | Participating Employee | | | B-5 | |
2.14 | | | | Participating Employer | | | B-5 | |
2.15 | | | | Plan | | | B-5 | |
2.16 | | | | Plan Administrator | | | B-5 | |
2.17 | | | | Purchase Period | | | B-5 | |
2.18 | | | | Stock | | | B-5 | |
2.19 | | | | Subsidiary | | | B-5 | |
§ 3. | | | | SHARES RESERVED UNDER THE PLAN | | | B-5 | |
§ 4. | | | | EFFECTIVE DATE | | | B-5 | |
§ 5. | | | | PLAN ADMINISTRATOR | | | B-5 | |
§ 6. | | | | PARTICIPATION | | | B-5 | |
6.1 | | | | Requirements | | | B-5 | |
6.2 | | | | Continuity Authorization | | | B-6 | |
6.3 | | | | Termination | | | B-6 | |
§ 7. | | | | GRANTING OF OPTIONS | | | B-6 | |
7.1 | | | | General Rule | | | B-6 | |
7.2 | | | | Statutory Limitation | | | B-6 | |
7.3 | | | | Insufficient Number of Shares of Stock | | | B-6 | |
§ 8. | | | | PAYROLL DEDUCTIONS | | | B-6 | |
8.1 | | | | Initial Authorization | | | B-6 | |
8.2 | | | | Continuing Authorization | | | B-6 | |
8.3 | | | | Authorization Amendment | | | B-6 | |
8.4 | | | | Authorization Revocation and Withdrawal Rights | | | B-7 | |
8.5 | | | | Account Credits, General Assets and Taxes | | | B-7 | |
8.6 | | | | No Cash Payments | | | B-7 | |
§ 9. | | | | EXERCISE OF OPTION | | | B-7 | |
9.1 | | | | General Rule | | | B-7 | |
9.2 | | | | Automatic Refund | | | B-7 | |
9.3 | | | | Delivery of Stock | | | B-7 | |
§ 10. | | | | TERMINATION OF EMPLOYMENT | | | B-7 | |
§ 11. | | | | NON-TRANSFERABILITY | | | B-8 | |
§ 12. | | | | ADJUSTMENT | | | B-8 | |
§ 13. | | | | SECURITIES REGISTRATION | | | B-8 | |
B-2
| | | |
| | Page
|
|---|
§ 14. | | | | AMENDMENT OR TERMINATION | | | B-8 | |
§ 15. | | | | MISCELLANEOUS | | | B-9 | |
15.1 | | | | Shareholder Rights | | | B-9 | |
15.2 | | | | No Contract of Employment | | | B-9 | |
15.3 | | | | Withholding | | | B-9 | |
15.4 | | | | Construction | | | B-9 | |
15.5 | | | | Rule 16b-3 | | | B-9 | |
B-3
§ 1.
PURPOSE
The primary purpose of this Plan is to encourage Stock ownership by each Eligible Employee of Internap by permitting the purchase of Stock at a discount which is permissible under § 423 of the Code. Internap intends that this Plan constitute an “employee stock purchase plan” within the meaning of § 423 of the Code and, further, intends that any ambiguity in this Plan or any related offering be resolved to effect such intent.
§ 2.
DEFINITIONS
2.1 Account — means the separate bookkeeping account which shall be established and maintained by the Plan Administrator for each Participating Employee for each Purchase Period to record the payroll deductions made on his or her behalf to purchase Stock under this Plan.
2.2 Authorization — means the participation election and payroll deduction authorization form which an Eligible Employee shall be required to properly complete in writing and timely file with the Plan Administrator before the end of an Offering Period in order to participate in this Plan for the related Purchase Period and which shall require an Eligible Employee to provide such information and to take such action as the Plan Administrator in his or her discretion deems necessary or helpful to the orderly administration of this Plan.
