<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 2000
REGISTRATION NO. 333-96171
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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JUNIPER NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3661 77-042258
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
385 RAVENDALE DRIVE
MOUNTAIN VIEW, CA 94043
(Address, including zip code, of Registrant's principal executive offices)
------------------------------------
LISA C. BERRY
GENERAL COUNSEL AND SECRETARY
JUNIPER NETWORKS, INC.
385 RAVENDALE DRIVE, MOUNTAIN VIEW, CA 94043
(650) 526-8000
(Name, address, and telephone number, including area code, of agent for service)
------------------------------------
Copies to:
<TABLE>
<S> <C>
JUDITH MAYER O'BRIEN NORA L. GIBSON
JOHN A. FORE LINDSAY C. FREEMAN
BRUCE M. MCNAMARA LORA D. BLUM
WILSON SONSINI GOODRICH & ROSATI BROBECK PHLEGER & HARRISON LLP
PROFESSIONAL CORPORATION ONE MARKET
650 PAGE MILL ROAD SPEAR STREET TOWER
PALO ALTO, CA 94304 SAN FRANCISCO, CA 94105
(650) 493-9300 (415) 442-0900
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is file to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(4)
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% Convertible Subordinated Notes due March 15, 2007 $977,500,000(2) $258,060
Common Stock, par value $0.00001 per share, issuable upon
conversion of % Convertible Subordinated Notes due
March 15, 2007 (3) (3)
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</TABLE>
(1) Estimated solely for the purpose of computing the registration pursuant to
Rule 457(o) of the Securities Act of 1933.
(2) Exclusive of accrued interest, if any. Includes $127,500,000 in principal
amount of convertible notes which the underwriters have an option to
purchase.
(3) No additional consideration will be received for any shares of common stock
issued upon conversion or exchange of the % Convertible Subordinated
Notes due March 15, 2007. Pursuant to Rule 416 under the Securities Act of
1933 this registration statement also includes an indeterminate number of
shares that may be issued upon conversion of the % Convertible
Subordinated Notes due March 15, 2007 as a result of anti-dilution and other
provisions of the convertible notes.
(4)In connection with its initial filing on February 4, 2000 the Registrant paid
$151,800 of the registration fee.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION. DATED MARCH 2, 2000.
$850,000,000
[LOGO]
% Convertible Subordinated Notes due March 15, 2007
------------------------
We are offering $850,000,000 of % Convertible Subordinated Notes due
March 15, 2007. You may convert your convertible notes into our common stock at
any time prior to maturity or their prior redemption or repurchase by us. The
convertible notes will mature on March 15, 2007. The conversion rate is
shares per each $1,000 principal amount of convertible notes, subject
to adjustment. This is equivalent to a conversion price of approximately
$ per share. Our common stock is quoted on the Nasdaq National Market
under the symbol "JNPR". On February 29, 2000, the last reported bid price for
the common stock was $277.00 per share.
We will pay interest on the convertible notes on March 15 and September 15
of each year. The first interest payment will be made on September 15, 2000. The
convertible notes are subordinated in right of payment to all of our senior
debt. The convertible notes will be issued only in denominations of $1,000 and
integral multiples of $1,000.
On or after the third business day after March 15, 2003, we have the option
to redeem the convertible notes at the redemption prices set forth in this
prospectus. You have the option to require us to repurchase any convertible
notes held by you if there is a change in control, under the circumstances and
at the price described in this prospectus.
See "Risk Factors" beginning on page 6 of this prospectus to read about
important factors you should consider before buying the convertible notes.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per Note Total
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<S> <C> <C>
Initial public offering price............................... % $
Underwriting discount....................................... % $
Proceeds, before expenses, to Juniper Networks.............. % $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the convertible notes will accrue from ,
2000 and must be paid by the purchaser if the convertible notes are delivered
after , 2000.
To the extent that the underwriters sell more than $850,000,000 principal
amount of convertible notes, the underwriters have the option to purchase up to
an additional $127,500,000 principal amount of convertible notes from us at the
initial public offering price less the underwriting discount.
------------------------
The underwriters expect to deliver the convertible notes in book-entry form
only through the facilities of The Depository Trust Company against payment in
New York, New York on , 2000.
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
SG COWEN
WARBURG DILLON READ LLC
------------------------
Prospectus dated , 2000.
<PAGE> 3
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important
to you. You should read the entire prospectus as well as the information
regarding us, including our consolidated financial statements and the
accompanying notes, appearing elsewhere in this prospectus. All information in
this prospectus assumes the underwriters' overallotment option with respect to
the convertible notes offering is not exercised unless otherwise stated.
ABOUT JUNIPER NETWORKS
We are a leading provider of Internet infrastructure solutions that enable
Internet service providers and other telecommunications service providers to
meet the demands resulting from the rapid growth of the Internet. We deliver
next generation Internet backbone routers that are specifically designed, or
purpose-built, for service provider networks and offer our customers increased
reliability, performance, scalability, interoperability and flexibility, and
reduced complexity and cost compared to current alternatives. Our flagship
product is the M40 Internet backbone router and we recently introduced the M20,
an Internet backbone router purpose-built for emerging service providers. Our
Internet backbone routers combine the features of our JUNOS Internet Software,
high performance ASIC-based (application specific integrated circuit) packet
forwarding technology and Internet optimized architecture into a purpose-built
solution for service providers. Unlike conventional routers, which were
originally developed for enterprise applications and are increasingly inadequate
for service provider use in public networks, our Internet backbone routers are
specifically designed to accommodate the size and scope of the Internet.
We sell our Internet backbone routers primarily through a direct sales
force in the United States and through value added resellers internationally.
Our M40 Internet backbone router is currently used by several of the world's
leading service providers, such as UUNet, an MCI WorldCom Company, Cable &
Wireless USA, AT&T/IBM Global Services, Frontier GlobalCenter Inc. and Verio
Inc.
We believe that the Internet will continue to grow at significant rates and
will evolve into the next generation public network, superseding and expanding
upon many of the functions provided by the traditional telephone network. This
trend will drive the need for new Internet infrastructure equipment that can
deliver the high levels of reliability and scalability needed in a public
network. We believe we have developed the first commercially available Internet
backbone routing platform specifically designed and built to meet these
requirements. Ryan Hankin Kent, an industry research firm, estimated in 1999
that the market for Internet backbone routers was $169 million in 1998 and is
expected to increase to approximately $5.5 billion in 2003.
Our objective is to become the primary supplier of high performance
Internet backbone infrastructure equipment. The following are key elements of
our strategy:
- leverage our early lead as supplier of purpose-built Internet
infrastructure equipment;
- work closely with our key customers;
- increase our penetration in major service providers;
- leverage our early successes to rapidly penetrate new customers;
- expand our sales and distribution network;
- maintain and extend our technology leadership; and
- enable new IP-based services.
Our principal executive offices are located at 385 Ravendale Drive,
Mountain View, California 94043, and our telephone number is (650) 526-8000.
Juniper Networks is a registered trademark and the Juniper Networks logo, M40,
M20 and JUNOS are trademarks of Juniper Networks. Each trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder. Information contained on our website, www.juniper.net, does not
constitute part of this prospectus. We were incorporated in the State of
California in February 1996, and we reincorporated in the State of Delaware in
March 1998.
1
<PAGE> 4
THE OFFERING
Securities offered......... $850,000,000 aggregate principal amount of %
Convertible Subordinated Notes due March 15, 2007.
We also have granted the underwriters an
over-allotment option to purchase up to an
additional $127,500,000 aggregate principal amount
of convertible notes.
Offering price............. 100% of the principal amount of the convertible
notes, plus accrued interest, if any, from
, 2000.
Interest................... We will pay interest on the convertible notes
semi-annually on March 15 and September 15 of each
year, commencing September 15, 2000.
Conversion................. You may convert your convertible notes into shares
of our common stock at a conversion rate of
shares of common stock per $1,000
principal amount of convertible notes. This is
equivalent to a conversion price of approximately
$ per share. The conversion rate may be subject
to adjustment. The convertible notes will be
convertible at any time before the close of
business on the maturity date, unless we have
previously redeemed or repurchased the convertible
notes. You may convert your convertible notes
called for redemption or submitted for repurchase
up to and including the business day immediately
preceding the date fixed for redemption or
repurchase, as the case may be.
Subordination.............. The convertible notes are subordinated to our
senior debt, as that term is defined in
"Description of the Convertible
Notes -- Subordination". The convertible notes are
also effectively subordinated in right of payment
to all indebtedness and other liabilities of our
subsidiaries. As of December 31, 1999, we did not
have any outstanding senior debt. The indenture
under which the convertible notes will be issued
will not restrict the incurrence of senior debt or
other indebtedness by us.
Global note; book-entry
system..................... We will issue the convertible notes only in fully
registered form without interest coupons and in
minimum denominations of $1,000. The convertible
notes will be evidenced only by one or more global
notes in fully registered form and without coupons
deposited with the trustee for the convertible
notes, as custodian for DTC. Your interest in the
global notes will be shown on, and transfers of
your interest can only be made through, records
maintained by DTC and its participants and indirect
participants.
Optional redemption by
Juniper.................... On or after the third business day after March 15,
2003, we have the right at any time to redeem some
or all of your convertible notes at the redemption
prices set forth in this prospectus plus accrued
and unpaid interest.
2
<PAGE> 5
Repurchase at the option of
holders upon a change in
control.................... If we experience a change in control, as that term
is defined in "Description of Convertible
Notes -- Repurchase at Option of Holders Upon a
Change in Control", you will have the right,
subject to conditions and restrictions, to require
us to repurchase some or all of your convertible
notes at a price equal to 100% of the principal
amount, plus accrued and unpaid interest to the
repurchase date. The repurchase price is payable in
cash or, at our choice depending on the
circumstances, in shares of our common stock,
valued at 95% of the average closing sales prices
of the common stock for the five trading days
preceding and including the third trading day prior
to the repurchase date.
Use of proceeds............ We anticipate using the net proceeds from this
offering for working capital and other general
corporate purposes. Should the opportunity arise,
we may also use a portion of the net proceeds to
fund acquisitions of or investments in
complementary businesses, partnerships, minority
investments, products or technologies.
Events of default.......... Events of default include:
- we fail to pay principal of or any premium on
any convertible note when due, whether or not
the payment is prohibited by the subordination
provisions of the indenture;
- we fail to pay any interest on any convertible
note when due and that default continues for 30
days, whether or not the payment is prohibited
by the subordination provisions of the
indenture;
- we fail to provide the notice that we are
required to give in the event of a change in
control, whether or not the notice is prohibited
by the subordination provisions of the
indenture;
- we fail to perform any other covenant in the
indenture and that failure continues for 60 days
after written notice to us by the trustee or the
holders of at least 25% in aggregate principal
amount of outstanding convertible notes;
- we or any of our significant subsidiaries fail
to pay when due at final maturity thereof,
either at its maturity or upon acceleration, any
indebtedness under any bonds, debentures,
convertible notes or other evidences of
indebtedness for money borrowed, or any
guarantee thereof, in excess of $25,000,000 if
the indebtedness is not discharged, or the
acceleration is not annulled, within 30 days
after written notice to us by the trustee or the
holders of at least 25% in aggregate principal
amount of the outstanding convertible notes; and
- events of bankruptcy, insolvency or
reorganization with respect to us or any of our
significant subsidiaries specified in the
indenture.
3
<PAGE> 6
Listing of convertible
notes...................... The convertible notes will not be listed on any
securities exchange or quoted on the Nasdaq
National Market. The underwriters have advised us
that they currently intend to make a market in the
convertible notes. However, the underwriters are
not obligated to do so, and any such market making
may be discontinued at any time at the sole
discretion of the underwriters without notice. Our
common stock is traded on the Nasdaq National
Market under the symbol "JNPR".
Governing law.............. The indenture and the convertible notes will be
governed by the laws of the State of New York,
without regard to conflicts of laws principles.
Risk factors............... You should read the "Risk Factors" section,
beginning on page 6, as well as the other
cautionary statements, risks and uncertainties
described in this prospectus, so that you
understand the risks associated with an investment
in the convertible notes.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues.......................................... $102,606 $ 3,807 $ --
Cost of revenues...................................... 45,272 4,416 --
-------- -------- --------
Gross profit (loss)................................... 57,334 (609) --
Operating expenses:
Research and development............................ 41,502 23,987 9,406
Sales and marketing................................. 20,931 4,216 1,149
General and administrative.......................... 5,235 2,223 1,043
Amortization of goodwill and purchased intangibles
and deferred stock compensation.................. 4,286 1,235 --
-------- -------- --------
Total operating expenses......................... 71,954 31,661 11,598
-------- -------- --------
Operating loss........................................ (14,620) (32,270) (11,598)
Interest income, net.................................. 8,011 1,301 1,235
-------- -------- --------
Loss before income taxes.............................. (6,609) (30,969) (10,363)
Provision for income taxes............................ 2,425 2 --
-------- -------- --------
Net loss.............................................. $ (9,034) $(30,971) $(10,363)
======== ======== ========
Basic and diluted net loss per share(1)............... $ (0.10) $ (0.80) $ (0.40)
======== ======== ========
Shares used in computing basic and diluted net loss
per share(1)........................................ 94,661 38,871 25,773
======== ======== ========
Pro forma basic and diluted net loss per share
(unaudited)(1)...................................... $ (0.07) $ (0.28)
======== ========
Shares used in computing pro forma basic and diluted
net loss per share (unaudited)(1)................... 131,480 111,210
======== ========
OTHER DATA:
Ratio of earnings to fixed charges(2)................. -- -- --
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------
ACTUAL AS ADJUSTED(3)
------------ --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $345,958 1,173,708
Working capital............................................. 322,170 1,149,920
Long-term investments....................................... 97,201 97,201
Total assets................................................ 513,378 1,363,378
Total long-term debt........................................ -- 850,000
Stockholders' equity........................................ 457,715 457,715
</TABLE>
- ---------------
(1) See note 1 of the notes to consolidated financial statements for an
explanation of the determination of the shares used to compute net loss per
share. All share and per share amounts have been adjusted to reflect the
three-for-one split of our common stock paid to stockholders of record on
December 31, 1999.
(2) The pre-tax loss from continuing operations for the years ended December 31,
1999, 1998 and 1997 are not sufficient to cover fixed charges by a total of
approximately $6.6 million in 1999, $31.0 million in 1998 and $10.4 million
in 1997. As a result, the ratio of earnings to fixed charges has not been
computed for any of these years.
(3) Reflects net proceeds of approximately $827.8 million from the sale of the
convertible notes, assuming an offering price of 100% of the principal
amount, and after deducting underwriters' discounts and commissions and
estimated offering expenses.
5
<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below before making an investment decision.
RISKS RELATED TO OUR BUSINESS
OUR FAILURE TO INCREASE OUR REVENUES WOULD PREVENT US FROM MAINTAINING
PROFITABILITY.
We have incurred significant losses since inception. As of December 31,
1999, we had an accumulated deficit of $52.2 million. Although our net revenues
have grown from zero in the quarter ended September 30, 1998 to $45.4 million in
the quarter ended December 31, 1999, we cannot be certain that our revenues will
continue to grow. We have large fixed expenses and we expect to continue to
incur significant and increasing sales and marketing, product development and
administrative expenses. As a result, we will need to generate significantly
higher revenues to maintain profitability. See "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Consolidated Financial Statements and the Notes to the
Consolidated Financial Statements for more information on our results of
operations.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT.
As a result of our limited operating history, it is difficult to forecast
accurately our revenues, and we have limited meaningful historical financial
data upon which to base planned operating expenses. Specifically, we began
operations in February 1996, introduced our M40 Internet backbone router product
in September 1998, began shipping the M40 in volume in October 1998 and
introduced the M20 in December 1999. In addition, our operating expenses are
largely based on anticipated revenue trends and a high percentage of our
expenses are and will continue to be fixed in the short-term. The revenue and
income potential of our products and business are unproven and the market that
we are addressing is rapidly evolving. If we do not achieve our expected
revenues, our operating results will be below our expectations and the
expectations of investors and market analysts, which could cause the price of
our convertible notes and common stock to decline.
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP PRODUCTS AND PRODUCT ENHANCEMENTS
THAT WILL ACHIEVE MARKET ACCEPTANCE.
We cannot assure you that we will be able to develop new products or
product enhancements in a timely manner, or at all. Any failure to develop new
products or product enhancements will substantially decrease market acceptance
and sales of our present and future products which will significantly harm our
business and financial results. Even if we are able to develop and commercially
introduce new products and enhancements, we cannot assure you that the new
products or enhancements will achieve widespread market acceptance. Any failure
of our future products to achieve market acceptance could harm our business and
financial results.
THE LONG SALES AND IMPLEMENTATION CYCLES FOR OUR PRODUCTS, AS WELL AS OUR
EXPECTATION THAT CUSTOMERS WILL SPORADICALLY PLACE LARGE ORDERS WITH SHORT LEAD
TIMES MAY CAUSE REVENUES AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM
QUARTER TO QUARTER.
A customer's decision to purchase our products involves a significant
commitment of its resources and a lengthy evaluation and product qualification
process. As a result, our sales cycle may be lengthy. Throughout the sales
cycle, we often spend considerable time educating and providing information to
prospective customers regarding the use and benefits of the products. Even after
making the decision to purchase, our customers tend to deploy the products
slowly and deliberately. Timing of deployment can vary widely and depends on the
skill set of the
6
<PAGE> 9
customer, the size of the network deployment, the complexity of the customer's
network environment and the degree of hardware and software configuration
necessary to deploy the products. Customers with large networks usually expand
their networks in large increments on a periodic basis. Accordingly, we expect
to receive purchase orders for significant dollar amounts on an irregular basis.
Because of our limited operating history, we cannot predict these sales and
development cycles. These long cycles, as well as our expectation that customers
will tend to sporadically place large orders with short lead times, may cause
our revenues and operating results to vary significantly and unexpectedly from
quarter to quarter.
WE HAVE A LIMITED NUMBER OF CUSTOMERS UPON WHOM WE RELY, AND ANY DECREASE IN
REVENUE FROM THESE CUSTOMERS COULD HAVE AN ADVERSE EFFECT ON US.
We began recognizing revenues from sales of the M40 in the quarter ended
December 31, 1998. A significant portion of our revenues to date have been
recognized from a limited number of customers, with two customers, UUNet and
Cable & Wireless, representing 58% of our revenues for the year ended December
31, 1999. We expect that the majority of our revenues will continue to depend on
sales of our products to a small number of customers. Any downturn in the
business of these customers or potential new customers could significantly
decrease the sales of our products to these customers which could seriously harm
our revenues and results of operations.
IF THE INTERNET DOES NOT CONTINUE TO EXPAND AS A WIDESPREAD COMMUNICATIONS
MEDIUM, DEMAND FOR OUR PRODUCTS MAY DECLINE SIGNIFICANTLY.
Our future success depends on the continued growth of the Internet as a
widely used medium for commerce and communication. If the Internet does not
continue to expand as a widespread communications medium and commercial
marketplace, the growth of the market for Internet infrastructure equipment may
not continue and the demand for our products could decline significantly.
WE FACE INTENSE COMPETITION THAT COULD REDUCE OUR MARKET SHARE.
Competition in the Internet infrastructure market is intense. This market
has historically been dominated by Cisco Systems with other companies such as
Nortel Networks and Lucent Technologies providing products to a smaller segment
of the market. In addition, a number of private companies have announced plans
for new products to address the same problems which our products address.
In order to compete effectively in the Internet router market we must
deliver products which:
- provide extremely high network reliability;
- provide high performance interfaces and packet processing capabilities;
- scale easily and efficiently with minimum disruption to the network;
- interoperate with existing network designs and equipment vendors;
- reduce the complexity of the network by decreasing the need for
overlapping equipment; and
- provide a cost-effective solution for service providers.
If we are unable to compete successfully against our current and future
competitors, we could experience price reductions, reduced gross margins and
loss of market share, any one of which could materially and adversely affect our
business, operating results and financial condition. See "Business --
Competition" for detailed information about our competition.
7
<PAGE> 10
WE MUST EXPAND SUBSTANTIALLY OUR DIRECT AND INDIRECT SALES OPERATIONS IN ORDER
TO INCREASE MARKET AWARENESS AND SALES OF OUR PRODUCTS.
Our products and services require a sophisticated sales effort targeted at
several key people within each of our prospective customers' organizations. This
sales effort requires the efforts of select personnel as well as specialized
system and consulting engineers. We have recently expanded our direct sales
force and plan to hire additional qualified sales personnel and system and
consulting engineers. Competition for these individuals is intense, and we might
not be able to hire the kind and number of sales personnel and system and
consulting engineers we need. In addition, we believe that our future success is
dependent upon establishing successful relationships with a variety of
distribution partners. We have entered into agreements with several value added
resellers, some of whom also sell products that compete with our products. We
cannot be certain that we will be able to reach agreement with additional
resellers on a timely basis or at all, or that they will devote adequate
resources to selling our products.
If we are unable to expand our direct and indirect sales operations, we may
not be able to increase market awareness or sales of our products, which may
prevent us from maintaining profitability.
IF WE DO NOT EXPAND OUR CUSTOMER SERVICE AND SUPPORT ORGANIZATION SUBSTANTIALLY,
SALES OF OUR PRODUCTS MAY BE SIGNIFICANTLY REDUCED.
The complexity of our products and the difficulty of installing them
require highly trained customer service and support personnel. We currently have
a small customer service and support organization and will need to increase our
staff to support new customers and the expanding needs of existing customers.
Hiring customer service and support personnel is very competitive in our
industry due to the limited number of people available with the necessary
technical skills and understanding of the Internet. If we are unable to expand
our customer service and support organization, we may not be able to increase
sales of our products, which would seriously harm our business.
WE ARE DEPENDENT ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR SEVERAL KEY
COMPONENTS, AND IF WE ARE UNABLE TO BUY THESE COMPONENTS ON A TIMELY BASIS, WE
WILL NOT BE ABLE TO DELIVER OUR PRODUCTS TO OUR CUSTOMERS.
We currently purchase several key components, including ASICs and power
supplies, from single or limited sources. We worked with IBM for over three
years to develop several of our key proprietary application specific integrated
circuits, or ASICs, which are custom designed integrated circuits built to
perform a specific function more rapidly than a general purpose microprocessor.
IBM is currently our sole source supplier of these ASICs. These ASICs are very
complex, and we may not be able to develop an alternate source to IBM in a
timely manner, which could hurt our ability to deliver our products to our
customers. We also purchase power supplies from a single source and purchase
other custom components from other sole or limited sources. If we are unable to
buy these components on a timely basis, we will not be able to deliver the
products to our customers, which would negatively impact present and future
sales and revenue which would, in turn, seriously harm our business.
WE CURRENTLY DEPEND PRIMARILY ON ONE CONTRACT MANUFACTURER, AND IF WE HAVE TO
QUALIFY A NEW CONTRACT MANUFACTURER WE MAY LOSE REVENUE AND DAMAGE OUR CUSTOMER
RELATIONSHIPS.
Solectron, a third party manufacturer for numerous companies, manufactures
the M40 and M20 at its Milpitas, California facility on a purchase order basis
and is our primary manufacturer. We currently do not have a long-term supply
contract with Solectron. If we should fail to effectively manage our
relationship with Solectron, or if Solectron experiences delays, disruptions or
quality control problems in its manufacturing operations, our ability to ship
products to our
8
<PAGE> 11
customers could be delayed. We have begun the process to qualify a new third
party contract manufacturer. Qualifying a new contract manufacturer and
commencing volume production is expensive and time consuming. If we are required
or choose to change contract manufacturers, we may lose revenue and damage our
customer relationships.
IF WE FAIL TO ACCURATELY PREDICT OUR MANUFACTURING REQUIREMENTS, WE COULD INCUR
ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS.
Because we currently do not have a long-term supply contract with
Solectron, it is not obligated to supply products to us for any specific period,
in any specific quantity or at any certain price, except as may be provided in a
particular purchase order. We provide forecasts of our demand to Solectron up to
six months prior to scheduled delivery of products to our customers. If we
overestimate our requirements, Solectron may have excess inventory, which would
increase our costs. If we underestimate our requirements, Solectron may have an
inadequate inventory, which could interrupt manufacturing of our products and
result in delays in shipments and revenues. In addition, lead times for
materials and components we order vary significantly and depend on factors such
as the specific supplier, contract terms and demand for each component at a
given time. We also may experience shortages of certain components from time to
time, which also could delay the manufacturing of our products.
THE UNPREDICTABILITY AND SEASONALITY OF OUR QUARTERLY RESULTS MAY ADVERSELY
AFFECT THE TRADING PRICE OF OUR COMMON STOCK AND THE CONVERTIBLE NOTES.
Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control and
any of which may cause our stock price to fluctuate. The primary factors that
may affect us include the following:
- demand for our products;
- the timing of sales of our products;
- the timing of recognizing revenue and deferred revenue;
- new product introductions by our competitors;
- changes in our pricing policies or the pricing policies of our
competitors;
- our ability to develop, introduce and ship new products and product
enhancements that meet customer requirements in a timely manner;
- our ability to obtain sufficient supplies of the sole or limited source
components, including ASICs and power supplies for our products;
- increases in the prices of the components we purchase;
- our ability to attain and maintain production volumes and quality levels
for our products;
- Internet growth and demand for Internet infrastructure;
- prototype expenses;
- costs related to acquisitions of technology or businesses; and
- general economic conditions as well as those specific to the Internet
and related industries.
In addition, we are dependent on decisions by customers to build their
Internet infrastructure, which decisions are in turn dependent upon the success
and expected demand for the services offered by those customers. Furthermore,
the long sales and implementation cycles for our products, as well as the degree
to which customers will sporadically place large orders with short
9
<PAGE> 12
lead times, may cause revenues and operating results to vary significantly from
quarter to quarter.
We plan to increase significantly our operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
We also plan to expand our general and administrative functions to address the
increased reporting and other administrative demands, that have resulted from
being a publicly traded company and the increasing size of our business. Our
operating expenses are largely based on anticipated revenue trends and a high
percentage of our expenses are, and will continue to be, fixed in the short
term. As a result, a delay in generating or recognizing revenue for the reasons
set forth above, or for any other reason, could cause significant variations in
our operating results from quarter to quarter and could result in substantial
operating losses.
Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. It is likely that in some future quarters, our operating results
may be below the expectations of public market analysts and investors. In this
event, the price of our common stock and the convertible notes may fall.
IF OUR PRODUCTS DO NOT INTEROPERATE WITH OUR CUSTOMERS' NETWORKS, INSTALLATIONS
WILL BE DELAYED OR CANCELLED AND COULD RESULT IN SUBSTANTIAL PRODUCT RETURNS
WHICH COULD HARM OUR BUSINESS.
Our products are designed to interface with our customers' existing
networks, each of which has different specifications and utilizes multiple
protocol standards. Many of our customers' networks contain multiple generations
of products that have been added over time as these networks have grown and
evolved. Our products must interoperate with all of the products within these
networks as well as future products in order to meet our customers'
requirements. If we find errors in the existing software used in our customers'
networks, we must modify our JUNOS Internet Software to fix or overcome these
errors so that our products will interoperate and scale with the existing
software and hardware. If our products do not interoperate with those of our
customers' networks, installations could be delayed, orders for our products
could be cancelled or our products could be returned. This would also seriously
harm our reputation, which could seriously harm our business and prospects.
BECAUSE OUR PRODUCTS ARE COMPLEX AND ARE DEPLOYED IN COMPLEX ENVIRONMENTS, THEY
MAY HAVE ERRORS OR DEFECTS THAT WE FIND ONLY AFTER FULL DEPLOYMENT, WHICH COULD
SERIOUSLY HARM OUR BUSINESS.
Our products are highly complex and designed to be deployed in very large
and complex networks. Although we have thoroughly tested our products, because
of the nature of the product, it can only be fully tested when deployed in very
large networks with high amounts of traffic. To date, our products have been
deployed only on a limited basis. Consequently, our customers may discover
errors or defects in the hardware or the software after it has been fully
deployed. If we are unable to fix errors or other problems that may be
identified in full deployment, we could experience:
- loss of or delay in revenues and loss of market share;
- loss of customers;
- failure to achieve market acceptance;
- diversion of development resources;
- increased service and warranty costs;
- legal actions by our customers; and
- increased insurance costs.
10
<PAGE> 13
CUSTOMER PRODUCT LIABILITY CLAIMS BASED ON ERRORS IN OUR SOFTWARE OR MISTAKES IN
PERFORMING OUR SERVICES COULD RESULT IN COSTLY LITIGATION AGAINST US.
We may be subject to claims based on errors in our software or mistakes in
performing our services, including claims relating to damages to our customers'
internal systems. Our contracts with our customers generally contain provisions
designed to limit our exposure to potential product liability claims, such as
disclaimers of warranties and limitations on liability for special,
consequential and incidental damages. We believe our product liability insurance
is adequate to cover potential product liability claims. However, a product
liability claim, whether successful or not, could seriously impact our capital
reserves, harm our reputation, and direct the attention of key personnel away
from our business, any of which could harm our business.
PROBLEMS ARISING FROM USE OF OUR PRODUCTS IN CONJUNCTION WITH OTHER VENDORS'
PRODUCTS COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION.
Service providers typically use our products in conjunction with products
from other vendors. As a result, when problems occur, it may be difficult to
identify the source of the problem. These problems may cause us to incur
significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer
relations problems.
OUR PRODUCTS ARE NEW AND FACE RAPID TECHNOLOGICAL CHANGES AND EVOLVING STANDARDS
AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR BUSINESS COULD BE HARMED.
The Internet infrastructure market is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. In developing our products, we have made, and will
continue to make, assumptions with respect to which standards will be adopted by
our customers and competitors. If the standards adopted are different from those
which we have chosen to support, market acceptance of our products may be
significantly reduced or delayed and our business will be seriously harmed. In
addition, the introduction of products embodying new technologies and the
emergence of new industry standards could render our existing products obsolete.
In addition, in order to introduce products embodying new technologies and
new industry standards, we must be able to gain access to the latest
technologies of our suppliers such as IBM. Any failure to gain access to the
latest technologies could harm our business and operating results.
OUR FAILURE TO ESTABLISH AND MAINTAIN KEY CUSTOMER RELATIONSHIPS MAY RESULT IN
DELAYS IN INTRODUCING NEW PRODUCTS OR CAUSE CUSTOMERS TO FOREGO PURCHASING OUR
PRODUCTS.
Our future success will also depend upon our ability to develop and manage
key customer relationships in order to introduce a variety of new products and
product enhancements that address the increasingly sophisticated needs of our
customers. Our failure to establish and maintain these customer relationships
may adversely affect our ability to develop new products and product
enhancements. In addition, we may experience delays in releasing new products
and product enhancements in the future. Material delays in introducing new
products and enhancements or our inability to introduce competitive new products
may cause customers to forego purchases of our products and purchase those of
our competitors, which could seriously harm our business.
IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR BUSINESS, FINANCIAL CONDITION
AND PROSPECTS COULD BE SERIOUSLY HARMED.
Our ability to successfully offer our products and implement our business
plan in a rapidly evolving market requires an effective planning and management
process. We continue to
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<PAGE> 14
increase the scope of our operations domestically and internationally and have
grown our headcount substantially. At December 31, 1998, we had a total of 156
employees and at December 31, 1999, we had a total of 335 employees. In
addition, we plan to continue to hire a significant number of employees this
year. This growth has placed, and our anticipated growth in future operations
will continue to place, a significant strain on our management systems and
resources. We expect that we will need to continue to improve our financial and
managerial controls, reporting systems and procedures, and will need to continue
to expand, train and manage our work force worldwide. Furthermore, we expect
that we will be required to manage multiple relationships with various customers
and other third parties.
WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET AND IF WE ARE UNABLE TO HIRE ADDITIONAL PERSONNEL, OUR ABILITY
TO SELL OUR PRODUCTS COULD BE HARMED.
Our future success depends upon the continued services of our executive
officers and other key engineering, sales, marketing and support personnel. None
of our officers or key employees is bound by an employment agreement for any
specific term and we do not have "key person" life insurance policies covering
any of our employees.
We also intend to hire a significant number of engineering, sales,
marketing and support personnel in the future, and we believe our success
depends, in large part, upon our ability to attract and retain these key
employees. Competition for this personnel is intense, especially in the San
Francisco Bay area. In particular, we have experienced difficulty in hiring
qualified ASIC, software, system and test and customer support engineers and
there can be no assurance that we will be successful in attracting and retaining
these individuals. The loss of the services of any of our key employees, the
inability to attract or retain qualified personnel in the future, or delays in
hiring required personnel, particularly engineers and sales personnel, could
delay the development and introduction of and negatively impact our ability to
sell our products.
IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS WE COULD INCUR SUBSTANTIAL COSTS IN
DEFENDING OURSELVES.
Companies in our industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair hiring practices.
We have received claims of this kind in the past and we cannot assure you that
we will not receive claims of this kind in the future as we seek to hire
qualified personnel or that those claims will not result in material litigation.
We could incur substantial costs in defending ourselves against these claims,
regardless of their merits.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS FROM THIRD-PARTY CHALLENGES.
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise obtain and use our products or technology. Monitoring
unauthorized use of our products is difficult and we cannot be certain that the
steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
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<PAGE> 15
NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE TO US OR MAY
BE VERY EXPENSIVE.
From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that third party licenses will be available to us on commercially reasonable
terms, if at all. The inability to obtain any third-party license required to
develop new products and product enhancements could require us to obtain
substitute technology of lower quality or performance standards or at greater
cost either of which could seriously harm our business, financial condition and
results of operations.
WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS
WHICH COULD SERIOUSLY HARM OUR BUSINESS.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. Although we have never
been involved in any intellectual property litigation, we may be a party to
litigation in the future to protect our intellectual property or as a result of
an alleged infringement of others' intellectual property. Claims for alleged
infringement and any resulting lawsuit, if successful, could subject us to
significant liability for damages and invalidation of our proprietary rights.
These lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and would divert management time and attention. Any
potential intellectual property litigation could also force us to do one or more
of the following:
- stop selling, incorporating or using our products that use the
challenged intellectual property;
- obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or
- redesign those products that use such technology.
If we are forced to take any of the foregoing actions, our business may be
seriously harmed. Although we carry general liability insurance, our insurance
may not cover potential claims of this type or may not be adequate to indemnify
us for all liability that may be imposed. For more information concerning our
intellectual property rights, see "Business -- Intellectual Property."
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS THAT COULD HARM OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We market, sell and service our products in the United States and
internationally. We have established offices in England, The Netherlands, France
and Germany to market, sell and service our products in Europe and in Japan,
Hong Kong and Australia to market, sell and service our products in the Asia
Pacific region.
We intend to expand substantially our international operations and enter
new international markets. This expansion will require significant management
attention and financial resources to develop successfully direct and indirect
international sales and support channels. We may not be able to maintain or
increase international market demand for our products.
We currently have limited experience in marketing and distributing our
products internationally and in developing versions of our products that comply
with local standards. In addition, international operations are subject to other
inherent risks, including:
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<PAGE> 16
- greater difficulty in accounts receivable collection and longer
collection periods;
- difficulties and costs of staffing and managing foreign operations;
- the impact of recessions in economies outside the United States;
- unexpected changes in regulatory requirements;
- certification requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences; and
- political and economic instability.
Our export revenues were $22.5 million for the year ended December 31, 1999
and are generally denominated in U.S. dollars. Consequently, we do not currently
engage in currency hedging activities. However, a portion of our international
revenues may be denominated in foreign currencies in the future.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.
We intend to make investments in complementary companies, products or
technologies. In the event of any such investments or acquisitions, we could:
- issue stock that would dilute our current stockholders' percentage
ownership;
- incur debt;
- assume liabilities;
- incur amortization expenses related to goodwill and other intangible
assets; or
- incur large and immediate write-offs.
These acquisitions also involve numerous risks, including:
- problems combining the purchased operations, technologies or products;
- unanticipated costs;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with suppliers and
customers;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees, particularly those of the acquired
organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future.
RISKS RELATED TO THE CONVERTIBLE NOTES
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH
FLOW.
We will have substantial amounts of outstanding indebtedness, primarily the
convertible notes, upon the completion of this offering. As a result of this
indebtedness, our principal and interest payment obligations will increase
substantially. There is the possibility that we may be unable to generate cash
sufficient to pay the principal of, interest on and other amounts due in respect
of our indebtedness when due. We may also add additional equipment loans and
lease lines to finance capital expenditures and may obtain additional long-term
debt, working capital lines of credit and lease lines.
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<PAGE> 17
Our substantial leverage could have significant negative consequences,
including:
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing;
- requiring the dedication of a substantial portion of our expected cash
flow from operations to service our indebtedness, thereby reducing the
amount of our expected cash flow available for other purposes, including
capital expenditures;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
- placing us at a possible competitive disadvantage relative to less
leveraged competitors and competitors that have better access to capital
resources.
THE CONVERTIBLE NOTES WILL RANK BELOW FUTURE SENIOR DEBT WE MAY INCUR, AND WE
MAY BE UNABLE TO REPAY OUR OBLIGATIONS UNDER THE CONVERTIBLE NOTES.
The convertible notes will be unsecured and subordinated in right of
payment to all future senior debt we may incur. Because the convertible notes
will be subordinate to our senior debt, if we experience:
- a bankruptcy, liquidation or reorganization;
- an acceleration of the convertible notes due to a default; or
- other specified events,
then our assets will be used to satisfy the holders of our senior debt before we
will be able to make additional payments on the convertible notes. Further, the
assets of each of our subsidiaries must be used to satisfy the holders of the
subsidiary's indebtedness before we can use the subsidiary's assets to make
payments on the convertible notes. Therefore, we may not have sufficient assets
remaining to pay amounts due on any or all of the convertible notes.
The convertible notes will be our obligations exclusively. The indenture
for the convertible notes does not limit our ability, or that of our
subsidiaries, to incur senior debt, other indebtedness and other liabilities. We
may have difficulty paying what we owe under the convertible notes if we, or any
of our subsidiaries, incur additional indebtedness or other liabilities. From
time to time we and our subsidiaries may incur additional indebtedness,
including senior debt, which could adversely affect our ability to pay our
obligations under the convertible notes.
WE MAY BE UNABLE TO REPAY OR REPURCHASE THE CONVERTIBLE NOTES.
At maturity, the entire outstanding principal amount of the convertible
notes will become due and payable. In addition, if we experience a change in
control, as defined in "Description of the Convertible Notes -- Repurchase at
Option of Holders Upon a Change in Control", each holder of the convertible
notes may require us to repurchase all or a portion of that holder's convertible
notes. At maturity or if a change in control occurs, we may not have sufficient
funds or may be unable to arrange for additional financing to pay the principal
amount or repurchase price due. Under the terms of the indenture for the
convertible notes, we may elect, subject to certain conditions, to pay the
repurchase price upon a change in control with shares of our common stock. Any
future borrowing arrangements or agreements relating to senior debt to which we
become a party may contain restrictions on, or prohibitions against, our
repayments or repurchases of the convertible notes. If the maturity date or
change in control occurs at a time when our other arrangements prohibit us from
repaying or repurchasing the convertible notes, we could try to obtain the
consent of the lenders under those arrangements, or we could attempt to
refinance the borrowings that contain the restrictions. If we do not obtain the
necessary
15
<PAGE> 18
consents or refinance these borrowings, we will be unable to repay or repurchase
the convertible notes. In that case, our failure to repurchase any tendered
convertible notes or repay the convertible notes due upon maturity would
constitute an event of default under the indenture. Any such default, in turn,
may cause a default under the terms of our senior debt. As a result, in those
circumstances, the subordination provisions of the indenture would, absent a
waiver, prohibit any repayment or repurchase of the convertible notes until we
pay the senior debt in full.
THE PRICE OF OUR COMMON STOCK AND THEREFORE THE PRICE OF OUR CONVERTIBLE NOTES
MAY FLUCTUATE SIGNIFICANTLY, WHICH MAY RESULT IN LOSSES FOR INVESTORS.
The market price for our common stock may be volatile. We expect our stock
price to be subject to fluctuations as a result of a variety of factors,
including factors beyond our control. These include:
- quarterly variations in operating results;
- changes in financial estimates by securities analysts;
- changes in market valuations of Internet related companies;
- announcements by us or our competitors of new products or of significant
acquisitions, strategic partnerships or joint ventures;
- any loss of a major customer;
- additions or departures of key personnel;
- any deviations in net revenues or in losses from levels expected by
securities analysts;
- future sales of common stock; and
- volume fluctuations, which are particularly common among highly volatile
securities of Internet related companies.
We may fail to meet the expectations of our stockholders or of securities
analysts at some time in the future, and our stock price, and therefore the
price of our convertible notes, could decline as a result.
THERE MAY BE NO PUBLIC MARKET FOR THE CONVERTIBLE NOTES.
Prior to this offering, there has been no trading market for the
convertible notes. Although the underwriters have advised us that they currently
intend to make a market in the convertible notes, they are not obligated to do
so and may discontinue their market-making activities at any time without
notice. Consequently, we cannot ensure that any market for the convertible notes
will develop, or if one does develop, that it will continue for any period of
time. If an active market for the convertible notes fails to develop or
continue, this failure could harm the trading price of the convertible notes. We
do not intend to apply for listing of the notes on any securities exchange or
any automated quotation system.
MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE.
The net proceeds from the sale of the convertible notes have not been
allocated for a particular purpose. We intend to use the net proceeds for
general corporate purposes and working capital. In addition, we may use the net
proceeds to make investments in and acquisitions of complementary businesses,
partnerships, minority investments, products or technologies, although no
agreement or understanding with respect to any future acquisition or investment
has been reached. Our management will have significant discretion as to the use
of the net proceeds of the offering and you will not have the opportunity, as
part of your investment
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decision, to assess whether the proceeds are being used appropriately. The net
proceeds from this offering may be applied to uses that ultimately may not
increase our operating results or our market value. See "How We Intend to Use
the Proceeds From This Offering."
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL
OVER JUNIPER NETWORKS AFTER THIS OFFERING, WHICH COULD ENABLE THEM TO CONTROL
OUR BUSINESS AND AFFAIRS.
Our executive officers, directors and entities affiliated with them,
beneficially own approximately 40% of our outstanding common stock as of
December 31, 1999. These stockholders, if acting together, would be able to
influence significantly all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions. See "Principal Stockholders."
PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD
PREVENT A CHANGE IN OUR CONTROL.
Provisions of our amended and restated certificate of incorporation,
bylaws, and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. See
"Description of Capital Stock."
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS THE PRICE OF
OUR CONVERTIBLE NOTES AND COMMON STOCK.
After this offering, we will have outstanding 156,485,674 shares of common
stock. Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the price of our convertible notes
and common stock to decline. In particular, on February 8, 2000, certain of our
executive officers, in coordination with Goldman, Sachs & Co., sold an aggregate
of 855,000 shares of common stock in block trades on the open market. Any block
sales could cause the price of our convertible notes, once issued, and our
common stock to decline.
In connection with this offering and other than the block trades described
above, our officers and directors have agreed not to dispose of or hedge any
shares of our common stock for a total of 90 days after the effective date of
this prospectus, subject to exceptions described in the Underwriting Agreement.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify
forward-looking statements. This prospectus also contains forward-looking
statements attributed to third parties relating to their estimates regarding the
growth of Internet use. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us and
described in the preceding pages and elsewhere in this prospectus.
HOW WE INTEND TO USE THE PROCEEDS FROM THIS OFFERING
We are offering $850,000,000 of convertible notes. After deducting the
underwriters' discounts and estimated offering expenses, we anticipate retaining
approximately $827,750,000 of the proceeds from the sale of the convertible
notes, assuming a sale of the convertible notes at 100% of the principal amount.
We anticipate retaining approximately $952,062,500 if the underwriters exercise
their over-allotment option in full.
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<PAGE> 20
We intend to use our net proceeds from this offering for general corporate
purposes and working capital requirements. We may also use a portion of the net
proceeds to fund possible investments in and acquisitions of complementary
businesses, partnerships, minority investments, products or technologies.
Currently there are no commitments or agreements regarding any such acquisitions
or investments. Pending their ultimate use, we intend to invest the net proceeds
from this offering in short-term and long-term securities.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol "JNPR" since June 25, 1999. Prior to that time, there was no public
market for the common stock. The following table sets forth, for the periods
indicated, the high and low closing prices per share of the common stock as
reported on the Nasdaq National Market. All per share amounts have been adjusted
to reflect the three-for-one split of our common stock paid to stockholders of
record on December 31, 1999.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1999
Second Quarter (since June 25, 1999)........................ $ 49.66 $ 32.96
Third Quarter............................................... $ 75.67 $ 41.67
Fourth Quarter.............................................. $118.17 $ 60.71
2000
First Quarter (through February 29, 2000)................... $274.31 $102.58
</TABLE>
On February 29, 2000 the reported last sale price of the common stock on
the Nasdaq National Market was $274.31. As of December 31, 1999 there were
approximately 300 stockholders of record.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any dividends in the
foreseeable future.
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<PAGE> 21
CAPITALIZATION
The following table sets forth our actual capitalization as of December 31,
1999, and our capitalization as adjusted to give effect to the issuance of
$850,000,000 in convertible notes being offered hereby at an assumed initial
public offering price of 100% principal amount. You should read this table in
conjunction with our consolidated financial statements and the related notes
included elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
Debt:
% Convertible Subordinated Notes due March 15, 2007.... $ -- $ 850,000
Other long-term debt........................................ -- --
Stockholders' equity:
Convertible preferred stock, $0.00001 par value,
10,000,000 shares authorized, none issued or
outstanding (actual and as adjusted)................... -- --
Common stock, $0.00001 par value, 200,000,000 shares
authorized, 155,938,599 shares issued and outstanding
(actual and as adjusted)(1)............................ 2 2
Additional paid-in capital................................ 513,696 513,696
Deferred stock compensation............................... (3,001) (3,001)
Accumulated other comprehensive loss...................... (815) (815)
Accumulated deficit....................................... (52,167) (52,167)
-------- ----------
Total stockholders' equity............................. 457,715 457,715
-------- ----------
Total capitalization................................. $457,715 $1,307,715
======== ==========
</TABLE>
- ---------------
(1) Based on shares outstanding as of December 31, 1999. It excludes: (a)
24,365,521 shares of common stock reserved for issuance under our Amended
1996 Stock Option Plan, of which 22,469,165 shares were subject to
outstanding options at a weighted average exercise price of $25.11 per share
and 1,896,356 shares available for future grants, and (b) 1,500,000 shares
available for issuance under our 1999 Employee Stock Purchase Plan. Shares
issued and outstanding and shares reserved for issuance have been adjusted
to reflect the three-for-one split of our common stock to be paid to
stockholders of record on December 31, 1999. See "Description of Capital
Stock" and Note 5 to the Consolidated Financial Statements.
19
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes thereto included elsewhere herein. The consolidated statement of
operations data set forth below for the fiscal years ended December 31, 1999,
1998 and 1997, and the consolidated balance sheet data as of December 31, 1999
and 1998 have been derived from our audited consolidated financial statements
included elsewhere herein, which have been audited by Ernst & Young LLP,
independent auditors. The consolidated statement of operations data set forth
below for the period from February 2, 1996 (inception) to December 31, 1996, and
the consolidated balance sheet data as of December 31, 1997 have been derived
from our audited consolidated financial statements not included or incorporated
by reference elsewhere herein, which have been audited by Ernst & Young LLP,
independent auditors. The consolidated balance sheet data at December 31, 1996
are derived from unaudited consolidated financial statements that are not
included or incorporated by reference herein. The historical results are not
necessarily indicative of results to be expected for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 2,
YEAR ENDED DECEMBER 31, 1996) TO
------------------------------ DECEMBER 31,
1999 1998 1997 1996
-------- -------- -------- ---------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues............................................... $102,606 $ 3,807 $ -- $ --
Cost of revenues........................................... 45,272 4,416 -- --
-------- -------- -------- --------
Gross profit (loss)........................................ 57,334 (609) -- --
Operating expenses:
Research and development................................. 41,502 23,987 9,406 1,850
Sales and marketing...................................... 20,931 4,216 1,149 --
General and administrative............................... 5,235 2,223 1,043 89
Amortization of goodwill and purchased intangibles and
deferred stock compensation............................ 4,286 1,235 -- --
-------- -------- -------- --------
Total operating expenses............................... 71,954 31,661 11,598 1,939
-------- -------- -------- --------
Operating loss............................................. (14,620) (32,270) (11,598) (1,939)
Interest income, net....................................... 8,011 1,301 1,235 140
-------- -------- -------- --------
Loss before income taxes................................... (6,609) (30,969) (10,363) (1,799)
Provision for income taxes................................. 2,425 2 -- --
-------- -------- -------- --------
Net loss................................................... $ (9,034) $(30,971) $(10,363) $ (1,799)
======== ======== ======== ========
Basic and diluted net loss per share(1).................... $ (0.10) $ (0.80) $ (0.40) $ (0.15)
======== ======== ======== ========
Shares used in computing basic and diluted net loss per
share(1)................................................. 94,661 38,871 25,773 11,874
======== ======== ======== ========
Pro forma basic and diluted net loss per share
(unaudited)(1)........................................... $ (0.07) $ (0.28)
======== ========
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)(1)............................ 131,480 111,210
======== ========
OTHER DATA:
Ratio of earnings to fixed charges......................... --(2) --(2) --(2) --(3)
</TABLE>
- ---------------
(1) See Note 1 of notes to consolidated financial statements for an explanation
of the determination of the shares used to compute net loss per share. All
share and per share amounts have been adjusted to reflect the three-for-one
split of our common stock to be paid to stockholders of record on December
31, 1999.
