x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Delaware
|
91-2145721
|
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
No.)
|
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250
Williams Street
Atlanta,
Georgia
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30303
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(Address
of principal executive offices)
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(Zip
Code)
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Title
of Each Class
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Name
of Exchange on Which Registered
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Common
Stock, $0.001 par value
|
The
NASDAQ Stock Market LLC
(NASDAQ
Global Market)
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Large
accelerated filer o
|
Accelerated
filer x
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Non-accelerated
filer o
(Do
not check if a smaller reporting company)
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Smaller
reporting company o
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Page
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PART
I
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4
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14
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27
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27
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27
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27
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PART
II
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||||
27
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||||
30
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||||
32
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54
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||||
55
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||||
55
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55
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56
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PART
III
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57
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||||
60
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78
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80
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80
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PART
IV
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||||
81
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||||
85
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Internap
operated
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Operated
under third party agreements
|
||||
Boston
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Orange
County/
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Amsterdam
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|||
Boston
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Chicago
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San
Diego
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Hong
Kong
|
||
Houston
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Dallas
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Philadelphia
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London
|
||
New
York
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Denver
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Phoenix
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Osaka(1)
|
||
Seattle
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Los
Angeles
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San
Francisco
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Singapore
|
||
Miami
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San
Jose
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Sydney
|
|||
New
York
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Washington
DC
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Tokyo(1)
|
|||
Oakland
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Toronto
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(1)
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Through
our joint venture in Internap Japan Co., Ltd. with NTT-ME Corporation and
Nippon Telegraph and Telephone
Corporation.
|
·
|
network
service providers that provide connectivity services, including AT&T
Inc., Sprint Nextel Corporation, Verizon Communications Inc., Level 3
Communications, Inc., Global Crossing Limited, and Verio, an NTT
Communications Company.;
|
|
·
|
regional
Bell operating companies that offer Internet access and managed
services;
|
|
·
|
global,
national and regional ISPs such as Orange Business Services (formerly
Equant), BT Infonet and Savvis, Inc.;
|
|
·
|
providers
of specific applications or solutions, such as content delivery, security
or storage such as Akamai Technologies, Inc., Limelight Networks, Inc.,
Mirror Image Internet, Inc., Symantec Corporation, Network Appliance,
Inc., and Virtela Communications, Inc.;
|
|
·
|
software-based,
Internet infrastructure companies focused on IP route control and wide
area network optimization products such as Riverbed Technology, Inc., F5
Networks, Inc. and Radware Ltd.; and
|
|
·
|
colocation
and data center providers, including Equinix, Inc., Terremark Worldwide,
Inc., Navisite, Inc., 365 Main Inc., Savvis, Inc., and Neon Communications
Group, Inc., formerly known as The Globix
Corporation.
|
·
|
failure
to increase sales of our products and services;
|
|
·
|
pricing
pressures;
|
|
·
|
failure
of our services or software to operate as expected;
|
|
·
|
loss
of customers and inability to attract new customers;
|
|
·
|
inability
of a customer to pay our fees; or
|
|
·
|
network
failures and any breach or unauthorized access to our
network.
|
·
|
human
error;
|
||
·
|
physical
or electronic security breaches;
|
||
·
|
fire,
earthquake, flood, and other natural disasters;
|
||
·
|
water
damage;
|
||
·
|
fiber
cuts;
|
||
·
|
power
loss;
|
||
·
|
sabotage
and vandalism; and
|
||
·
|
failure
of business partners who provide our resale products.
|
·
|
competition
and the introduction of new services by our competitors;
|
||
·
|
continued
pricing pressures resulting from competitors’ strategies or excess
bandwidth supply;
|
||
·
|
fluctuations
in the demand and sales cycle for our services;
|
||
·
|
fluctuations
in the market for qualified sales and other personnel;
|
||
·
|
changes
in the prices for Internet connectivity we pay to ISPs;
|
||
·
|
the
cost and availability of adequate public utilities, including
power;
|
||
·
|
our
ability to obtain local loop connections to our network access points at
favorable prices;
|
||
·
|
integration
of people, operations, products, and technologies of acquired
businesses; and
|
||
·
|
general
economic conditions.
|
·
|
the
ability to identify and consummate complementary
acquisitions;
|
||
·
|
the
possibility that we may not be able to integrate the operations,
personnel, technologies, products, and services of the acquired companies
in a timely and efficient manner;
|
||
·
|
diversion
of management’s attention from other ongoing business
concerns;
|
||
·
|
insufficient
revenue to offset significant unforeseen costs and increased expenses
associated with the acquisitions;
|
||
·
|
challenges
in completing projects associated with in-process research and development
being conducted by the acquired businesses;
|
||
·
|
risks
associated with our entrance into markets in which we have little or no
prior experience and where competitors have a stronger market
presence;
|
||
·
|
deferral
of purchasing decisions by current and potential customers as they
evaluate the likelihood of success of our acquisitions;
|
||
·
|
incurring
or assuming contingent liabilities and amortization expense for acquired
intangible assets;
|
||
·
|
incurring
acquisition liabilities as a result of integrating acquired
businesses;
|
||
·
|
difficulties
in successfully integrating the management teams and employees of both
companies; and
|
||
·
|
loss
of key employees of the acquired companies.
|
·
|
challenges
in establishing and maintaining relationships with foreign customers as
well as foreign ISPs and local vendors, including data center and local
network operators;
|
|||
·
|
challenges
in staffing and managing network operations centers and network access
points across disparate geographic areas;
|
|||
·
|
limited
protection for intellectual property rights in some
countries;
|
|||
·
|
challenges
in reducing operating expense or other costs required by local
laws;
|
|||
·
|
exposure
to fluctuations in foreign currency exchange rates;
|
|||
·
|
costs
of customizing network access points for foreign countries and
customers;
|
|||
·
|
protectionist
laws and practices favoring local competition;
|
|||
·
|
political
and economic instability; and
|
|||
·
|
compliance
with governmental regulations.
|
·
|
actual
or anticipated variations in our quarterly and annual results of
operations;
|
||
·
|
changes
in market valuations of companies in the Internet connectivity and
services industry;
|
||
·
|
changes
in expectations of future financial performance or changes in estimates of
securities analysts;
|
||
·
|
fluctuations
in stock market prices and volumes;
|
||
·
|
future
issuances of common stock or other securities;
|
||
·
|
the
addition or departure of key personnel; and
|
||
·
|
announcements
by us or our competitors of acquisitions, investments or strategic
alliances.
|
Year
Ended December 31, 2007:
|
High
|
Low
|
||||||
Fourth
Quarter
|
$ | 17.18 | $ | 8.14 | ||||
Third
Quarter
|
16.15 | 13.04 | ||||||
Second
Quarter
|
19.33 | 12.95 | ||||||
First
Quarter
|
20.98 | 15.60 | ||||||
Year
Ended December 31, 2006:
|
High
|
Low
|
||||||
Fourth
Quarter
|
$ | 21.25 | $ | 14.10 | ||||
Third
Quarter
|
16.80 | 9.30 | ||||||
Second
Quarter
|
15.50 | 9.00 | ||||||
First
Quarter
|
10.60 | 4.20 |
Equity
Compensation Plan Information
|
||||||||
Number
of securities to
be
issued upon exercise
of
outstanding options,
warrants
and rights
(a)
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
(b)
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding
securities
reflected in
column
(a)
(c)
|
||||||
Equity
compensation plans
approved
by security holders
|
3,173
|
(1)
|
$
13.29
|
5,990
|
(2)
|
|||
Equity
compensation plans not
approved
by security holders
|
—
|
—
|
—
|
|||||
Total
|
3,173
|
$
13.29
|
5,990
|
(1)
|
Excludes
purchase rights accruing under the 2004 Employee Stock Purchase Plan
("Purchase Plan"). Under the Purchase Plan, each eligible employee may
purchase up to $12,500 worth of common stock at each semi-annual
purchase date (the last business day of June and December each year),
but not more than $25,000 worth of such stock (determined on the basis of
the fair market value per share on the date or dates such rights are
granted) per calendar year his or her purchase right remains outstanding.
The purchase price payable per share will be equal to ninety-five percent
(95%) of the closing selling price per share of common stock on the
semi-annual purchase date.
|
(2)
|
Includes
276,000 shares available for issuance under the Purchase
Plan.
|
Year
Ended December 31,
|
||||||||||||||||||||
2007
(1)
|
2006 (2)
|
2005
|
2004
|
2003
|
||||||||||||||||
(in
thousands, except per share data)
|
||||||||||||||||||||
Revenue
|
$ | 234,090 | $ | 181,375 | $ | 153,717 | $ | 144,546 | $ | 138,580 | ||||||||||
Operating
costs and expenses:
|
||||||||||||||||||||
Direct
costs of network, sales and services, exclusive of depreciation
and amortization, shown below (3)
|
118,394 | 97,338 | 81,958 | 76,990 | 78,200 | |||||||||||||||
Direct
costs of amortization of acquired technologies (3)
|
4,165 | 516 | 577 | 579 | 134 | |||||||||||||||
Direct
costs of customer support
|
16,547 | 11,566 | 10,670 | 10,180 | 9,483 | |||||||||||||||
Product
development
|
6,564 | 4,475 | 4,864 | 6,412 | 6,982 | |||||||||||||||
Sales
and marketing
|
31,533 | 27,173 | 25,864 | 23,411 | 21,491 | |||||||||||||||
General
and administrative
|
32,512 | 22,104 | 20,096 | 24,772 | 16,711 | |||||||||||||||
Depreciation
and amortization
|
22,242 | 15,856 | 14,737 | 15,461 | 37,087 | |||||||||||||||
Gain
on disposals of property and equipment
|
(5 | ) | (113 | ) | (19 | ) | (3 | ) | (53 | ) | ||||||||||
Restructuring
and asset impairment
|
11,349 | 323 | 44 | 3,644 | 1,084 | |||||||||||||||
Acquired
in-process research and development
|
450 | — | — | — | — | |||||||||||||||
Amortization
of deferred stock compensation
|
— | — | 60 | — | 390 | |||||||||||||||
Pre-acquisition
liability adjustment
|
50 | — | — | — | (1,313 | ) | ||||||||||||||
Total
operating costs and expense
|
243,801 | 179,238 | 158,851 | 161,446 | 170,196 | |||||||||||||||
(Loss)
income from operations
|
(9,711 | ) | 2,137 | (5,134 | ) | (16,900 | ) | (31,616 | ) | |||||||||||
Non-operating
(income) expense
|
(937 | ) | (1,551 | ) | (87 | ) | 772 | 2,158 | ||||||||||||
(Loss)
income before income taxes and equity in earnings of equity method
investment
|
(8,774 | ) | 3,688 | (5,047 | ) | (17,672 | ) | (33,774 | ) | |||||||||||
(Benefit)
provision for income taxes
|
(3,080 | ) | 145 | — | — | — | ||||||||||||||
Equity
in (earnings) loss of equity-method investment, net of
taxes
|
(139 | ) | (114 | ) | (83 | ) | 390 | 827 | ||||||||||||
Less
deemed dividend related to beneficial conversion feature (4)
|
— | — | — | — | 34,576 | |||||||||||||||
Net
(loss) income
|
$ | (5,555 | ) | $ | 3,657 | $ | (4,964 | ) | $ | (18,062 | ) | $ | (69,177 | ) | ||||||
Net
(loss) income per share:
|
||||||||||||||||||||
Basic
|
$ | (0.12 | ) | $ | 0.11 | $ | (0.15 | ) | $ | (0.63 | ) | $ | (3.96 | ) | ||||||
Diluted
|
$ | (0.12 | ) | $ | 0.10 | $ | (0.15 | ) | $ | (0.63 | ) | $ | (3.96 | ) | ||||||
Weighted
average shares used in per share calculations
|
||||||||||||||||||||
Basic
|
46,942 | 34,748 | 33,939 | 28,732 | 17,460 | |||||||||||||||
Diluted
|
46,942 | 35,739 | 33,939 | 28,732 | 17,460 |
December 31, | ||||||||||||||||||||
2007 (1) | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
Consolidated
Balance Sheet Data:
|
||||||||||||||||||||
Cash,
cash equivalents and short-term
marketable
securities
|
$ | 71,599 | $ | 58,882 | $ | 40,494 | $ | 45,985 | $ | 18,885 | ||||||||||
Non-current
marketable securities
|
— | — | — | 4,656 | — | |||||||||||||||
Total
assets
|
427,010 | 173,702 | 155,369 | 168,149 | 135,839 | |||||||||||||||
Note
payable and capital lease obligations, less current
portion
|
17,806 | 3,364 | 7,903 | 12,837 | 12,742 | |||||||||||||||
Total
stockholders’ equity
|
346,633 | 126,525 | 109,728 | 113,738 | 70,524 |
Year
Ended December 31,
|
||||||||||||||||||||
|
2007 (1)
|
2006
|
2005
|
2004
|
2003
|
|||||||||||||||
Other
Financial Data:
|
||||||||||||||||||||
Purchases
of property and equipment
|
$ | 30,271 | $ | 13,382 | $ | 10,161 | $ | 13,066 | $ | 3,799 | ||||||||||
Net
cash provided by (used in) operating activities
|
27,592 | 29,599 | 5,493 | (1,150 | ) | (11,175 | ) | |||||||||||||
Net
cash (used in) provided by investing activities
|
(36,393 | ) | (10,399 | ) | (9,428 | ) | (29,659 | ) | 561 | |||||||||||
Net
cash provided by (used in) financing activities
|
15,240 | 1,957 | (5,454 | ) | 45,747 | 4,280 |
(1)
|
On
February 20, 2007 we completed our acquisition of VitalStream, whereby
VitalStream became a wholly-owned subsidiary of Internap. Prior to our
acquisition of VitalStream, we did not offer proprietary CDN services, but
instead, we were a reseller of third party CDN services. Under the
purchase method of accounting, we allocated the total estimated purchase
price to VitalStream’s net tangible and intangible assets based on their
estimated fair values as of February 20, 2007. We recorded the excess
purchase price over the value of the net tangible and identifiable
intangible assets as goodwill. Also, as a result of the acquisition we
issued approximately 12.2 million shares of Internap common
stock.
|
(2)
|
Effective
January 1, 2006, we adopted SFAS No. 123 (revised 2004),
“Share-Based Payment” (SFAS No. 123R) and related
interpretations, using the modified prospective transition method and
therefore have not restated prior periods’ results. Prior to the adoption
of SFAS No. 123R on January 1, 2006, we accounted for
stock-based compensation plans under the recognition and measurement
provisions of Accounting Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations.