2.3 Board — means the Board of Directors of Internap.
2.4 Code — means the Internal Revenue Code of 1986, as amended.
2.5 Eligible Employee — means each employee of Internap or a Subsidiary except —
(a) | | an employee who customarily is employed (within the meaning of Code § 423(b)(4)(B)) 20 hours or less per week by Internap or such Subsidiary, |
(b) | | an employee who customarily is employed (within the meaning of Code § 423(b)(4)(C)) for not more than 5 months in any calendar year by Internap or such Subsidiary, |
(c) | | an employee who would own (immediately after the grant of an option under this Plan) stock possessing 5% or more of the total combined voting power or value of all classes of stock of Internap based on the rules set forth in § 423(b)(3) and § 424 of the Code, |
(d) | | a highly compensated employee (as defined under § 414(q) of the Code) who falls within a category of highly compensated employees that the Plan Administrator has determined in its discretion to exclude under this Plan, and |
(e) | | an employee who is a citizen of a country whose laws would prohibit the granting of an option under this Plan. |
2.6 Exercise Date — means for each Purchase Period the last day of such Purchase Period.
2.7 Fair Market Value — means (1) the closing price on any date for a share of Stock as reported byThe Wall Street Journal or, ifThe Wall Street Journal no longer reports such closing price, such closing price as reported by a newspaper or trade journal selected by the Plan Administrator or, if no such closing price is available on such date, (2) such closing price as so reported for the immediately preceding business day, or, if no newspaper or trade journal reports such closing price or if no such price quotation is available, (3) the price which the Plan Administrator acting in good faith determines through any reasonable valuation method that a share of Stock might change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts.
2.8 Internap — means Internap Network Services Corporation, a corporation incorporated under the laws of the State of Delaware, and any successor to Internap Network Services Corporation.
2.9 1993 Act — means the Securities Act of 1933, as amended.
B-4
2.10 1934 Act — means the Securities Exchange act of 1934, as amended.
2.11 Offering Period — means the period set by the Plan Administrator which precedes the beginning of the related Purchase Period and which shall continue for no more than 15 days.
2.12 Option Price — means for each Purchase Period the lesser of 85% of the Fair Market Value for a share of Stock on the first day of such Purchase Period or 85% of the Fair Market Value for a share of Stock on the last day of such Purchase Period.
2.13 Participating Employee — means for each Purchase Period each Eligible Employee who is employed by a Participating Employer and who has satisfied the requirements set forth in § 4 of this Plan for such Purchase Period.
2.14 Participating Employer — means for each Purchase Period Internap and each Subsidiary which the Plan Administrator designates as a Participating Employer for such Purchase Period.
2.15 Plan — means this 2004 Internap Network Services Corporation Employee Stock Purchase Plan.
2.16 Plan Administrator — means the person or entity so designated by the Board.
2.17 Purchase Period — means two consecutive calendar quarters.
2.18 Stock — means Internap Network Services Corporation common stock.
2.19 Subsidiary — means each corporation which is a subsidiary of Internap (within the meaning of §424(f) of the Code).
§ 3.
SHARES RESERVED UNDER THE PLAN
Effective June 15, 2004 there shall (subject to § 12) be a total of 6,000,000 such shares so reserved, less the number previously issued under this Plan. All such shares of Stock shall be reserved to the extent that Internap deems appropriate from authorized but unissued shares of Stock or from shares of Stock which have been reacquired by Internap.
§ 4.
EFFECTIVE DATE
The original effective date of this Plan shall be June 15, 2004.
§ 5.
PLAN ADMINISTRATOR
This Plan shall be administered by the Plan Administrator. The Plan Administrator acting in its absolute discretion shall exercise such powers and take such action as expressly called for under this Plan and, further, the Plan Administrator shall have the power to interpret this Plan and to take such other action in the administration and operation of this Plan as the Plan Administrator deems equitable under the circumstances, which action shall be binding on Internap, on each affected Participating Employee and Participating Employer and on each other person directly or indirectly affected by such action.