(2) The pre-tax loss from continuing operations for the years ended December 31,
1999, 1998 and 1997 are not sufficient to cover fixed charges by a total of
approximately $6.6 million in 1999, $31.0 million in 1998 and $10.4 million
in 1997. As a result, the ratio of earnings to fixed charges has not been
computed for any of these years.
(3) The ratio of earnings to fixed charges calculation is not applicable as
there were no fixed charges during this period.
20
<PAGE> 23
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1999 1998 1997 1996
-------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments... $345,958 $20,098 $46,227 $ 9,468
Working capital...................................... 322,170 14,432 44,691 9,315
Long-term investments................................ 97,201 -- -- --
Total assets......................................... 513,378 36,671 50,210 10,388
Total long-term debt................................. -- 5,204 2,083 408
Stockholders' equity................................. 457,715 17,065 46,048 9,728
</TABLE>
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the related notes thereto included elsewhere herein. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors including the risks
discussed in "Risk Factors" and elsewhere herein.
OVERVIEW
We are a leading provider of Internet infrastructure solutions that enable
Internet service providers and other telecommunications service providers,
collectively described in this discussion as service providers, to meet the
demands resulting from the rapid growth of the Internet. Our Internet backbone
routers are specifically designed and purpose-built for service provider
networks and offer our customers increased reliability, performance,
scalability, interoperability and flexibility, and reduced complexity and cost
compared to current alternatives.
In September 1998 we began shipping our first product, the M40 Internet
backbone router, with volume shipments beginning in October 1998. We began
shipping the M20, a derivative of the M40, in December 1999. We currently sell
our products to major service providers in North America through our direct
sales force and sell to international customers primarily through value added
resellers.
From our inception in February 1996 through September 1998, our operating
activities were primarily devoted to expanding our research and development
capabilities, designing our ASICs, developing our software, developing and
testing the M40 and developing other products. We also expanded our
administrative, marketing and sales organizations and implemented strategic
relationships. Since our inception, we have incurred significant losses, and as
of December 31, 1999, we had an accumulated deficit of $52.2 million. We
achieved our first quarter of profitability in the quarter ended December 31,
1999. In order to maintain profitability, we will need to generate significantly
higher revenues because we expect to continue to incur significant research and
development, sales and marketing and general and administrative expenses as the
business and operations continue to grow.
RESULTS OF OPERATIONS
NET REVENUES
We began generating net revenues in the fourth quarter of 1998. Our total
net revenue increased to $102.6 million for the year ended December 31, 1999
from $3.8 million for the year ended December 31, 1998. The increase in net
revenues was primarily due to the following three factors: 1999 being the first
full year of product sales; an increase in market acceptance of our products;
and overall growth in the marketplace due to the growth of the Internet and an
increase in emerging customers and networks.
Our revenues for the year ended December 31, 1999 were derived from sales
of one product, the M40. While we have introduced new products, such as the M20,
and plan to continue to introduce new products, there can be no assurance that
we will be successful in these efforts or that such products will be
well-received by our existing and potential customer base. A limited number of
customers have historically accounted for a substantial portion of our revenues.
Two customers accounted for 58% of our total net revenues for the year ended
December 31, 1999 and two customers accounted for 100% of our revenues for the
year ended December 31, 1998. We expect that a significant portion of our future
revenues will continue to come from sales of our products to a relatively small
number of customers because our direct
22
<PAGE> 25
sales and marketing efforts are focused primarily on the world's leading service
providers. For the year ended December 31, 1999, export sales accounted for
approximately 22% of our total net revenue. We are seeking to diversify our
customer base, but we cannot be certain that our efforts in this regard will be
successful.
Because the market for Internet backbone routers is new and evolving, the
volume and timing of orders are difficult to predict. A customer's decision to
purchase our products typically involves a significant commitment of their
resources and a lengthy evaluation and product qualification process which
involves technical evaluation, integration, testing, network planning and
implementation and typically takes several months. Even after making the
decision to purchase our products, our customers tend to deploy the products
slowly and deliberately. Timing of deployment can vary widely. Customers with
large networks usually expand their networks in large increments on a periodic
basis. Accordingly, we expect to receive purchase orders for significant dollar
amounts on an irregular basis. Because of our limited operating history, we
cannot predict these sales and development cycles. Long sales and implementation
cycles for our products, as well as the expectation that customers will tend to
sporadically place large orders with short lead times, may cause revenues and
operating results to vary significantly and unexpectedly from quarter to
quarter. Historically, selling prices in the Internet infrastructure equipment
market have been relatively stable. However, as competitors launch new products,
this pricing trend may change.
We generally recognize product revenue at the time of shipment, assuming
that collectibility is probable, unless we have future obligations for network
interoperability or have to obtain customer acceptance, in which case revenue is
deferred until these obligations are met. Revenue from service obligations is
deferred and recognized on a straight-line basis over the contractual period.
Amounts billed in excess of revenue recognized are included as deferred revenue
and accounts receivable in the accompanying consolidated balance sheets.
At December 31, 1999, a total of $19.3 million of revenue was deferred,
which we currently expect to recognize in 2000. Our products generally carry a
one year warranty that includes factory repair services as needed for
replacement parts. Estimated expenses for warranty obligations are accrued as
revenue is recognized.
COST OF REVENUES
Cost of revenues for the year ended December 31, 1999, were $45.3 million
resulting in a gross margin of 55.9% for the year. Cost of revenues for the year
ended December 31, 1998 were $4.4 million. The increase in cost of revenues is
primarily related to the increase in net revenues, as well as increases in our
customer service and support organizations. We expect cost of revenues to
continue to increase as net revenues increase. Our gross margins are highly
variable and dependent on many factors, some of which are outside of our
control. Some of the primary factors affecting gross margins include:
- demand for our products and services;
- changes in our pricing policies and those of our competitors;
- new product introductions both by us and by our competitors;
- the mix of interfaces sold;
- the volume manufacturing pricing we are able to attain from our partner
for outsourced manufacturing; and
- the mix of products and services sold.
Cost of revenues includes the cost of our manufacturing overhead and
customer service and support organizations. We have outsourced our
manufacturing, our repair operations and the
23
<PAGE> 26
majority of our supply chain management operations. Accordingly, a significant
portion of our cost of revenues consists of payments to Solectron, our primary
contract manufacturer. Solectron manufactures our products using quality
assurance programs and standards which we established. Manufacturing engineering
and documentation control are conducted at our facility in Mountain View,
California.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $41.5 million in 1999 from
$24.0 million in 1998 and $9.4 million in 1997. Research and development
expenses consist primarily of salaries and related personnel costs,
non-recurring engineering charges and prototype costs related to the design,
development, testing and enhancement of our ASICs. Salary and related personnel
costs accounted for 40% of the increase from 1998 to 1999 and 30% of the
increase from 1997 to 1998. Non-recurring engineering and prototype costs
accounted for approximately 20% of the increase from 1998 to 1999 and 50% of the
increase from 1997 to 1998.
We expense our research and development costs as they are incurred. Several
components of our research and development effort require significant
expenditures, the timing of which can cause significant quarterly variability in
our expenses. For example, a large number of prototypes are required to build
and test our products and the building and testing process occurs over a short
period of time. Our ASIC development requires a payment for non-recurring
engineering charges at the beginning of the process to design and develop the
ASIC, regardless of whether the integrated circuit works. In addition, a per
unit cost is payable as we purchase ASICs. With several large ASICs in our
architecture, we will incur large non-recurring engineering and prototype
expenses with every enhancement of the existing products and for any new product
development. We expect to continue to devote substantial resources to the
development of new products and the enhancement of existing products. We believe
that research and development is critical to our strategic product development
objectives and that to leverage our leading technology and meet the changing
requirements of our customers, we will need to fund investments in several
development projects in parallel. As a result, we expect our research and
development expenses to increase in absolute dollars in the future.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased to $20.9 million in 1999 from $4.2
million in 1998, and $1.1 million in 1997. The increases from period to period
in sales and marketing expenses were primarily attributable to salaries,
commissions (resulting from increased sales) and related expenses for personnel
engaged in sales, marketing and customer engineering support functions,
including international expansion, as well as costs associated with promotional
and other marketing expenses.
We intend to expand our direct and indirect sales operations substantially,
both domestically and internationally, in order to increase market awareness of
our products and to better support our existing customers worldwide. We believe
that continued investment in sales and marketing is critical to our success and
expect these expenses to increase in absolute dollars in the future as we hire
additional sales and marketing personnel, initiate additional marketing programs
to support our products and establish sales offices in new domestic and
international locations.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $5.2 million in 1999 from
$2.2 million in 1998 and $1.0 million in 1997. General and administrative
expenses consist primarily of salaries and related expenses for executive,
finance, accounting, facilities, and human resources personnel, as well as
recruiting expenses, professional fees and other corporate expenses. The
increases from period to period in general and administrative expenses were
primarily
24
<PAGE> 27
attributable to the costs associated with additional headcount to support
increased levels of business activity. In addition, the increase from 1998 to
1999 was also due to costs associated with being a publicly traded company. We
expect general and administrative expenses to increase in absolute dollars as we
add personnel and incur additional costs related to the growth of our business
and our operation as a public company.
AMORTIZATION OF GOODWILL AND PURCHASED INTANGIBLES AND DEFERRED STOCK
COMPENSATION
In connection with the grant of certain stock options to employees during
1998 and the three months ended March 31, 1999, we recorded deferred
compensation of $6.4 million in 1998 and $1.1 million in 1999 representing the
difference between the deemed value of the common stock for accounting purposes
and the exercise price of these options at the date of grant. Deferred
compensation is presented as a reduction of stockholders' equity and is
amortized over the vesting period of the applicable options using the graded
vesting method. This compensation expense relates to stock options granted to
individuals in all operating expense categories. In November 1999, we acquired
certain intellectual property and intangible assets resulting in our recording
of $18.4 million of goodwill and other intangibles. The goodwill and other
intangibles will be amortized over a three-year period. We expensed $4.3 million
of goodwill and purchased intangibles and deferred compensation during 1999, and
$1.2 million of deferred compensation during 1998.
INTEREST INCOME, NET
Net interest income includes income earned on cash and investments
partially offset by expenses related to financing obligations. Net interest
income was $8.0 million in 1999, $1.3 million in 1998 and $1.2 million in 1997.
The increase from 1998 to 1999 is directly due to interest earned on large cash
and investment balances as a result of our initial public offering in June 1999
and our secondary offering in October 1999.
PROVISION FOR INCOME TAXES
We recorded a tax provision of $2.4 million for the year ended December 31,
1999. The provision for income taxes consists primarily of federal alternative
minimum taxes, state taxes and foreign taxes. As of December 31, 1999 we had
approximately $37.0 million of federal net operating loss carryforwards and
$32.0 million of state net operating loss carryforwards for tax reporting
purposes available to offset future taxable income. Such net operating loss
carryforwards expire at various dates beginning in 2004 to the extent that they
are not utilized. We have not recognized any benefit from the future use of loss
carryforwards for these periods, or for any other periods, since inception.
Management's evaluation of all the underlying assumptions of future profitable
operations contain risks that do not provide sufficient assurance to recognize
the tax benefits currently.
25
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table presents our operating results for each quarter during
the years ended December 31, 1999 and 1998. The information for each of these
quarters is unaudited and has been prepared on the same basis as the audited
financial statements appearing elsewhere herein. In the opinion of management,
all necessary adjustments consisting only of normal recurring adjustments, have
been included to present fairly the unaudited quarterly results when read in
conjunction with our audited consolidated financial statements and the related
notes appearing elsewhere herein. These operating results are not necessarily
indicative of the results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1999 1999 1999 1999
------------ ------------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues............................... $45,442 $29,564 $17,556 $10,044
Cost of revenues........................... 18,389 12,490 8,046 6,347
------- ------- ------- -------
Gross profit............................. 27,053 17,074 9,510 3,697
Operating expenses:
Research and development................. 15,820 11,510 7,991 6,181
Sales and marketing...................... 8,869 5,610 3,849 2,603
General and administrative............... 1,781 1,701 977 776
Amortization of goodwill and purchased
intangibles and deferred stock
compensation.......................... 1,689 802 891 904
------- ------- ------- -------
Total operating expenses.............. 28,159 19,623 13,708 10,464
------- ------- ------- -------
Operating loss............................. (1,106) (2,549) (4,198) (6,767)
Interest income and provision for income
taxes, net............................... 4,186 962 346 92
------- ------- ------- -------
Net income (loss).......................... $ 3,080 $(1,587) $(3,852) $(6,675)
======= ======= ======= =======
Basic net income (loss) per share.......... $ 0.02 $ (0.01) $ (0.07) $ (0.15)
======= ======= ======= =======
Diluted net income (loss) per share........ $ 0.02 $ (0.01) $ (0.07) $ (0.15)
======= ======= ======= =======
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1998 1998 1998 1998
------------ ------------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues............................... $ 3,807 $ -- $ -- $ --
Cost of revenues........................... 3,815 382 180 39
------- -------- ------- -------
Gross loss............................... (8) (382) (180) (39)
Operating expenses:
Research and development................. 6,145 8,284 6,061 3,497
Sales and marketing...................... 1,718 1,215 764 519
General and administrative............... 882 562 444 335
Amortization of deferred stock
compensation.......................... 648 374 192 21
------- -------- ------- -------
Total operating expenses.............. 9,393 10,435 7,461 4,372
------- -------- ------- -------
Operating loss............................. (9,401) (10,817) (7,641) (4,411)
Interest income and provision for income
taxes, net............................... 117 238 438 506
------- -------- ------- -------
Net loss................................... $(9,284) $(10,579) $(7,203) $(3,905)
======= ======== ======= =======
Basic and diluted loss per share........... $ (0.22) $ (0.27) $ (0.20) $ (0.12)
======= ======== ======= =======
</TABLE>
Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control and
any of which may cause the price of our common stock and the convertible notes
to fluctuate. The primary factors that may affect us include the following:
- demand for our products;
- the timing of sales of our products;
- the timing of recognizing revenue and deferred revenue;
- new product introductions by our competitors;
- changes in our pricing policies or the pricing policies of our
competitors;
- our ability to develop, introduce and ship new products and product
enhancements that meet customer requirements in a timely manner;
- our ability to obtain sufficient supplies of sole or limited source
components;
- increases in the prices of the components we purchase;
- our ability to attain and maintain production volumes and quality levels
for the M40;
- decisions by end-users to reallocate their information resources to
other purposes;
- Internet growth and demand for Internet infrastructure;
- prototype expenses;
- costs related to acquisitions of technology or businesses; and
- general economic conditions as well as those specific to the Internet
and related industries.
In addition, we are dependent on decisions by customers to build their
Internet infrastructure, which decisions are in turn dependent upon the success
and expected demand for the services
27
<PAGE> 30
offered by those customers. Furthermore, the long sales and implementation
cycles for the M40, as well as the degree to which customers will sporadically
place large orders with short lead times, may cause revenues and operating
results to vary significantly from quarter to quarter.
We plan to increase significantly our operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
We also plan to expand our general and administrative functions to address the
increased reporting and other administrative demands, which have resulted from
being a publicly traded company and the increasing size of our business. Our
operating expenses are largely based on anticipated revenue trends, and a high
percentage of our expenses are and will continue to be fixed in the short term.
As a result, a delay in generating or recognizing revenue for the reasons set
forth above or for any other reason could cause significant variations in our
operating results from quarter to quarter and could result in substantial
operating losses.
Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. It is likely that in some future quarters, our operating results
may be below the expectations of public market analysts and investors. In this
event, the price of our common stock and the convertible notes may fall.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering, we financed operations primarily
through the private placement of convertible preferred stock and capital leases.
In June 1999, we completed the initial public offering of our common stock and
realized net proceeds from the offering of approximately $65.2 million. In
October 1999, we completed a secondary public offering of our common stock and
realized net proceeds from the offering of $324.3 million. At December 31, 1999,
we had cash and cash equivalents of $158.0 million, short-term investments of
$187.9 million and long-term investments of $97.2 million. We regularly invest
our excess funds in money market funds, commercial paper and government and
non-government debt securities.
Net cash provided by operating activities was $20.5 million for the year
ended December 31, 1999. Net cash used in operating activities was $24.8 million
for the year ended December 31, 1998 and $8.6 million for the year ended
December 31, 1997. Net cash flows used in operating activities primarily consist
of the net loss for all periods, as well as increases in accounts receivable for
the years ending December 31, 1999 and 1998. Net cash provided by operating
activities in each period are primarily attributed to non-cash charges such as
depreciation and amortization, as well as increases in accounts payable and
other liabilities and deferred revenue for the years ended December 31, 1999 and
1998.
Net cash used in investing activities was $305.4 million for the year ended
December 31, 1999 and $13.0 million for the year ended December 31, 1997. Net
cash provided by investing activities was $9.3 million for the year ended
December 31, 1998. Net cash used in investing activities for all periods
primarily consisted of purchases of available for sale investments, as well as
purchases of property and equipment. Net cash provided by investing activities
for all periods consisted entirely of maturities of available-for-sale
investments.
Net cash provided by financing activities was $422.9 million for the year
ended December 31, 1999, primarily from the net proceeds of our initial and
secondary public offerings, as well as our convertible preferred stock offering,
partially offset by payments on lease obligations. Net cash provided by
financing activities was $5.2 million for the year ended December 31, 1998,
primarily from proceeds from sale-leaseback liabilities, partially offset by
payments on lease obligations. Net cash provided by financing activities was
$48.5 million for the year ended December 31, 1997, primarily from the net
proceeds from private sales of convertible preferred stock, as well as proceeds
from sale-leaseback liabilities.
28
<PAGE> 31
Our capital requirements depend on numerous factors, including:
- market acceptance of our products;
- the resources we devote to developing, marketing, selling and supporting
our products; and
- the timing and extent of establishing international operations.
We expect to devote substantial capital resources to continue our research
and development efforts, to hire and expand our sales, support, marketing and
product development organizations, to expand marketing programs, to establish
additional facilities worldwide and for other general corporate activities.
Although we believe that our current cash balances will be sufficient to fund
our operations for at least the next 12 months, there can be no assurance that
we will not require additional financing within this time frame or that such
additional funding, if needed, will be available on terms acceptable to us or at
all.
YEAR 2000
We have not experienced any problems with our computer systems relating to
such systems being unable to recognize appropriate dates related to the year
2000. We are also not aware of any material problems with our clients or
vendors. Accordingly, we do not anticipate incurring material expenses or
experiencing any material operational disruptions as a result of any Year 2000
issues.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. FAS No. 133, as
amended, establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities. We
are required to adopt FAS No. 133 effective January 1, 2001. Because we do not
currently hold any derivative instruments and do not engage in hedging
activities, we do not currently believe that the adoption of FAS No. 133, as
amended, will have a significant impact on our financial position, results of
operations or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101. This summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. We believe that our current revenue
recognition principles comply with SAB 101.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET INTEREST RATE SENSITIVITY
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we have
invested in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. To minimize
this risk, we maintain our portfolio of cash equivalents and short-term and
long-term investments in a variety of securities, including commercial paper,
money market funds and government and non-government debt securities. In
general, money market funds are not subject to market risk because the interest
paid on such funds fluctuates with the prevailing interest rate. See Note 2 to
the Consolidated Financial Statements.
29
<PAGE> 32
The following table presents the amounts of cash equivalents and
investments that are subject to market risk and the weighted-average interest
rates, by year of expected maturity for our investment portfolios as of December
31, 1999 and December 31, 1998. This table does not include money market funds
because those funds are not subject to market risk.
<TABLE>
<CAPTION>
MATURING MATURING MATURING
DURING 2000 DURING 2001 DURING 2002
----------- ----------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1999:
Cash equivalents........................................... $ 89,151 $ -- $ --
Weighted-average interest rate........................... 5.68% -- --
Investments................................................ 187,915 93,963 3,238
Weighted-average interest rate........................... 5.96% 6.23% 7.01%
-------- -------- --------
Total...................................................... $277,066 $ 93,963 $ 3,238
======== ======== ========
Weighted-average interest rate........................... 5.87% 6.23% 7.01%
</TABLE>
<TABLE>
<CAPTION>
MATURING MATURING MATURING
DURING 1999 DURING 2000 DURING 2001
----------- ----------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1998:
Cash equivalents........................................... $ 16,520 $ -- $ --
Weighted-average interest rate........................... 5.33% -- --
</TABLE>
EXCHANGE RATE SENSITIVITY
We operate primarily in the United States, and all sales to date have been
made in US dollars. Accordingly, we have had no material exposure to foreign
currency rate fluctuations.
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BUSINESS
OVERVIEW
We are a leading provider of Internet infrastructure solutions that enable
Internet service providers and other telecommunications service providers, to
meet the demands resulting from the rapid growth of the Internet. We deliver
next generation Internet backbone routers that are specifically designed, or
purpose-built, for service provider networks and offer our customers increased
reliability, performance, scalability, interoperability and flexibility, and
reduced complexity and cost compared to current alternatives. Our flagship
product is the M40 Internet backbone router, and we recently introduced the M20,
an Internet backbone router purpose-built for emerging service providers. Our
Internet backbone routers combine the features of our JUNOS Internet Software,
high performance ASIC-based packet forwarding technology and Internet-optimized
architecture into a purpose-built solution for service providers. Unlike
conventional routers, which were originally developed for enterprise
applications and are increasingly inadequate for service provider use in public
networks, our Internet backbone routers are specifically designed to accommodate
the size and scope of the Internet.
We believe that the Internet will continue to grow at significant rates and
will evolve into the next generation public network, superseding and expanding
upon many of the functions provided by the traditional telephone network. This
trend will drive the need for new Internet infrastructure equipment that can
deliver the high levels of reliability and scalability needed in a public
network. We believe we have developed the first commercially available Internet
backbone routing platform specifically designed and built to meet these
requirements. Ryan Hankin Kent, an industry research firm, estimated in 1999
that the market for Internet backbone routers was $169 million in 1998 and
expects that market to increase to approximately $5.5 billion in 2003.
We sell our Internet backbone routers primarily through a direct sales
force in the United States and through value added resellers internationally.
Our M40 Internet backbone router is currently used by several of the world's
leading service providers, such as UUNet, an MCI WorldCom Company, Cable &
Wireless USA, AT&T/IBM Global Services, Frontier GlobalCenter Inc. and Verio
Inc.
INDUSTRY BACKGROUND
The Internet has evolved from an academic research project into a network
of hundreds of separately administered, public and private networks
interconnected using Internet Protocol (IP). IP traffic is growing
exponentially, driven by increasing numbers of new users, connected devices and
Internet transactions. The result of the widespread use of IP is a ubiquitous
network that today carries a large and growing amount of data traffic enabling
millions of users to share information and conduct electronic commerce.
International Data Corporation, an industry research firm, forecasts continued
dramatic growth worldwide in the Internet and Internet traffic:
- World Wide Web users will grow from approximately 159 million in 1998 to
approximately 510 million in 2003;
- the number of computers and other devices with communications capability
accessing the World Wide Web will grow from approximately 175 million in
1998 to approximately 739 million by 2003; and
- commerce revenues on the Internet will grow from approximately $50
billion at the end of 1998 to approximately $1.3 trillion by the end of
2003.
The importance of IP continues to increase as the number of users,
connected devices and transactions over the Internet grows. This growth
highlights the potential for the Internet to replace the traditional telephone
network and the pervasive public network.
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The rapid adoption of the Internet and the tremendous growth of IP traffic
have prompted service providers to construct large scale data networks. These
networks are being optimized to transport data traffic as compared to
traditional telephone networks, which were optimized to transport voice traffic.
The architecture of these next generation networks is being driven by two key
technologies: packet/cell switching and optical networking.
Advantages of Packet/Cell Switching. Packet/cell switching technology,
which divides data traffic into distinct units called packets or cells and
routes each packet or cell independently, provides superior use of available
network capacity compared to traditional circuit switching technology. In a
circuit switched network, each data stream, such as a voice telephone call
between two points, is provided with a dedicated channel, or circuit, for the
duration of the telephone call. This approach leads to inefficient use of
network resources because a channel is fully dedicated to each transaction,
whether or not data is actually flowing at any given moment. As a result, a
circuit switched architecture is highly inefficient for Internet applications
which tend to create large bursts of data traffic followed by long periods of
silence. Packet/cell switching architectures enable greater utilization out of a
fixed capacity circuit by combining traffic that has different capacity demands
of the circuit at different times. Packet/cell switches more efficiently fill
the available network bandwidth with packets of data from many users, thereby
reducing the wasted bandwidth due to silence from any one particular user. The
use of packet/cell switching is driving the architecture of the Internet to be
fundamentally different from traditional circuit switched voice based networks.
In packet/cell switched networks, IP has emerged as the de facto standard for
providing services to end users. Primary packet/cell switching products include
frame relay switches, ATM switches and routers.