We also provided disclosures in accordance with SFAS No. 123,
“Accounting for Stock-Based Compensation,” as amended by
SFAS No. 148, “Accounting for Stock-Based Compensation —
Transition and Disclosures — an Amendment of FASB Statement
No. 123.” Accordingly, no expense was recognized for options to
purchase our common stock that we granted with an exercise price equal to
fair market value at the date of grant and no expense was recognized in
connection with purchases under employee stock purchase plans for any
periods prior to January 1,
2006.
|
(3)
|
Prior
to 2007, direct costs of amortization of acquired technologies were
included in the caption direct costs of network, sales and services,
exclusive of depreciation and amortization. In 2007, we
reclassified these costs to a separate caption. These
reclassifications had no effect on previously reported operating loss
(income) or net loss (income).
|
(4)
|
In
August 2003, we completed a private placement of our common stock, which
resulted in a decrease of the conversion price of our series A preferred
stock to $9.50 per share and an increase in the number of shares of common
stock issuable upon conversion of all shares of series A preferred stock
by 3.5 million shares. We recorded a deemed dividend of $34.6 million in
connection with the conversion price adjustment, which is attributable to
the additional incremental number of shares of common stock was issuable
upon conversion of our series A preferred
stock.
|
·
|
Due to the nature of the
services we provide, we generally price our IP services at a premium
compared to the services offered by conventional Internet connectivity
service providers. We believe customers with business-critical
Internet applications will continue to demand the highest quality of
service as their Internet connectivity needs grow and become even more
complex and, as such, will continue to pay a premium for our high
performance managed IP
services.
|
·
|
Our success in executing our
premium pricing strategy depends, to a significant degree, on our ability
to differentiate our connectivity solutions from lower cost
alternatives. The key measures of our success in achieving this
differentiation are revenue and customer growth. During 2007, we
added approximately 1,500 net customers (including
approximately 900 VitalStream customers that we added as part of the
VitalStream acquisition), bringing our total to approximately 3,800
enterprise customers as of December 31, 2007. Revenue for the year ended
December 31, 2007 increased 29% to $234.1 million, compared to revenue of
$181.4 million for the year ended December 31,
2006.
|
·
|
We intend to increase revenue
by leveraging the capabilities of our existing network access
points. In our existing markets, we realize incremental margins as
new customers are added. Additional volume in an existing market allows
improved utilization of existing facilities and an improved ability to
cost-effectively predict and acquire additional network capacity. We
experienced a net increase in customers from 2006 to 2007. Conversely,
decreases in the number of customers in an established market lead to
decreased facility utilization and increase the possibility that direct
network resources are not cost-efficiently employed. These factors have a
direct bearing on our financial position and results of
operations.
|
|
·
|
We offer a 100% operational
uptime guarantee for our network performance
management. Coupled with the lowest packet loss and latency in
the industry, we provide our customers with a proactive industry-leading
Service Level Agreement (SLA) that covers the entire Internet - not just
one single network. Unlike our competitors, we believe so strongly in
the consistent performance of our network that we offer proactive SLA
notification and automatic bill credits
if we ever break our SLAs. We believe that this commitment
allows us to provide the best network performance
available.
|
|
·
|
VitalStream’s
services were a logical extension and complement to our high performance
route control products and
services.
|
|
·
|
We
evaluated demand for CDN services within our customer base and determined
that a market for proprietary CDN services
existed.
|
|
·
|
VitalStream’s
services offered our legacy customers additional high growth and high
margin revenue streams.
|
|
·
|
We
believed that large audio and video files are more effectively delivered
over the Internet with a combination of VitalStream’s platform and our
route management network.
|
|
·
|
VitalStream’s
initiatives in the rich media advertising services business present an
entirely new set of opportunities and potential customer relationships for
us, as advertisers seek to access a large and growing base of Internet
users that watch increasing amounts of video
online.
|
·
|
|
costs
for connecting to and accessing Internet network service providers, or
ISPs, and competitive local exchange providers;
|
·
|
facility
and occupancy costs for housing and operating our and our customers’
network equipment;
|
|
·
|
costs
of license fees for operating systems software, advertising royalties to
content rights owners and advertising distribution
costs;
|
|
·
|
costs
incurred for providing additional third party services to our customers;
and
|
|
·
|
costs
of FCP solutions sold.
|
|
Year
Ended December 31,
|
||||||||
2007
|
2006
|
2005
|
||||||
Revenues:
|
||||||||
Internet
protocol (IP) services
|
51.2
|
%
|
60.5
|
%
|
68.3
|
%
|
||
Data
center services
|
35.5
|
31.0
|
24.1
|
|||||
Content
delivery network (CDN) services
|
7.6
|
—
|
—
|
|||||
Other
|
5.7
|
8.5
|
7.6
|
|||||
Total
revenues
|
100.0
|
100.0
|
100.0
|
|||||
Operating
costs and expenses:
|
||||||||
Direct
costs of network, sales and services, exclusive of depreciation and
amortization, shown below:
|
||||||||
IP
services
|
18.7
|
21.9
|
25.0
|
|||||
Data
center services
|
25.4
|
25.6
|
22.9
|
|||||
CDN
services
|
2.8
|
—
|
—
|
|||||
Other
|
3.7
|
6.1
|
5.4
|
|||||
Direct
costs of amortization of acquired technologies
|
1.8
|
0.3
|
0.4
|
|||||
Direct
costs of customer support
|
7.1
|
6.4
|
6.9
|
|||||
Product
development
|
2.8
|
2.5
|
3.2
|
|||||
Sales
and marketing
|
13.4
|
15.0
|
16.8
|
|||||
General
and administrative
|
13.9
|
12.2
|
13.1
|
|||||
Depreciation
and amortization
|
9.5
|
8.7
|
9.6
|
|||||
Restructuring
and asset impairment
|
4.9
|
0.2
|
—
|
|||||
Other
operating costs and expenses
|
0.2
|
(0.1
|
)
|
—
|
||||
Total
operating costs and expenses
|
104.2
|
98.8
|
103.3
|
|||||
(Loss)
income from operations
|
(
4.2
|
) %
|
1.2
|
%
|
(3.3
|
)
%
|
||
Year
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Revenues:
|
||||||||||||
Internet
protocol (IP) services
|
$ | 119,848 | $ | 109,748 | $ | 105,032 | ||||||
Data
center services
|
83,058 | 56,152 | 36,996 | |||||||||
Content
delivery network (CDN) services
|
17,718 | — | — | |||||||||
Other
|
13,466 | 15,475 | 11,689 | |||||||||
$ | 234,090 | $ | 181,375 | $ | 153,717 |
Year
Ended December 31,
|
|||||||
2007
|
2006
|
||||||
Direct
costs of customer support
|
$
|
1,892
|
$
|
1,102
|
|||
Product
development
|
856
|
628
|
|||||
Sales
and marketing
|
2,135
|
2,145
|
|||||
General
and administrative
|
3,798
|
2,067
|
|||||
Total
stock-based compensation
|
$
|
8,681
|
$
|
5,942
|
Payments
Due by Period
|
||||||||||||||||||
Total
|
Less
than
1
year
|
1-
3
Years
|
3-5
Years
|
More
than
5
years
|
||||||||||||||
Note
payable(1)
|
$
|
23,815
|
$
|
3,980
|
$
|
11,980
|
$
|
7,855
|
$
|
—
|
||||||||
Capital
lease obligations
|
1,392
|
922
|
470
|
—
|
—
|
|||||||||||||
Operating
lease commitments
|
220,894
|
28,211
|
50,689
|
53,208
|
88,786
|
|||||||||||||
Service
commitments
|
22,014
|
12,167
|
9,847
|
—
|
—
|
|||||||||||||
$
|
268,115
|
$
|
45,280
|
$
|
72,986
|
$
|
61,063
|
$
|
88,786
|
|||||||||
(1)
|
As
noted in the section captioned “Credit Agreement” under this Item 7, the
interest rate on the Term Loan is a tiered LIBOR-based rate that depends
on our 12-month trailing EBITDA as defined in the Credit Agreement.
As of December 31, 2007, the interest rate was 7.075%. The projected
interest included in the debt payments above incorporates this
rate.
|
·
|
The
exercise price per share of each replacement option granted in the
exchange offer was $14.46, the average of the closing prices of the common
stock as reported by the American Stock Exchange and the NASDAQ Global
Market, as applicable, for the 15 consecutive trading days ending
immediately prior to the grant date of the replacement
options;
|
·
|
For
all eligible options with an exercise price per share greater than or
equal to $20.00, the exchange ratio was 1-for-2;
and
|
·
|
Each
new option has a three-year vesting period, vesting in equal monthly
installments over three years, so long as the grantee continues to be a
full-time employee of the company and a ten-year
term.
|
2008
|
2009
|
2010
|
2011
|
Fair
Value
|
|||||||||||||||
Long-term
debt:
|
|||||||||||||||||||
Term
loan
|
$
|
2,500
|
$
|
5,000
|
$
|
5,000
|
$
|
7,500
|
$
|
20,000
|
|||||||||
Interest
rate
|
7.075
|
%
|
7.075
|
%
|
7.075
|
%
|
7.075
|
%
|
7.075
|
%
|
|
·
|
A single,
common logging system for customers to record all disputes, disconnects
and requests for credits,
|
|
·
|
A weekly
review of a customer request log with appropriate designated management
and approval pursuant to the schedule of
authorization,
|
|
·
|
A more
robust, proactive tracking of customer usage patterns and overall customer
satisfaction, and
|
|
·
|
Perform
a review by the appropriate designated finance management of the
accounting estimates developed from the relevant, sufficient, and reliable
data collected above
|
Name
|
|
Age
|
|
Position
|
James
P. DeBlasio
|
|
52
|
|
President, Chief
Executive Officer and Director
|
Tamara
Augustyn
|
|
38
|
|
Vice
President and Principal Accounting Officer
|
David
A. Buckel
|
|
45
|
|
Vice
President and Chief Financial Officer (1)
|
Richard
Dobb
|
|
53
|
|
Vice
President and General Counsel
|
Phil
Kaplan
|
|
41
|
|
Chief
Strategy Officer
|
Vince
Molinaro
|
|
44
|
|
Chief
Operating Officer (2)
|
Charles
B. Coe
|
|
60
|
|
Director
(4) (5)
|
Eugene
Eidenberg
|
|
68
|
|
Director
(5)
|
William
J. Harding
|
|
60
|
|
Director
(3)
|
Patricia
L. Higgins
|
|
58
|
|
Director
(3) (4) (5)
|
Kevin
L. Ober
|
|
47
|
|
Director
(3)
|
Gary
Pfeiffer
|
|
58
|
|
Director
(3) (4)
|
Daniel
C. Stanzione
|
|
62
|
|
Director
(4) (5)
|
(1)
|
Mr.
Buckel resigned his position as Vice President and Chief Financial Officer
on November 19, 2007.
|
(2)
|
Mr.
Molinaro resigned his position as Chief Operating Officer on April 7,
2008.
|
(3)
|
Member
of the Audit Committee.
|
(4)
|
Member
of the Compensation Committee.
|
(5)
|
Member
of the Nominations and Governance
Committee.
|
•
|
directly
appointing our independent registered public
accountants;
|
•
|
discussing
with our independent registered public accountants their independence from
management;
|
•
|
reviewing
with our independent registered public accountants the scope and results
of their audit;
|
•
|
approving
all audit services and pre-approving all permissible non-audit services to
be performed by the
independent registered public
accountants;
|
•
|
overseeing
the financial reporting process and discussing with management and our
independent registered public
accountants the interim and annual financial statements that we file with
the SEC; and
|
•
|
reviewing
and monitoring our accounting principles, policies and financial and
accounting controls.
|
•
|
Base
salary;
|
•
|
Annual
cash incentives; and
|
•
|
Long-term
equity incentives, which consist of stock options and restricted
stock.
|
1.
|
Base
Salary
|
Name
|
|
Base Salary
|
||
James
DeBlasio
|
|
$
|
425,000
|
|
Vincent
Molinaro
|
$
|
350,000
|
||
David
Buckel
|
|
$
|
260,000
|
(1)
|
Richard
Dobb
|
|
$
|
240,000
|
|
Phil
Kaplan
|
|
$
|
235,000
|
|
Tamara
Augustyn
|
|
$
|
175,000
|
(1)
|
Mr. Buckel
resigned his position as Chief Financial Officer in November
2007.
|
2.
|
Annual
Cash Incentives
|
•
|
Focus
participants’ actions on the achievement of annual revenue growth and
profitability goals;
|
•
|
Align
participants’ actions on the accomplishment of key operational and
strategic goals;
|
•
|
Encourage
and reward participants for the achievement of specific objectives;
and
|
•
|
Maintain
a competitive range of incentive compensation
opportunities.
|
1.
|
Achievement
of revenue goals by us, which comprises 25% of the potential
award;
|
2.
|
Achievement
of adjusted EBITDA goals by us, which comprises 50% of the potential
award; and
|
3.
|
Achievement
of individual goals by the named executive officer, which comprises 25% of
the potential award.
|
Name
|
|
Target
|
Maximum
|
|||
James
DeBlasio
|
|
70
|
%
|
140
|
%
|
|
David
Buckel (1)
|
|
50
|
%
|
100
|
%
|
|
Vincent
Molinaro
|
|
50
|
%
|
100
|
%
|
|
Richard
Dobb
|
|
45
|
%
|
90
|
%
|
|
Phil
Kaplan
|
|
37
|
%
|
74
|
%
|
|
Tamara
Augustyn (2)
|
|
--
|
%
|
--
|
%
|
(1)
|
Mr. Buckel
resigned his position as Chief Financial Officer in November
2007.
|
(2)
|
Ms. Augustyn
assumed the role of Principal Accounting Officer following Mr.
Buckel’s resignation in November 2007 and was not a participant in the
Plan when the Board established these
percentages.
|
|
Weight
|
Threshold
|
Target
|
Above
|
Maximum
|
||||||||||||||
Annual
Revenue Bonus Payout
|
|
25
|
%
|
95
|
%
|
100
|
%
|
105
|
%
|
110
|
%
|
||||||||
|
$
|
10,800
|
$
|
27,000
|
$
|
35,100
|
$
|
54,000
|
|||||||||||
Annual
Adjusted EBITDA Bonus Payout
|
|
50
|
%
|
90
|
%
|
100
|
%
|
110
|
%
|
120
|
%
|
||||||||
|
$
|
21,600
|
$
|
54,000
|
$
|
70,200
|
$
|
108,000
|
|||||||||||
Individual
Goals Bonus Payout
|
|
25
|
%
|
NI
|
ME
|
OE
|
EE
|
||||||||||||
|
$
|
0
|
$
|
27,000
|
$
|
35,100
|
$
|
54,000
|
Name:
|
Total
Bonus Amount
|
Cash
Portion
|
Stock
Portion
|
|||||||||
James
DeBlasio
|
$ | 337,663 | $ | 297,500 | $ |
40,163,
or 6,638 shares
|
||||||
David
Buckel (1)
|
-- | -- | -- | |||||||||
Vincent
Molinaro
|
$ | 75,000 | $ | 75,000 | $ | 0 | ||||||
Richard
Dobb
|
$ | 122,580 | $ | 108,000 | $ | 14,580, or 2,409 shares | ||||||
Phil
Kaplan
|
$ | 98,688 | $ | 87,000 | $ | 11,688, or 1,931 shares | ||||||
Tamara
Augustyn (2)
|
$ | 90,000 | $ | 90,000 | $ | 0 |
(1)
|
Mr. Buckel
resigned his position as Chief Financial Officer in November 2007 and
thus, was not eligible for an award pursuant to the
Plan.
|
(2)
|
Ms.