§ 6.
PARTICIPATION
6.1 Requirements. Each Eligible Employee who is employed by a Participating Employer on the first day of an Offering Period shall satisfy the requirements to be a Participating Employee for the related Purchase Period if
(a) | | he or she has properly completed and filed an Authorization with the Plan Administrator on or before the last day of such Offering Period to purchase shares of Stock pursuant to options granted under this Plan, and |
B-5
(b) | | his or her employment as an Eligible Employee continues uninterrupted throughout the period which begins on the first day of such Offering Period and ends on the first day of the related Purchase Period, and no Eligible Employee’s employment shall be treated as interrupted by a transfer directly between Internap and any Subsidiary or between one Subsidiary and another Subsidiary. |
6.2 Continuity Authorization. An Authorization shall continue in effect until amended under § 8.2 or revoked under § 8.4.
6.3 Termination. A Participating Employee’s status as such shall terminate for a Purchase Period (for which he or she has an effective Authorization) at such time as his or her account is withdrawn under § 8.3 or his or her employment terminates under § 10.
§ 7.
GRANTING OF OPTIONS
7.1 General Rule. Subject to § 7(b) and § 7(c), each Participating Employee for each Purchase Period automatically shall be granted an option as of the first day of such Purchase Period to purchase at the Option Price a maximum number of whole shares of Stock, which number shall be determined by dividing $12,500.00 by the Fair Market Value of a share of Stock on the first day of such Purchase Period.
7.2 Statutory Limitation. No option granted under this § 7 to any Eligible Employee shall permit his or her rights to purchase shares of Stock under this Plan or under any other employee stock purchase plan (within the meaning of § 423 of the Code) established by Internap or any Subsidiary to accrue (within the meaning of § 423(b)(8) of the Code) at a rate which exceeds $25,000 of the Fair Market Value of such Stock for any calendar year.
7.3 Insufficient Number of Shares of Stock. If the number of shares of Stock reserved for purchase for any Purchase Period is insufficient to cover the number of shares which Participating Employees elect to purchase on the Exercise Date for of such Purchase Period, then the number of shares of Stock which each Participating Employee has a right to purchase at the end of such Purchase Period shall be reduced to the number of shares of Stock which the Plan Administrator shall determine by multiplying the number of shares of Stock reserved under this Plan by a fraction, the numerator of which shall be the number of shares of Stock which such Participating Employee elected to purchase at the end of such Purchase Period and the denominator of which shall be the total number of shares of Stock which all Participating Employees elected to purchase at the end of such Purchase Period.
§ 8.
PAYROLL DEDUCTIONS
8.1 Initial Authorization. Each Participating Employee’s initial Authorization shall specify the specific dollar amount which he or she authorizes his or her Participating Employer to deduct from his or her compensation each pay period (determined in accordance with such Participating Employer’s standard payroll policies and practices) during the Purchase Period for which such Authorization is in effect, provided
(a) | | the minimum amount deducted from a Participating Employee’s compensation during any pay period in a Purchase Period shall not be less than $10. |
(b) | | the maximum amount deducted from a Participating Employee’s compensation during any Purchase Period shall not exceed the lesser of $12,500 or such amount as set from time to time by the Plan Administrator. |
8.2 Continuing Authorization. An Authorization once timely filed under § 6(a)(1) shall continue in effect until amended under § 8.3 or revoked under § 8.4.
8.3 Authorization Amendment. An Authorization may be amended during any Offering Period and such amendment shall be effective for the related Purchase Period if timely filed under § 6(a)(1).