Rapid Advances in Optical Networking. Optical networking technology uses
pulses of light, rather than pulses of electricity, to transmit data in a
network, and uses fiber optic connections instead of wires. Optical networking
can be used to transmit much more information over a given connection than
electrical signals can convey. Optical networking advances, such as dense
wavelength division multiplexing, or DWDM, which allows transmission of several
frequencies of light over one strand of optical fiber, have enabled still higher
data transmission rates and improved efficiency of bandwidth utilization.
Currently available DWDM technology enables the transmission of up to 128
frequencies which allows a service provider to multiply the transmission
capacity of a fiber optic network by a factor of up to 128.
Packet/Cell Technologies Have Not Kept Up With Optical Technologies. Many
service providers are installing DWDM equipment and are increasingly focusing on
combining IP and optical networking technologies. However, traditional packet
switching equipment is not capable of forwarding packets at rates sufficient to
keep pace with optical transmission speeds. As affordable fiber optic
transmission capacity becomes widely available, the performance and complexity
of current packet/cell switching architectures is increasingly constraining the
growth of the Internet.
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The intersection of traditional packet/cell switching and fiber optic
technology is demonstrated by the following diagram:
[DIAGRAM]
THE NEW REQUIREMENTS OF THE INTERNET
The reliability and performance of current Internet infrastructure
equipment have become critical issues for service providers as they continue to
support dramatic growth in IP traffic and increasingly seek to offer new revenue
generating, mission-critical services, such as Virtual Private Networks, or
VPNs, and voice-over IP. New requirements for next generation networks are
driving a set of new requirements for Internet infrastructure equipment,
including:
- high reliability;
- high performance;
- high performance under stressful conditions;
- scalability;
- interoperability;
- reduced complexity; and
- cost effectiveness.
High Reliability. As businesses and consumers increasingly rely on the
Internet for mission-critical applications, high network reliability becomes
essential. Service providers are increasingly expected to provide a similar
degree of reliability on the Internet that users have become accustomed to on
the traditional telephone network. The "five nines" (99.999%) reliability
standard of the traditional telephone network is becoming the target to which
suppliers of next-generation Internet platforms are being compared. As service
providers begin to bundle voice and data on their networks, this high degree of
reliability is becoming even more critical.
High Performance. To handle the rapid growth in IP traffic, today's
networks increasingly require routers that can operate at interface speeds as
high as 2.5 billion bits of information per second (Gbps), and in the near
future, 10 Gbps. The processing of data packets at these high speeds requires
sophisticated forwarding technology to inspect each packet and assign it to a
destination based on priority, data type and other considerations. Since a large
number of IP packets, many of which perform critical administrative functions,
are small in size, high performance Internet routers need to achieve their
specified transmission speeds even for small packet sizes. Since smaller packets
increase packet processing demands, routing large numbers of smaller packets
tends to be more resource intensive than routing of larger packets. Routers
based on general-purpose microprocessors traditionally are unable to forward
small packets at maximum rates, and, as a consequence, fail to operate at wire
speed, which results in data loss, packet retransmission and network
instability. A wire speed router, which achieves its specified
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transmission rate for any type of traffic passing through it, can accomplish
this task. Unlike the enterprise environment, where network capacity is
relatively inexpensive and service quality requirements are not as demanding,
the additional capacity and related costs of network bandwidth and low service
levels resulting from retransmission of dropped packets are increasingly
unacceptable to service providers. Thus, provisioning of mission-critical
services increasingly requires the high performance enabled by wire speed
processing.
High Performance Under Stressful Conditions. In a large and complex
network, individual components inevitably fail. However, the failure of an
individual device or link must not compromise the network as a whole. In a
typical network, when a failure occurs, the network loses some degree of
capacity and, in turn, a greater load falls on the remaining network routers,
which must provide alternate routes. Routers must quickly adjust to the new
state of the network to maintain packet forwarding rates and avoid dropping
significant numbers of packets when active routes are lost or when large numbers
of routes change. Routing protocols are used to accomplish this convergence, a
process that places even greater stress on the router. Given the complexity of
Internet infrastructure, particularly compared to enterprise networks, the
convergence process is far more complex and places a far greater load on the
routing software, thereby requiring a much more sophisticated device.
Scalability. Due to the rapid growth in Internet users and IP traffic,
service providers must continuously expand their networks, both in terms of
increased numbers of access points of presence (PoPs), and also greater capacity
per PoP. To facilitate this expansion process, Internet infrastructure equipment
must be highly scalable. Next generation routers therefore need to be
upgradeable and configurable to function within constantly changing networks
while incurring minimal downtime.
Interoperability. Service providers do not have the time or inclination to
change their existing networks to favor introduction of new products; rather,
new products must be compatible with the existing environment. Given the open
and inter-connected nature of the Internet, the complexity of running an
Internet backbone network requires a service provider to control and police
relations with other service providers. For example, service providers must
carefully control what traffic is accepted under what conditions from other
providers. Major service providers connect their respective networks via peering
arrangements, in which service providers agree to exchange traffic with one
another. These arrangements are prone to abuse, such as the illicit use by one
service provider of another service provider's backbone to carry excess traffic.
Service provider relationships are controlled by a set of rules called policies,
implemented through a data protocol called Border Gateway Protocol 4, or BGP4.
The software in each router must offer 100% compatibility with all aspects of
BGP4, as well as 100% compatibility with the interior protocols and standards
used within each service provider's backbone network. The compatibility level
must be maintained despite changes to software equipment configuration and
network architecture and upgrades to the various protocol standards. Thus,
routing software must be flexible and quickly upgradeable to support any
necessary revisions. This level of compatibility, in turn, cannot impact the
performance, scalability or reliability of the equipment. Attaining this
sophisticated level of interoperability is highly challenging and requires
significant testing to ensure compatibility.
Reduced Complexity. Today's Internet architectures are highly complex.
Since traditional routers have not fully met service providers' needs, many
service providers have tried to improve Internet backbone performance by adding
additional network devices such as ATM switches in the core of the network. As a
result, service providers have built networks with ATM switches surrounded by an
overlay network of lower capacity routers. These different layers of equipment
lead to higher capital costs and the need to manage distinct network elements.
ATM switches are also poorly suited to carrying IP traffic, which results in
inefficient use of network bandwidth. Moreover, this network design can cause
unpredictable router behavior during periods of stress
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because the routers are not aware of the ATM backbone infrastructure and thus
cannot quickly converge if there is a partial network outage.
This type of layered backbone network with a complex patchwork of products
based on different technologies is represented below:
[DIAGRAM]
Cost Effectiveness. Exponential growth in IP traffic and intense price
competition in the telecommunications market is increasingly requiring service
providers to seek solutions that significantly reduce the capital expenditures
required to build and operate their networks. In addition to the basic cost of
equipment such as routers, service providers incur substantial ancillary costs
in terms of space required to deploy the equipment, power consumption and
on-going operations and maintenance. Service providers therefore want to deploy
dense and varied equipment configurations in limited amounts of rack and floor
space. Currently, service providers are moving from OC-3 (155 million bits per
second, or Mbps) and OC-12 (622 Mbps) speed networks at the core to higher
capacity OC-12 and OC-48 (2.5 gigabits per second, or Gbps) speed networks. In
turn, the connections from each PoP to the core are evolving from 100 Mbps and
OC-3 speeds to gigabit and OC-12 transmission rates. Therefore, in order to
continue to scale their networks toward higher data speeds in a cost effective
manner, service providers need the ability to mix and match easily many
different speed connections at appropriate densities, without significantly
increasing the consumption of space or power.
There is a clear need for next generation routers that can support high
speeds and offer new IP-based services. Network operators are eagerly seeking
new solutions that increase the level of scalability and reliability within
their networks and reduce the cost and complexity of their architectures.
THE JUNIPER NETWORKS SOLUTION
We develop, market and sell what we believe is the first commercially
available purpose-built Internet backbone router optimized for the specific high
performance needs of service providers.
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Our flagship product, the M40 Internet backbone router, combines the features of
our JUNOS Internet Software, high-performance ASIC-based packet forwarding
technology and Internet-optimized architecture. As the need for core bandwidth
has continued to increase, it created the need for service rich platforms at the
edge of the network. In December 1999 we introduced the M20 backbone router,
purpose-built to alleviate capacity demand on access points in the PoP. The M40
router operates at the Internet's core while the M20 router extends
purpose-built performance capability to service provider entry points. The M20
router is also a cost-efficient solution for new and emerging IP carriers
(smaller service providers) capable of enabling a high-bandwidth core and
high-speed services for the service provider edge in one device.
The M40 and M20 platforms share common software and services, and common
ASIC technology for full compatibility and scalability. Critical service
provider applications including high-speed access, peering, and hosting are
served by both platforms. Physical interfaces are interchangeable between
platforms, increasing user flexibility and allowing common sparing.
JUNOS Internet Software. Our Internet software, called JUNOS, is one of
our key competitive differentiators. JUNOS is designed to meet the IP network
routing, operations and control requirements of the world's largest service
providers and is an integral component of our product family system
architecture. The ability of JUNOS to manage the complex network sharing
relationships among service providers allows our products to be placed at
critical points in the core of a service provider's network. The JUNOS Internet
Software allows our products to have widespread network placement due to its
interoperability with Cisco's Internetwork Operating System, or IOS, currently
the most broadly deployed routing operating system. The ability to coexist has
enabled the M40 to achieve successful deployment where other products in the
past have failed.
Unconstrained by legacy routing software, we developed JUNOS using a
modular design, in which distinct functions are implemented as separate modules
with well defined interfaces and interactions, simplifying troubleshooting and
maintenance. JUNOS operates in protected memory mode. These features keep
functionality distinct, and minimize the impact of any failure that may occur to
the specific software application in which the failure occurs. Also, we believe
JUNOS' software modularity will enable the continuous upgrade of new enhanced
capabilities, while protecting reliability and compatibility with existing
networks. The design and development of the JUNOS Internet Software has been
possible due to the significant Internet engineering expertise of our
development team. Our expert engineers have authored or co-authored 22 Requests
for Comments, which are documents by industry experts that define major
standards for Internet protocols.
High Performance ASIC-based Packet Forwarding Technology. The M40 Internet
backbone router contains five major application specific integrated circuits
that we designed and built using the most advanced ASIC technology. These ASICs
contain over five million gates in total, with three of the designs each having
a larger number of transistors than the Intel Pentium II microprocessor. The
result is a system that is substantially faster than today's general purpose
microprocessor based routers in its ability to process and forward IP packets,
allowing our products to deliver high performance at wire speed. The ability to
enhance and implement large scale ASICs will be a long-term differentiator for
us, particularly as the sophistication required to forward traffic across higher
speed networks increases. As with the introduction of the M20, we expect to
continue to leverage our existing ASIC technology in future products and
continue to capitalize on our advanced ASIC design capabilities.
Internet Optimized Architecture. As purpose-built Internet backbone
routers, our products employ an architecture designed exclusively for the
Internet. The system architecture provides a clean separation between the
routing and packet-forwarding functions. Separating these two functions enables
us to develop independently a full-featured routing protocol and traffic
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engineering functionality through our JUNOS Internet Software and wire speed
packet forwarding performance through high performance ASICs. Furthermore, with
the routing and forwarding functions segregated, the products do not sacrifice
performance, even when there is a failure in the network. When a failure occurs,
JUNOS detects the failure and is able to quickly converge to the new state of
the network while the ASICs continue to forward packets at wire speed until they
receive updated routes from JUNOS.
The key benefits of our solution are:
- carrier class reliability;
- wire speed performance;
- scalability;
- interoperability;
- flexibility;
- reduced complexity; and
- cost effectiveness.
Carrier Class Reliability. Our products' system architecture provides
reliable operation for service providers in large complex networks even under
abnormal conditions. This architecture, combined with JUNOS' modular software
design, limits the impact of a failure to the specific software application. In
addition, the hardware used in our products has been designed with a very high
level of integration to maximize the mean time between failure. Moreover, data
and instructions have appropriate error correction and parity checks in memory
to guarantee their integrity.
Wire Speed Performance. We believe the M40 is the first Internet backbone
router that can forward minimum-sized IP packets over OC-48 links at wire speed.
This maximizes network stability and the capacity utilization of expensive wide
area circuits. In contrast to available solutions, the M40 is able to maintain
packet forwarding rates and to avoid dropping significant numbers of packets
when active routes are lost or when large numbers of routes change.
Scalability. Our JUNOS Internet Software is designed to accommodate
service providers' scale requirements. In addition, the ASIC interface links
have been oversized, enabling the M40 to easily scale with growing levels of
data traffic. We believe our software and ASIC designs represent a competitive
advantage, because it is very difficult for existing vendors to graft these
capabilities to their prior generation designs.
Interoperability. The M40 has demonstrated consistent interoperability
with existing network infrastructures. Our internal test environments confirm
interoperability with Cisco routers, a variety of leading ATM and Gigabit
Ethernet switches and SONET add drop multiplexers. Deployment of the M40 at
several major carriers has demonstrated that JUNOS is interoperable with
installed Cisco routers for both routing and administration. In addition, JUNOS
enables service providers to manage their complex peering relationships with
other service providers despite frequent software, equipment configuration and
network architecture changes.
Flexibility. Our ASICs are programmable and provide the flexibility to add
support for new protocols or changes in existing protocols. Since JUNOS is
modular in architecture and already supports existing and emerging protocols, it
is also a platform for efficiently introducing new interfaces and new services
in the network.
Reduced Complexity. Our products are purpose-built for service providers
and allow a simple and more structured approach to building Internet backbones
compared to the complex topologies in place today. With the M40 and the M20,
service providers can build more efficient
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networks with less dependence on devices like ATM switches, which reduce the
operational burdens of running multiple distinct network layers.
Additionally, our products offer a thorough implementation of traffic
engineering based on MPLS, including the ability to dynamically adapt traffic
flows according to rules adopted by the network operator. Traffic engineering
refers to a set of capabilities for understanding underlying traffic trends in
the network and maximizing the utilization of the network on multiple
dimensions.
[DIAGRAM]
Cost Effectiveness. We have integrated these customer benefits into a
system that provides critical routing and forwarding functions at lower overall
cost. Our products' wire speed performance allows service providers to reduce
network operating cost by making more efficient use of their networks. In
addition, we designed the M40 to support a broad variety and density of
interfaces in a unit that occupies half a typical telecommunications rack. As a
result, service providers can cost effectively deploy the M40, which can be
easily upgraded, to connect to a variety of speed and circuit types at the
network core.
THE JUNIPER NETWORKS STRATEGY
Our objective is to become the primary supplier of high performance
Internet backbone infrastructure. The key elements of our strategy include:
- leverage early lead as supplier of purpose-built Internet
infrastructure;
- work very closely with key customers;
- increase penetration at major service providers;
- leverage early success to penetrate new customers rapidly;
- expand sales and distribution network;
- maintain and extend technology leadership; and
- enable new IP-based services.
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Leverage Early Lead as Supplier of Purpose-Built Internet
Infrastructure. From inception we have focused solely on designing and building
Internet infrastructure for service providers. We have integrated purpose-built
software and hardware into an Internet optimized architecture that specifically
meets service providers' needs and have seen significantly positive initial
responses from our existing and potential customers. We believe that many of
these customers will deploy Internet backbone infrastructure equipment from only
a few vendors. The purpose-built advantages of our products provide us with a
time-to-market lead, which is a critical advantage in gaining rapid penetration
as one of these selected vendors. Once our products are widely deployed in a
service provider's network as the primary or even secondary Internet backbone
infrastructure equipment, we believe we create a significant barrier to entry to
potential competitors who do not currently offer commercially-viable next
generation routing solutions.
Work Very Closely with Key Customers. In developing our products,
including our JUNOS Internet Software, we worked very closely with customers to
design and build a product specifically to meet their complex needs. Since JUNOS
has been available and used by our customers for over a year, we understand
clearly the challenges facing these carriers, enabling us to subsequently design
additional features and capabilities into both our software and hardware. We
believe our close relationships with, and constant feedback from, our customers
have been key elements in our design wins and rapid deployment to date. We plan
to continue to work very closely with our key customers to implement
enhancements to current products as well as to design future products that
specifically meet their evolving needs. We are also actively involved with these
customers in developing key standards, such as MPLS, and are an active
participant in standards organizations such as the Internet Engineering Task
Force and the Optical Internetworking Forum.
Increase Penetration at Major Service Providers. Our initial focus has
been to penetrate several of the largest service providers, where operators have
the technical sophistication, resources and desire to test and evaluate our
solution against potential alternatives. While we have received initial orders
from major service providers, such as UUNet (MCI Worldcom), Cable & Wireless,
AT&T/IBM Global Services, Frontier GlobalCenter and Verio, we believe that there
is a significant opportunity to further penetrate these large and complex
networks given the advantages of our products. As the growth of the Internet
requires these service providers to continue to build their networks and replace
outdated equipment, we will pursue further opportunities to capture greater
market share within these large accounts.
Leverage Early Successes to Penetrate New Customers Rapidly. We believe
that the Internet infrastructure equipment buying patterns of the medium and
smaller-sized service providers typically lag behind those of the larger service
providers. Since the network challenges that the large service providers face
today are likely to be the problems encountered by smaller service providers in
the near future, we believe smaller service providers are likely to deploy
equipment similar to larger service providers. Furthermore, smaller service
providers often lack the technical resources to thoroughly test different
vendors' products. Therefore, they typically piggyback on larger service
providers' evaluation efforts by purchasing the same platforms deployed by the
larger service providers. Since we have begun to sell to several of the largest
service providers, we intend to leverage this success by allocating our
marketing efforts towards a greater number of medium and smaller-sized service
providers.
Expand Sales and Distribution Network. In order to pursue the large number
of potential customers for our Internet infrastructure solutions, we plan to
continue to aggressively add to our sales and distribution capabilities. We are
adding to our direct sales and support capabilities for our major customers in
North America and adding value-added resellers to sell to and support our other
domestic and international customers. In the quarter ended December 31, 1999, we
added 12 people to the sales organization for a total of 72 people.
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Maintain and Extend Technology Leadership. Our Internet software, ASIC
technology and Internet-optimized architecture have been key elements to
establishing our technology leadership. We believe that these elements are
highly leverageable into future products we are currently developing. We intend
to maintain and extend our technological leadership in the Internet
infrastructure market through continued significant investment in JUNOS Internet
Software and ASIC designs to enhance the feature richness of our products and to
develop future differentiated offerings for service providers.
Enable New IP-based Services. Our platform enables service providers to
build networks cost effectively and to offer new differentiated services for
their customers more efficiently than conventional products. While we believe
that current service providers are likely to be the largest and most successful
IP network operators in the near term, many new service providers are likely to
emerge oriented around the delivery of IP-based services. These services, which
include web hosting, outsourced Internet and intranet services, VPNs, outsourced
enterprise applications and voice-over IP, are cost-effectively enabled by our
Internet infrastructure platform. Although the market for our products today is
driven primarily by the need for traditional Internet network capacity, as other
IP-based services and applications continue to grow in importance, the total
potential market for our products will continue to grow commensurately.
TECHNOLOGY
Our core technology consists of our Internet backbone router architecture,
JUNOS Internet Software and ASIC hardware expertise. Our general-purpose
architecture is initially embodied in the M40, but also is designed to serve as
the platform for future generations of products, such as the M20.
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M40 ARCHITECTURE
The architecture of our products is exemplified by the M40. The following
diagram illustrates the architecture of the M40 Internet backbone router:
[DIAGRAM]
The M40 architecture delivers the forwarding rates and network control
necessary to scale Internet backbones rapidly and reliably. The M40 system
includes a Routing Engine, or RE, and a Packet Forwarding Engine, or PFE. The
clean separation of the routing and forwarding functions ensures that the two
functions do not compete for the same resources.
The Routing Engine. The RE consists of the JUNOS Internet Software
operating on an Intel-based platform. The JUNOS Internet Software features
Internet-scale protocol support, with flexible policy software that enables
maximum control over the acceptance, modification and advertisement of route
prefixes. In addition, the JUNOS Internet Software offers a range of
configuration management tools that simplify the configuration process and help
protect against operator error. The RE conducts the processing intensive
activity of maintaining the routing table, from which the forwarding table
residing in the PFE is derived. The RE is connected to the PFE through a
dedicated 100 Mbps link. After constructing or updating the forwarding table,
the RE downloads a copy of the table to the PFE. Updates to the forwarding table
are done atomically in small incremental steps so that packet forwarding is not
interrupted by routing changes.
The Packet Forwarding Engine. The M40 delivers wire speed packet
forwarding using our ASIC designs. All links between ASICs are oversized,
dedicated channels, and the PFE architecture is free from the bottlenecks faced
by traditional crossbar switches, which use
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intelligent agent software to perform both routing and forwarding functions over
multiple connections to either parts of the network. Bottlenecks can occur in a
crossbar switch because the routing and forwarding functions are not separated.
The heart of the PFE is the Internet Processor ASIC. With over one million gates
and a lookup rate of over 40 million packets per second, or Mpps, the Internet
Processor represents the largest and fastest route lookup ASIC currently
available, capable of processing data at throughput rates in excess of 40 Gbps.
All lookup rates reflect longest-match route table lookups for all packets
and all lookups are performed in hardware. There is no caching mechanism, which
is a mechanism by which critical information, such as destinations for traffic,
is stored in rapidly accessible memory to make the process of looking up traffic
destinations faster. In addition there is no risk of cache misses in the system
which can result in slower storage access and thus considerably slower traffic
delivery. In addition, the forwarding table can be updated without affecting
forwarding rates. The Internet Processor is programmable to support up to four
different forwarding tables (layer 2 and/or layer 3) simultaneously. Supported
forwarding protocols currently include unicast and multicast IPv4 and MPLS.
Finally, the Internet Processor maintains its performance regardless of length
of lookups or table size.
The PFE also features a shared memory system with single-stage buffering,
so packets are written to and read from memory only once. Single-stage buffering
greatly reduces the complexities and throughput delays associated with
multistage buffering systems. The pooled memory is distributed across the
Flexible PIC Concentrator, or FPC, cards, allowing memory to scale as interfaces
are added. The Internet Processor also features prefix accounting mechanisms
that operate at rates in excess of 20 Mpps.
JUNOS INTERNET SOFTWARE: TRAFFIC ENGINEERING AND CONTROL
JUNOS Internet Software offers a full suite of Internet-scale,
Internet-tested routing protocols. Protocols and software tools, which are used
to control and direct network traffic, are critical to an Internet backbone
routing solution. Software control is made more important by the fact that the
size and complexity of backbone networks are increasing at a time when service
providers are looking to differentiate themselves through value-added service
offerings.
JUNOS Internet Software features implementations of all major Internet
protocols, including BGP4, DVMRP, PIM, IS-IS, Open Shortest Path First. IS-IS
and Open Shortest Path First are algorithms broadly used in enterprise networks
and by service providers to determine and update the running state of the
network and available destinations in the network. These implementations were
developed in-house by our design team which has extensive experience in
addressing the scaling issues of rapidly growing service providers.
JUNOS Internet Software also provides a new level of traffic engineering
capabilities with its implementation of MPLS. Developed in conjunction with the
Internet Engineering Task Force, our MPLS capability offers enhanced visibility
into traffic patterns and the ability to control the path traffic takes through
the network. Path selection enables service providers to engineer traffic for
efficient use of network capacity and avoidance of congestion. We expect MPLS
and its traffic engineering capabilities to become a crucial tool for service
providers as they scale their networks.
JUNOS Internet Software features a modular design, with separate programs
running in protected memory space in conjunction with an independent operating
system. Unlike monolithic, unprotected operating system designs, which are prone
to system wide failure, the protected, modular approach improves reliability by
ensuring that modifications made to one module have no unwanted side-effects on
other sections of the software. In addition, having clean software interfaces
between modules facilitates software development and maintenance, enabling
faster response to customer needs and delivery of new features.
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JUNOS Internet Software has been extensively tested in multiple service
provider networks to ensure compatibility with Cisco's IOS. Since each major
service provider's network is different, this extensive testing is necessary to
ensure seamless introduction into existing service provider environments.
PRODUCTS
M40 INTERNET BACKBONE ROUTER
The M40 Internet backbone router is specifically designed for the
specialized needs of service providers. The M40 features leading-edge
packet-forwarding performance, very high port density and flexibility, and
purpose-built Internet software. The M40 delivers higher speed performance for
service providers than current alternatives. The M40 helps solve the critical
problem of managing backbone networks by ensuring greater control over traffic
and better use of network capacity and by providing service providers with the
necessary traffic engineering tools, such as MPLS.
FEATURES OF THE M40 INTERNET BACKBONE ROUTER
Port Density Per Rack-Inch. Our M40 Internet backbone router offers very
high port density per rack-inch, ensuring optimal use of valuable and scarce PoP
rack space. Because the forwarding engine is oversized, all interfaces perform
at wire speed for all packet sizes.