Augustyn assumed the role of Principal Accounting Officer following
Mr. Buckel’s resignation in November
2007.
|
Name
|
|
Target
|
Maximum
|
|||
James
DeBlasio
|
|
70
|
%
|
140
|
%
|
|
David
Buckel (1)
|
|
--
|
%
|
--
|
%
|
|
Vice
President and Chief Financial Officer
|
50
|
%
|
100
|
%
|
||
Vincent
Molinaro (2)
|
|
50
|
%
|
100
|
%
|
|
Richard
Dobb
|
|
45
|
%
|
90
|
%
|
|
Phil
Kaplan
|
|
45
|
%
|
90
|
%
|
|
Tamara
Augustyn (3)
|
|
--
|
%
|
--
|
%
|
(1)
|
Mr. Buckel
resigned his position as Vice President and Chief Financial Officer on
November 18, 2007.
|
(2)
|
Mr.
Molinaro resigned his position as Chief Operating Officer on April 7,
2008.
|
(3)
|
Ms.
Augustyn will not be a participant in the Plan for
2008.
|
3.
|
Long-Term
Equity Incentives
|
Name
|
|
Multiple
|
James
DeBlasio
|
|
6.0
|
David
Buckel (1)
|
|
--
|
Vince
Molinaro
|
|
5
|
Richard
Dobb
|
|
4
|
Phil
Kaplan
|
|
4
|
Tamara
Augustyn
|
|
1.5
|
(1)
|
Mr. Buckel
resigned his position as Vice President and Chief Financial Officer on
November 18, 2007 prior to the Board’s determination of awards and
thus, was not eligible for an award pursuant to the Stock
Plan.
|
Name
|
|
Total
Number of Shares
|
Time-Based
|
Performance-Based
|
James
DeBlasio
|
|
149,776
|
74,888
|
74,888
|
David
Buckel (1)
|
|
--
|
--
|
--
|
Vincent
Molinaro
|
|
69,771
|
34,886
|
34,886
|
Richard
Dobb
|
|
34,607
|
17,303
|
17,303
|
Phil
Kaplan
|
|
34,048
|
17,024
|
17,024
|
Tamara
Augustyn
|
|
3,980
|
3,980
|
--
|
(1)
|
Mr. Buckel
resigned his position as Vice President and Chief Financial Officer on
November 18, 2007 prior to the Board’s determination of awards and
thus, was not eligible for an award pursuant to the Stock
Plan.
|
Position
|
Retention
Ratio
|
Time
to Retain
|
||
Chief
Executive Officer
|
50.0%
|
5
Years from date of
acquisition
|
||
Chief
Operating Officer
|
33.3%
|
4
Years from date of
acquisition
|
||
Chief
Financial Officer
|
33.3%
|
4
Years from date of
acquisition
|
||
Chief
Technology Officer
|
25.0%
|
3
Years from date of
acquisition
|
||
Chief
Strategy Officer
|
25.0%
|
3
Years from date of
acquisition
|
||
Vice
President, Human Resources
|
25.0%
|
3
Years from date of
acquisition
|
||
Vice
President and General Counsel
|
25.0%
|
3
Years from date of
acquisition
|
||
Vice
President, Sales
|
25.0%
|
3
Years from date of
acquisition
|
•
|
Health
and dental insurance;
|
•
|
Basic
life insurance;
|
•
|
Long-term
disability insurance; and
|
•
|
Participation
in our 401(k) plan, including matching
contributions.
|
Name
and Principal
Position
|
Year
|
Salary
$(1)
|
Bonus
$
|
Stock
Awards
$(2)
|
Option
Awards
$ (2)
|
Non-Equity
Incentive Plan
Compensation(3)
$
|
Change
in
Pension
Value
&
Non-Qualified
Deferred
Compensation
Earnings
$
|
All
Other
Compensation
$
|
Total
$
|
|||||||||||||||||
James
DeBlasio
Chief
Executive Officer
|
2007
|
425,000
|
—
|
524,831
|
435,452
|
337,663
|
—
|
27,462
|
1,750,408
|
|||||||||||||||||
2006
|
350,000
|
—
|
119,918
|
435,452
|
—
|
—
|
47,599
|
952,969
|
||||||||||||||||||
David
Buckel (4)
Chief
Financial Officer
|
2007
|
240,333
|
—
|
222,204
|
287,711
|
—
|
—
|
—
|
750,248
|
|||||||||||||||||
2006
|
235,385
|
—
|
70,097
|
390,611
|
100,000
|
—
|
—
|
796,093
|
||||||||||||||||||
Vincent
Molinaro
Chief
Operating Officer
|
2007
|
247,917
|
13,333
|
325,086
|
—
|
75,000
|
—
|
—
|
661,336
|
|||||||||||||||||
2006
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
Richard
Dobb
Vice
President and
General
Counsel
|
2007
|
180,000
|
—
|
78,783
|
—
|
122,580
|
—
|
—
|
381,363
|
|||||||||||||||||
2006
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
Philip
Kaplan
Chief
Strategy Officer
|
2007
|
230,808
|
—
|
—
|
396,641
|
98,688
|
—
|
—
|
726,137
|
|||||||||||||||||
2006
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||
Tamara
Augustyn
Vice
President and Principal
Accounting
Officer
|
2007
|
172,500
|
—
|
42,987
|
41,941
|
90,000
|
—
|
—
|
347,428
|
|||||||||||||||||
2006
|
152,274
|
—
|
14,902
|
41,227
|
50,000
|
—
|
—
|
202,274
|
(1)
|
The
salary of each of Mr. Buckel, Mr. Molinaro, Mr. Dobb, and Mr.
Kaplan is prorated for the portion of the year he was employed by the
Company.
|
|||||||||||||||||||||||||||
(2)
|
Represents
the proportionate amount of the total fair value of stock and option
awards recognized by the Company as an expense in 2007 and 2006 for
inancial
accounting purposes, excluding forfeitures related to service-based
vesting conditions. The fair values of these awards and the amounts
expensed were
determined in accordance with FAS 123R. The awards for which expense is
shown in this table include the awards described in the Grants of
Plan-Based Awards
table of this Proxy Statement, as well as awards granted in prior years
for which the Company continued to recognize expense in 2007 and 2006.
The
assumptions used in determining the grant date fair values of these awards
are set forth in the notes to the Company’s consolidated financial
statements, which
are included in our Annual Report on Form 10-K for the year ended
December 31, 2007.
|
|||||||||||||||||||||||||||
(3)
|
As
provided in the Plan, the Committee determined and approved bonus payments
in 2008 in excess of the targets established in the Plan
for each named executive officer, other than the Chief Executive Officer,
and the Board determined the bonus payment for the Chief
Executive Officer, and paid such excess in shares of common stock on
March 15, 2008. Mr. DeBlasio’s bonus consisted of $297,500 paid in
cash
and $40,163 paid in shares of common stock. Mr. Dobb’s bonus
consisted of $108,000 paid in cash and $14,180 paid in shares of common
stock. Mr. Kaplan’s
bonus consisted of $87,000 paid in cash and $11,688 paid in shares of
common stock. The amounts reported in this column include the value of
such shares. The
value of these shares is not, however, reflected in column
(e).
|
|||||||||||||||||||||||||||
(4)
|
Mr.
Buckel resigned as Chief Financial Officer in November of 2007. As a
result, he forfeited 9,375 options that were a part of a grant made on May
12, 2004, 1,597 options
that were part of a grant made on September 28, 2006, 1,298 options that
were part of a second grant made on September 28, 2006, 5,090 options that
were part of
a third grant made on September 28, 2006, as well as 30,934 shares of
restricted common stock that were part of an award made on January 18,
2006 and 65,625 shares of
restricted common stock that were part of an award made on March 15,
2007. The aggregate amount of this forfeiture is $249,525.60
based on the assumptions delineated
in footnote (2) above.
|
Name
and Principal Position
|
|
Perquisites
and
Other
Personal
Benefits
$
|
Tax
Reimburse-
ments
$
|
|
Dividend
Equivalents
$
|
|
Payments/
Accruals
on
Termination
Plans
$
|
|
Registrant
Contributions
to
Defined
Contribution
Plans
$
|
|
Insurance
Premiums
$
|
|
Other
$
|
|||||||||||||||||||||||||
James
DeBlasio
Chief
Executive Officer
|
|
27,462
|
(1)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
||||||||||||||||||||||||
David
Buckel
Chief
Financial Officer
|
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|||||||||||||||||||||||||
Vincent
Molinaro
Chief
Operating Officer
|
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|||||||||||||||||||||||||
Richard
Dobb
Vice
President and General Counsel
|
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|||||||||||||||||||||||||
Philip
Kaplan
Chief
Strategy Officer
|
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|||||||||||||||||||||||||
Tamara
Augustyn
Vice
President and Principal
Accounting
Officer
|
|
—
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
(1)
|
The
amounts shown for fiscal 2007 include personal use of corporate housing of
$18,900 and car service of $8,562.
|
Grant
Date
|
Estimated
Future Payouts
Under
Non-Equity Incentive
Plan
Awards
|
Estimated
Future Payouts
Under
Equity Incentive Plan
Awards
|
All
Other
Stock
Awards:
Number
of
Shares
of
Stock
or
Units
#
|
All
Other
Stock
Awards:
Number
of
Securities
Underlying
Options
#
|
Exercise
or
Base
Price
of
Option
Awards
$/Sh
|
Grant
Date
Fair
Value
of
Stock
and
Option
Awards
|
||||||||||||||||||||||
Name
and Principal
Position
|
Threshold
$
|
Target
$
|
Maximum
$
|
Threshold
#
|
Target
#
|
Maximum
#
|
||||||||||||||||||||||
James
DeBlasio
Chief
Executive Officer
|
3/15/2007
|
|
—
|
—
|
|
—
|
—
|
—
|
—
|
125,000
|
—
|
|
—
|
$
|
2,082,500
|
|||||||||||||
3/15/2008
|
(1)
|
—
|
—
|
—
|
6,638
|
40,160
|
||||||||||||||||||||||
David
Buckel
Chief
Financial Officer
|
3/15/2007
|
—
|
—
|
—
|
—
|
—
|
—
|
75,000
|
—
|
—
|
1,249,500
|
|||||||||||||||||
Vincent
Molinaro
Chief
Operating Officer
|
4/24/2007
|
—
|
—
|
—
|
—
|
—
|
—
|
125,000
|
—
|
—
|
2,005,000
|
|||||||||||||||||
Richard Dobb | 4/23/2007 | — | — |
—
|
— | — | — | 30,000 |
—
|
— | 474,600 | |||||||||||||||||
Vice
President and
General
Counsel
|
3/15/2008
|
(1)
|
—
|
—
|
—
|
—
—
|
—
—
|
—
—
|
2,409
|
—
|
—
|
14,574
|
||||||||||||||||
Philip
Kaplan
|
6/22/2007
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
30,000
|
13.64
|
409,200
|
|||||||||||||||||
Chief
Strategy Officer
|
3/15/2008
|
(1)
|
—
|
—
|
—
|
—
|
—
|
—
|
1,931
|
—
|
—
|
11,683
|
Tamara
Augustyn
Vice
President and Principal Accounting Officer
|
03/15/07
12/19/2007
|
—
|
—
—
|
—
—
|
—
—
|
—
—
|
—
—
|
7,500
—
|
—
10,000
|
—
9.15
|
124,950
91,500
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||
Name
and Principal
Position
|
Number
of
Securities
Underlying
Unexercised
Options
#
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
#
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
#
|
Option
Exercise
Price
$
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
#
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested (1)
$
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
#
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
$
|
|||||||||||||||
James
DeBlasio
Chief
Executive Officer
|
8,000
17,000
2,000
2,000
312,5000
|
(2)
|
—
—
—
—
—
|
—
—
—
—
—
|
|
13.50
13.50
14.90
4.60
4.80
|
9/16/2013
9/16/2013
5/27/2014
6/23/2015
9/30/2015
|
33,330
101,562
—
—
—
|
(3)
(4)
|
|
277,639
846,011
—
—
—
|
—
—
—
—
—
|
—
—
—
—
—
|
|||||||||||
David
Buckel
Chief
Financial Officer
|
15,000
65,625
903
734
2,877
|
(5)
|
—
—
—
—
—
|
—
—
—
—
—
|
11.10
14.30
14.46
14.46
14.46
|
10/31/2013
5/12/2014
9/28/2016
9/28/2016
9/28/2016
|
—
—
—
—
—
|
—
—
—
—
—
|
—
—
—
—
—
|
—
—
—
—
—
|
||||||||||||||
Vincent
Molinaro
Chief
Operating Officer
|
—
|
—
|
—
|
—
|
—
|
125,000
|
(6)
|
1,041,250
|
—
|
—
|
||||||||||||||
Richard
Dobb
Vice
President and
General
Counsel
|
—
|
—
|
—
|
—
|
—
|
30,000
|
(7)
|
249,900
|
—
|
—
|
||||||||||||||
Philip
Kaplan
Chief
Strategy Officer
|
25,569
13,471
24,056
|
(8)
|
—
13,471
52,924
|
—
—
—
|
4.06
10.53
17.31
|
12/2/2014
12/16/2015
07/13/2016
|
—
—
—
|
—
—
—
|
—
—
—
|
—
—
—
|
||||||||||||||
30,000 |
(9)
|
—
|
13.64
|
6/22/2017
|
—
|
—
|
—
|
—
|
||||||||||||||||
Tamara
Augustyn
Vice
President and Principal
|
13,125
479
|
1,875
521
|
(10)
|
—
—
|
12.10
5.30
|
6/30/2014
1/18/2016
|
6,250
6,094
|
(11)
(12)
|
52,063
50,763
|
—
—
|
—
—
|
|||||||||||||
Accounting
Officer
|
—
|
10,000
|
—
|
9.15
|
12/19/2017
|
—
|
—
|
—
|
—
|
(1)
|
The
fair market value of a share of Internap stock on the last day of the 2007
fiscal year was $8.33.
|
(2)
|
Mr.