B-6
8.4 Authorization Revocation and Withdrawal Rights.
(a) | | Revocation. A Participating Employee shall have the right during any Purchase Period to revoke an Authorization, and such revocation stop the payroll deductions which he or she previously had authorized for such Purchase Period if he or she files an Authorization revocation with the Plan Administrator before the Exercise Date for such Purchase Period, and such payroll deductions shall stop as soon as practicable after the Plan Administrator actually receives such Authorization revocation. |
(b) | | Withdrawal. If a Participating Employee revokes his or her Authorization, he or she may elect to withdraw the entire balance credited to his or her Account for such Purchase Period without interest. If a Participating Employee makes such a withdrawal election, such balance shall be paid to him or her in cash (without interest) as soon as practicable after the Plan Administrator receives his or her withdrawal election. If no such election is made, such Account balance shall be applied to exercise his or her option under § 9. |
8.5 Account Credits, General Assets and Taxes. All payroll deductions made for a Participating Employee shall be credited to his or her Account as of the pay day as of which the deduction is made. All payroll deductions shall be held by Internap or by one, or more than one, Subsidiary (as determined by the Plan Administrator) as part of the general assets of Internap or any such Subsidiary, and each Participating Employee’s right to the payroll deductions credited to his or her Account shall be those of a general and unsecured creditor. Internap or such Subsidiary shall have the right to withhold on payroll deductions to the extent such person deems necessary or appropriate to satisfy applicable tax laws.
8.6 No Cash Payments. No Participating Employee may make any contribution to his or her Account except through payroll deductions made in accordance with this § 8.
§ 9.
EXERCISE OF OPTION
9.1 General Rule. Each Participating Employee automatically shall be deemed to exercise his or her option granted for each Purchase Period on the related Exercise Date for the purchase of as many whole shares of Stock subject to such option as the balance credited to his or her Account as of that date will purchase at the Option Price for such shares of Stock.
9.2 Automatic Refund. If a Participating Employee’s Account has a remaining balance after his or her option has been exercised as of an Exercise Date under this § 9, such balance automatically shall be refunded to the Participating Employee in cash (without interest) as soon as practicable following such Exercise Date unless such balance is attributable to a fractional share, in which event such Account balance may be carried forward (without interest) to the immediately following Purchase Period.
9.3 Delivery of Stock. A stock certificate representing any shares of Stock purchased upon the exercise of an option under this Plan shall be held for or, at the Participating Employee’s direction and expense, delivered to the Participating Employee and shall be registered in his or her name; provided, however, Internap shall not have any obligation to deliver a certificate to a Participating Employee which represents a fractional share of Stock. No Participating Employee (or any person who makes a claim through a Participating Employee) shall have any interest in any shares of Stock subject to an option until such option has been exercised and the related shares of Stock actually have been delivered to such person or have been transferred to a brokerage account for such person at a broker-dealer designated by the Plan Administrator.
§ 10.
TERMINATION OF EMPLOYMENT
If a Participating Employee’s employment as an Eligible Employee terminates on or before the Exercise Date for a Purchase Period for any reason whatsoever, his or her Account shall be distributed as if he or she had elected to withdraw his or her Account in cash under § 8.4 immediately before the date his or her employment had so terminated. However, if a Participating Employee is transferred directly between Internap and a Subsidiary or between
B-7
one Subsidiary and another Subsidiary while he or she has an Authorization in effect, his or her employment shall not be treated as terminated merely by reason of such transfer and any such Authorization shall (subject to all the terms and conditions of this Plan) remain in effect after such transfer for the remainder of such Purchase Period.
§ 11.
NON-TRANSFERABILITY
Neither the balance credited to a Participating Employee’s Account nor any rights to the exercise of an option or to receive shares of Stock under this Plan shall be transferable other than by will or by the laws of descent and distribution, and any option shall be exercisable during a Participating Employee’s lifetime only by the Participating Employee.
§ 12.
ADJUSTMENT
The number, kind or class (or any combination thereof)of shares of Stock reserved under § 3, and the Option Price such shares or Stock as well as the number, kind or class (or any combination thereof) of shares of Stock subject to grants under this Plan shall be adjusted by the Plan Administrator in an equitable manner to reflect any change in the capitalization of Internap, including, but not limited to such changes as stock dividends or stock splits.