The M40 router features a highly flexible combination of backbone interface
speeds on the market today. In a 35-inch chassis, the M40 router provides 8
OC-48/STM-16, 32 OC-12/STM-4, 128 OC-3/STM-1 or 128 DS3 interfaces. M40
interfaces are located on Physical Interface Cards, or PICs, which plug into FPC
boards. There are eight FPC slots on the M40 and each FPC slot supports up to
four PICs and an aggregate throughput rate of more than 2.5 Gbps. In addition to
supporting wire speed OC-48 interfaces, each FPC supports various combinations
of interfaces, permitting the mixing of interface types and speeds on a single
FPC. Supported PIC interfaces include:
- 1-port OC-48/STM-16 SONET/SDH;
- 1-port OC-12/STM-4 SONET/SDH;
- 1-port OC-12/STM-4 ATM;
- 4-port OC-3/STM-1 SONET/SDH;
- 2-port OC-3/STM-1 ATM;
- 4-port DS3; and
- 1-port Gigabit Ethernet.
The PIC interface cards are sold both as part of the initial product
configuration and also, subsequently, as add-on items. Interfaces are typically
added as the customer's network expands or the capacity of individual links is
upgraded.
Class-of-Service Flexibility. The M40 router is designed for a variety of
class-of-service applications. The M40's queuing mechanism is based on a
weighted round-robin selection among multiple queues on outgoing interfaces.
Queues can be configured with drop profiles to control the rate of packet drops
based on utilization of buffer capacity.
Low Power Consumption. As provider PoPs have grown and become more fully
populated with systems, power consumption has become a significant concern.
Access to sufficient power can be a constraint on the ability of a facility to
support a larger network. Because of its low part count and efficient design,
our M40 Internet backbone router draws less than 1700 watts of power
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(35A at 48V) in a fully loaded configuration, enabling it to offer very high
performance and port density per watt.
Engineered for Stressful Conditions. The M40 architecture is designed to
reliably handle stressful network conditions. For example, the route lookup
capacity of our Internet Processor has been oversized with respect to interface
speeds. In addition, the separation of routing and processing enables the M40 to
converge quickly while maintaining wire speed.
Built for Reliability. In addition to preserving network reliability, the
M40 router is designed to ensure system reliability. The M40's cooling system is
fully redundant to protect against individual fan failure. Similarly, the M40's
dual power supplies are fully redundant, each capable of supporting the full
power load of the system. The M40 can boot off of any one of multiple redundant
storage media, ensuring that the system remains operational in the event of a
disk failure. For software reliability, JUNOS Internet Software features a
protected, modular design with separate processes running in protected memory
space on top of an independent operating system. A modular design protects
against system wide failures, ensuring that modifications made to one module
have no unwanted side-effects on other portions of the code base. Finally, a low
component count and an efficient design combine to give the M40 system superior
reliability.
The M40 base price list ranges between $45,000 and $52,000. PIC module
prices begin at $18,000.
M20 INTERNET BACKBONE ROUTER
The M20 is purpose-built for new emerging carriers and smaller service
providers. It can serve a variety of high speed uses, starting at the core. As
new carriers build out the core, they determine that there is a need for high
speed connectivity to end customers, other carriers and hosting environments.
The M20, with its services and configuration flexibility can provide the
solution in one chassis, which is both cost and space effective.
The M20's small size, high performance and high port density make it an
optimum platform for high-speed access applications. Its Gigabit Ethernet port
density and 802.1q VLAN support makes it attractive for hosting applications.
The M20 also provides forwarding performance and the rich BGP4 and policy
implementations (with JUNOS Internet Software) needed for peering applications.
Although the M20 measures only 14 inches (35.56 cm) in height, it brings
new levels of port density and performance to provider edge applications,
supporting nearly 200 DS-3s in a single chassis and 1000 DS-3s in a standard
seven-foot (2.13 m) rack. The M20 supports a wide range of interfaces including:
- 1-port OC-48/STM-16 SONET/SDH;
- 1-port OC-12/STM-4 SONET/SDH;
- 1-port OC-12/STM-4 ATM;
- 4-port OC-3/STM-1 SONET/SDH;
- 2-port OC-3/STM-1 ATM;
- 4-port DS3;
- 1-port Gigabit Ethernet; and
- Channelized OC-12/STM-4 to DS-3.
The M20 base list price is $20,000. PIC module prices begin at $18,000.
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CUSTOMERS
The following is a representative list of our customers as of December 31,
1999:
<TABLE>
<S> <C>
END USERS: DISTRIBUTORS:
AboveNet Communications Alcatel
AT&T Ericsson
AT&T/IBM Global Services 3Com
Broadband Office K-Net Ltd.
Cable & Wireless Nissho Electronics
Frontier GlobalCenter NTT PC Communications
Globix OKI Electronics
GST Network Funding Samsung America
Level 3 Communications Softway
MCI WorldCom-vBNS Solunet
MIBH
PSINet
Qwest Communications International
TCG CERFnet.
University of Washington
UUNet
Verio
</TABLE>
We recognize revenue from the shipment of products at the time of shipment
unless we have future obligations for network interoperability or if we have to
obtain customer acceptance. In those cases, we defer recognition of the revenue
until we have met our obligations.
Two customers, UUNet and Cable & Wireless, comprised approximately 58% of
our recognized revenues for the year ended December 31, 1999.
SALES AND MARKETING
We sell and market our products primarily through our direct sales
organization, value-added resellers and an original equipment manufacturer.
Direct Sales. Our North American direct sales organization is divided into
Western and Eastern regional operations. Our direct sales efforts are focused on
the largest service providers. The direct sales account managers cover the
market on an assigned account basis and work as a team with account oriented
systems engineers. They are directed by a regional operations manager who
reports to the North American Director of Sales. We also have technical
engineers that consult with and provide our customers with guidance and
assistance on the evolution of their networks as it relates to the deployment of
our products. These consulting engineers also help in defining the features that
are required for our products to be successful in specific applications. A key
feature of our sales effort is the relationship we establish at various levels
in our customers' organization. Our sales team maintains contact with key
individuals who have service planning and infrastructure buildout
responsibility.
Value Added Resellers. We have complemented our direct sales effort in the
United States through the addition of several highly focused value added
resellers. Our arrangements with value added resellers typically have been
non-exclusive and provide the value added reseller with discounts based upon the
volume of their orders.
Original Equipment Manufacturer Partner. We have established a strategic
distribution relationship with Ericsson. We believe that Ericsson has
significant customer relationships in place and offers products which complement
ours. Ericsson will provide the first level of support
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to its customers. Our agreement with Ericsson allows it to distribute our
products on a worldwide, non-exclusive basis with discounts based upon the
volume of orders it receives.
International Resellers. In order to further our international sales
objectives, we have established a number of country specific value added
resellers such as Alcatel. These resellers have expertise in deploying complex
Internet infrastructure equipment in their respective markets and provide the
first level of support required by our international customers.
As of December 31, 1999, we employed 72 people in our sales support and
marketing organizations.
CUSTOMER SERVICE AND SUPPORT
We believe that a broad range of support services is essential to the
successful installation and ongoing support of our products. We have hired
support engineers with proven Internet experience. We offer the following
services: 24 hours a day, seven days a week technical assistance (on-line,
telephone and on-site), professional services, educational services, logistics
services and web-based information.
We offer a variety of flexible and comprehensive support programs,
including basic hardware and software warranty services, next day onsite parts
and labor, 24 hours a day, seven days a week same day parts and labor and
on-site resident engineers. We deliver these services directly to major end
users and also utilize a two-tiered support model, leveraging the capabilities
of our partners and third party organizations. We also train our partners in the
delivery of education and support services.
Customer service and support provide front line product support and is the
problem resolution interface to our partners and direct end users. If customer
service and support are unable to resolve an issue themselves, they duplicate
the problem scenario and provide the failure information, such as logs, dumps,
traces and system configuration to appropriate subject matter experts in our
engineering department.
Based on the severity of the problem and the impact to our customers'
network, there are strict escalation guidelines to ensure that the appropriate
technical resource and management attention is brought to bear on the problem in
a timeframe commensurate with problem priority. The overall goal is to fix the
problem, at the appropriate level, in the right timeframe in order to ensure our
customers' satisfaction.
As of December 31, 1999, we employed 31 people in our customer service and
support organization, with the majority located in our Mountain View, California
corporate headquarters.
RESEARCH AND DEVELOPMENT
We have assembled a team of skilled engineers with extensive experience in
the fields of high end computing, network system design, Internet routing
protocols and embedded software. These individuals have been drawn from leading
computer data networking and telecommunications companies. In addition to
building complex hardware and software systems, the engineering team has
experience in delivering very large, highly integrated ASICs and extremely
scalable Internet software.
Our research and development department is organized into teams that work
in parallel on several projects in a way similar to the development of
successive generations of complex microprocessors. As a result, we will seek to
offer our customers next generation products as they are needed.
We believe that strong product development capabilities are essential to
our strategy of enhancing our core technology, developing additional
applications, incorporating that technology and maintaining the competitiveness
of our product and service offerings. We are leveraging our
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first generation ASICs, developing additional network interfaces targeted to our
customer applications and continuing to develop next generation technology to
support the anticipated growth in network bandwidth requirements. We continue to
expand the functionality of our JUNOS Internet Software to improve performance
and scalability, and to provide an enhanced user interface.
Our research and development process is driven by the availability of new
technology, market demand and customer feedback. We have invested significant
time and resources in creating a structured process for undertaking all product
development projects. This process involves all functional groups and all levels
within our company. Following an assessment of market demand, our research and
development team develops a full set of comprehensive functional product
specifications based on inputs from the product management and sales
organizations. This process is designed to provide a framework for defining and
addressing the steps, tasks and activities required to bring product concepts
and development projects to market.
As of December 31, 1999, we employed 170 people in our research and
development organization.
Our research and development expenses totaled $41.5 million for the year
ended December 31, 1999, $24.0 million for the year ended December 31, 1998,
$9.4 million for the year ended December 31, 1997 and $1.9 million for the
period from February 2, 1996, the date of our inception, to December 31, 1996.
MANUFACTURING
Our manufacturing operation is entirely outsourced. We have developed a
strategic relationship with Solectron, under which we have subcontracted our
manufacturing activity. This subcontracting activity extends from prototypes to
full production and includes activities such as material procurement, final
assembly, test, control and shipment to our customers. We design, specify and
monitor all of the tests that are required to meet internal and external quality
standards. This arrangement provides us with the following benefits:
- we operate without dedicating any space to manufacturing operations;
- we conserve the working capital that would be required for funding
inventory;
- we can adjust manufacturing volumes quickly to meet changes in demand;
and
- we can quickly deliver products to customers through Solectron's turnkey
manufacturing and drop shipment capabilities.
We have recently established a relationship with an additional third party to
manufacture certain of our products.
Our ASICs are manufactured by IBM using its 0.25 micron process. IBM is
responsible for all aspects of the production of the ASICs using our proprietary
designs.
COMPETITION
Competition in the Internet infrastructure market is intense. The market
historically has been dominated by Cisco Systems, Inc., with other companies
such as Nortel Networks and Lucent Technologies Inc. providing products to a
smaller segment of the market. In addition, a number of private companies have
announced plans for new products to address the same problems which our products
address.
Cisco traditionally has been the dominant supplier of solutions to this
market. We believe this is the result of its early leadership position in the
enterprise router market. As the Internet has grown rapidly, Cisco has leveraged
this position and has developed a broad product line of
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routers which support all major local area and wide area interfaces. We believe
that our ability to compete with Cisco depends upon our ability to demonstrate
that our products are superior in meeting the needs of service providers and are
extremely compatible with Cisco's current and future products. Although we
believe that we are currently among the top providers of Internet infrastructure
solutions worldwide, we cannot assure you that we will be able to compete
successfully with Cisco, currently the leading provider in this market.
We expect that, over time, large companies with significant resources,
technical expertise, market experience, customer relationships and broad product
lines, such as Lucent and Nortel, will introduce new products which are designed
to compete more effectively in this market. As a result, we expect to face
increased competition in the future from larger companies with significantly
more resources than we have. Although we believe that our technology and the
purpose-built features of our products make them unique and will enable us to
compete effectively with these companies, we cannot assure you that we will be
successful.
Many of our current and potential competitors, such as Cisco, Lucent and
Nortel, have significantly broader product lines than we do and may bundle their
products with other networking products in a manner that may discourage
customers from purchasing our products. Also, many of our current and potential
competitors have greater name recognition and more extensive customer bases that
could be leveraged. Increased competition could result in price reduction, fewer
customer orders, reduced gross margins and loss of market share, any of which
could seriously harm our operating results.
There are also many small private companies which claim to have products
with greater capabilities than our products. Consolidation in this industry has
begun, with one or more of these smaller private companies being acquired by
large, established suppliers of Internet infrastructure products, and we believe
it is likely to continue. As a result, we expect to face increased competition
in the future from larger companies with significantly more resources than we
have.
Several companies also provide solutions which can substitute for some uses
of routers. For example, high bandwidth asynchronous transfer mode, or ATM,
switches, are used in the core of certain major backbone service providers. ATM
switches can carry a variety of traffic types, including voice, video and data,
using fixed, 53 byte cells. Companies that use ATM switches are enhancing their
products with new software technologies such as multi-protocol label switching,
or MPLS, which can potentially simplify the task of mixing routers and switches
in the same network. These substitutes can reduce the need for large numbers of
routers.
INTELLECTUAL PROPERTY
Our success and ability to compete are substantially dependent upon our
internally developed technology and know how. We have two patents issued
relating to high speed switching devices. These patents will expire in 2017 and
2016, respectively. In addition we have seven patent applications pending in the
United States relating to the design of our products. Our engineering teams have
significant expertise in ASIC design and we own all rights to the design of the
ASICs which form the core of the M40. Our JUNOS Internet Software was developed
internally and is protected by United States and other copyright laws.
While we rely on patent, copyright, trade secret and trademark law to
protect our technology, we also believe that factors such as the technological
and creative skills of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are essential to establishing and
maintaining a technology leadership position. There can be no assurance that
others will not develop technologies that are similar or superior to our
technology.
Our success will depend upon our ability to obtain necessary intellectual
property rights and protect our intellectual property rights. We cannot be
certain that we will be able to obtain the
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necessary intellectual property rights or that other parties will not contest
our intellectual property rights.
LEGAL PROCEEDINGS
We are not subject to any material legal proceedings.
EMPLOYEES
As of December 31, 1999, we had 335 full-time employees, 170 of whom were
engaged in research and development, 72 in sales and marketing, 31 in customer
support and 62 in finance, administration and operations. None of our employees
are represented by a labor union. We have not experienced any work stoppages and
we consider our relations with our employees to be good.
Our future performance depends in significant part upon the continued
service of our key technical, sales and senior management personnel, none of
whom is bound by an employment agreement requiring service for any defined
period of time. The loss of the services of one or more of our key employees
could have a material adverse effect on our business, financial condition and
results of operations. Our future success also depends on our continuing ability
to attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that we can retain our key personnel in the future.
FACILITIES
We sublease approximately 60,000 square feet in two buildings located in
Mountain View, California. Approximately 33,000 square feet are subleased
pursuant to a sublease that expires December 31, 2001, and approximately 27,000
square feet are subleased pursuant to a lease that expires June 30, 2000. Also,
we have entered into leases for approximately 144,000 and 25,000 square feet of
office space in Sunnyvale, California. The lease on the office space for 144,000
square feet will commence on the later of May 1, 2000 or the completion of our
improvements on the premises, and it will expire on the later of May 1, 2012 or
twelve years after the completion of our improvements on the premises, with
certain options for extension and expansion. The lease on the office space for
25,000 square feet has commenced on October 1, 1999, and it will expire two
months after the later of May 1, 2000 or the completion of our improvements on
the 144,000 square foot facility. The commercial real estate market in the San
Francisco Bay area is volatile and unpredictable in terms of available space,
rental fees, occupancy rates and preferred locations. We cannot be certain that
additional space will be available when we require it, or that it will be
affordable or in a preferred location.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages, as of December 31,
1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Scott Kriens.............................. 42 President, Chief Executive Officer and
Chairman of the Board
Pradeep Sindhu............................ 47 Chief Technical Officer and
Vice Chairman of the Board
Joe Furgerson............................. 40 Vice President of Marketing
Marcel Gani............................... 47 Chief Financial Officer
Steven Haley.............................. 45 Vice President of Worldwide Sales and Service
Gary Heidenreich.......................... 51 Vice President of Operations
Peter L. Wexler........................... 44 Vice President of Engineering
William R. Hearst III(1).................. 50 Director
Vinod Khosla(2)........................... 44 Director
C. Richard Kramlich(1).................... 64 Director
William Stensrud(2)....................... 49 Director
</TABLE>
- ---------------
(1) Member of audit committee
(2) Member of compensation committee
SCOTT KRIENS has served as President, Chief Executive Officer and Chairman
of the board of directors of Juniper Networks since October 1996. From April
1986 to January 1996, Mr. Kriens served as Vice President of Sales and Vice
President of Operations at StrataCom, Inc., a telecommunications equipment
company, which he co-founded in 1986. Mr. Kriens received a B.A. in Economics
from California State University, Hayward.
PRADEEP SINDHU co-founded Juniper Networks in February 1996 and served as
Chief Executive Officer and Chairman of the board of directors until September
1996. Since then, Dr. Sindhu has served as Vice Chairman of the board of
directors and Chief Technical Officer of Juniper Networks. From September 1984
to February 1991, Dr. Sindhu worked as a Member of the Research Staff, and from
March 1987 to February 1996, as the Principal Scientist, and from February 1994
to February 1996, as Distinguished Engineer at the Computer Science Lab, Xerox
Corporation, Palo Alto Research Center, a technology research center. Dr. Sindhu
holds a B.S.E.E. from the Indian Institute of Technology in Kanpur, an M.S.E.E.
from the University of Hawaii and a Masters in Computer Science and Ph.D. in
Computer Science from Carnegie-Mellon University.
JOE FURGERSON joined Juniper Networks in January 1997. He served as our
Director of Marketing from January 1997 to September 1998 and has served as our
Vice President of Marketing since September 1998. From April 1994 to December
1996, Mr. Furgerson served as Director of Product Marketing, Network Systems
Division at 3Com Corporation, a data networking company. He holds a B.A. in
Economics from Claremont Men's College and an M.B.A. from the Stanford Graduate
School of Business.
MARCEL GANI joined Juniper Networks as Chief Financial Officer in February
1997. From January 1996 to January 1997, Mr. Gani served as Vice President and
Chief Financial Officer of NVIDIA Corporation, a 3D graphic processor company.
Mr. Gani also held the positions of Vice President and Chief Financial Officer
at Grand Junction Networks, a data networking company acquired by Cisco Systems,
Inc., from March 1995 to January 1996, and at Primary Access Corporation, a data
networking company acquired by 3Com Corporation, from March 1993 to March 1995.
Mr. Gani holds an M.B.A. from the University of Michigan.
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STEVEN HALEY joined Juniper Networks as Vice President of Worldwide Sales
and Service in August 1997. Prior to joining Juniper Networks, Mr. Haley served
as Vice President of Sales at Cisco Systems, Inc., a data networking company,
from July 1996 to August 1997. From February 1990 to July 1996, he worked for
StrataCom, Inc., serving in a variety of management roles from Managing
Director, Europe to Vice President of Sales, Americas. He holds a B.S. in
Marketing from the University of Massachusetts, Amherst.
GARY HEIDENREICH joined Juniper Networks in July 1997 as Vice President of
Operations. From August 1993 to July 1997, Mr. Heidenreich served as Vice
President of Systems Manufacturing at 3Com Corporation. Mr. Heidenreich holds a
B.S.I.E. from New Mexico State University and an M.B.A. from the University of
Dallas.
PETER L. WEXLER joined Juniper Networks as Vice President of Engineering
in January 1997. From April 1995 to January 1997, Mr. Wexler served as Vice
President of Engineering at Bay Networks, a data networking company. From April
1993 to April 1995, Mr. Wexler served as Director of High-End Platform
Development at Wellfleet Communications, a predecessor to Bay Networks and a
manufacturer of high-performance routers. He holds a B.S.E. from State
University of New York at Stony Brook, an M.S.E. from the University of Illinois
and an M.B.A. from Boston University.
WILLIAM R. HEARST III has served as a Director of Juniper Networks since
February 1996 and has served as a member of the audit committee since July 1998.
Mr. Hearst is a partner with Kleiner Perkins Caufield & Byers, a venture capital
firm located in Menlo Park, California. From May 1995 to August 1996, he was the
Chief Executive Officer of At Home Corporation, a high speed Internet access and
consumer online services company. Mr. Hearst was editor and publisher of the San
Francisco Examiner, from 1984 until 1995. Mr. Hearst also serves on the boards
of Excite@Home, RePlay Networks, Com21, Inc., Oblix, Inc., BigVine, Geocast,
Zing, New Access Communications, the Hearst Corporation and Hearst-Argyle
Television. He is a Fellow of the AAAS, a Trustee of Carnegie Institution in
Washington, D.C. and a Trustee of the California Academy of Sciences. Mr. Hearst
is a 1972 graduate of Harvard University, holding an A.B. degree in Mathematics.
VINOD KHOSLA has served as a Director of Juniper Networks since February
1996 and has served as a member of the compensation committee since July 1998.
Mr. Khosla has been a General Partner with the venture capital firm of Kleiner
Perkins Caufield & Byers from February 1986 to the present. Mr. Khosla was a
co-founder of Daisy Systems Corporation, an electronic design automation
company, and the founding Chief Executive Officer of Sun Microsystems, Inc., a
computer and data networking company. Mr. Khosla also serves on the boards of
Asera, Concentric Network Corporation, Corio Inc., Corvis Corporation, Siara
Systems and QWEST Communications International Inc., as well as several other
private companies. Mr. Khosla holds a B.S.E.E. from the Indian Institute of
Technology in New Delhi, an M.S.E. from Carnegie-Mellon University, and an
M.B.A. from the Stanford Graduate School of Business.
C. RICHARD KRAMLICH has served as a Director of Juniper Networks since
July 1996 and has been a member of the audit committee since July 1998. Mr.
Kramlich is the co-founder and has been a General Partner of New Enterprise
Associates, L.P., a venture capital fund, since 1978. He is a director of Zhone
Technologies, Force 10 Networks, Financial Engines, InfoGear, Netsolve,
Verticom, Visual EDGE, Healtheon Corporation, Com 21, Inc., Lumisys, Inc. and
Silicon Graphics, Inc. Mr. Kramlich holds a B.S. from Northwestern University
and an M.B.A. from Harvard Business School.
WILLIAM STENSRUD has served as a Director of Juniper Networks since
October 1996 and has served as a member of the compensation committee since July
1998. Mr. Stensrud has been a General Partner with the venture capital firm of
Enterprise Partners from January 1997 to the present. Mr. Stensrud was an
independent investor and turn-around executive from March 1996 to January 1997.
During this period Mr. Stensrud served as President at Paradyne Corporation
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and as a director of Paradyne Corporation, GlobeSpan Corporation and Paradyne
Partners LLP, all data networking companies. From January 1992 to July 1995, Mr.
Stensrud served as President and Chief Executive Officer of Primary Access
Corporation, a data networking company acquired by 3Com Corporation. From the
acquisition through March 1996, Mr. Stensrud served as an executive at 3Com
Corporation. From 1986 to 1992, Mr. Stensrud served as the Marketing Vice
President of StrataCom, Inc., a telecommunications equipment company, which Mr.
Stensrud co-founded. Mr. Stensrud also serves on the boards of Rhythms
NetConnections Corporation, Paradyne Corporation, Packeteer Corporation,
Airfiber, Asian Trading.com, Chromisys, Edupoint, Ensemble Communications, iAsia
Works, LongBoard, Reflex Communications and Solis Micro Technologies. He holds a
B.S. degree in Electrical Engineering and Computer Science from Massachusetts
Institute of Technology.
BOARD OF DIRECTORS
Our board of directors currently consists of six authorized members. The
board is divided into three classes, Class I, Class II and Class III, with each
class serving staggered three-year terms. The Class I Directors, currently
Messrs. Kriens and Stensrud, will stand for re-election at the 2000 annual
meeting of stockholders. The Class II Directors, currently Messrs. Khosla and
Sindhu, will stand for re-election at the 2001 annual meeting of stockholders
and the Class III Directors, currently Messrs. Hearst and Kramlich, will stand
for re-election at the 2002 annual meeting of stockholders. This classification
of the board of directors may delay or prevent a change in control of our
company or in our management. See "Description of Capital Stock -- Delaware
Anti-Takeover Law and Certain Charter and Bylaw Provisions."
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been elected and qualified. There
are no family relationships among any of our directors, officers or key
employees.
BOARD COMMITTEES
We established an audit committee and a compensation committee in July
1998. The audit committee consists of Messrs. Hearst and Kramlich. The audit
committee reviews our internal accounting procedures and consults with and
reviews the services provided by our independent auditors.