DeBlasio was granted 500,000 options on September 30, 2005. 25% vested
immediately, but were not exercisable until September 30, 2006 with the
remaining shares
vesting annually over a four-year period beginning September 30, 2005, and
the other options were granted for Mr. DeBlasio’s service as a
Director.
|
(3)
|
Mr. DeBlasio
was awarded restricted shares on September 30, 2005. 50% of those
shares vested on September 30, 2006, with the remaining shares
vesting annually over
a three-year period beginning September 30,
2006.
|
(4)
|
Mr.
DeBlasio was granted 125,000 shares of restricted stock on March 15, 2007
that vest in a series of 16 quarterly installments at
the end of each calendar quarter beginning with the second quarter of
2007.
|
(5)
|
Mr.
Buckel was granted options on October 31, 2003, May 12,
2004, January 18, 2006, and three separate grants on
September 29, 2006. The options vest over a four-year
period with the exception of options granted on September 28, 2006.
The options vest monthly over a three-year period.
|
(6)
|
Mr.
Molinaro was granted 125,000 shares of restricted common stock on April
24, 2007 of which 25% of the award vests on the
anniversary of grant.
|
(7)
|
Mr.
Dobb was granted 30,000 shares of restricted common stock on April 23,
2007 and 25% of the award vests on the anniversary
of grant.
|
(8)
|
Mr.
Kaplan was granted options on December 2, 2004, December 16, 2005 and July
13, 2006. One-fourth of the number of shares vested
on the anniversary of the grant date and then vest quarterly over the next
three years.
|
(9)
|
Mr.
Kaplan was granted 30,000 options on June 22, 2007. One-fourth
of the number of shares vest on each of the first, second, third,
and fourth anniversary of the grant date.
|
(10)
|
Ms.
Augustyn was granted options on June 30, 2004, January 18, 2006 and
December 19, 2007. One-fourth of the number
of shares
vest on the anniversary of the grant date and 1/48 of the
number of shares vest per month thereafter.
|
(11)
|
Ms.
Augustyn was granted 10,000 shares of restricted common stock on February
27, 2006. One-eighth of the number of shares vest
every six months after the grant date.
|
(12)
|
Ms.
Augustyn was granted 7,500 shares of restricted common stock on March 15,
2007 that vest in a series of 16 quarterly installments
at the end of each calendar quarter beginning with the second quarter of
2007.
|
|
Option
Awards
|
|
Stock
Awards
|
|||||||||||||||||||
Name
and Principal Position
|
|
Number of Shares
Acquired
on
Exercise
#
|
|
Value Realized
Upon
Exercise
$
|
|
Number of Shares
Acquired
on
Vesting
#
|
Value Realized
On
Vesting
$
|
|||||||||||||||
|
|
|
||||||||||||||||||||
James
DeBlasio
Chief
Executive Officer
|
|
—
|
|
—
|
|
40,108
|
535,124
|
|||||||||||||||
David
Buckel
Chief
Financial Officer
|
|
—
|
|
—
|
|
19,689
|
288,753
|
|||||||||||||||
Vincent
Molinaro
Chief
Operating Officer
|
|
—
|
|
—
|
|
—
|
—
|
|||||||||||||||
Richard
Dobb
Vice
President and General Counsel
|
|
—
|
|
—
|
|
—
|
—
|
|||||||||||||||
Philip
Kaplan
Chief
Strategy Officer
|
|
—
|
|
—
|
|
—
|
—
|
|||||||||||||||
Tamara
Augustyn
Vice
President and Principal Accounting Officer
|
|
—
|
|
—
|
|
3,906
|
59,222
|
Termination
Benefit
|
Change
in Control Benefit
|
|||||||||||||||||||||||||||
Name
and Principal
Position
|
Estimate
of
Total
Severance
Value
$
|
Termination
Reason
|
Cash
Severance
Multiple
|
Equity
Treatment (3)
|
Benefit
Continu-
ation
|
Retirement
Continu-
ation
|
Other
|
Estimate
of Total
Change
in
Control
Value
$
|
Protection
Period
|
Cash
Severance
Multiple
|
Equity
Award
Treatment
|
Benefit
Continu-
ation
|
Retirement
Continu-
ation
|
|||||||||||||||
James
DeBlasio
Chief
Executive Officer
|
|
637,500
|
Involuntary
Termination Without cause
|
1.5x
Base Salary
|
No accelerated
vesting - Executive has 90 days to exercise vested options
|
18
months
|
—
|
—
|
|
2,332,400
|
24
months
|
2x(Base
Salary + Maximum Target Bonus)
|
100% vesting
of restricted stock and options
|
18
months
|
—
|
|||||||||||||
David
Buckel (1)
Chief
Financial Officer
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Vincent
Molinaro
Chief
Operating Officer
|
525,000
|
Involuntary
Termination Without cause
|
1.5x
Base Salary
|
No accelerated
vesting - Executive has 90 days to exercise vested
options
|
18
months
|
—
|
—
|
2,091,250
|
24
months
|
2x(Base
Salary + Maximum Target Bonus)
|
100% vesting
of restricted stock and options
|
18
months
|
—
|
|||||||||||||||
Richard
Dobb
Vice
President and General Counsel
|
240,000
|
Involuntary
Termination Without cause
|
1x
Base Salary
|
No accelerated
vesting - Executive has 90 days to exercise vested
options
|
18
months
|
—
|
—
|
924,900
|
24
months
|
2x(Base
Salary + Maximum Target Bonus)
|
100% vesting
of restricted stock and options
|
18
months
|
—
|
|||||||||||||||
Philip
Kaplan
Chief
Strategy Officer
|
235,000
|
Involuntary
Termination Without cause
|
1x
Base Salary
|
No accelerated
vesting - Executive has 90 days to exercise vested
options
|
18
months
|
—
|
—
|
643,900
|
24
months
|
2x(Base
Salary + Maximum Target Bonus)
|
100% vesting
of restricted stock and options
|
18
months
|
—
|
|||||||||||||||
Tamara
Augustyn
Vice
President and Principal Accounting Officer
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1)
|
Mr.
Buckel resigned in November of
2007.
|
•
|
The
cash fee for Directors for attendance at a Board meeting in person is
$1,500 and by telephone is $750 per meeting;
|
|
•
|
The
cash fee for Directors for attendance at a Committee meeting in person is
$1,000 and by telephone is $750 per meeting;
|
|
•
|
The
annual retainer paid to each Director is $20,000.
|
|
|
•
|
An
annual stock option grant to each Director of 5,000 shares of the
Company’s common stock. The options have an exercise price equal to 100%
of the fair market value of our common stock on the date of grant and are
fully vested and exercisable as of the date of
grant;
|
•
|
An
annual grant of 2,500 restricted stock units, which vests ratably over a
three-year period, subject to the terms in the stock grant agreement and
Stock Plan under which the restricted stock units are
granted;
|
•
|
The
Chair of the Compensation Committee of the Board of Directors receives an
annual retainer of $7,500;
|
•
|
Other
members of the Compensation Committee receive an annual retainer of
$2,500;
|
•
|
Members
of the Audit Committee, other than the Chair, receive an annual retainer
of $5,000. The Audit Committee Chair’s retainer is
$10,000.
|
|
•
|
The
Chair of the Nominations and Governance Committee of the Board of
Directors receives an annual retainer of
$5,000.
|
•
|
The
Chairman of the Board of Directors receives an annual retainer of
$40,000.
|
•
|
New
non-employee Directors receive a grant of 12,500 restricted stock units,
which vests ratably over a three-year period, subject to the terms of the
stock grant agreement and Stock Plan under which the restricted stock
units are granted.
|
Name
|
|
Fees
Earned or
Paid
in
Cash
$
|
|
Stock
Awards
$(1)
|
Option
Awards
$(1)
|
|
Non-Equity
Incentive
Plan
Compensation
$
|
|
Change
in
Pension Value and
Non-Qualified
Deferred
Compensation
Earnings
$
|
|
All
Other
Compensation
(2)
$
|
|
Total
$
|
|||||
Eidenberg,
Eugene
|
|
42,000
|
|
4,779
|
57,631
|
|
—
|
|
—
|
|
9,879
|
|
114,289
|
|||||
Higgins,
Patricia
|
|
45,250
|
|
4,779
|
57,631
|
|
—
|
|
—
|
|
—
|
|
107,659
|
|||||
Coe,
Charles
|
|
35,875
|
|
4,779
|
57,631
|
|
—
|
|
—
|
|
2,113
|
|
100,397
|
|||||
Harding,
William
|
|
10,250
|
|
4,779
|
57,631
|
|
—
|
|
—
|
|
1,497
|
|
74,157
|
|||||
Harman,
Frederick (3)
|
9,000
|
—
|
—
|
—
|
—
|
2,399
|
11,399
|
|||||||||||
Ober,
Kevin
|
|
33,000
|
|
4,779
|
57,631
|
|
—
|
|
—
|
|
8,347
|
|
103,757
|
|||||
Pfeiffer,
Gary
|
|
10,250
|
|
17,813
|
—
|
|
—
|
|
—
|
|
3,069
|
|
31,132
|
|||||
Stanzione,
Daniel
|
|
36,000
|
|
4,779
|
57,631
|
|
—
|
|
—
|
|
124
|
|
98,533
|
(1)
|
Based
on the grant date fair value of outstanding awards that vested in 2007
computed in accordance with FAS
123R.
|
(2)
|
Includes
consulting fees and reimbursement for expenses.
|
(3)
|
Mr.
Harman resigned on March 15, 2007.
|
Name
|
|
Options
|
|
Shares
of
Restricted
Stock
|
||
Eidenberg,
Eugene
|
|
142,999
|
2,500
|
|||
Higgins,
Patricia
|
|
34,000
|
|
2,500
|
||
Coe,
Charles
|
|
36,000
|
|
2,500
|
||
Harding,
William (1)
|
|
—
|
|
—
|
||
Harman,
Frederick (2)
|
—
|
—
|
||||
Ober,
Kevin
|
|
21,000
|
|
2,500
|
||
Pfeiffer,
Gary
|
|
—
|
|
12,500
|
||
Stanzione,
Daniel
|
|
34,000
|
|
2,500
|
||
(1)
|
Dr.
Harding retired from Morgan Stanley Venture Partners III, LLC and Morgan
Stanley & Co., Inc. in October of 2007. He assigned all of
his equity compensation received while serving on our Board of Directors
to Morgan Stanley, which consists of 2,500 shares of restricted common
stock and options to purchase 27,000 shares of common stock that are
vested and exercisable. Dr. Harding disclaims beneficial
ownership in all such shares. Because Dr. Harding has retired from Morgan
Stanley, such shares are excluded from the table
above.
|
(2)
|
Mr.
Harman resigned on March 15,
2007.
|
The
Compensation Committee
|
|
Charles
B. Coe
|
Patricia
L. Higgins
|
|
Gary
Pfeiffer
|
Daniel
Stanzione
|
•
|
our
Directors and Director nominees;
|
|
•
|
our
principal executive officer, our principal accounting officer, our three
most highly compensated named executive officers other than the principal
executive officer and principal accounting officer as of December 31,
2007, and one individual who would have been the principal financial
officer had he been an executive officer as of December 31,
2007;
|
|
•
|
our
Directors, Director nominees and executive officers as a group;
and
|
|
•
|
each
stockholder who holds more than a 5% interest in our outstanding common
stock.
|
|
Common
Stock Beneficially Owned
|
||||
|
Number of Shares
|
|
Percent of Class
|
||
Tamara
Augustyn (1)
|
36,751
|
*
|
|||
David
A. Buckel (2)
|
|
--
|
|
--
|
|
Charles
B. Coe (3)
|
|
53,500
|
|
*
|
|
James
P. DeBlasio (4)
|
|
681,323
|
|
*
|
|
Richard
Dobb (5)
|
66,235
|
*
|
|||
Eugene
Eidenberg (6)
|
|
242,656
|
|
*
|
|
Franklin
Resources, Inc. (7)
|
|
3,696,290
|
|
7.4%
|
|
William
J. Harding (8)
|
|
24,783
|
|
*
|
|
Patricia
L. Higgins (9)
|
|
41,229
|
|
*
|
|
Integral
Capital Management VII, LLC, Integral Capital Management VIII, LLC
and
ICP Absolute Return Management, LLC (10)
|
2,999,000
|
6.0%
|
|||
Phil
Kaplan (11)
|
437,862
|
*
|
|||
Kornitzer
Capital Management, Inc. (12)
|
3,736,800
|
7.4%
|
|||
Vince
Molinaro (13)
|
194,771
|
*
|
|||
Kevin
L. Ober (14)
|
|
23,500
|
|
*
|
|
Gary
Pfeiffer (15)
|
12,500
|
*
|
|||
Daniel
C. Stanzione (16)
|
|
45,500
|
|
*
|
|
All
Directors and executive officers as a group (13 persons)
|
|
1,860,610
|
|
3.7%
|
(1)
|
Consists
of 3,980 shares of restricted common stock awarded on March 20, 2008 that
vest in 16 quarterly installments, 7,500 shares
of restricted common stock awarded on March 15, 2007 that vest in 16
quarterly installments, 10,000 shares of restricted common
stock awarded on February 27, 2006 of which 12.5% vest every six months,
and options to purchase 15,271 shares of common
stock that are vested and exercisable or that will vest within 60
days.
|
(2)
|
Mr.
Buckel resigned his position as Vice President and Chief Financial Officer
on November 19, 2007.
|
Consists
of 15,000 shares of common stock, 2,500 shares of restricted common stock
awarded on June 22, 2007 one-third
of which vest on each of the first, second and third anniversary of the
grant date, provided Mr. Coe is a Director of
the Company on such date, and options to purchase 36,000 shares of
common stock that are vested
and exercisable.
|
|
(4)
|
Consists
of: (i) 5,000 shares purchased in the open market; (ii) 100,000 shares of
restricted stock of which 50,000 vested on September
30, 2006 and 17,325 shares were withheld to cover taxes, 16,667 vested on
September 30, 2007 with 16,667 shares to
vest on September 30, 2008 and 16,666 shares to vest on September 30,
2009, provided that Mr. DeBlasio is employed by the Company on such
vesting dates. Thus far, Mr. DeBlasio has sold 27,000 shares in
accordance with his 10b-5 plan; (iii) 125,000 shares
of restricted stock that vest in a series of 16 quarterly installments at
the end of each calendar quarter beginning with the second
quarter of 2007 provided that Mr. DeBlasio is employed by the Company
at the end of such quarter; (iv) 149,776 shares of restricted common stock
awarded on March 20, 2008, half of which are
time-based and half are performance-based vesting. The
time-based portion vests in 16 equal quarterly installments. The
performance-based portion vests in increments of one-third beginning on
the first anniversary of the grant date if the Company achieves revenue
and EBITDA levels established by the Board.