§ 13.
SECURITIES REGISTRATION
As a condition to the receipt of shares of Stock under this Plan, an Eligible Employee shall, if so requested by Internap, agree to hold such shares of Stock for investment and not with a view of resale or distribution to the public and, if so requested by Internap, shall deliver to Internap a written statement satisfactory to Internap to that effect. Furthermore, if so requested by Internap, the Eligible Employee shall make a written representation to Internap that he or she will not sell or offer for sale any of such Stock unless a registration statement shall be in effect with respect to such Stock under the 1933 Act and any applicable state securities law or the Eligible Employee shall have furnished to Internap an opinion in form and substance satisfactory to Internap of legal counsel satisfactory to Internap that such registration is not required. Certificates representing the Stock transferred upon the exercise of an option may at the discretion of Internap bear a legend to the effect that such Stock has not been registered under the 1933 Act or any applicable state securities law and that such Stock cannot be sold or offered for sale in the absence of an effective registration statement as to such Stock under the 1933 Act and any applicable state securities law or an opinion in form and substance satisfactory to Internap of legal counsel satisfactory to Internap that such registration is not required.
§ 14.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent that the Board deems necessary or appropriate in light of, and consistent with, § 423 of the Code and the laws of the State of Delaware, and any such amendment shall be subject to the approval of Internap’s shareholders to the extent such approval is required under § 423 of the Code or the laws of the State of Delaware or to the extent such approval is required to satisfy any requirements under applicable law. The Board also may terminate this Plan or any offering made under this Plan at any time; provided, however, the Board shall not have the right to modify, cancel, or amend any option outstanding after the beginning of a Purchase Period unless (1) each Participating Employee consents in writing to such modification, amendment or cancellation, (2) such modification only accelerates the Exercise Date for the related Purchase Period or (3) the Board acting in good faith deems that such action is required under applicable law.
B-8
§ 15.
MISCELLANEOUS
15.1 Shareholder Rights. No Participating Employee shall have any rights as a shareholder of Internap as a result of the grant of an option pending the actual delivery of the Stock subject to such option to such Participating Employee.
15.2 No Contract of Employment. The grant of an option to a Participating Employee under this Plan shall not constitute a contract of employment and shall not confer on a Participating Employee any rights upon his or her termination of employment.
15.3 Withholding. Each option shall be made subject to the condition that the Participating Employee consents to whatever action the Plan Administrator directs to satisfy the federal and state tax withholding requirements, if any, which the Plan Administrator in its discretion deems applicable to the exercise of such option.
15.4 Construction. All references to sections (§) are to sections (§) of this Plan unless otherwise indicated. This Plan shall be construed under the laws of the State of Georgia. Finally, each term set forth in § 2 shall have the meaning set forth opposite such term for purposes of this Plan and, for purposes of such definitions, the singular shall include the plural and the plural shall include the singular.
15.5 Rule 16b-3. The Plan Administrator shall have the right to amend any option to withhold or otherwise restrict the transfer of any Stock or cash under this Plan to an Eligible Employee as the Plan Administrator deems appropriate in order to satisfy any condition or requirement under Rule 16b-3 to the extent Rule 16 of the 1934 Act might be applicable to such grant or transfer.
IN WITNESS WHEREOF, Internap Network Services Corporation has caused its duly authorized officer to execute this Plan to evidence its adoption of this Plan.