The compensation committee consists of Messrs. Khosla and Stensrud. The
compensation committee reviews and recommends to the board of directors the
compensation of all of our officers and directors, including stock compensation
and loans and establishes and reviews general policies relating to the
compensation and benefits of our employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
DIRECTOR COMPENSATION
We do not currently compensate in cash our directors for their service as
members of the board of directors, although they are reimbursed for certain
expenses in connection with attendance at board of director and compensation
committee meetings. Under our 1996 Stock Plan, nonemployee directors are
eligible to receive stock option grants at the discretion of the board of
directors or other administrator of the plan.
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LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in their capacity as an officer, director, employee or other
agent, regardless of whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors, executive
officers and certain other employees, in addition to the indemnification
provided for in our bylaws. These agreements, among other things, provide for
indemnification for judgments, fines, settlement amounts and certain expenses,
including attorneys' fees incurred by in any action or proceeding, including any
action by or in the right of Juniper Networks, arising out of the person's
services as a director, executive officer or employee of us, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons for those positions.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. A stockholder's investment in us may be adversely affected to the
extent we pay the costs of settlement or damage awards under these
indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
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<PAGE> 56
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the
compensation earned, awarded or paid for services rendered to us in all
capacities for the fiscal year ended December 31, 1999, by our Chief Executive
Officer and our four next most highly compensated executive officers who earned
more than $100,000 in salary and bonus during the fiscal year ended December 31,
1999, whom we refer to in this prospectus collectively as the named executive
officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS(1) COMPENSATION
- ---------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Scott Kriens....................... 1999 $170,000 $ 5,000 900,000 $ --(2)
President and 1998 170,000 -- 3,735 1,200
Chief Executive Officer 1997 170,000 -- -- --
Steven Haley....................... 1999 $175,000 $ -- 465,000 $284,203(3)
Vice President of 1998 150,000 69,039 114,390 1,133(2)
Worldwide Sales and Service 1997 62,109 -- -- --
Pradeep Sindhu..................... 1999 $145,000 $12,425 540,000 $ --(2)
Chief Technical Officer 1998 140,225 25,000 5,355 1,004
1997 114,000 -- -- --
Peter Wexler....................... 1999 $150,000 $ 6,000 240,000 $ --(2)
Vice President of Engineering 1998 150,000 -- 3,060 1,133
1997 137,500 -- -- --
Marcel Gani........................ 1999 $150,000 $12,500 240,000 $ --(2)
Chief Financial Officer 1998 150,000 -- 2,745 1,133
1997 131,250 -- -- --
</TABLE>
- ---------------
(1) The underlying share amounts have been adjusted for the three-for-one split
of our common stock for stockholders of record on December 31, 1999 and paid
on January 14, 2000.
(2) Consists of premiums paid by us for term life insurance.
(3) Consists of commissions.
Option Grants in Last Fiscal Year. The following table shows certain
information regarding stock options granted to the named executive officers
during the fiscal year ended December 31, 1999. All of these stock options were
granted under our 1996 Stock Plan. The material terms of these option grants are
as follows: (a) nonqualified stock options except as noted below; (b)granted at
fair market value at the time of grant; (c) vest as noted below; and (d) a term
of ten years, subject to earlier termination in the event the optionee ceases to
be employed by us. See "Certain Transactions" for a description of the exercises
of stock options granted to the named executive officers under the 1996 Stock
Plan. In accordance with the rules of the Securities and Exchange Commission,
also shown below is the potential realizable value over the term of the option,
the period from the grant date to the expiration date, based on assumed rates of
stock appreciation of 5% and 10%, compounded annually. These amounts are based
on certain assumed rates of appreciation and do not represent our estimate of
our future stock price. Actual gains, if any, on stock option exercises will be
dependent on the future performance of the common stock.
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<PAGE> 57
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED EXERCISE STOCK APPRECIATION FOR OPTION
UNDERLYING TO EMPLOYEES PRICE TERM(3)
OPTIONS DURING PER EXPIRATION ------------------------------
NAME GRANTED PERIOD(1) SHARE(2) DATE 5% 10%
- ---- ---------- ------------- -------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Scott Kriens............ 900,000(4) 5.387% $60.71 10/4/09 $34,361,211 $87,078,055
Steven Haley............ 30,303(5) 0.181 3.30 2/10/09 62,889 159,374
119,697(5) 0.716 3.30 2/10/09 248,413 629,528
315,000(6) 1.886 60.71 10/4/09 12,026,424 30,477,320
Pradeep Sindhu.......... 540,000(4) 3.232 60.71 10/4/09 20,616,727 52,246,834
Peter Wexler............ 240,000(7) 1.436 60.71 10/4/09 9,162,990 23,220,815
Marcel Gani............. 240,000(7) 1.436 60.71 10/4/09 9,162,990 23,220,815
</TABLE>
- ---------------
(1) Based on an aggregate of 16,837,006 options granted by us during the
fiscal year ended December 31, 1999, to our employees, directors and
consultants, including the named executive officers. All of the option
grant numbers and per share numbers have been adjusted for the
three-for-one split of our common stock for stockholders of record on
December 31, 1999.
(2) Options were granted at an exercise price equal to the fair market
value of our common stock, as determined in good faith by our board of
directors. As of the effective date of the initial public offering,
options are granted at fair market value on the date of grant.
(3) The potential realizable value is calculated based on the ten year term
of the option at its time of grant. It is calculated based on the
assumption that the closing price for the common stock on the date of
grant appreciates at the indicated annual rate compounded annually for
the entire term of the option and that the option is exercised and sold
on the last day of its term for the appreciated stock price.
(4) The option grants to Mr. Kriens and Mr. Sindhu vest in 36 equal monthly
installments beginning January 1, 2000.
(5) The option grant for 30,303 shares is an incentive stock option. The
option grant for 119,697 shares is a non-statutory stock option.
(6) The option grant for 315,000 shares has a staggered vesting schedule.
The option to purchase 195,000 of the shares vests in 12 equal monthly
installments beginning January 1, 2001. The option to purchase 120,000
shares vests in 12 equal monthly installments beginning January 1,
2002.
(7) The option grants to Mr. Wexler and Mr. Gani vest in 24 monthly
installments beginning January 1, 2001.
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<PAGE> 58
Aggregate Option Exercises and Option Values. The following table sets
forth information with respect to the named executive officers concerning option
exercises for the fiscal year ended December 31, 1999, and exercisable and
unexercisable options held as of December 31, 1999:
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1999 DECEMBER 31, 1999(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott Kriens......... -- $ -- -- 900,000 $ -- $47,362,500
Steven Haley......... 30,465 204,792 112,500 465,000 12,718,744 33,546,870
Pradeep Sindhu....... 5,355 22,015 -- 540,000 -- 28,417,500
Marcel Gani.......... -- -- -- 240,000 -- 12,630,000
Peter Wexler......... -- -- 3,060 240,000 345,100 12,630,000
</TABLE>
- ---------------
(1) Based on the fair market value of our stock on the date of exercise, minus
the exercise price, multiplied by the number of shares issued upon exercise
of the option.
(2) The value of in-the-money options is based on the closing price on December
31, 1999 of $113.333 per share, minus the per share exercise price,
multiplied by the number of shares underlying the option.
EMPLOYMENT AGREEMENTS
We entered into a change of control agreement with Mr. Kriens on October 1,
1996, which provides that he will be entitled to base compensation and benefit
payments for a period of three months, in the event that his employment is
terminated in connection with a change of control of Juniper Networks. Further,
Mr. Kriens' restricted stock would be released from any repurchase option and
his stock options would become vested and exercisable as to an additional amount
equal to that amount which would have vested and become exercisable had Mr.
Kriens remained employed for a period of 18 months following the change of
control. If his employment continues following a change of control, his stock
options will be vested and exercisable at a rate 1.5 times the rate otherwise
set forth in the stock option agreement for a period of twelve months following
the change of control. Under the employment agreement, Mr. Kriens is entitled to
receive three months' base compensation and benefits, regardless of whether
there is a change of control, in the event that his employment is involuntarily
terminated. Upon involuntary termination, and regardless of whether there has
been a change of control, Mr. Kriens' restricted stock and stock options would
become immediately vested and exercisable as to an additional amount equal to
the number of stock options which would have become vested and exercisable
during the three-month period following the involuntary termination had Mr.
Kriens remained employed with us.
We entered into a change of control agreement with Mr. Gani in February
1997, which provides that he will be entitled to receive base compensation and
benefits for a period of three months, in the event of involuntary termination.
In the event of a change of control at Juniper Networks, the vesting of Mr.
Gani's stock options will accelerate as to that number of options equal to the
number of shares that would vest over the next 30 months in accordance with our
standard vesting schedule or the balance of his unvested stock, whichever amount
is less.
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<PAGE> 59
CERTAIN TRANSACTIONS
During our last fiscal year ending December 31, 1999, there has not been,
nor is there currently proposed, any transaction or series of similar
transactions to which we were or are to be a party in which the amount involved
exceeds $60,000, and in which any director, executive officer, holder of more
than 5% of our common stock or any member of the immediate family of any of
these people had or will have a direct or indirect material interest other than
compensation agreements and other arrangements, which are described where
required in "Management," and the transactions described below.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
Common Stock. On February 26, 1996, we issued 2,250,000 shares of common
stock at a price of $0.044 per share to Mr. Sindhu, one of our founders,
executive officers and directors.
On June 11, 1996, we issued the following shares of common stock at a price
of $0.044 per share to the following purchasers, among others:
<TABLE>
<CAPTION>
SHARES OF
PURCHASER COMMON STOCK
- --------- ------------
<S> <C>
Kleiner, Perkins, Caufield & Byers VII...................... 5,493,749
KPCB VII Founders Fund...................................... 600,001
KPCB Information Sciences Zaibatsu Fund II.................. 156,249
</TABLE>
Kleiner, Perkins, Caufield & Byers VII, KPCB VII Founders Fund and KPCB
Information Sciences Zaibatsu Fund II are affiliated entities and together are
considered a holder of more than 5% of our common stock. Messrs. Khosla and
Hearst, two of our directors, are general partners of Kleiner, Perkins, Caufield
& Byers VII, KPCB VII Founders Fund and KPCB Information Sciences Zaibatsu Fund
II. Messrs. Khosla and Hearst disclaim beneficial ownership of the securities
held by such entities, except for their proportional interests in the entities.
Series A Preferred Stock. On June 11, 1996, we sold 1,743,751 shares of
our Series A Preferred Stock for $1.00 per share. Each share of Series A
Preferred Stock converted into 2.25 shares of common stock at the time of the
initial public offering. The purchasers of the Series A Preferred Stock
included, among others:
<TABLE>
<CAPTION>
AS CONVERTED
SHARES OF SHARES OF
PURCHASER SERIES A STOCK COMMON STOCK
- --------- -------------- ------------
<S> <C> <C>
Kleiner, Perkins, Caufield & Byers VII............... 1,513,834 3,406,127
KPCB VII Founders Fund............................... 165,333 371,999
KPCB Information Sciences Zaibatsu Fund II........... 43,056 96,876
</TABLE>
57
<PAGE> 60
Series B Preferred Stock. On August 5, 1996, November 8, 1996, and
December 30, 1996, we sold a total of 3,333,334 shares, 484,683 shares, and
3,958 shares, respectively, of our Series B Preferred Stock for $2.40 per share.
In addition, on December 16, 1996, and June 18, 1997, we granted warrants
exercisable for 83,333 shares and 10,000 shares, respectively, of our Series B
Preferred Stock at an exercise price of $2.40. Each share of Series B Preferred
Stock converted into 2.25 shares of common stock at the time of the initial
public offering. The purchasers of the Series B Preferred Stock included, among
others:
<TABLE>
<CAPTION>
AS CONVERTED
SHARES OF SHARES OF
PURCHASER SERIES B STOCK COMMON STOCK
- --------- -------------- ------------
<S> <C> <C>
Kleiner, Perkins, Caufield & Byers VII............... 304,688 685,548
KPCB Information Sciences Zaibatsu Fund II........... 7,812 17,577
New Enterprise Associates VI, Limited Partnership.... 1,214,583 2,732,812
NEA Presidents Fund, L.P............................. 31,250 70,313
NEA Ventures 1996, L.P............................... 4,167 9,376
Kriens 1996 Trust U/T/A October 29, 1996............. 364,683 820,537
Stensrud Family Trust U/T/A September 6, 1993........ 120,000 270,000
</TABLE>
New Enterprise Associates VI, Limited Partnership and NEA Presidents Fund,
L.P. and NEA Ventures 1996, L.P. are affiliated entities and together are
considered a holder of more than 5% of our common stock. Mr. Kramlich, one of
our directors, is a partner of New Enterprise Associates VI, Limited Partnership
and NEA Presidents Fund, L.P. and NEA Ventures 1996, L.P. Mr. Kramlich disclaims
beneficial ownership of the securities held by these entities, except for his
proportional interest in the entities. Mr. Kriens, one of our directors and
executive officers and a holder of more than 5% of our common stock, is a
trustee of the Kriens 1996 Trust U/T/A October 29, 1996. Mr. Stensrud, one of
our directors, is a trustee of the Stensrud Family Trust U/T/A September 16,
1993.
Series C Preferred Stock. On July 1, 1997, and September 30, 1997, we sold
4,479,286 shares and 671,892 shares, respectively, of our Series C Preferred
Stock for $8.93 per share. Each share of Series C Preferred Stock converted into
2.25 shares of common stock at the time of the initial public offering. The sale
of Series C Preferred Stock included, among others, the sale of 783,875 shares
of Series C Preferred Stock (1,763,718 shares as converted to common stock) to
Ericsson Business Networks AB, which is a holder of more than 5% of our common
stock.
Series D and D-1 Preferred Stock. On March 16, 1999, we sold 500,000
shares of our Series D Preferred Stock and 2,580,000 shares of our Series D-1
Preferred Stock for $11.03 per share to Ericsson Business Networks AB. Each
share of Series D Preferred Stock converted into one share of common stock at
the time of the initial public offering. Each share of D-1 Preferred Stock
converted into 0.38166 shares of common stock at the time of the initial public
offering.
INDEMNIFICATION
We have entered into indemnification agreements with each of our directors
and officers. These indemnification agreements will require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law.
All future transactions, including any loans from us to our officers,
directors, principal stockholders or affiliates, will be approved by a majority
of the board of directors, including a majority of the independent and
disinterested members of the board of directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of December 31, 1999:
- each stockholder known by us to own beneficially more than 5% of our
common stock, as explained below;
- each of the named executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days after
December 31, 1999, are deemed outstanding, while the shares are not deemed
outstanding for purposes of computing percentage ownership of any other person.
Unless otherwise indicated in the footnotes below, the persons and entities
named in the table have sole voting or investment power with respect to all
shares beneficially owned, subject to community property laws where applicable.
59
<PAGE> 62
The number and percentage of shares beneficially owned are based on the
aggregate of 155,938,599 shares of common stock outstanding as of December 31,
1999. All share amounts have been adjusted for the three-for-one split of our
common stock to stockholders of record on December 31, 1999.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY OWNED
------------------------
NUMBER PERCENTAGE
---------- ----------
<S> <C> <C>
OFFICERS AND DIRECTORS(1):
Scott Kriens(2)............................................. 9,485,455 6.1%
Steven Haley(3)............................................. 1,164,393 *
Pradeep Sindhu(4)........................................... 6,770,355 4.3%
Peter Wexler(5)............................................. 2,028,060 1.3%
Marcel Gani(6).............................................. 1,251,495 *
William Hearst(7)........................................... 32,709,372 21.0%
c/o Kleiner Perkins Caufield & Byers
2750 Sand Hill Road, Menlo Park, CA 94025
Vinod Khosla(8)............................................. 32,709,372 21.0%
c/o Kleiner Perkins, Caufield & Byers
2750 Sand Hill Road, Menlo Park, CA 94025
C. Richard Kramlich(9)...................................... 5,812,311 3.7%
c/o New Enterprise Associates
2490 Sand Hill Road, Menlo Park, CA 94025
William R. Stensrud(10)..................................... 945,000 *
c/o Enterprise Partners
7979 Ivanhoe Ave., Suite 550, La Jolla, CA 92037
All directors and executive officers as a group (11
persons)(11).............................................. 62,444,026 40.0%
5% STOCKHOLDERS:
Kleiner Perkins Caufield & Byers............................ 32,709,372 21.0%
2750 Sand Hill Road, Menlo Park, CA 94025(12)
Ericsson Business Networks AB............................... 9,745,203 6.3%
S-131 89 Stockholm, Sweden
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
(1) Unless otherwise indicated, the address of each listed stockholder is c/o
Juniper Networks, Inc., 385 Ravendale Drive, Mountain View, California
94043.
(2) Includes 9,460,455 shares held in the name of the Kriens 1996 Trust, of
which Mr. Kriens and his spouse are trustees, of which 1,621,377 shares are
subject to our right of repurchase, as of December 31, 1999, which lapses
over time and 25,000 shares subject to options which are currently
exercisable or will become exercisable within 60 days of December 31, 1999.
(3) Includes 60,000 shares held in the name of the Haley Family Foundation
Trust and an aggregate of 90,000 shares held in trust for the benefit of
Mr. Haley's children. Includes 421,875 shares subject to our right of
repurchase as of December 31, 1999 (which lapses over time) and 119,538
shares, subject to options which are currently exercisable or will become
exercisable within 60 days of December 31, 1999.
(4) Includes 281,250 shares subject to our right of repurchase, as of December
31, 1999 (which lapses over time) and 15,000 shares subject to options
which are currently exercisable or will be come exercisable within 60 days
of December 31, 1999. Includes an aggregate of 180,000 shares held in
custody for Mr. Sindhu's children pursuant to the California Uniform
Transfer to Minors Act.
60
<PAGE> 63
(5) Includes 590,625 shares subject to our right of repurchase, as of December
31, 1999 (which lapses over time) and 3,060 shares subject to options which
are currently exercisable or will become exercisable within 60 days of
December 31, 1999.
(6) Includes 1,251,495 shares held in the name of the Gani 1995 Trust dated
December 8, 1995, of which Mr. Gani and his spouse are trustees and of
which 442,969 shares are subject to our right of repurchase, as of December
31, 1999 (which lapses over time).
(7) Comprised of 32,709,372 shares held by entities affiliated with Kleiner
Perkins Caufield & Byers. Mr. Hearst is a general partner of Kleiner
Perkins Caufield & Byers and is a director of Juniper Networks. Mr. Hearst
disclaims beneficial ownership of shares held by those entities, except to
the extent of his proportional interest arising from his partnership
interest in Kleiner Perkins Caufield & Byers.
(8) Comprised of 32,709,372 shares held by entities affiliated with Kleiner
Perkins Caufield & Byers. Mr. Khosla is a general partner of Kleiner
Perkins Caufield & Byers and is a director of Juniper Networks. Mr. Khosla
disclaims beneficial ownership of shares held by those entities, except to
the extent of his proportional interest arising from his partnership
interest in Kleiner Perkins Caufield & Byers.
(9) Includes 5,737,500 shares held by entities affiliated with New Enterprise
Associates. Mr. Kramlich is a general partner of New Enterprise Associates
and is a director of Juniper Networks. Mr. Kramlich disclaims beneficial
ownership of shares held by those entities, except to the extent of his
proportional interest in New Enterprise Associates.
(10) Includes 810,000 shares held in the name of the Stensrud Family Trust U/T/A
September 16, 1993, as community property.
(11) Includes all shares referenced in notes 3 through 10 above, except that the
shares beneficially owned by Messrs. Hearst and Khosla are counted only
once in this calculation. Also includes 2,148,750 shares beneficially owned
by two other executive officers of which 738,048 shares are subject to our
right of repurchase as of December 31, 1999 (which lapses over time) and
128,475 shares subject to options which are exercisable or will become
exercisable within 60 days of December 31, 1999.
(12) Includes (i) 31,672,266 shares held by Kleiner Perkins Caufield & Byers
VII, (ii) 812,106 shares held by KPCB Information Sciences Zaibatsu Fund
II, and (iii) 225,000 shares held by KPCB IX Associates, LLC.
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<PAGE> 64
DESCRIPTION OF CONVERTIBLE NOTES
The convertible notes will be issued under an indenture between us and
Norwest Bank Minnesota, National Association, as trustee, substantially in the
form filed as an exhibit to the registration statement of which this prospectus
forms a part. The indenture and the convertible notes are governed by New York
law. Because this section is a summary, it does not describe every aspect of the
convertible notes and the indenture. The following summaries of certain
provisions of the indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the detailed provision of
the convertible notes and the indenture, including the definitions therein of
certain terms.
GENERAL
The convertible notes will be general, unsecured obligations of ours. The
convertible notes will be subordinated, which means that they will rank behind
certain of our indebtedness as described below. The convertible notes will be
limited to $850,000,000 aggregate principal amount or $977,500,000 if the
underwriters exercise in full their right to purchase additional convertible
notes. We are required to repay the principal amount of the convertible notes in
full on March 15, 2007.
The convertible notes will bear interest at the rate per annum shown on the
front cover of this prospectus from , 2000. We will pay interest on
the convertible notes on March 15 and September 15 of each year, commencing on
September 15, 2000. Interest payable per $1,000 principal amount of convertible
notes for the period from , 2000 to , 2000 will be
$ .
You may convert the convertible notes into shares of our common stock
initially at the conversion rate stated on the front cover of this prospectus at
any time before the close of business on March 15, 2007, unless the convertible
notes have been previously redeemed or repurchased. Holders of convertible notes
called for redemption or submitted for repurchase will be entitled to convert
the convertible notes up to and including the business day immediately preceding
the date fixed for redemption or repurchase, as the case may be. The conversion
rate may be adjusted as described below.
We may redeem the convertible notes at our option at any time on or after
the third business day after March 15, 2003, in whole or in part, at the
redemption prices set forth below under "-- Optional Redemption by Juniper,"
plus accrued and unpaid interest to the redemption date. If there is a change in
control of us, you will have the right to require us to repurchase your
convertible notes as described below under "-- Repurchase at Option of Holders
Upon a Change in Control."
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
The convertible notes will be issued:
- only in fully registered form;
- without interest coupons; and
- in denominations of $1,000 and greater multiples.
The convertible notes will be evidenced by one or more global convertible
notes which will be deposited with the trustee as custodian for DTC and
registered in the name of Cede & Co., as nominee of DTC. Except as set forth
below, record ownership of the global note may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
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<PAGE> 65
The global note will not be registered in the name of any person, or
exchanged for convertible notes that are registered in the name of any person,
other than DTC or its nominee unless either of the following occurs:
- DTC notifies us that it is unwilling, unable or no longer qualified to
continue acting as the depositary for the global note; or
- an event of default with respect to the convertible notes represented by
the global note has occurred and is continuing.
In those circumstances, DTC will determine in whose names any securities
issued in exchange for the global note will be registered.
DTC or its nominee will be considered the sole owner and holder of the
global note for all purposes, and as a result:
- you cannot get convertible notes registered in your name if they are
represented by the global note;
- you cannot receive physical certificated convertible notes in exchange
for your beneficial interest in the global convertible notes;
- you will not be considered to be the owner or holder of the global note
or any note it represents for any purpose; and
- all payments on the global note will be made to DTC or its nominee.
The laws of some jurisdictions require that certain kinds of purchasers can
only own securities in definitive, certificated form. These laws may limit your
ability to transfer your beneficial interests in the global note to these types
of purchasers.
Only institutions, such as a securities broker or dealer, that have
accounts with DTC or its nominee (called participants) and persons that may hold
beneficial interests through participants can own a beneficial interest in the
global note. The only place where the ownership of beneficial interests in the
global note will appear and the only way the transfer of those interests can be
made will be on the records kept by DTC (for their participants' interests) and
the records kept by those participants (for interests of persons held by
participants on their behalf).
Secondary trading in bonds and convertible notes of corporate issuers is
generally settled in clearinghouse (that is, next-day) funds. In contrast,
beneficial interests in a global note usually trade in DTC's same-day funds
settlement system, and settle in immediately available funds. We make no
representations as to the effect that settlement in immediately available funds
will have on trading activity in those beneficial interests.
We will make cash payments of interest on and principal of and the
redemption or repurchase price of the global note to Cede, the nominee for DTC,
as the registered owner of the global note. We will make these payments by wire
transfer of immediately available funds on each payment date.
We have been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the convertible notes represented by the
global note as shown on DTC's records, unless DTC has reason to believe that it
will not receive payment on that payment date. Payments by participants to
owners of beneficial interests in convertible notes represented by the global
note held through participants will be the responsibility of those participants,
as is now the case with securities held for the accounts of customers registered
in street name.
We will send any redemption notices to Cede. We understand that if less
than all the convertible notes are being redeemed, DTC's practice is to
determine by lot the amount of the holdings of each participant to be redeemed.
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We also understand that neither DTC nor Cede will consent or vote with
respect to the convertible notes. We have been advised that under its usual
procedures, DTC will mail an omnibus proxy to us as soon as possible after the
record date. The omnibus proxy assigns Cede's consenting or voting rights to
those participants to whose accounts the convertible notes are credited on the
record date identified in a listing attached to the omnibus proxy.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having a beneficial
interest in the principal amount represented by the global note to pledge the
interest to persons or entities that do not participate in the DTC book-entry
system, or otherwise take actions in respect of that interest, may be affected
by the lack of a physical certificate evidencing its interest.