The Company will either meet or not meet both goals in a given year. With
respect to all shares of performance-based restricted stock
that do not vest during any of the three years, 50% of such shares will
vest on the fourth anniversary of the date of
the grant. The vesting of any restricted stock (including both time-based
and performance-based) is subject to Mr. DeBlasio being
an employee in good standing on the date of vesting; (v) 4,372 shares
awarded on March 15, 2008; and (vi) and options to purchase 341,500 shares
of common stock that are vested and exercisable or that will vest within
60 days.
|
(5)
|
Consists
of 30,000 shares of restricted common stock awarded on April 23, 2007 and
25% of the award vests on the anniversary of
grant, provided that Mr. Dobb is employed by the Company on that date,
1,628 shares awarded on March 15, 2008 that are fully
vested, and 34,607 shares of restricted common stock awarded on March 20,
2008, half of which are time-based and half are performance-based vesting.
The time-based portion vests in 16 equal quarterly installments. The
performance-based portion vests in increments of one-third beginning on
the first anniversary of the grant date if the Company achieves revenue
and EBITDA
levels established by the Board. The Company will either meet or not meet
both goals in a given year. With respect to
all shares of performance-based restricted stock that do not
vest during any of the three years, 50% of such shares will vest
on
the fourth anniversary of the date of the grant. The vesting of any
restricted stock (including both time-based and performance-based)
is subject to Mr. Dobb being an employee in good standing on the date of
vesting.
|
(6)
|
Consists
of the 2,500 shares of restricted common stock awarded on June 22, 2007
one-third of which vest on each of the first, second and third anniversary
of the grant date, provided Dr. Eidenberg is a Director of the Company on
such date, 236 shares of common stock held by Mr. Eidenberg,
45,556 shares of common stock held by Mr. Eidenberg, as trustee of the
Eugene Eidenberg Trust dated 9/97, 2,799 shares
of common stock held by Eugene Eidenberg, as trustee of the Anna M. Chavez
Educational Trust, 40,000 shares of common
stock held by the Eugene Eidenberg Grantor Retained Annuity Trust, 8,566
shares held by Anna M. Chavez, and options
to purchase 142,999 shares of common stock that are vested and
exercisable.
|
(7)
|
As
of December 31, 2007. The address of Franklin Resources, Inc. is One
Franklin Parkway, San Mateo, California 94403.
|
(8)
|
Dr.
Harding retired from Morgan Stanley Venture Partners III, LLC and Morgan
Stanley & Co., Inc. in 2007. He assigned all of his equity
compensation received while serving on our Board of Directors to Morgan
Stanley, which consists of 2,500 shares of restricted common stock and
options to purchase 27,000 shares of common stock that are vested and
exercisable. Dr. Harding disclaims beneficial ownership in all
such shares. Because Dr. Harding has retired from Morgan Stanley, such
shares are excluded from the table above.
|
(9)
|
Consists
of 4,729 shares of common stock, 2,500 shares of restricted common stock
awarded on June 22, 2007 one-third of which vest on each of the first,
second and third anniversary of the grant date, provided Ms. Higgins is a
Director of the Company on such date, and options to purchase 34,000
shares of common stock that are vested and exercisable.
|
(10)
|
As
of January 4, 2008. The address is 3000 Sand Hill Road,
Building 3, Suite 240, Menlo Park, California
94025.
|
(11)
|
Consists
of 329,321 shares owned by Mr. Kaplan’s family trust, options to purchase
74,493 shares of common stock that are vested and exercisable or that will
vest within 60 days and 34,048 shares of restricted common stock
awarded on March 20, 2008, half of which are time-based and half are
performance-based vesting. The time-based portion vests in 16 equal
quarterly installments. The performance-based portion vests in increments
of one-third beginning on the first anniversary of the grant date if the
Company achieves revenue and EBITDA levels established by the Board. The
Company will either meet or not meet both goals in a given year. With
respect to all shares of performance-based restricted stock
that do not vest during any of the three years, 50% of such shares will
vest on the fourth anniversary of the date of the grant. The vesting of
any restricted stock (including both time-based and performance-based) is
subject to Mr. Kaplan being an employee in good standing on the date of
vesting.
|
(12)
|
As
of December 31, 2007. The address is 5420 West 61st Place, Shawnee
Mission, Kansas 66205.
|
(13)
|
Consists
of 125,000 shares of restricted common stock awarded on April 24, 2007 of
which 25% of the award vests on the anniversary of grant, provided that
Mr. Molinaro is employed by the Company on that date and 69,771 shares of
restricted common stock awarded on March 20, 2008, half of which are
time-based and half are performance-based vesting. The time-based portion
vests in 16 equal quarterly installments. The performance-based portion
vests in increments of one-third beginning on the first anniversary of the
grant date if the Company achieves revenue and EBITDA levels established
by the Board. The Company will either meet or not meet both goals in a
given year. With respect to all shares of performance-based restricted
stock that do not vest during any of the three years, 50% of such shares
will vest on the fourth anniversary of the date of the grant. The vesting
of any restricted stock (including both time-based and performance-based)
is subject to Mr. Molinaro being an employee in good standing on the date
of vesting. Mr. Molinaro resigned his position as Chief
Operating Officer on April 7, 2008 and plans to remain an employee through
June 30, 2008.
|
(14)
|
Consists
of 2,500 shares of restricted common stock awarded on June 22, 2007
one-third of which vest on each of the first, second and third anniversary
of the grant date, provided Mr. Ober is a Director of the Company on such
date, and options to purchase 21,000 shares of common stock that are
vested and exercisable.
|
(15)
|
Consists
of 12,500 shares of restricted common stock awarded on August 21, 2007
one-third of which vest on each of the first, second and third anniversary
of the grant date, provided Mr. Pfeiffer is a Director of the Company on
such date.
|
(16)
|
Consists
of 9,000 shares purchased in the open market, 2,500 shares of restricted
common stock awarded on June 22, 2007 one-third of which vest on each of
the first, second and third anniversary of the grant date, provided Dr.
Stanzione is a Director of the Company on such date, and
options to purchase 34,000 shares of common stock that are vested and
exercisable.
|
|
2007
|
|
2006
|
|||
Audit
Fees (1)
|
|
$
|
1,988,994
|
|
$
|
1,298,297
|
Audit-Related
Fees (2)
|
|
325,694
|
|
399,966
|
||
Tax
Fees (3)
|
|
78,530
|
|
52,768
|
||
All
Other Fees (4)
|
|
1,500
|
|
142,804
|
||
Total
|
|
$
|
2,394,718
|
|
$
|
1,893,835
|
(1)
|
Fees
related to the audit of Internap’s annual financial statements, including
the audit of the effectiveness of internal control over financial
reporting and the reviews of the quarterly financial statements filed on
Forms 10-Q, and, for 2006, included the audit of management’s assessment
of internal control over financial reporting.
|
||||||||
(2)
|
Fees
primarily related to international statutory filings and, in 2006, also
included registration statements.
|
||||||||
(3)
|
Fees
primarily related to tax compliance, advice and
planning.
|
||||||||
(4)
|
Fees
related to services performed in conjunction with other professional
services.
|
(a)
|
Documents
filed as a part of the report:
|
(1)
|
Consolidated
Financial Statements.
|
Page
|
||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Statements of Operations
|
F-3
|
|
Consolidated
Balance Sheets
|
F-4
|
|
Consolidated
Statement of Stockholders’ Equity and Comprehensive Loss
|
F-5
|
|
Consolidated
Statements of Cash Flows
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
(2)
|
Financial
Statement Schedule.
|
Page
|
||
Schedule
II - Valuation and Qualifying Accounts for the Three Years Ended December
31, 2007
|
S-1
|
(3)
|
Index
to Exhibits.
|
Exhibit
Number
|
Description
|
|
2.1
|
Agreement
and Plan of Merger dated October 12, 2006, by and among the Company, Ivy
Acquisition Corp. and VitalStream Holdings, Inc. (incorporated herein by
reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K,
filed on October 12, 2006).
|
|
3.1
|
Certificate
of Incorporation of the Company, as amended (incorporated by reference
herein to Exhibit 4.1 to the Company’s Registration Statement on Form S-3,
filed on September 8, 2003, File No. 333-108573).
|
|
3.2
|
Certificate
of Amendment of Certificate of Incorporation of the Company (incorporated
by reference herein to Exhibit 3.1 to the Company’s Current Report on Form
8-K filed on July 11, 2006).
|
|
3.3
|
Amended
and Restated Bylaws of the Company (incorporated by reference herein to
Exhibit 4.2 to the Company’s Registration Statement on Form S-3, filed
September 8, 2003, File No. 333-108573).
|
|
3.4
|
Certificate
of Designation of Rights, Preferences and Privileges of Series B Preferred
Stock (incorporated by reference herein to Exhibit 3.4 to the Company’s
Current Report on Form 8-K filed on April 13, 2007).
|
|
4.1
|
Rights
Agreement, dated as of April 11, 2007, between Internap Network Services
Corporation and American Stock Transfer & Trust Company, as Rights
Agreement (incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K, filed on April 13, 2007).
|
|
10.1
|
Form
of Indemnification Agreement between the Company and each of its directors
and certain of its officers (incorporated herein by reference to Exhibit
10.1 to the Company’s Registration Statement on Form S-1, File No.
333-84035 dated July 29, 1999).+
|
10.2
|
Amended
and Restated Internap Network Services Corporation 1998 Stock Option/Stock
Issuance Plan (incorporated herein by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2000, filed on November 14, 2000).+
|
|
10.3
|
Internap
Network Services Corporation 1999 Non-Employee Directors’ Stock Option
Plan (incorporated herein by reference to Appendix L to the Company’s
Definitive Proxy Statement dated
April 29, 2003).+
|
|
10.4
|
First
Amendment to the Internap Network Services Corporation 1999 Non-Employee
Directors’ Stock Option Plan (incorporated herein by reference to
Appendix E to the Company’s Definitive Proxy Statement dated
April 29, 2003).+
|
|
10.5
|
Internap
Network Services Corporation 1999 Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.4 to the Company’s
Registration Statement on Form S-1, File No. 333-84035 dated July 29,
1999).+
|
|
10.6
|
Amended
and Restated Internap Network Services Corporation 1999 Stock Incentive
Plan for Non-Officers (incorporated herein by reference to Exhibit 10.2 to
the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, filed on November 14, 2000).+
|
|
10.7
|
Amended
Internap Network Services Corporation 1999 Equity Incentive Plan
(incorporated herein by reference to Exhibit 10.7 to the Company’s
Registration Statement on Form S-1, File No. 333-95503 dated January 27,
2000).+
|
|
10.8
|
Form
of 1999 Equity Incentive Plan Stock Option Agreement (incorporated herein
by reference to Exhibit 10.8 to the Company’s Registration Statement on
Form S-1, File No. 333-84035 dated July
29, 1999).+
|
|
10.9
|
Internap
Network Services Corporation 2000 Non-Officer Equity Incentive Plan
(incorporated herein by reference to Exhibit 99.1 to the Company’s
Registration Statement on Form S-8, File No. 333-37400 dated May 19,
2000).+
|
|
10.10
|
Internap
Network Services Corporation 2002 Stock Compensation Plan (incorporated
herein by reference to Exhibit 99(d)(1) to the Company’s Tender Offer
Statement on Schedule TO, filed on November
18, 2002).+
|
|
10.11
|
Form
of Nonstatutory Stock Option Agreement under the Internap Network Services
Corporation 2002
Stock Compensation Plan (incorporated herein by reference to Exhibit
99(d)(2) to the Company’s Tender Offer Statement on Schedule TO, filed on
November 18, 2002).+
|
|
10.12
|
Form
of Employee Confidentiality, Nonraiding and Noncompetition Agreement used
between Company and its Executive Officers (incorporated herein by
reference to Exhibit 10.11 to the Company’s Registration Statement on Form
S-1, File No. 333-84035 dated July 29, 1999).
|
|
10.13
|
Form
of Warrant (incorporated herein by reference to Appendix E to the
Company’s Definitive Proxy Statement dated August 10,
2001).
|
|
10.14
|
Amended
and Restated 2005 Incentive Stock Plan, dated March 15, 2006 (incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2006, filed on May 10,
2006).+
|
|
10.15
|
Employment
Agreement dated as of July 10, 2007 between the Company and James DeBlasio
(incorporated herein by reference to Exhibit 99.1 to the Company’s Current
Report on Form 8-K, filed on July 11, 2007).+
|
|
10.16
|
First
Amendment to Employment Agreement between James P. DeBlasio and Internap
Network Services Corporation dated November 14, 2007 (incorporated herein
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K,
filed on November 19, 2007).+
|
10.17
|
Amended
and Restated 2004 Internap Network Services Corporation Employee Stock
Purchase Plan, dated January 11, 2006 (incorporated by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006, filed on May 10, 2006).+
|
|
10.18
|
Form
of Stock Grant Certificate under the Amended and Restated Internap Network
Services Corporation 2005 Incentive Stock Plan (incorporated by reference
to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006, filed on August 8, 2006).+
|
|
10.19
|
Form
of Stock Option Grant Certificate under the Amended and Restated Internap
Network Services Corporation 2005 Incentive Stock Plan (incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006, filed on August
8, 2006).+
|
|
10.20
|
VitalStream Holdings, Inc. 2001
Stock Incentive Plan (Third Amended and Restated) (incorporated by
reference to Exhibit 4.4 to the Company’s Registration Statement on Form
S-8, File No. 333-141245, filed on March
13, 2007).+
|
|
10.21
|
Employment
Agreement dated as of October 12, 2006 between the Company and Patrick
Ritto (incorporated by reference to Exhibit 10.4 to the Company’s
Registration Statement on Form S-4, filed on November 29, 2006, File No.