INTERNAP NETWORK SERVICES CORPORATION
By:
Date:
B-9
| VOTE BY INTERNET - www.proxyvote.com |
INTERNAP NETWORK SERVICES CORPORATION
C/O AMERICAN STOCK TRANSFER
59 MAIDEN LANE
NEW YORK, NY 10038250 WILLIAMS STREET NW
SUITE E-100 ATLANTA, GA 30303 | Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. |
| |
| ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS |
| |
| If you would like to reduce the costs incurred by Internap Network Services Corporation in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years. |
| |
| VOTE BY PHONE - 1-800-690-6903
|
| |
| Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. |
| |
| VOTE BY MAIL
|
| |
| Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to Internap Network Services Corporation, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
| INSC01
| INSC01 | | KEEP THIS PORTION FOR YOUR RECORDS |
| | | | DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
|
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
|
| INTERNAP NETWORK SERVICES CORPORATION | | | |
| | | |
|
| | THE BOARD OF DIRECTORS RECOMMENDS A VOTE
|
“FOR” EACH OF THE BELOW-LISTED PROPOSALS.PROPOSALS. | | | |
| | | | | |
Vote On Directors |
| Vote on Directors
|
| (1) | | | | | | |
To withhold authority to vote for any individual
nominee, mark “For All Except” and write the
nominee’s number on the line below.
____________________________________
|
| (1)
| To elect astwo directors one nominee to serve until the 2006 annual meeting and until his successor is elected and qualified and three nominees to serve until the 20072009 annual meeting and until their successors are elected and qualified, or until such director’sdirector's earlier death, resignation or removal (except as indicated to the contrary on the right). | For
All
o
| Withhold
For
All
o | | Withhold All | | For All
Except
o | | To withhold authority to vote for any individual nominee, mark “For All Except” and write the nominee’s name on the line below. | |
| | | | o | | o | | o | |
| |
| | 01)Charles B. Coe for a term to expire at the 20062009 annual meeting | | | | |
| | | | | | |
| | 02)James P. DeBlasioPatricia L. Higginsfor a term to expire at the 20072009 annual meeting | | | | |
| | | | For | | Against | | Abstain |
| | 03)Fredric W. Harmanfor a term to expire at the 2007 annual meeting
|
| | 04)Kevin L. Ober for a term to expire at the 2007 annual meeting
|
| | |
| Vote On Proposals | For
| Against
| Abstain
| | | |
| | | | | | | | |
| (2) | To approvegrant the adoptionboard of directors the 2004 Employee Stock Purchase Plan. authority to amend our certificate of incorporation to effect a reverse stock split of our common stock at a specific ratio to be determined by our board of directors within a range of one-for-five and one-for-twenty. | o
| | o
| | | |
| | | | | | | | |
| (3) | To grant the board of directors the authority to implement an option exchange program pursuant to which eligible employees will be offered the opportunity to exchange their eligible options to purchase shares of our common stock outstanding under our existing equity incentive plans for new stock options at a lower exercise price. | | | | | | |
| | | | | | | | |
| (4) | To ratify the appointment of PricewaterhouseCoopers LLP as independent auditorsregistered public accounting firm of the Company for the fiscal year ending December 31, 2004.2006. | o
| | o
| | | |
| | | | | | | | |
| In their discretion, the proxies are authorized to vote upon such other business as properly may come before the annual meeting and any and all adjournments thereof. | | | | | | |
| | | | | | | | |
| This Proxy will be voted in the manner directed by the undersigned stockholder. If this Proxy is returned and no direction is provided by the undersigned stockholder, this Proxy will be voted FOR ALL NOMINEES in Proposal 1 and FOR Proposals 2, 3 and 3.4. | | | | | | |
| | | | | | | |
| Please indicate if you plan to attend the annual meeting | | | o
| | | |
| | | | | | | |
| | | Yes | No
| No | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Signature [PLEASE SIGN WITHIN BOX] | Date
| Date | | | | Signature (Joint Owners) | Date
| |
| Date | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INTERNAP NETWORK SERVICES CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
2006 ANNUAL MEETING OF STOCKHOLDERS
Revocable Proxy | | COMMON STOCK |
| |
| |
INTERNAP NETWORK SERVICES CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
2004 ANNUAL MEETING OF STOCKHOLDERS
|
|
| Revocable Proxy
| | COMMON STOCK
| |
|
| The undersigned hereby appoints Gregory A. Peters and Walter G. DeSocio, and each of them, proxies, with full power of substitution, to act for and in the name of the undersigned to vote all shares of common stock of Internap Network Services Corporation (the “Company”) which the undersigned is entitled to vote at the 2004 Annual Meeting of Stockholders of the Company, to be held on on Thursday, May 27, 2004, at 9:00 a.m., (local time), at 250 Williams Street, Atlanta, Georgia, and at any and all adjournments thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the following matters and in accordance with the following instructions, with discretionary authority as to any and all other matters that may properly come before the meeting.