DTC has advised us that it will take any action permitted to be taken by a
holder of convertible notes, including the presentation of convertible notes for
exchange, only at the direction of one or more participants to whose account
with DTC interests in the global note are credited and only in respect of such
portion of the principal amount of the convertible notes represented by the
global note as to which such participant or participants has or have given such
direction.
DTC has also advised us as follows:
- DTC is a:
- limited purpose trust company organized under the laws of the State of
New York,
- member of the Federal Reserve System,
- clearing corporation within the meaning of the Uniform Commercial Code,
as amended, and
- clearing agency registered pursuant to the provisions of Section 17A of
the Exchange Act.
- DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants.
- Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations.
- Certain participants, or their representatives, together with other
entities, own DTC.
- Indirect access to the DTC System is available to other entities such as
banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
The policies and procedures of DTC, which may change periodically, will
apply to payments, transfers, exchanges and other matters relating to beneficial
interests in the global note. We and the trustee have no responsibility or
liability for any aspect of DTC's or any participants' records relating to
beneficial interests in the global note, including for payments made on the
global note. Further, we and the trustee are not responsible for maintaining,
supervising or reviewing any of those records.
CONVERSION RIGHTS
You have the option to convert any portion of the principal amount of any
note that is an integral multiple of $1,000 into shares of our common stock at
any time on or prior to the close of business on the maturity date. The
conversion rate will be equal to the number of shares per $1,000 principal
amount of convertible notes shown on the cover page of this prospectus. The
conversion rate is equivalent to a conversion price of approximately
$ . Your right to convert a convertible note called for redemption or
delivered for repurchase will terminate at the
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close of business on the business day immediately preceding the redemption date
or repurchase date for that note, unless we default in making the payment due
upon redemption or repurchase.
You may convert all or part of any convertible note by delivering the
convertible note at the Corporate Trust Office of the trustee in the Borough of
Manhattan, the city of New York, accompanied by a duly signed and completed
conversion notice, a copy of which may be obtained by the trustee. The
conversion date will be the date on which the convertible note and the duly
signed and completed conversion notice are so delivered.
As promptly as practicable on or after the conversion date, we will issue
and deliver to the trustee a certificate or certificates for the number of full
shares of our common stock issuable upon conversion, together with payment in
lieu of any fraction of a share. The certificate will then be sent by the
trustee to the conversion agent for delivery to the holder. The shares of our
common stock issuable upon conversion of the convertible notes will be fully
paid and nonassessable and will rank equally with the other shares of our common
stock.
If you surrender a convertible note for conversion on a date that is not an
interest payment date, you will not be entitled to receive any interest for the
period from the next preceding interest payment date to the conversion date,
except as described below in this paragraph. Any note surrendered for conversion
during the period from the close of business on any regular record date to the
opening of business on the next succeeding interest payment date (except
convertible notes, or portions thereof, called for redemption on a redemption
date or to be repurchased on a repurchase date for which the right to convert
would terminate during such period) must be accompanied by payment of an amount
equal to the interest payable on such interest payment date on the principal
amount of convertible notes being surrendered for conversion. In the case of any
note which has been converted after any regular record date but before the next
succeeding interest payment date, interest payable on such interest payment date
shall be payable on such interest payment date notwithstanding such conversion,
and such interest shall be paid to the holder of such note on such regular
record date.
No other payment or adjustment for interest, or for any dividends in
respect of our common stock, will be made upon conversion. Holders of our common
stock issued upon conversion will not be entitled to receive any dividends
payable to holders of our common stock as of any record time or date before the
close of business on the conversion date. We will not issue fractional shares
upon conversion. Instead, we will pay cash based on the market price of our
common stock at the close of business on the conversion date.
You will not be required to pay any taxes or duties relating to the issue
or delivery of our common stock on conversion but you will be required to pay
any tax or duty relating to any transfer involved in the issue or delivery of
our common stock in a name other than yours. Certificates representing shares of
our common stock will not be issued or delivered unless all taxes and duties, if
any, payable by you have been paid.
The conversion rate will be subject to adjustment for, among other things:
- dividends and other distributions payable in our common stock on shares
of our capital stock,
- the issuance to all holders of our common stock of rights, options or
warrants entitling them to subscribe for or purchase our common stock at
less than the then current market price of such common stock as of the
record date for shareholders entitled to receive such rights, options or
warrants,
- subdivisions, combinations and reclassifications of our common stock,
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- distributions to all holders of our common stock of evidences of our
indebtedness, shares of capital stock, cash or assets, including
securities, but excluding:
- those dividends, rights, options, warrants and distributions referred
to above,
- dividends and distributions paid exclusively in cash, and
- distributions upon mergers or consolidations discussed below,
- distributions consisting exclusively of cash, excluding any cash portion
of distributions referred to in the bullet point immediately above, or
cash distributed upon a merger or consolidation to which the next
succeeding bullet point applies, to all holders of our common stock in
an aggregate amount that, combined together with:
- other all-cash distributions made within the preceding 365-day period
in respect of which no adjustment has been made, and
- any cash and the fair market value of other consideration payable in
connection with any tender offer by us or any of our subsidiaries for
our common stock concluded within the preceding 365-day period in
respect of which no adjustment has been made,
exceeds 10% of our market capitalization, being the product of the
current market price per share of the common stock on the record date for
such distribution and the number of shares of common stock then
outstanding, and
- the successful completion of a tender offer made by us or any of our
subsidiaries for our common stock which involves an aggregate
consideration that, together with:
- any cash and other consideration payable in a tender offer by us or
any of our subsidiaries for our common stock expiring within the
365-day period preceding the expiration of that tender offer in
respect of which no adjustment has been made, and
- the aggregate amount of any all cash distributions referred to in the
immediately preceding bullet point above to all holders of our common
stock within the 365-day period preceding the expiration of that
tender offer in respect of which no adjustments have been made,
exceeds 10% of our market capitalization on the expiration of such tender
offer.
We reserve the right to effect such increases in the conversion rate in
addition to those required by the foregoing provisions as we consider to be
advisable in order that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients. We will not be required to make any adjustment to the conversion
rate until the cumulative adjustments amount to 1.0% or more of the conversion
rate. We will compute all adjustments to the conversion rate and will give
notice by mail to holders of the registered convertible notes of any
adjustments.
In any case in which we consolidate or merge with or into another entity or
in which another entity is merged into us, or in case of any sale or transfer of
all or substantially all of our assets, each note then outstanding will become
convertible only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of common stock into which the convertible notes were
convertible immediately prior to the consolidation or merger or sale or
transfer. The preceding sentence will not apply to a merger which does not
result in any reclassification, conversion, exchange or cancellation of the
common stock.
We may increase the conversion rate for any period of at least 20 days,
upon at least 15 days notice, if our board of directors determines that the
increase would be in our best interest. The board of directors' determination in
this regard will be conclusive. We will give
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holders of convertible notes at least 15 days' notice of such an increase in the
conversion rate. Any increase, however, will not be taken into account for
purposes of determining whether the closing price of our common stock exceeds
the conversion price by 105% in connection with an event which otherwise would
be a change in control as defined below.
If at any time we make a distribution of property to our stockholders that
would be taxable to such stockholders as a dividend for United States federal
income tax purposes, such as distributions of evidences of indebtedness or
assets by us, but generally not stock dividends on common stock or rights to
subscribe for common stock, and, pursuant to the anti-dilution provisions of the
indenture, the number of shares into which convertible notes are convertible is
increased, that increase may be deemed for United States federal income tax
purposes to be the payment of a taxable dividend to holders of convertible
notes. See "Certain United States Federal Income and Estate Tax
Consequences -- U.S. Holders."
SUBORDINATION
The convertible notes are subordinated and, as a result, the payment of the
principal, any premium and interest on the convertible notes, including amounts
payable on any redemption or repurchase, will be subordinated to the prior
payment in full, in cash or other payment satisfactory to holders of senior
debt, of all of our senior debt. The convertible notes are also effectively
subordinated to any debt or other liabilities of our subsidiaries.
Senior debt is defined in the indenture to mean: the principal of, and
premium, if any, and interest, including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding, on, and
all fees and other amounts payable in connection with, the following, whether
absolute or contingent, secured or unsecured, due or to become due, outstanding
on the date of the indenture or thereafter created, incurred or assumed:
- our indebtedness evidenced by a credit or loan agreement, note, bond,
debenture or other written obligation,
- all of our obligations for money borrowed,
- all of our obligations evidenced by a note or similar instrument given
in connection with the acquisition of any businesses, properties or
assets of any kind,
- our obligations:
- as lessee under leases required to be capitalized on the balance sheet
of the lessee under generally accepted accounting principles, or
- as lessee under other leases for facilities, capital equipment or
related assets, whether or not capitalized, entered into or leased for
financing purposes,
- all of our obligations under interest rate and currency swaps, caps,
floors, collars, hedge agreements, forward contracts or similar
agreements or arrangements,
- all of our obligations with respect to letters of credit, bankers'
acceptances and similar facilities, including reimbursement obligations
with respect to the foregoing,
- all of our obligations issued or assumed as the deferred purchase price
of property or services, but excluding trade accounts payable and
accrued liabilities arising in the ordinary course of business,
- all obligations of the type referred to in the above clauses of another
person and all dividends of another person, the payment of which, in
either case, we have assumed or guaranteed, or for which we are
responsible or liable, directly or indirectly, jointly or
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severally, as obligor, guarantor or otherwise, or which are secured by a
lien on our property, and
- renewals, extensions, modifications, replacements, restatements and
refundings of, or any indebtedness or obligation issued in exchange for,
any such indebtedness or obligation described in the above clauses of
this definition.
Senior debt will not include the convertible notes or any other indebtedness or
obligation if its terms or the terms of the instrument under which or pursuant
to which it is issued expressly provide that it is not superior in right of
payment to the convertible notes.
We may not make any payment on account of principal, premium or interest on
the convertible notes, or redemption or repurchase of the convertible notes, if:
- we default in our obligations to pay principal, premium, interest or
other amounts on our senior debt, including a default under any
redemption or repurchase obligation, and the default continues beyond any
applicable grace period; or
- any other default occurs and is continuing on any designated senior debt
and:
- the default permits the holders of the designated senior debt to
accelerate its maturity, and
- the trustee has received a notice (a payment blockage notice) of the
default from us, the holder of such debt or such other person permitted
to give such notice under the indenture.
If payments of the convertible notes have been blocked by a payment default
on senior debt, payments on the convertible notes may resume when the payment
default has been cured or waived or ceases to exist.
If payments on the convertible notes have been blocked by a nonpayment
default, payments on the convertible notes may resume on the earlier of:
- the date the nonpayment default is cured or waived or ceases to exist, or
- 179 days after the payment blockage notice is received.
No nonpayment default that existed on the day a payment blockage notice was
delivered to the trustee can be used as the basis for any subsequent payment
blockage notice. In addition, once a holder of designated senior debt has
blocked payment on the convertible notes by giving a payment blockage notice, no
new period of payment blockage can be commenced unless and until:
- 365 days have elapsed since the effectiveness of the immediately prior
payment blockage notice; and
- all scheduled payments of principal, any premium and interest with
respect to the convertible notes that have come due have been paid in
full in cash.
Designated senior debt means our obligations under any particular senior
debt in which the instrument creating or evidencing the same or the assumption
or guarantee thereof, or related agreements or documents to which we are a
party, expressly provides that such indebtedness shall be designated senior debt
for purposes of the indenture. The instrument, agreement or other document
evidencing any designated senior debt may place limitations and conditions on
the right of such senior debt to exercise the rights of designated senior debt.
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In addition, all principal, premium, if any, interest and other amounts due
on all senior debt must be paid in full in cash before you are entitled to
receive any payment otherwise due upon any acceleration of the principal on the
convertible notes as a result of:
- an event of default of the convertible notes, or
- payment or distribution of our assets to creditors upon any dissolution,
winding up, liquidation or reorganization, whether voluntary or
involuntary, marshaling of assets, assignment for the benefit of
creditors, or in bankruptcy, insolvency, receivership or other similar
proceedings.
In the event of insolvency, creditors who are holders of senior debt may
recover more, ratably, than you because of this subordination. The subordination
may result in a reduction or elimination of payments on the convertible notes to
you.
In addition, the convertible notes will be structurally subordinated to all
indebtedness and other liabilities of our subsidiaries, including trade payables
and lease obligations. This occurs because our right to receive any assets of
our subsidiaries upon their liquidation or reorganization, and your right to
participate in those assets, will be effectively subordinated to the claims of
that subsidiary's creditors, including trade creditors, except to the extent
that we are recognized as a creditor of such subsidiary. If we are recognized as
a creditor of that subsidiary, our claims would still be subordinate to any
security interest in the assets of the subsidiary and any indebtedness of the
subsidiary senior to us.
The indenture does not limit our ability to incur senior debt or our
ability or the ability of our subsidiaries to incur any other indebtedness.
OPTIONAL REDEMPTION BY JUNIPER NETWORKS
On or after the third business day after March 15, 2003 we may redeem the
convertible notes in whole or in part, at the prices set forth below. If we
elect to redeem all or part of the convertible notes, we will give at least 30,
but no more than 60, days notice to you.
The redemption price, expressed as a percentage of principal amount, is as
follows for the following periods:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
Beginning on the third business day after March 15, 2003 and
ending on March 14, 2004..................................
Beginning on March 15, 2004 and ending on March 14, 2005....
Beginning on March 15, 2005 and ending on March 14, 2006....
Beginning on March 15, 2006 and ending on March 14, 2007....
</TABLE>
and thereafter is equal to 100%. In each case, we will pay interest to, but
excluding the redemption date.
No sinking fund is provided for the convertible notes, which means that the
indenture does not require us to redeem or retire the convertible notes
periodically.
PAYMENT AND CONVERSION
We will make all payments of principal and interest on the convertible
notes by dollar check drawn on an account maintained at a bank in the city of
New York. If you hold registered convertible notes with a face value greater
than $2,000,000, at your request we will make payments of principal or interest
to you by wire transfer to an account maintained by you at a bank in the city of
New York. Payment of any interest on the convertible notes will be made to the
person in whose name the convertible note, or any predecessor note, is
registered at the
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close of business on March 1 or September 1, whether or not a business day,
immediately preceding the relevant interest payment date (a regular record
date). If you hold registered convertible notes with a face value in excess of
$2,000,000 and you would like to receive payments by wire transfer, you will be
required to provide the trustee with wire transfer instructions at least 15 days
prior to the relevant payment date.
Payments on any global note registered in the name of DTC or its nominee
will be payable by the trustee to DTC or its nominee in its capacity as the
registered holder under the indenture. Under the terms of the indenture, we and
the trustee will treat the persons in whose names the convertible notes,
including any global note, are registered as the owners for the purpose of
receiving payments and for all other purposes. Consequently, neither we, the
trustee nor any of our agents or the trustee's agents has or will have any
responsibility or liability for:
- any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of
beneficial ownership interests in the global note, or for maintaining,
supervising or reviewing any of DTC's records or any participant's or
indirect participant's records relating to the beneficial ownership
interests in the global note, or
- any other matter relating to the actions and practices of DTC or any of
its participants or indirect participants.
We will not be required to make any payment on the convertible notes due on
any day which is not a business day until the next succeeding business day. The
payment made on the next succeeding business day will be treated as though it
were paid on the original due date and no interest will accrue on the payment
for the additional period of time.
Convertible notes may be surrendered for conversion at the Corporate Trust
Office of the trustee in the Borough of Manhattan, New York. Convertible notes
surrendered for conversion must be accompanied by appropriate notices and any
payments in respect of interest or taxes, as applicable.
We have initially appointed the trustee as paying agent and conversion
agent. We may terminate the appointment of any paying agent or conversion agent
and appoint additional or other paying agents and conversion agents. However,
until the convertible notes have been delivered to the trustee for cancellation,
or moneys sufficient to pay the principal of, premium, if any, and interest on
the convertible notes have been made available for payment and either paid or
returned to us as provided in the indenture, the trustee will maintain an office
or agency in the Borough of Manhattan, New York for surrender of convertible
notes for conversion. Notice of any termination or appointment and of any change
in the office through which any paying agent or conversion agent will act will
be given in accordance with "-- Notices" below.
All moneys deposited with the trustee or any paying agent, or then held by
us, in trust for the payment of principal of, premium, if any, or interest on
any convertible notes which remain unclaimed at the end of two years after the
payment has become due and payable will be repaid to us, and you will then look
only to us for payment.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a change in control as defined below occurs, you will have the right, at
your option, to require us to repurchase all of your convertible notes not
previously called for redemption, or any portion of the principal amount
thereof, that is equal to $1,000 or an integral multiple of $1,000. The price we
are required to pay is 100% of the principal amount of the convertible notes to
be repurchased, together with interest accrued to, but excluding, the repurchase
date.
At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price in our common stock valued at 95% of the average of the
closing prices of the our common
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stock for the five trading days immediately preceding and including the third
trading day prior to the repurchase date. We may only pay the repurchase price
in our common stock if we satisfy conditions provided in the indenture.
Within 30 days after the occurrence of a change in control, we are
obligated to give to you notice of the change in control and of the repurchase
right arising as a result of the change of control. We must also deliver a copy
of this notice to the trustee. To exercise the repurchase right, you must
deliver on or before the 30th day after the date of our notice irrevocable
written notice to the trustee of your exercise of your repurchase right,
together with the convertible notes with respect to which the right is being
exercised. We are required to repurchase the convertible notes on the date that
is 45 days after the date of our notice.
A change in control will be deemed to have occurred at the time after the
convertible notes are originally issued that any of the following occurs:
- any person, including any syndicate or group deemed to be a "person"
under Section 13(d)(3) of the Exchange Act, acquires a beneficial
ownership, directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of our
capital stock entitling the person to exercise 50% or more of the total
voting power of all shares of our capital stock that is entitled to vote
generally in elections of directors, other than an acquisition by us,
any of our subsidiaries or any of our employee benefit plans; or
- we merge or consolidate with or into any other person, any merger of
another person into us or we convey, sell, transfer or lease all or
substantially all of our assets to another person, other than
- any such transaction:
- that does not result in any reclassification, conversion, exchange
or cancellation of outstanding shares of our capital stock, and
- pursuant to which the holders of 50% or more of the total voting
power of all shares of our capital stock entitled to vote
generally in elections of directors immediately prior to such
transaction have the entitlement to exercise, directly or
indirectly, 50% or more of the total voting power of all shares of
capital stock entitled to vote generally in the election of
directors of the continuing or surviving corporation immediately
after such transaction, and
- any merger which is effected solely to change our jurisdiction of
incorporation and results in a reclassification, conversion or
exchange of outstanding shares of our common stock into solely shares
of common stock.
However, a change in control will not be deemed to have occurred if either:
- the closing price per share of our common stock for any five trading
days within the period of 10 consecutive trading days ending immediately
after the later of the change in control or the public announcement of
the change in control, in the case of a change in control relating to an
acquisition of capital stock, or the period of 10 consecutive trading
days ending immediately before the change in control, in the case of
change in control relating to a merger, consolidation or asset sale,
equals or exceeds 105% of the conversion price of the convertible notes
in effect on each of those trading days, or
- all of the consideration, excluding cash payments for fractional shares
and cash payments made pursuant to dissenters' appraisal rights, in a
merger or consolidation otherwise constituting a change of control under
the first and second bullet points in the preceding paragraph above
consists of shares of common stock traded on a national securities
exchange or quoted on the Nasdaq National Market, or will be so traded
or
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quoted immediately following such merger or consolidation, and as a
result of such merger or consolidation the convertible notes become
convertible solely into such common stock.
For purposes of these provisions:
- the conversion price is equal to $1,000 divided by the conversion rate;
- whether a person is a beneficial owner will be determined in accordance
with Rule 13d-3 under the Exchange Act; and
- person includes any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Exchange Act.
The rules and regulations promulgated under the Exchange Act requires the
dissemination of prescribed information to security holders in the event of an
issuer tender offer and may apply in the event that the repurchase option
becomes available to you. We will comply with this rule to the extent it applies
at that time.
We may, to the extent permitted by applicable law, at any time purchase
convertible notes in the open market, by tender at any price or by private
agreement. Any note that we purchase may, to the extent permitted by applicable
law and subject to restrictions contained in the purchase agreement with the
underwriters, be re-issued or resold or may, at our option, be surrendered to
the trustee for cancellation. Any convertible notes surrendered for cancellation
may not be re-issued or resold and will be canceled promptly.
The definition of change in control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of all or substantially all of
our assets. There is no precise, established definition of the phrase
substantially all under applicable law. Accordingly, your ability to require us
to repurchase your convertible notes as a result of conveyance, transfer, sale,
lease or other disposition of less than all of our assets may be uncertain.
The foregoing provisions would not necessarily provide you with protection
if we are involved in a highly leveraged or other transaction that may adversely
affect you.
Our ability to repurchase convertible notes upon the occurrence of a change
in control is subject to important limitations. Some of the events constituting
a change in control could result in an event of default under our senior debt.
Moreover, a change in control could cause an event of default under, or be
prohibited or limited by, the terms of our senior debt. As a result, unless we
were to obtain a waiver, a repurchase of the convertible notes in cash could be
prohibited under the subordination provisions of the indenture until the senior
debt is paid in full. Although we have the right to repurchase the convertible
notes with our common stock, subject to certain conditions, we cannot assure you
that we would have the financial resources, or would be able to arrange
financing, to pay the repurchase price in cash for all the convertible notes
that might be delivered by holders of convertible notes seeking to exercise the
repurchase right. If we were to fail to repurchase the convertible notes when
required following a change in control, an event of default under the indenture
would occur, whether or not such repurchase is permitted by the subordination
provisions of the indenture. Any such default may, in turn, cause a default
under our senior debt. See "-- Subordination".
MERGERS AND SALES OF ASSETS BY THE COMPANY
We may not consolidate with or merge into any other person or convey,
transfer, sell or lease our properties and assets substantially as an entirety
to any person, and we may not permit any person to consolidate with or merge
into us or convey, transfer, sell or lease such person's properties and assets
substantially as an entirety to us unless:
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- the person formed by such consolidation or into or with which we are
merged or the person to which our properties and assets are so conveyed,
transferred, sold or leased, shall be a corporation, limited liability
company, partnership or trust organized and existing under the laws of
the United States, any State within the United States or the District of
Columbia and, if we are not the surviving person, the surviving person
assumes the payment of the principal of, premium, if any, and interest
on the convertible notes and the performance of our other covenants
under the indenture, and
- immediately after giving effect to the transaction, no event of default,
and no event that, after notice or lapse of time or both, would become
an event of default, will have occurred and be continuing.
EVENTS OF DEFAULT
The following will be events of default under the indenture:
- we fail to pay principal of or premium, if any, on any note when due,
whether or not prohibited by the subordination provisions of the
indenture;
- we fail to pay any interest on any note when due, which failure
continues for 30 days, whether or not prohibited by the subordination
provisions of the indenture;
- we fail to provide notice of a change in control, whether or not such
notice is prohibited by the subordination provisions of the indenture;
- we fail to perform any other covenant in the indenture, which failure
continues for 60 days after written notice as provided in the indenture;
- any indebtedness under any bonds, debentures, convertible notes or other
evidences of indebtedness for money borrowed, or any guarantee thereto,
by us or any of our significant subsidiaries in an aggregate principal
amount in excess of $25,000,000 is not paid when due either at its stated
maturity or upon acceleration thereof, and such indebtedness is not
discharged, or such acceleration is not rescinded or annulled, within a
period of 30 days after notice as provided in the indenture; and
- certain events of bankruptcy, insolvency or reorganization involving us
or any of our significant subsidiaries.
Subject to the provisions of the indenture relating to the duties of the
trustee in case an event of default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any holder, unless the holder shall
have furnished reasonable indemnity to the trustee. Subject to providing
indemnification of the trustee, the holders of a majority in aggregate principal
amount of the outstanding convertible notes will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred on the trustee.
If an event of default other than an event of default arising from events
of insolvency, bankruptcy or reorganization occurs and is continuing, either the
trustee or the holders of at least 25% in principal amount of the outstanding
convertible notes may, subject to the subordination provisions of the indenture,
accelerate the maturity of all convertible notes. However, after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of outstanding convertible notes
may, under certain circumstances, rescind and annul the acceleration if all
events of default, other than the non-payment of principal of the convertible
notes which have become due solely by such declaration of acceleration, have
been cured or waived as provided in the indenture. If an event of default
arising from events of insolvency, bankruptcy or reorganization occurs, then the
principal of, and accrued interest on, all the convertible notes will
automatically become immediately due and payable without any
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declaration or other act on the part of the holders of the convertible notes or
the trustee. For information as to waiver of defaults, see "-- Meetings,
Modification and Waiver" below.