33-138993 ).+
|
|
10.22
|
General
Release and Separation Agreement between Eric Klinker and Internap Network
Services Corporation
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K, filed on April 12, 2007).+
|
|
10.23
|
2007
Executive Bonus Award Incentive Plan (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2007, filed on May 10, 2007).+
|
|
10.24
|
Amendment
to the 2007 Executive Bonus Award Incentive Plan (incorporated herein by
reference to Exhibit 99.6 to the Company’s Current Report on
Form 8-K, filed on November 19, 2007).+
|
|
10.25
|
Credit
Agreement dated as of September 14, 2007 by and among Internap Network
Services Corporation, as the Borrower, Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, and the other
Lenders party thereto (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed on September 19,
2007).
|
|
10.26
|
Pledge
and Security Agreement dated as of September 14, 2007 among Internap
Network Services Corporation, and certain of its Subsidiaries party
thereto from time to time, as Grantors, and Bank of America, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K, filed on September 19,
2007).
|
|
10.27
|
Intellectual
Property Security Agreement dated as of September 14, 2007 among Internap
Network Services Corporation, and certain of its Subsidiaries party
thereto from time to time, as Grantors, and Bank of America, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K, filed on September 19,
2007).
|
|
10.28
|
Employment
Security Plan dated November 14, 2007 (incorporated herein by reference to
Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on
November 19, 2007).+
|
|
10.29
|
Joinder
Agreement to the Employment Security Plan executed by Richard Dobb
(incorporated herein by reference to Exhibit 99.3 to the Company’s Current
Report on Form 8-K, filed on November 19, 2007).+
|
|
10.30
|
Joinder
Agreement to the Employment Security Plan executed by Phil Kaplan
(incorporated herein by reference to Exhibit 99.4 to the Company’s Current
Report on Form 8-K, filed on November 19, 2007).+
|
|
10.31
|
Joinder
Agreement to the Employment Security Plan executed by Vince Molinaro
(incorporated herein by reference to Exhibit 99.5 to the Company’s Current
Report on Form 8-K, filed on November 19, 2007).+
|
|
21.1*
|
List
of Subsidiaries.
|
|
23.1*
|
Consent
of PricewaterhouseCoopers LLP, Independent Registered Public Accounting
Firm.
|
|
31.1*
|
Rule
13a-14(a)/15d-14(a) Certification, executed James P. DeBlasio, President,
Chief Executive Officer and Director the Company.
|
|
31.2*
|
Rule
13a-14(a)/15d-14(a) Certification, executed by George Kilguss, Vice
President and Chief Financial Officer of the
Company.
|
|
32.1*
|
Section
1350 Certification, executed by James P. DeBlasio, President, Chief
Executive Officer and Director the Company.
|
|
32.2*
|
Section
1350 Certification, executed by George Kilguss, Vice President and
Chief Financial Officer of the
Company.
|
*
|
Documents
filed herewith.
|
+
|
Management
contracts and compensatory plans and arrangements required to be filed as
exhibits pursuant to Item 15(c) of this
Report.
|
INTERNAP
NETWORK SERVICES CORPORATION
|
||||
Date:
April 30, 2008
|
||||
By:
|
/s/
George Kilguss
|
|||
George
Kilguss
Vice
President and Chief Financial
Officer
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Statements of Operations
|
F-3
|
Consolidated
Balance Sheets
|
F-4
|
Consolidated
Statement of Stockholders' Equity and Comprehensive Loss
|
F-5
|
Consolidated
Statements of Cash Flows
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-8
|
Financial
Statement Schedule
|
S-1
|
Year
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Revenues:
|
||||||||||||
Internet
protocol (IP) services
|
$ | 119,848 | $ | 109,748 | $ | 105,032 | ||||||
Data
center services
|
83,058 | 56,152 | 36,996 | |||||||||
Content
delivery network (CDN) services
|
17,718 | — | — | |||||||||
Other
|
13,466 | 15,475 | 11,689 | |||||||||
Total
revenues
|
234,090 | 181,375 | 153,717 | |||||||||
Operating
costs and expenses:
|
||||||||||||
Direct
costs of network, sales and services, exclusive of depreciation and
amortization, shown below:
|
||||||||||||
IP
services
|
43,681 | 39,744 | 38,377 | |||||||||
Data
center services
|
59,439 | 46,474 | 35,244 | |||||||||
CDN
services
|
6,584 | — | — | |||||||||
Other
|
8,690 | 11,120 | 8,337 | |||||||||
Direct
costs of amortization of acquired technologies
|
4,165 | 516 | 577 | |||||||||
Direct
costs of customer support
|
16,547 | 11,566 | 10,670 | |||||||||
Product
development
|
6,564 | 4,475 | 4,864 | |||||||||
Sales
and marketing
|
31,533 | 27,173 | 25,864 | |||||||||
General
and administrative
|
32,512 | 22,104 | 20,096 | |||||||||
Depreciation
and amortization
|
22,242 | 15,856 | 14,737 | |||||||||
Gain
on disposals of property and equipment
|
(5 | ) | (113 | ) | (19 | ) | ||||||
Restructuring
and asset impairment
|
11,349 | 323 | 44 | |||||||||
Acquired
in-process research and development
|
450 | — | — | |||||||||
Other
|
50 | — | — | |||||||||
Amortization
of deferred stock compensation
|
— | — | 60 | |||||||||
Total
operating costs and expenses
|
243,801 | 179,238 | 158,851 | |||||||||
(Loss)
income from operations
|
(9,711 | ) | 2,137 | (5,134 | ) | |||||||
Non-operating
(income) expense:
|
||||||||||||
Interest
income
|
(3,228 | ) | (2,305 | ) | (1,284 | ) | ||||||
Interest
expense
|
1,111 | 883 | 1,373 | |||||||||
Write-off
of investment
|
1,178 | — | — | |||||||||
Other,
net
|
2 | (129 | ) | (176 | ) | |||||||
Total
non-operating (income) expense
|
(937 | ) | (1,551 | ) | (87 | ) | ||||||
(Loss)
income before income taxes and equity in earnings of equity-method
investment
|
(8,774 | ) | 3,688 | (5,047 | ) | |||||||
(Benefit)
provision for income taxes
|
(3,080 | ) | 145 | — | ||||||||
Equity
in earnings of equity-method investment, net of taxes
|
(139 | ) | (114 | ) | (83 | ) | ||||||
Net
(loss) income
|
$ | (5,555 | ) | $ | 3,657 | $ | (4,964 | ) | ||||
Net
(loss) income per share:
|
||||||||||||
Basic
|
$ | (0.12 | ) | $ | 0.11 | $ | (0.15 | ) | ||||
Diluted
|
$ | (0.12 | ) | $ | 0.10 | $ | (0.15 | ) | ||||
Weighted
average shares used in per share calculations:
|
||||||||||||
Basic
|
46,942 | 34,748 | 33,939 | |||||||||
Diluted
|
46,942 | 35,739 | 33,939 |
December
31,
|
||||||||
2007
|
2006
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 52,030 | $ | 45,591 | ||||
Short-term
investments in marketable securities
|
19,569 | 13,291 | ||||||
Accounts
receivable, net of allowance of $5,470 and $888,
respectively
|
36,429 | 20,282 | ||||||
Inventory
|
304 | 474 | ||||||
Prepaid
expenses and other assets
|
8,464 | 3,818 | ||||||
Deferred
tax asset, current portion
|
479 | — | ||||||
Total
current assets
|
117,275 | 83,456 | ||||||
Property
and equipment, net
|
65,491 | 47,493 | ||||||
Investments
|
1,138 | 2,135 | ||||||
Intangible
assets, net
|
43,008 | 1,785 | ||||||
Goodwill
|
190,677 | 36,314 | ||||||
Restricted
cash
|
4,120 | — | ||||||
Deferred
tax asset, non-current
|
3,014 | — | ||||||
Deposits
and other assets
|
2,287 | 2,519 | ||||||
Total
assets
|
$ | 427,010 | $ | 173,702 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Notes
payable, current portion
|
$ | 2,413 | $ | 4,375 | ||||
Accounts
payable
|
19,624 | 8,776 | ||||||
Accrued
liabilities
|
10,159 | 8,689 | ||||||
Deferred
revenue, current portion
|
4,807 | 3,260 | ||||||
Capital
lease obligations, current portion
|
805 | 347 | ||||||
Restructuring
liability, current portion
|
2,396 | 1,400 | ||||||
Other
current liabilities
|
108 | 84 | ||||||
Total
current liabilities
|
40,312 | 26,931 | ||||||
Notes
payable, less current portion
|
17,354 | 3,281 | ||||||
Deferred
revenue, less current portion
|
2,275 | 1,080 | ||||||
Capital
lease obligations, less current portion
|
452 | 83 | ||||||
Restructuring
liability, less current portion
|
7,697 | 3,384 | ||||||
Deferred
rent
|
11,011 | 11,432 | ||||||
Deferred
tax liability
|
398 | — | ||||||
Other
long-term liabilities
|
878 | 986 | ||||||
Total
liabilities
|
80,377 | 47,177 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, $0.001 par value, 200,000 shares authorized, no shares issued or
outstanding
|
— | — | ||||||
Common
stock, $0.001 par value, 60,000 shares authorized, 49,759 and 35,873
shares issued and outstanding, respectively
|
50 | 36 | ||||||
Additional
paid-in capital
|
1,208,191 | 982,624 | ||||||
Accumulated
deficit
|
(862,010 | ) | (856,455 | ) | ||||
Accumulated
items of other comprehensive income
|
402 | 320 | ||||||
Total
stockholders’ equity
|
346,633 | 126,525 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 427,010 | $ | 173,702 |
Common
Stock
|
||||||||||||||||||||||||||||||||
Shares
|
Par
Value
|
Additional
Paid-In
Capital
|
Treasury
Stock
|
Deferred
Stock
Compensation
|
Accumulated
Deficit
|
Accumulated
Items
of
Comprehensive
Income (Loss)
|
Total
Stockholders’
Equity
|
|||||||||||||||||||||||||
Balance,
December
31, 2004
|
33,815 | $ | 34 | $ | 968,255 | $ | — | $ | — | $ | (855,148 | ) | $ | 597 | $ | 113,738 | ||||||||||||||||
Net loss
|
— | — | — | — | — | (4,964 | ) | — | (4,964 | ) | ||||||||||||||||||||||
Change in unrealized gains and
losses on investments, net of taxes
|
— | — | — | — | — | — |
(118
|
) |
(118
|
) | ||||||||||||||||||||||
Foreign currency translation
adjustment
|
— | — | — | — | — | — |
(474
|
) |
(474
|
) | ||||||||||||||||||||||
Total
comprehensive loss
|
(5,556 | ) | ||||||||||||||||||||||||||||||
Deferred stock compensation
grant
|
— | — | 480 | — | (480 | ) | — | — | — | |||||||||||||||||||||||
Amortization of deferred stock
compensation
|
— | — | — | — | 60 | — | — | 60 | ||||||||||||||||||||||||
Stock compensation plans
activity
|
353 | — | 1,486 | — | — | — | — | 1,486 | ||||||||||||||||||||||||
Balance,
December
31, 2005
|
34,168 | 34 | 970,221 | — | (420 | ) | (860,112 | ) | 5 | 109,728 | ||||||||||||||||||||||
Net income
|
— | — | — | — | — | 3,657 | — | 3,657 | ||||||||||||||||||||||||
Change in unrealized gains and
losses on investments, net of taxes
|
— | — | — | — | — | — | 80 | 80 | ||||||||||||||||||||||||
Foreign currency translation
adjustment
|
— | — | — | — | — | — | 235 | 235 | ||||||||||||||||||||||||
Total
comprehensive income
|
3,972 | |||||||||||||||||||||||||||||||
Reclassification of deferred
stock compensation resulting from implementation of SFAS No.
123R
|
— | — | (420 | ) | — | 420 | — | — | — | |||||||||||||||||||||||
Stock-based
compensation
|
578 | 1 | 5,985 | (395 | ) | — | — | — | 5,591 | |||||||||||||||||||||||
Stock compensation plans
activity
|
576 | 1 | 3,030 | 395 | — | — | — | 3,426 | ||||||||||||||||||||||||
Exercise
of warrants
|
551 | — | 3,808 | — | — | — | — | 3,808 | ||||||||||||||||||||||||
Balance,
December
31, 2006
|
35,873 | 36 | 982,624 | — | — |
(856,455
|
) | 320 | 126,525 | |||||||||||||||||||||||
Net loss
|
— | — | — | — | — | (5,555 | ) | — | (5,555 | ) | ||||||||||||||||||||||
Change in unrealized gains and
losses on investments, net of taxes
|
— | — | — | — | — | — | (25 | ) | (25 | ) | ||||||||||||||||||||||
Foreign currency translation
adjustment
|
— | — | — | — | — | — | 107 | 107 | ||||||||||||||||||||||||
Total
comprehensive loss
|
(5,473 | ) | ||||||||||||||||||||||||||||||
Stock issued in connection with
VitalStream acquisition
|
12,206 | 12 | 208,281 | — | — | — | — | 208,293 | ||||||||||||||||||||||||
Stock-based
compensation
|
420 | 1 | 8,705 | — | — | — | — | 8,706 | ||||||||||||||||||||||||
Stock compensation plans
activity
|
1,260 | 1 | 8,581 | — | — | — | — | 8,582 | ||||||||||||||||||||||||
Balance,
December
31, 2007
|
49,759 | $ | 50 | $ | 1,208,191 | $ | — | $ | — | $ | (862,010 | ) | $ | 402 | $ | 346,633 |
Year
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
(loss) income
|
$ | (5,555 | ) | $ | 3,657 | $ | (4,964 | ) | ||||
Adjustments
to reconcile net (loss) income to net cash provided by operating
activities:
|
||||||||||||
Depreciation
and amortization
|
26,407 | 16,372 | 15,314 | |||||||||
Gain
on disposal of property and equipment, net
|
(5 | ) | (113 | ) | (19 | ) | ||||||
Asset
impairment
|
2,454 | 319 | — | |||||||||
Acquired
in-process research and development
|
450 | — | — | |||||||||
Stock-based
compensation expense
|
8,681 | 5,942 | 75 | |||||||||
Write-off
of investment
|
1,178 | — | — | |||||||||
Equity
in earnings from equity-method investment
|
(139 | ) | (114 | ) | (83 | ) | ||||||
Provision
for doubtful accounts
|
2,261 | 548 | 1,431 | |||||||||
Non-cash
changes in deferred rent
|
(421 | ) | 2,247 | 2,690 | ||||||||
Lease
incentives
|
— | — | 713 | |||||||||
Deferred
income taxes
|
(3,095 | ) | — | — | ||||||||
Other,
net
|
(84 | ) | 212 | (397 | ) | |||||||
Changes
in operating assets and liabilities, excluding effects of
acquisition:
|
||||||||||||
Accounts
receivable
|
(15,825 | ) | (1,702 | ) | (3,616 | ) | ||||||
Inventory,
prepaid expenses, deposits and other assets
|
(2,182 | ) | (1,778 | ) | (170 | ) | ||||||
Accounts
payable
|
7,920 | 3,010 | (5,433 | ) | ||||||||
Accrued
and other liabilities
|
(2,466 | ) | 1,422 | 805 | ||||||||
Deferred
revenue
|
2,704 | 1,070 | 1,023 | |||||||||
Accrued
restructuring liability
|
5,309 | (1,493 | ) | (1,876 | ) | |||||||
Net
cash flows provided by operating activities
|
27,592 | 29,599 | 5,493 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases
of short-term investments in marketable securities
|
(38,508 | ) | (17,427 | ) | (18,710 | ) | ||||||
Maturities
of short-term investments in marketable securities
|
32,395 | 20,277 | 19,350 | |||||||||
Purchases
of property and equipment
|
(30,271 | ) | (13,382 | ) | (10,161 | ) | ||||||
Proceeds
from disposal of property and equipment
|
5 | 133 | 17 | |||||||||
Cash
received from acquisition, net of costs incurred for the
transaction
|
3,203 | — | — | |||||||||
Change
in restricted cash, excluding effects of acquisition
|
(3,217 | ) | — | 76 | ||||||||
Net
cash flows used in investing activities
|
(36,393 | ) | (10,399 | ) | (9,428 | ) | ||||||
Year
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from notes payable, net of discount
|
19,742 | — | — | |||||||||
Principal
payments on notes payable
|
(11,318 | ) | (4,375 | ) | (6,483 | ) | ||||||
Payments
on capital lease obligations
|
(1,617 | ) | (538 | ) | (512 | ) | ||||||
Debt
issuance costs
|
(65 | ) | — | — | ||||||||
Proceeds
from exercise of stock options and employee stock purchase
plan
|
8,582 | 3,031 | 1,471 | |||||||||
Proceeds
from exercise of warrants
|
— | 3,808 | — | |||||||||
Other,
net
|
(84 | ) | 31 | 70 | ||||||||
Net
cash flows provided by (used in) financing activities
|
15,240 | 1,957 | (5,454 | ) | ||||||||
Net
increase (decrease) in cash and cash equivalents
|
6,439 | 21,157 | (9,389 | ) | ||||||||
Cash
and cash equivalents at beginning of period
|
45,591 | 24,434 | 33,823 | |||||||||
Cash
and cash equivalents at end of period
|
$ | 52,030 | $ | 45,591 | $ | 24,434 | ||||||
Supplemental disclosure of cash
flow information:
|
||||||||||||
Common
stock issued and stock options assumed for acquisition of
VitalStream
|
$ | 208,293 | $ | — | $ | — | ||||||
Cash
paid for interest, net of amounts capitalized
|
1,152 | 793 | 1,223 | |||||||||
Cash
paid for income taxes
|
103 | 149 | — | |||||||||
Non-cash
acquisition of property and equipment
|
148 | 162 | 971 | |||||||||
Capitalized
stock-based compensation
|
25 | 44 | — | |||||||||
1.