| |
|
| This proxy card will be voted as directed. If no instructions are specified, this proxy card will be voted “FOR” each of the proposals listed on the reverse side of this proxy card. If any other business is presented at the annual meeting, this proxy card will be voted by the proxies in their best judgment. At the present time, the board of directors knows of no other business to be presented at the annual meeting.
| |
|
| The undersigned may elect to withdraw this proxy card at any time prior to its use by: (i) giving written notice to Walter G. DeSocio, Vice President-Chief Administrative Officer, General Counsel and Secretary of the Company, (ii) executing and delivering to Mr. DeSocio a duly executed proxy card bearing a later date or, (iii) appearing at the annual meeting and voting in person.
| |
|
| Please mark, date and sign exactly as your name appears on this proxy card. When shares are held jointly, both holders should sign. When signing as attorney, executor, administrator, trustee, guardian or custodian, please give your full title. If the holder is a corporation or a partnership, the full corporate or partnership name should be signed by a duly authorized officer.
| |
|
|
| PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
| |
|
(Continued, and to be signed and dated, on the reverse side)
|
| |
|
| VOTE BY INTERNET - www.proxyvote.com
|
INTERNAP NETWORK SERVICES CORPORATION
C/O AMERICAN STOCK TRANSFER
59 MAIDEN LANE
NEW YORK, NY 10038
| Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
|
| |
| VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
|
| |
| VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to Internap Network Services Corporation, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
|
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
|
| INSC03
| KEEP THIS PORTION FOR YOUR RECORDS
|
DETACH AND RETURN THIS PORTION ONLY
|
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
|
|
| INTERNAP NETWORK SERVICES CORPORATION
| | | |
| | | | |
| | THE BOARD OF DIRECTORS RECOMMENDS A VOTE
“FOR” EACH OF THE BELOW-LISTED PROPOSALS.
| | | |
| | | | | |
| Vote on Directors
|
| | | | | | |
To withhold authority to vote for any individual
nominee, mark “For All Except” and write the
nominee’s number on the line below.
____________________________________
|
| (1)
| To elect as directors one nominee to serve until the 2006 annual meeting and until his successor is elected and qualified and three nominees to serve until the 2007 annual meeting and until their successors are elected and qualified, or until such director’s earlier death, resignation or removal (except as indicated to the contrary on the right).
| For
All
o
| Withhold
All
o
| For All
Except
o
| |
| | | |
| | 01)Charles B. Coe for a term to expire at the 2006 annual meeting
| |
| | 02)James P. DeBlasiofor a term to expire at the 2007 annual meeting
| |
| | 03)Fredric W. Harmanfor a term to expire at the 2007 annual meeting
|
| | 04)Kevin L. Ober for a term to expire at the 2007 annual meeting
|
| | |
| Vote On Proposals
| For
| Against
| Abstain
| |
| | | | | |
| (2)
| To approve the adoption of the 2004 Employee Stock Purchase Plan.
| o
| o
| o
| |
| | | | | | |
| (3)
| To ratify the appointment of PricewaterhouseCoopers LLP as independent auditors of the Company for the fiscal year ending December 31, 2004.
| o
| o
| o
| |
| | | | | | |
| In their discretion, the proxies are authorized to vote upon such other business as properly may come before the annual meeting and any and all adjournments thereof.