|
DESCRIPTION
OF THE COMPANY AND NATURE OF
OPERATIONS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Year
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Net
(loss) income
|
$ | ( 5,555 | ) | $ | 3,657 | $ | (4,964 | ) | ||||
Weighted
average shares outstanding, basic
|
46,942 | 34,748 | 33,939 | |||||||||
Effect
of dilutive securities:
|
||||||||||||
Stock
compensation plans
|
— | 984 | — | |||||||||
Warrants
|
— | 7 | — | |||||||||
Weighted
average shares outstanding, diluted
|
46,942 | 35,739 | 33,939 | |||||||||
Net
(loss) income per share:
|
||||||||||||
Basic
|
$ | ( 0.12 | ) | $ | 0.11 | $ | (0.15 | ) | ||||
Diluted
|
$ | ( 0.12 | ) | $ | 0.10 | $ | (0.15 | ) | ||||
Anti-dilutive
securities not included in diluted net (loss) income per share
calculation:
|
||||||||||||
Stock
compensation plans
|
3,860 | 1,408 | 3,656 | |||||||||
Warrants
to purchase common stock
|
34 | — | 1,500 | |||||||||
3,894 | 1,408 | 5,156 |
Year
Ended December 31,
|
||||||||
2006
|
2005
|
|||||||
Direct
costs of network, sales and services, exclusive of depreciation and
amortization show below:
|
||||||||
Previously
reported
|
$ | 97,854 |
82,535
|
|||||
Reclassification
|
(516
|
) |
(577
|
) | ||||
As
reclassified
|
$ | 97,338 | $ | 81,958 | ||||
A
reconciliation of total direct costs of network, sales and services,
exclusive of depreciation and amortization to the accompanying
consolidated statements of operations is shown below (in
thousands):
|
||||||||
Year
Ended December 31,
|
||||||||
2006
|
2005
|
|||||||
IP
services
|
$ | 39,744 | $ | 38,377 | ||||
Data
center services
|
46,474 | 35,244 | ||||||
Other
|
11,120 | 8,337 | ||||||
Total
|
$ | 97,338 | $ | 81,958 | ||||
3.
|
BUSINESS
COMBINATION
|
Value
of Internap stock issued
|
$
|
197,272
|
||
Fair
value of stock options assumed
|
11,021
|
|||
Direct
transaction costs
|
5,729
|
|||
Total purchase
price
|
$
|
214,022
|
Estimated
|
|||||
Amount
|
Useful
Life
|
||||
Net
tangible assets
|
$
|
12,286
|
—
|
||
Identifiable
intangible assets:
|
|||||
Developed
technologies
|
36,000
|
8
years
|
|||
Customer
relationships
|
9,000
|
9
years
|
|||
Trade
name and other
|
1,500
|
3-6
years
|
|||
Acquired
in-process research and development
|
450
|
—
|
|||
Goodwill
(1)
|
154,786
|
—
|
|||
Total
estimated purchase price
|
$
|
214,022
|
Year
Ended December 31,
|
||||||||
2007
|
2006
|
|||||||
Pro
forma revenues
|
$ | 236,418 | $ | 205,052 | ||||
Pro
forma net loss
|
( 14,269 | ) | (16,153 | ) | ||||
Pro
forma net loss per share, basic and diluted
|
( 0.25 | ) | (0.34 | ) |
4.
|
ASSET
IMPAIRMENT AND RESTRUCTURING COSTS
|
December
31, 2006 Restructuring Liability
|
Restructuring
and
Impairment
Charges
|
Cash
Payments
|
Non-Cash
Write-
Downs
|
Non-Cash
Plan
Adjustments
|
December
31,
2007
Restructuring
Liability
|
|||||||||||||||||||
Activity
for 2007 restructuring charge:
|
||||||||||||||||||||||||
Real
estate obligations
|
$
|
—
|
$
|
7,755
|
$
|
(2,248
|
)
|
$
|
—
|
$
|
805
|
$
|
6,312
|
|||||||||||
Employee
separations
|
—
|
1,140
|
(615
|
)
|
—
|
(119
|
) |
406
|
||||||||||||||||
Total
restructuring costs
|
—
|
8,895
|
(2,863
|
)
|
—
|
686
|
6,718
|
|||||||||||||||||
Activity
for 2007 impairment charge:
|
||||||||||||||||||||||||
Leasehold
improvements
|
—
|
897
|
—
|
(897
|
)
|
—
|
—
|
|||||||||||||||||
Other
|
—
|
471
|
—
|
(471
|
)
|
—
|
—
|
|||||||||||||||||
Total
asset impairments
|
—
|
1,368
|
—
|
(1,368
|
)
|
—
|
—
|
|||||||||||||||||
Activity
for 2001 restructuring charge:
|
||||||||||||||||||||||||
Real
estate obligations
|
4,784
|
—
|
(1,199
|
)
|
—
|
(211
|
) |
3,374
|
||||||||||||||||
Total
|
$
|
4,784
|
$
|
10,263
|
$
|
(4,062
|
)
|
$
|
(1,368
|
)
|
$
|
475
|
$
|
10,092
|
December
31, 2005 Restructuring Liability
|
Restructuring
Charges
|
Cash
Payments
|
December
31 2006 Restructuring Liability
|
|||||||||||||
Activity
for 2001 restructuring charge:
|
||||||||||||||||
Real
estate obligations
|
$ | 6,277 | $ | 4 | $ | (1,497 | ) | $ | 4,784 |
5.
|
OPERATING
SEGMENTS
|
Year
Ended December 31, 2007
|
||||||||||||||||||||
IP
Services
|
Data
Center
Services
|
CDN
Services
|
Other
|
Total
|
||||||||||||||||
Revenues
|
$ | 119,848 | $ | 83,058 | $ | 17,718 | $ | 13,466 | $ | 234,090 | ||||||||||
Direct costs of network, sales and services, | ||||||||||||||||||||
exclusive
of depreciation and amortization
|
43,681 | 59,439 | 6,584 | 8,690 | 118,394 | |||||||||||||||
Segment
profit
|
$ | 76,167 | $ | 23,619 | $ | 11,134 | $ | 4,776 | 115,696 | |||||||||||
Other
operating expenses
|
125,407 | |||||||||||||||||||
Loss
from operations
|
(9,711 | ) | ||||||||||||||||||
Non-operating
income
|
937 | |||||||||||||||||||
Loss before income taxes and equity in | ||||||||||||||||||||
earnings
of equity-method investment
|
$ | (8,774 | ) |
Year Ended December 31,
2006
|
||||||||||||||||||||
IP
Services
|
Data
Center
Services
|
CDN
Services
|
Other
|
Total
|
||||||||||||||||
Revenues
|
$ | 109,748 | $ | 56,152 | $ | — | $ | 15,475 | $ | 181,375 | ||||||||||
Direct costs of network, sales and services, | ||||||||||||||||||||
exclusive
of depreciation and amortization
|
39,744 | 46,474 | — | 11,120 | 97,338 | |||||||||||||||
Segment
profit
|
$ | 70,004 | $ | 9,678 | $ | — | $ | 4,355 | 84,037 | |||||||||||
Other
operating expenses
|
81,900 | |||||||||||||||||||
Income
from operations
|
2,137 | |||||||||||||||||||
Non-operating
income
|
1,551 | |||||||||||||||||||
Income before income taxes and equity in | ||||||||||||||||||||
earnings
of equity-method investment
|
$ | 3,688 | ||||||||||||||||||
Year Ended December 31,
2005
|
|||||||||||||||||||||
IP
Services
|
Data
Center
Services
|
CDN
Services
|
Other
|
Total
|
|||||||||||||||||
Revenues
|
$
|
105,032
|
$
|
36,996
|
$
|
—
|
$
|
11,689
|
$
|
153,717
|
|||||||||||
Direct
costs of network, sales and services, exclusive of depreciation and
amortization
|
38,377
|
35,244
|
—
|
8,337
|
81,958
|
||||||||||||||||
Segment
profit
|
$
|
66,655
|
1,752
|
$
|
—
|
$
|
3,352
|
71,759
|
|||||||||||||
Other
operating expenses
|
76,893
|
||||||||||||||||||||
Loss
from operations
|
(5,134
|
)
|
|||||||||||||||||||
Non-operating
income
|
87
|
||||||||||||||||||||
Loss
before income taxes and equity in earnings of equity-method
investment
|
$
|
(5,047
|
)
|
||||||||||||||||||
IP
Services
|
Data
Center
Services
|
CDN
Services
|
Other
|
Total | ||||||||||||||
December
31, 2007:
|
||||||||||||||||||
Goodwill
|
$
|
36,314
|
$
|
—
|
$
|
154,363
|
$
|
—
|
$
|
190,677
|
||||||||
Total
assets
|
148,697
|
64,498
|
211,469
|
2,346
|
427,010
|
|||||||||||||
December
31, 2006:
|
||||||||||||||||||
Goodwill
|
$
|
36,314
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
36,314
|
||||||||
Total
assets
|
130,609
|
41,185
|
—
|
1,908
|
173,702
|
6.
|
INVESTMENTS
|
December
31, 2007
|
||||||||||||
Cost
Basis
|
Unrealized
Gain
(Loss)
|
Carrying
Value
|
||||||||||
Corporate
debt securities
|
$ | 7,607 | $ | 3 | $ | 7,610 | ||||||
Auction
rate securities
|
7,150 | — | 7,150 | |||||||||
Commercial
paper
|
4,787 | 2 | 4,789 | |||||||||
Other
|
24 | (4 | ) | 20 | ||||||||
Total
short-term investments in marketable securities
|
$ | 19,568 | $ | 1 | $ | 19,569 |
December
31, 2006
|
||||||||||||
Cost
Basis
|
Unrealized
Gain
(Loss)
|
Carrying
Value
|
||||||||||
Corporate
debt securities
|
$ | 4,826 | $ | 1 | $ | 4,827 | ||||||
Commercial
paper
|
4,755 | — | 4,755 | |||||||||
U.S.
government agency debt securities
|
3,659 | (1 | ) | 3,658 | ||||||||
Other
|
24 | 27 | 51 | |||||||||
Total
short-term investments in marketable securities
|
$ | 13,264 | $ | 27 | $ | 13,291 |
Year
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Investment
Balance, January 1,
|
$ | 958 | $ | 823 | $ | 861 | ||||||
Proportional
share of net income
|
139 | 114 | 83 | |||||||||
Unrealized
foreign currency translation gain (loss), net
|
41 | 21 | (121 | ) | ||||||||
Investment
Balance, December 31,
|
$ | 1,138 | $ | 958 | $ | 823 |
PROPERTY
AND EQUIPMENT
|
December
31,
|
||||||||
2007
|
2006
|
|||||||
Network
equipment
|
$ | 86,496 | $ | 65,430 | ||||
Network
equipment under capital lease
|
1,596 | 1,596 | ||||||
Furniture,
equipment and software
|
31,726 | 31,712 | ||||||
Leasehold
improvements
|
111,216 | 100,024 | ||||||
Property
and equipment, gross
|
231,034 | 198,762 | ||||||
Less: Accumulated depreciation and amortization ($1,596 and $1,375 related | ||||||||
to
capital leases at December 31, 2007 and 2006,
respectively)
|
(165,543 | ) | (151,269 | ) | ||||
$ | 65,491 | $ | 47,493 |
Year
ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Direct
costs of network, sales and services
|
$ | 18,313 | $ | 13,250 | $ | 11,804 | ||||||
Other
depreciation and amortization
|
3,929 | 2,606 | 2,933 | |||||||||
Subtotal
|
22,242 | 15,856 | 14,737 | |||||||||
Amortization
of acquired technologies
|
4,165 | 516 | 577 | |||||||||
Total
depreciation and amortization
|
$ | 26,407 | $ | 16,372 | $ | 15,314 |
8.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
December
31, 2007
|
December
31, 2006
|
|||||||||||||||
Gross
Carrying Amount
|
Accumulated
Amortization
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
|||||||||||||
Contract
based
|
$ | 25,018 | $ | (15,403 | ) | $ | 14,518 | $ | (14,291 | ) | ||||||
Technology
based
|
41,911 | (8,518 | ) | 5,911 | (4,353 | ) | ||||||||||
$ | 66,929 | $ | (23,921 | ) | $ | 20,429 | $ | (18,644 | ) |
2008
|
$
|
6,243
|
||
2009
|
6,243
|
|||
2010
|
6,056
|
|||
2011
|
5,728
|
|||
2012
|
5,728
|
|||
Thereafter
|
13,010
|
|||
$
|
43,008
|
9.
|
ACCRUED
LIABILITIES
|
December
31,
|
|||||||||
2007
|
2006
|
||||||||
Compensation
payable
|
$ | 4,942 | $ | 4,075 | |||||
Telecommunications,
sales, use and other taxes
|
2,317 | 2,005 | |||||||
Other
|
2,900 | 2,609 | |||||||
$ | 10,159 | $ | 8,689 |
10.