| | | | |
| | | | | |
| This Proxy will be voted in the manner directed by the undersigned stockholder. If this Proxy is returned and no direction is provided by the undersigned stockholder, this Proxy will be voted FOR ALL NOMINEES in Proposal 1 and FOR Proposals 2 and 3.
| | | | | |
| | | | | | | |
| Please indicate if you plan to attend the annual meeting
| | o
| o
| | | |
| | | | | | | |
| | | Yes
| No
| | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Signature [PLEASE SIGN WITHIN BOX]
| Date
| | | | | Signature (Joint Owners)
| Date
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| |
INTERNAP NETWORK SERVICES CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
2004 ANNUAL MEETING OF STOCKHOLDERS
|
|
| Revocable Proxy
| | SERIES A PREFERRED STOCK
| |
|
| The undersigned hereby appoints Gregory A. Peters and Walter G. DeSocio, and each of them, proxies, with full power of substitution, to act for and in the name of the undersigned to vote all shares of Series A preferred stock of Internap Network Services Corporation (the “Company”) which the undersigned is entitled to vote at the 2004 Annual Meeting of Stockholders of the Company, to be held on on Thursday, May 27, 2004, at 9:00 a.m., (local time), at 250 Williams Street, Atlanta, Georgia, and at any and all adjournments thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the following matters and in accordance with the following instructions, with discretionary authority as to any and all other matters that may properly come before the meeting.
| |
|
| This proxy card will be voted as directed. If no instructions are specified, this proxy card will be voted “FOR” each of the proposals listed on the reverse side of this proxy card. If any other business is presented at the annual meeting, this proxy card will be voted by the proxies in their best judgment. At the present time, the board of directors knows of no other business to be presented at the annual meeting.
| |
|
| The undersigned may elect to withdraw this proxy card at any time prior to its use by: (i) giving written notice to Walter G. DeSocio, Vice President-Chief Administrative Officer, General Counsel and Secretary of the Company, (ii) executing and delivering to Mr. DeSocio a duly executed proxy card bearing a later date or, (iii) appearing at the annual meeting and voting in person.
| |
|
| Please mark, date and sign exactly as your name appears on this proxy card. When shares are held jointly, both holders should sign. When signing as attorney, executor, administrator, trustee, guardian or custodian, please give your full title. If the holder is a corporation or a partnership, the full corporate or partnership name should be signed by a duly authorized officer.
| |
|
|
| PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
| |
|
(Continued, and to be signed and dated, on the reverse side)
|
| |
|
The undersigned hereby appoints David Buckel and Dorothy An, and each of them, proxies, with full power of substitution, to act for and in the name of the undersigned to vote all shares of common stock of Internap Network Services Corporation (the “Company”) which the undersigned is entitled to vote at the 2006 Annual Meeting of Stockholders of the Company, to be held on Wednesday, June 21, 2006, at 10:00 a.m., Eastern Time, at 250 Williams Street, Atlanta, Georgia, and at any and all adjournments thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the matters listed on the reverse side and in accordance with the instructions listed on the reverse side, with discretionary authority as to any and all other matters that may properly come before the meeting.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
This proxy card will be voted as directed. If no instructions are specified, this proxy card will be voted “FOR” each of the proposals listed on the reverse side of this proxy card. If any other business is presented at the annual meeting, this proxy card will be voted by the proxies in their best judgment. At the present time, the board of directors knows of no other business to be presented at the annual meeting.
The undersigned may elect to withdraw this proxy card at any time prior to its use by: (i) giving written notice to Corporate Secretary, (ii) executing and delivering to the Corporate Secretary a duly executed proxy card bearing a later date or (iii) appearing at the annual meeting and voting in person.
Please mark, date and sign exactly as your name appears on this proxy card. When shares are held jointly, both holders should sign. When signing as attorney, executor, administrator, trustee, guardian or custodian, please give your full title. If the holder is a corporation or a partnership, the full corporate or partnership name should be signed by a duly authorized officer.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
(Continued, and to be signed and dated, on the reverse side)