|
REVOLVING
CREDIT FACILITY AND NOTE PAYABLE
|
2008
|
$
|
2,500
|
||
2009
|
5,000
|
|||
2010
|
5,000
|
|||
2011
|
7,500
|
|||
Total
maturities and principal payments
|
20,000
|
|||
Less: current
portion
|
(2,500
|
)
|
||
$
|
17,500
|
11.
|
CAPITAL
LEASES
|
2008
|
$
|
922
|
||
2009
|
456
|
|||
2010
|
14
|
|||
Remaining
capital lease payments
|
1,392
|
|||
Less:
amounts representing imputed interest
|
(135
|
)
|
||
Present
value of minimum lease payments
|
1,257
|
|||
Less:
current portion
|
(805
|
)
|
||
$
|
452
|
12.
|
INCOME
TAXES
|
Year Ended December 31,
|
|||||||||
2007
|
2006
|
||||||||
Current:
|
|||||||||
Federal
|
$
|
15
|
$
|
145
|
|||||
State
|
—
|
—
|
|||||||
Foreign
|
921
|
—
|
|||||||
Total current
provision
|
936
|
145
|
|||||||
Deferred:
|
|||||||||
Federal
|
356
|
—
|
|||||||
State
|
42
|
—
|
|||||||
Foreign
|
(4,414
|
)
|
—
|
||||||
Total deferred
benefit
|
(4,016 |
)
|
—
|
||||||
Net income tax (benefit)
provision
|
$
|
(3,080 |
)
|
$
|
145
|
||||
Year
Ending December 31,
|
||||||
2007
|
2006
|
2005
|
||||
Federal
income tax (benefit) expense at statutory rates
|
(34
|
)%
|
34
|
% |
(34
|
)% |
State
income tax (benefit) expense
|
(4
|
)
|
4
|
(4
|
) | |
Stock
compensation expense
|
6
|
8
|
—
|
|
||
Tax
reserves
|
11
|
—
|
—
|
|||
Other
|
—
|
1
|
1
|
|||
Change
in valuation allowance
|
(14
|
)
|
(43
|
)
|
37
|
|
Effective
tax rate
|
(35
|
)%
|
4
|
% |
—
|
%
|
Year
Ending December 31,
|
||||||||
2007
|
2006
|
|||||||
Current
deferred income tax assets:
|
||||||||
Provision
for doubtful accounts
|
$ | 593 | $ | 115 | ||||
Accrued
compensation
|
233 | 132 | ||||||
Other
accrued expenses
|
196 | — | ||||||
Deferred
revenue
|
1,648 | 1,225 | ||||||
Restructuring
costs
|
910 | 532 | ||||||
Foreign
net operating loss carryforwards – current portion
|
479 | — | ||||||
Other
|
77 | 390 | ||||||
Current
deferred income tax assets
|
4,136 | 2,394 | ||||||
Less:
valuation allowance
|
(3,625 | ) | (2,379 | ) | ||||
511 | 15 | |||||||
Non-current
deferred income tax assets:
|
||||||||
Property
and equipment
|
21,488 | 20,315 | ||||||
Investments
|
— | 1,824 | ||||||
Deferred
revenue, less current portion
|
717 | 386 | ||||||
Restructuring
costs, less current portion
|
2,925 | 1,286 | ||||||
Deferred
rent
|
4,184 | 4,344 | ||||||
Stock
Compensation
|
2,620 | 216 | ||||||
U.
S. net operating loss carryforwards
|
136,963 | 128,527 | ||||||
Foreign
net operating loss carryforwards, less current portion
|
13,717 | 14,574 | ||||||
Capital
loss carryforwards
|
2,271 | — | ||||||
Tax
credit carryforwards
|
180 | 165 | ||||||
Other
|
502 | — | ||||||
Non-
current deferred income tax assets
|
185,567 | 171,637 | ||||||
Less:
valuation allowance
|
(180,133 | ) | (170,568 | ) | ||||
5,434 | 1,069 | |||||||
Non-current
deferred income tax liabilities:
|
||||||||
Purchased
intangibles
|
(1,531 | ) | (1,084 | ) | ||||
FIN
48 liability related to net operating loss carryforwards
|
(921 | ) | — | |||||
Goodwill
|
(398 | ) | — | |||||
Non-current
deferred income tax assets (liabilities), net
|
2,584 | (15 | ) | |||||
Net
deferred tax assets
|
$ | 3,095 | $ | — |
Unrecognized
tax benefits balance at January 1, 2007
|
$ | — | ||
Additions
for tax positions of prior years
|
— | |||
Reductions
for tax positions of prior years settlements
|
— | |||
Additions
for tax positions of current year
|
921 | |||
Lapse
of statute of limitations
|
— | |||
Unrecognized
tax benefits balance at December 31, 2007
|
$ | 921 |
13.
|
EMPLOYEE
RETIREMENT PLAN
|
14.
|
COMMITMENTS,
CONTINGENCIES, CONCENTRATIONS OF RISK AND
LITIGATION
|
2008
|
$
|
28,211
|
||
2009
|
25,510
|
|||
2010
|
25,179
|
|||
2011
|
26,135
|
|||
2012
|
27,073
|
|||
Thereafter
|
88,786
|
|||
$
|
220,894
|
2008
|
$
|
12,167
|
||
2009
|
7,457
|
|||
2010
|
2,390
|
|||
$
|
22,014
|
15.
|
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’
EQUITY
|
16.
|
STOCK-BASED
COMPENSATION PLANS
|
·
|
The
exercise price per share of each replacement option granted in the
exchange offer was $14.46, the average of the closing prices of the common
stock as reported by the American Stock Exchange and the NASDAQ Global
Market, as applicable, for the 15 consecutive trading days ending
immediately prior to the grant date of the replacement
options;
|
·
|
For
all eligible options with an exercise price per share greater than or
equal to $20.00, the exchange ratio was 1-for-2;
and
|
·
|
Each
new option has a three-year vesting period, vesting in equal monthly
installments over three years, so long as the grantee continues to be a
full-time employee of the company and a ten-year
term.
|
Year
ended December 31,
|
||||||||
2007
|
2006
|
|||||||
Direct
costs of customer support
|
$ | 1,892 | $ | 1,102 | ||||
Product
development
|
856 | 628 | ||||||
Sales
and marketing
|
2,135 | 2,145 | ||||||
General
and administrative
|
3,798 | 2,067 | ||||||
Total
stock-based compensation expense included in net income
|
$ | 8,681 | $ | 5,942 |
Net
loss, as reported
|
$
|
(4,964
|
)
|
|
Add:
stock-based employee compensation expense included in reported net
loss
|
75
|
|||
Adjust:
total stock-based employee compensation expense determined under fair
value based method for all awards
|
(9,678
|
)
|
||
Pro
forma net loss
|
$
|
(14,567
|
)
|
|
Loss
per share:
|
||||
Basic
and diluted—as reported
|
$
|
(0.15
|
)
|
|
Basic
and diluted—pro forma
|
(0.43
|
)
|
Shares
|
Weighted
Average
Exercise
Price
|
|||||||
Balance,
December 31, 2004
|
4,395 | $ | 16.96 | |||||
Granted
|
948 | 4.92 | ||||||
Exercised
|
(202 | ) | 4.51 | |||||
Forfeitures
and post-vesting cancellations
|
(1,585 | ) | 19.15 | |||||
Balance,
December 31, 2005
|
3,556 | 13.49 | ||||||
Granted
|
752 | 9.30 | ||||||
Exercised
|
(497 | ) | 5.84 | |||||
Forfeitures
and post-vesting cancellations
|
(1,112 | ) | 19.94 | |||||
Balance,
December 31, 2006
|
2,699 | 11.07 | ||||||
Granted
|
897 | 15.74 | ||||||
Assumed
with the VitalStream Plan
|
1,496 | 10.81 | ||||||
Exercised
|
(1,241 | ) | 6.74 | |||||
Forfeitures
and post-vesting cancellations
|
(678 | ) | 14.23 | |||||
Balance,
December 31, 2007
|
3,173 | $ | 13.29 |
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||
Exercise
Prices
|
Number
of
Shares
|
Weighted
Average
Remaining
Contractual
Life
(In
Years)
|
Weighted
Average
Exercise
Price
|
Number
of
Shares
|
Weighted
Average
Remaining
Contractual
Life
(In Years)
|
Weighted
Average
Exercise
Price
|
|||||||||||||
$0.75
- $4.60
|
172
|
4.1
|
$
|
4.05
|
169
|
4.00
|
$
|
4.04
|
|||||||||||
$4.80
- $4.80
|
608
|
7.5
|
4.80
|
387
|
7.42
|
4.80
|
|||||||||||||
$5.20
- $9.15
|
624
|
8.1
|
7.54
|
191
|
6.67
|
6.56
|
|||||||||||||
$9.40
- $13.64
|
484
|
5.4
|
11.60
|
368
|
4.90
|
11.53
|
|||||||||||||
$14.17
- $18.70
|
518
|
4.3
|
16.55
|
316
|
3.17
|
16.68
|
|||||||||||||
$18.80
- $18.82
|
456
|
9.0
|
18.82
|
4
|
6.16
|
18.80
|
|||||||||||||
$18.83
- $345.00
|
311
|
4.6
|
35.60
|
239
|
4.57
|
40.58
|
|||||||||||||
$0.75
- $345.00
|
3,173
|
6.5
|
$
|
13.29
|
1,674
|
5.22
|
$
|
13.80
|
Shares
|
Weighted-Average
Grant
Date Fair Value
|
|||||||
Non-vested
balance, December 31, 2004
|
— | $ | — | |||||
Granted
|
104 | 4.78 | ||||||
Vested
|
(4 | ) | 4.30 | |||||
Non-vested
balance, December 31, 2005
|
100 | 4.80 | ||||||
Granted
|
568 | 6.18 | ||||||
Vested
|
(158 | ) | 5.68 | |||||
Forfeited
|
(90 | ) | 5.61 | |||||
Non-vested
balance, December 31, 2006
|
420 | 6.17 | ||||||
Granted
|
657 | 15.66 | ||||||
Vested
|
(161 | ) | 10.21 | |||||
Forfeited
|
(237 | ) | 9.60 | |||||
Non-vested
balance, December 31, 2007
|
679 | $ | 13.19 |
December
31, 2007
|
||||||||||||
Stock
Options
|
Restricted
Stock
|
Total
|
||||||||||
Unrecognized
compensation
|
$ | 10,532 | $ | 10,448 | $ | 20,980 | ||||||
Weighted-average
remaining recognition period (in years)
|
2.7 | 3.0 | 2.9 |
December
31, 2006
|
||||||||||||
Stock
Options
|
Restricted
Stock
|
Total
|
||||||||||
Unrecognized
compensation
|
$ | 9,309 | $ | 3,088 | $ | 12,397 | ||||||
Weighted-average
remaining recognition period (in years)
|
2.7 | 3.0 | 2.8 |
17.
|
RELATED
PARTY TRANSACTIONS
|
18.
|
UNAUDITED
QUARTERLY RESULTS
|
Quarter
Ended
|
|||||||||||||
2007
|
March
31
|
June
30
|
September
30
|
December
31
|
|||||||||
Revenues (1)
|
$
|
53,534
|
$
|
58,494
|
$
|
60,426
|
$
|
61,636
|
|||||
Direct costs of network, sales and services, exclusive | |||||||||||||
of
depreciation and amortization
|
28,629
|
29,617
|
29,272
|
30,876
|
|||||||||
Direct
costs of amortization of acquired technologies
|
654
|
1,054
|
1,228
|
1,229
|
|||||||||
Direct
costs of customer support
|
3,388
|
4,330
|
4,495
|
4,334
|
|||||||||
Restructuring
and asset impairment
|
11,349
|
—
|
—
|
—
|
|||||||||
Acquired
in-process research and development
|
450
|
—
|
—
|
—
|
|||||||||
Write-off
of investment
|
—
|
1,178
|
—
|
—
|
|||||||||
Net
(loss) income (2)
|
(10,695
|
)
|
(1,683
|
)
|
1,383
|
5,440
|
|||||||
Basic
and diluted net (loss) income per share (3)
|
|
(0.26
|
)
|
|
(0.03
|
)
|
|
0.03
|
|
0.11
|
|||
|
(1)
|
Amounts
included in this table for the third quarter of 2007 are approximately
$0.5 million lower than the amounts previously reported in our Form 10-Q
for the quarterly period ended September 30,
2007.
|
|
(2)
|
Amounts
included in this table for the third quarter of 2007 are approximately
$0.4 million lower than the amounts previously reported in our Form 10-Q
for the quarterly period ended September 30,
2007.
|
|
(3)
|
Amounts
included in this table for the third quarter of 2007 are approximately
$0.01 lower than the amounts previously reported in our Form 10-Q for the
quarterly period ended September 30,
2007.
|
Quarter
Ended
|
||||||||||||||
2006
|
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||
Revenues
|
$
|
42,625
|
$
|
43,905
|
$
|
45,874
|
$
|
48,971
|
||||||
Direct costs of network, sales and services, exclusive | ||||||||||||||
of
depreciation and amortization
|
22,217
|
23,606
|
25,236
|
26,279
|
||||||||||
Direct
costs of amortization of acquired technologies
|
137
|
138
|
137
|
104
|
||||||||||
Direct
costs of customer support
|
2,897
|
2,769
|
2,930
|
2,970
|
||||||||||
Restructuring
and asset impairment
|
—
|
—
|
319
|
4
|
||||||||||
Net
income
|
541
|
713
|
195
|
2,208
|
||||||||||
Basic
and diluted net income per share
|
|
0.02
|
|
0.02
|
|
0.01
|
|
0.06
|
Balance
at
Beginning
Of
Fiscal
Period
|
Charges
to
Costs
and
Expense
|
Charges
to
Other
Accounts
|
Deductions
|
Balance
at
End
of
Fiscal
Period
|
||||||||||||
Year
ended December 31, 2005
|
||||||||||||||||
Provision
for doubtful accounts
|
$
|
1,124
|
$
|
1,431
|
$
|
—
|
$
|
(1,592
|
)
|
$
|
963
|
|||||
Tax
valuation allowance
|
168,982
|
—
|
16,530
|
—
|
185,512
|
|||||||||||
Year
ended December 31, 2006
|
||||||||||||||||
Provision
for doubtful accounts
|
963
|
548
|
—
|
(623
|
)
|
888
|
||||||||||
Tax
valuation allowance
|
185,512
|
—
|
(12,569
|
)
|
—
|
172,943
|
||||||||||
Year
ended December 31, 2007
|
||||||||||||||||
Provision
for doubtful accounts
|
888
|
2,261
|
3,540
|
(1,219
|
)
|
5,470
|
||||||||||
Tax
valuation allowance
|
172,943
|
(4,414
|
)
|
15,228
|
—
|
183,757
|