You will not have any right to institute any proceeding with respect to the
indenture, or for any remedy under the indenture, unless:
- you give the trustee written notice of a continuing event of default;
- the holders of at least 25% in aggregate principal amount of the
outstanding convertible notes have made written request and furnished
reasonable indemnity to the trustee to institute proceedings;
- the trustee has not received from the holders of a majority in aggregate
principal amount of the outstanding convertible notes a direction
inconsistent with the written request; and
- the trustee shall have failed to institute such proceeding within 60 days
of the written request.
However, these limitations do not apply to a suit instituted by you for the
enforcement of payment of the principal of, premium, if any, or interest on your
convertible note on or after the respective due dates expressed in your
convertible note or your right to convert your convertible note in accordance
with the indenture.
We will be required to furnish to the trustee annually a statement as to
our performance of certain of our obligations under the indenture and as to any
default in such performance.
MEETINGS, MODIFICATION AND WAIVER
The indenture contains provision for convening meetings of the holders of
convertible notes to consider matters affecting their interests.
Certain limited modifications of the indenture may be made without the
necessity of obtaining the consent of the holders of the convertible notes.
Other modifications and amendments of the indenture may be made, and certain
past defaults by us may be waived, either:
- with the written consent of the holders of not less than a majority in
aggregate principal amount of the convertible notes at the time
outstanding, or
- by the adoption of a resolution, at a meeting of holders of the
convertible notes at which a quorum is present, by the holders of at
least 66 2/3% in aggregate principal amount of the convertible notes
represented at such meeting.
The quorum at any meeting called to adopt a resolution will be persons holding
or representing a majority in aggregate principal amount of the convertible
notes at the time outstanding and, at any reconvened meeting adjourned for lack
of a quorum, 25% of such aggregate principal amount.
However, a modification or amendment requires the consent of the holder of
each outstanding note affected if it would:
- change the stated maturity of the principal or interest of a note;
- reduce the principal amount of, or any premium or interest on, any note;
- reduce the amount payable upon a redemption or mandatory repurchase;
- modify the provisions with respect to the repurchase rights of holders
of convertible notes in a manner adverse to the holders;
- change the place or currency of payment on a note;
- impair the right to institute suit for the enforcement of any payment on
any note;
- modify our obligation to maintain an office or agency in New York City;
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- modify the subordination provisions in a manner that is adverse to the
holders of the convertible notes;
- adversely affect the right to convert the convertible notes;
- reduce the above-stated percentage of the principal amount of the
holders whose consent is needed to modify or amend the indenture;
- reduce the percentage of the principal amount of the holders whose
consent is needed to waive compliance with certain provisions of the
indenture or to waive certain defaults; or
- reduce the percentage required for the adoption of a resolution or the
quorum required at any meeting of holders of convertible notes at which
a resolution is adopted.
The holders of a majority in aggregate principal amount of the outstanding
convertible notes may waive compliance by us with certain restrictive provisions
of the indenture by written consent. Holders of at least 66 2/3% in aggregate of
the principal amount of convertible notes represented at a meeting may also
waive compliance by us with certain restrictive provisions of the indenture by
the adoption of a resolution at the meeting if a quorum of holders are present
and certain other conditions are met. The holders of a majority in aggregate
principal amount of the outstanding convertible notes also may waive by written
consent any past default under the indenture, except a default in the payment of
principal, premium, if any, or interest.
NOTICES
Notice to holders of the registered convertible notes will be given by mail
to the addresses as they appear in the security register. Notices will be deemed
to have been given on the date of such mailing.
Notice of a redemption of convertible notes will be given not less than 30
nor more than 60 days prior to the redemption date and will specify the
redemption date. A notice of redemption of the convertible notes will be
irrevocable.
REPLACEMENT OF CONVERTIBLE NOTES
We will replace any note that becomes mutilated, destroyed, stolen or lost
at the expense of the holder upon delivery to the trustee of the mutilated
convertible notes or evidence of the loss, theft or destruction satisfactory to
us and the trustee. In the case of a lost, stolen or destroyed note, indemnity
satisfactory to the trustee and us may be required at the expense of the holder
of the note before a replacement note will be issued.
PAYMENT OF STAMP AND OTHER TAXES
We will pay all stamp and other duties, if any, which may be imposed by the
United States or any political subdivision thereof or taxing authority thereof
or therein with respect to the issuance of the convertible notes or of shares of
stock upon conversion of the convertible notes. We will not be required to make
any payment with respect to any other tax, assessment or governmental charge
imposed by any government or any political subdivision thereof or taxing
authority thereof or therein.
GOVERNING LAW
The indenture and the convertible notes will be governed by and construed
in accordance with the laws of the State of New York, United States of America.
THE TRUSTEE
If an event of default occurs and is continuing, the trustee will be
required to use the degree of care of a prudent person in the conduct of his own
affairs in the exercise of its powers. Subject to such provisions, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request of any of the holders of convertible notes, unless they
shall have furnished to the trustee reasonable security or indemnity.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue 200,000,000 shares of common stock, $0.00001 par
value, and 10,000,000 shares of undesignated preferred stock, $0.00001 par
value. The following description of our capital stock does not purport to be
complete and is subject to and qualified by our certificate of incorporation and
bylaws, which are included as exhibits to the Registration Statement of which
this prospectus forms a part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of December 31, 1999, there were 155,938,599 shares of common stock
outstanding which were held of record by approximately 300 stockholders.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of us, the holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon the closing of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. We cannot state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things, restricting dividends on the common stock,
diluting the voting power of the common stock, impairing the liquidation rights
of the common stock and delaying or preventing a change in control of us without
further action by the stockholders. There are no shares of preferred stock
outstanding as of December 31, 1999. We have no present plans to issue any
shares of preferred stock.
REGISTRATION RIGHTS
Under the terms of certain registration rights agreements between us and
the holders of the registrable securities, twelve months after the closing of
our initial public offering and at their expense, require on three separate
occasions that we register their shares for public resale on Form S-3 or similar
short-form registration, provided that we are eligible to use Form S-3 or
similar short-form registration, and provided further that the value of the
securities to be registered is at least $5,000,000. Furthermore, in the event we
elect to register any of our shares of common stock for purposes of effecting
any public offering, the holders of registrable securities are entitled, at our
expense, to include their shares of common stock in the registration, subject to
the right of the underwriter to reduce the number of shares proposed to be
registered in view of market conditions.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer, a
proxy contest or otherwise and
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the removal of incumbent officers and directors. These provisions, summarized
below, are expected to discourage certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire control
of us to first negotiate with us. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals because, among
other things, negotiation of these proposals could result in an improvement of
their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years following the date the person because an
interested stockholder, unless (with certain exceptions) the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a business
combination includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
interested stockholder is a person who, together with affiliates and associates,
owns (or within three years prior to the determination of interested stockholder
status, did own) 15% or more of a corporation's voting stock. The existence of
this provision would be expected to have an anti-takeover effect with respect to
transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for
the shares of common stock held by stockholders.
Our certificate of incorporation and bylaws require that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of the stockholders and may not be effected by
a consent in writing. In addition, special meetings of our stockholders may be
called only by the board of directors or certain of our officers. Our
certificate of incorporation and bylaws also provide that, beginning upon the
closing of this offering, our board of directors will be divided into three
classes, with each class serving staggered three-year terms, and that certain
amendments of the certificate of incorporation and of the bylaws require the
approval of holders of at least 66 2/3% of the voting power of all outstanding
stock. These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of us.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Norwest Bank
Minnesota, N.A.
CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES
The following is a general discussion of certain U.S. federal income and
estate tax consequences to beneficial owners of the convertible notes or
underlying common stock. This discussion is based upon the Internal Revenue Code
of 1986, as amended (the code), U.S. Treasury Regulations (regulations),
Internal Revenue Service (IRS) rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change, possibly with
retroactive effect, or different interpretation.
This discussion is for general information only and does not address all
aspects of U.S. federal income taxation that may be relevant to beneficial
owners of the convertible notes or common stock. This discussion does not
describe the tax consequences:
- arising under the laws of any foreign, state or local jurisdiction,
- that may be relevant to particular beneficial owners in light of their
personal circumstances, such as holders subject to the U.S. federal
alternative minimum tax, or
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- to certain types of beneficial owners, such as certain financial
institutions, insurance companies, tax-exempt entities, dealers in
securities, persons who hold the convertible notes or common stock in
connection with a straddle, hedging or conversion transaction for U.S.
federal income tax purposes, or persons that have a functional currency
other than the U.S. dollar, who may be subject to special rules.
This discussion assumes that each holder has acquired the convertible notes on
their original issuance at their original offering price and holds the
convertible notes and common stock received upon conversion thereof as capital
assets within the meaning of Section 1221 of the code. We have not sought any
ruling from the IRS with respect to statements made and the conclusions reached
in this discussion and there can be no assurance that the IRS will agree with
such statements and conclusions.
For purposes of this discussion, the term U.S. holder means a beneficial
owner who or that:
- is a citizen or resident of the United States,
- is a corporation or partnership created or organized in or under the laws
of the United States or a political subdivision thereof, unless, in the
case of a partnership, future regulations provide to the contrary,
- is an estate the income of which is subject to U.S. federal income
taxation regardless of its source,
- is a trust if a U.S. court is able to exercise primary supervision over
the administration of the trust and one more U.S. persons, within the
meaning of Section 7701(a)(30) of the code (U.S. persons), have authority
to control all substantial decisions of the trust, or
- is otherwise subject to U.S. federal income taxation on a net income
basis in respect of the convertible notes or common stock.
As used herein, a non-U.S. holder means a beneficial owner who or that is not a
U.S. holder. PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR
PARTICIPATION IN THIS OFFERING, AND THEIR OWNERSHIP AND DISPOSITION OF THE
CONVERTIBLE NOTES, INCLUDING CONVERSION OF THE CONVERTIBLE NOTES, OR COMMON
STOCK, INCLUDING THE EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH
TAX CONSEQUENCES.
U.S. HOLDERS
Interest on Convertible Notes. Interest paid on a convertible note will be
taxable to a U.S. holder as ordinary interest income, at the time that such
interest is accrued or actually or constructively received, in accordance with
such U.S. holder's method of accounting for U.S. federal income tax purposes. We
expect that the convertible notes will not be issued with original issue
discount, within the meaning of the code.
Conversion of Convertible Notes. A U.S. holder of a convertible note
generally will not recognize gain or loss on the conversion of the convertible
note into common stock. Such U.S. holder's aggregate tax basis in the common
stock received upon conversion of the convertible note will be equal to the U.S.
holder's adjusted tax basis in the convertible note at the time of conversion,
less any portion of that basis allocable to cash received in lieu of a
fractional share. The holding period of the common stock received upon
conversion of a convertible note generally will include the period during which
the U.S. holder held such convertible note prior to the conversion.
Cash received in lieu of a fractional share of common stock should be
treated as a payment in exchange for such fractional share. Gain or loss
recognized on the receipt of cash paid in lieu
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of such fractional share generally will be capital gain or loss equal to the
difference between the amount of cash received and the amount of tax basis
allocable to the fractional share.
Adjustment of Conversion Rate. The conversion rate of the convertible notes
is subject to adjustment in certain circumstances. Under Section 305(c) of the
code, adjustments that have the effect of increasing or decreasing the
proportionate interest of U.S. holders of the convertible notes in our assets or
earnings (for example, an adjustment following a distribution of property by us
to our stockholders) may in some circumstances give rise to deemed distributions
to U.S. holders. Similarly, a failure to adjust the conversion rate of the
convertible notes to reflect a stock dividend or other event increasing the
proportionate interest of shareholders of outstanding common stock can in some
circumstances give rise to deemed distributions to such shareholders. Deemed
distributions will be treated as a dividend, return of capital or capital gain
in accordance with the earnings and profits rules discussed under
"-- Distributions on Common Stock" below.
Distributions on Common Stock. Distributions on common stock will
constitute a dividend for U.S. federal income tax purposes to the extent of our
current or accumulated earnings and profits as determined under U.S. federal
income tax principles. Dividends paid to U.S. holders that are U.S. corporations
may qualify for the dividends-received deduction. Noncorporate taxpayers and
certain corporations are not entitled to the dividends-received deduction.
To the extent, if any, that a U.S. holder receives a distribution on common
stock that would otherwise constitute a dividend for U.S. federal income tax
purposes but that exceeds our current and accumulated earnings and profits, such
distribution will be treated first as a non-taxable return of capital reducing
the US. holder's tax basis in the common stock. Any such distributions in excess
of the U.S. holder's tax basis in the common stock will be treated as capital
gain.
Sale or Exchange of Convertible Notes or Common Stock. In general, subject
to the discussion under "Market Discount" below:
- a U.S. Holder of a convertible note will recognize capital gain or loss
upon the sale, redemption, retirement or other disposition of the
convertible note measured by the difference between the amount of cash
and the fair market value of any property received, except to the extent
attributable to the payment of accrued interest, and such U.S. Holder's
adjusted tax basis in the convertible note;
- a U.S. Holder of common stock received upon conversion of a convertible
note will recognize capital gain or loss upon the sale, exchange,
redemption or other disposition of the common stock under rules similar
to the computation of gain or loss on the disposition of the convertible
notes.
However, special rules may apply to a redemption of common stock which may
result in the proceeds of the redemption being treated as a dividend. In
general, the maximum tax rate for noncorporate taxpayers on long-term capital
gain is 20% with respect to capital assets, including the convertible notes and
common stock, but only if they have been held for more than 12 months at the
time of disposition.
Market Discount. The resale of convertible notes may be affected by the
impact on a purchaser of the market discount provisions of the code. For this
purpose, the market discount on a convertible note generally will be equal to
the amount, if any, by which the stated redemption price at maturity of the
convertible note immediately after its acquisition, other than at original
issue, exceeds the U.S. holder's adjusted tax basis in the convertible note.
Subject to a de minimis exception, these provisions generally require a U.S.
holder who acquires a convertible note at a market discount to treat as ordinary
income any gain recognized on the disposition of such convertible note to the
extent of the accrued market discount on such convertible note at the time of
disposition, unless the U.S. holder elects to include accrued market discount in
income currently. In general, market discount will be treated as accruing on a
straight-line basis
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over the remaining term of the convertible note at the time of acquisition, or,
at the election of the U.S. holder, under a constant yield method. A U.S. holder
who acquires a convertible note at a market discount and who does not elect to
include accrued market discount in income currently may be required to defer the
deduction of a portion of the interest on any indebtedness incurred or
maintained to purchase or carry the convertible note until the convertible note
is disposed of in a taxable transaction. If a U.S. holder acquires a convertible
note with market discount and receives common stock upon conversion of the
convertible note, the amount of accrued market discount not previously included
in income with respect to the convertible note through the date of conversion
will be treated as ordinary income upon the disposition of the common stock.
NON-U.S. HOLDERS
Payments of Interest. Generally, payments of interest on the convertible
notes to, or on behalf of, a non-U.S. holder will not be subject to U.S. federal
withholding tax if:
- the non-U.S. holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of our stock;
- the non-U.S. Holder is not:
- a controlled foreign corporation for U.S. federal income tax purposes
that is related to us through stock ownership; or
- a bank that received the convertible note on an extension of credit
made pursuant to a loan agreement entered into in the ordinary course
of its trade or business; and
- the non-U.S. holder provides a statement signed under penalties of
perjury that includes its name and address and certifies that it is not a
U.S. person in compliance with applicable requirements of the regulations
or an exemption is otherwise established.
If these requirements cannot be satisfied, a non-U.S. holder will be subject to
U.S. federal withholding tax at a rate of 30%, or lower treaty rate, if
applicable, on interest payments on the convertible notes.
Conversion of Convertible Notes. A non-U.S. holder generally will not be
subject to U.S. federal withholding tax on the conversion of a convertible note
into common stock. To the extent a non-U.S. holder receives cash in lieu of a
fractional share on the conversion, such cash may give rise to gain that would
be subject to the rules described below with respect to the sale or exchange of
a convertible note or Common Stock. See "-- Sale or Exchange of Convertible
Notes or Common Stock" below.
Adjustment of Conversion Rate. The conversion rate of the convertible
notes is subject to adjustment in certain circumstances. Any such adjustment
could, in certain circumstances, give rise to a deemed distribution to non-U.S.
holders of the convertible notes. In such case, the deemed distribution would be
subject to the rules below regarding withholding of U.S. federal tax on
dividends in respect of common stock. See "-- Distributions on Common Stock"
below.
Distributions on Common Stock. Distributions on common stock will
constitute a dividend for U.S. federal income tax purposes to the extent of our
current or accumulated earnings and profits as determined under U.S. federal
income tax principles. Dividends paid on common stock held by a non-U.S. holder
will be subject to U.S. federal withholding tax at a rate of 30%, or lower
treaty rate, if applicable.
Sale or Exchange of Convertible Notes or Common Stock. In general, a
non-U.S. holder will not be subject to U.S. federal withholding tax on gain
recognized upon the sale or other disposition, including a redemption, of a
convertible note or common stock received upon conversion thereof unless the
non-U.S. holder:
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- is a nonresident alien individual who is present in the United States
for 183 or more days in the taxable year in which the gain is realized
and certain other conditions are satisfied, or
- is subject to tax pursuant to the provisions of U.S. tax law applicable
to certain U.S. expatriates.
U.S. Estate Tax. Convertible notes owned or treated as owned by an
individual who is not a citizen or resident, as specially defined for U.S.
federal estate tax purposes, of the United States at the time of death
(nonresident decedent) will not be included in the nonresident decedent's gross
estate for U.S. federal estate tax purposes as a result of the nonresident
decedent's death, provided that, at the time of death, the nonresident decedent
does not own, actually or constructively, 10% or more of the total combined
voting power of all classes of our stock and payments with respect to such
convertible notes would not have been effectively connected with the conduct of
a trade or business in the United States by the nonresident decedent. Common
stock owned or treated as owned by a nonresident decedent will be included in
the nonresident decedent's gross estate for U.S. federal estate tax purposes as
a result of the nonresident decedent's death. Subject to applicable treaty
limitations, if any, a nonresident decedent's estate may be subject to U.S.
federal estate tax on property included in the estate for U.S. federal estate
tax purposes.
IRS REPORTING AND BACKUP WITHHOLDING
Certain noncorporate U.S. holders may be subject to IRS reporting and
backup withholding at a rate of 31% on payments of interest on the convertible
notes, dividends on common stock and proceeds from the sale or other disposition
of the convertible notes or common stock. Backup withholding will only be
imposed where the noncorporate U.S. holder:
- fails to furnish its taxpayer identification number (TIN), which would
ordinarily be his or her social security number,
- furnishes an incorrect TIN,
- is notified by the IRS that he or she has failed to properly report
payments of interest or dividends, or
- under certain circumstances, fails to certify, under penalties of
perjury, that he or she has furnished a correct TIN and has not been
notified by the IRS that he or she is subject to backup withholding.
We must also institute backup withholding on payments made to a U.S. holder if
instructed to do so by the IRS. A failure to provide us with a correct TIN may
also subject a U.S. holder to penalties imposed by the IRS.
We will report annually to the IRS and to each non-U.S. holder any interest
and dividends paid with respect to a convertible note or common stock,
respectively, that is subject to U.S. federal withholding tax or that is exempt
from such tax under an applicable treaty or the code. We will also report to the
IRS and to each non-U.S. holder such income paid which is exempt from federal
withholding tax because it is effectively connected with such non-U.S. holder's
U.S. trade or business. However, a non-U.S. holder will not be subject to IRS
reporting or backup withholding if the payor has received appropriate
certification statements from or on behalf of the non-U.S. holder and provided
that the payor does not have actual knowledge that the non-U.S. holder is a U.S.
person. The payment of the proceeds from the disposition of the convertible
notes or common stock to or through the U.S. office of any U.S. or foreign
broker will be subject to IRS reporting and possibly backup withholding unless
the owner certifies as to its non-U.S. status under penalties of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a U.S. person or that the conditions
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of any other exemption are not, in fact, satisfied. The payment of the proceeds
from the disposition of a convertible note or common stock to or through a
non-U.S. office of a non-U.S. broker that is not a U.S. related person will not
be subject to IRS reporting or backup withholding. For this purpose, a U.S.
related person is:
- a controlled foreign corporation for U.S. federal income tax purposes,
- a non-U.S. person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from the activities that are
effectively connected with the conduct of a U.S. trade or business, or
- with respect to payments made after December 31, 2000, a foreign
partnership, if at any time during its tax year, one or more of its
partners are U.S. persons, as defined in regulations, who in the
aggregate hold more than 50% of the income or capital interest in the
partnership or if, at any time during its tax year, such foreign
partnership is engaged in a United States trade or business.
In the case of the payment of proceeds from the disposition of convertible
notes or common stock to or through a non-U.S. office of a broker that is a U.S.
related person, the regulations require IRS reporting on the payment unless the
broker has documentary evidence in its files that the owner is a non-U.S. holder
and the broker has no knowledge to the contrary. Backup withholding will not
apply to payments made through foreign offices of a broker that is a U.S. person
or a U.S. related person, absent actual knowledge that the payee is a U.S.
person.
Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a credit against such holder's U.S. federal income tax
liability, if any, or will otherwise be refundable, provided that the requisite
procedures are followed. Holders of the convertible notes or common stock should
consult their own tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption, if
applicable.
PROSPECTIVE FINAL REGULATIONS
On October 6, 1997, new regulations were issued which modify the
requirements imposed on a non-U.S. holder and certain intermediaries for
establishing the recipient's status as a non-U.S. holder eligible for exemption
from U.S. federal withholding tax and backup withholding described above. The
new regulations generally are effective for payments made after December 31,
2000, subject to certain transition rules. In general, the new regulations do
not significantly alter the substantive withholding and IRS reporting
requirements, but, rather, unify current certification procedures and forms and
clarify reliance standards. In addition, the new regulations impose more
stringent conditions on the ability of financial intermediaries acting for a
non-U.S. holder to provide certifications on behalf of the non-U.S. holder,
which may include entering into an agreement with the IRS to audit certain
documentation with respect to such certifications. Non-U.S. holders should
consult their own tax advisors to determine the effects of the application on
the new regulations on their particular circumstances.
WHERE YOU MAY FIND ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the convertible notes in this
offering. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedule that were filed with the
registration statement or incorporated herein by reference. For further
information with respect to Juniper Networks, we refer you to the registration
statement and the exhibits and schedule that were filed with the registration
statement or incorporated herein by reference. Statements contained in this
prospectus about the contents of any contract or any
82
<PAGE> 85
other document that is filed as an exhibit to the registration statement or
incorporated herein by reference are not necessarily complete, and we refer you
to the full text of the contract or other document filed as an exhibit to the
registration statement or incorporated herein by reference. A copy of the
registration statement and the exhibits and schedule that were filed with the
registration statement or incorporated herein by reference may be inspected
without charge at the public reference facilities maintained by the Securities
and Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part of the registration statement may be
obtained from the SEC upon payment of the prescribed fee. The Securities and
Exchange Commission maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission. The address of the
site is http://www.sec.gov.
We are subject to the information and periodic reporting requirements of
the Securities Exchange Act of 1934, and, in accordance with the requirements of
the Securities Exchange Act of 1934, we file periodic reports, proxy statements
and other information with the Securities and Exchange Commission. These
periodic reports, proxy statements and other information will be available for
inspection and copying at the regional offices, public reference facilities and
web site of the Securities and Exchange Commission referred to above.
LEGAL MATTERS
The validity of the convertible notes, and the underlying common stock
offered hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain legal matters will be
passed upon for the underwriters by Brobeck Phleger & Harrison LLP, San
Francisco, California. As of September 29, 1999, WS Investment Company 96A and
WS Investment Co. 96B, each an investment partnership composed of certain
current and former members of and persons associated with Wilson Sonsini
Goodrich & Rosati, Professional Corporation, in addition to certain current
individual members of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, beneficially own an aggregate of 159,374 shares of our common
stock. Since that time the shares held by those partnerships have been
distributed to the individual partners and some of the shares have been sold in
open market transactions.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999 and 1998, and for each of the three
years in the period ended December 31, 1999, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
83
<PAGE> 86
UNDERWRITING
Juniper Networks and the underwriters for the offering named below have
entered into an underwriting agreement with respect to the convertible notes
being offered. Subject to certain conditions, each underwriter has severally
agreed to purchase the principal amount of convertible notes indicated in the
following table.
<TABLE>
<CAPTION>
Principal Amount of
Underwriters Convertible Notes
------------ -------------------
<S> <C>
Goldman, Sachs & Co......................................... $
Credit Suisse First Boston Corporation......................
FleetBoston Robertson Stephens Inc..........................
Dain Rauscher Incorporated..................................
SG Cowen Securities Corporation.............................
Warburg Dillon Read LLC.....................................
------------
Total.................................................. $850,000,000
============
</TABLE>
------------------------
If the underwriters sell more convertible notes than the total principal
amount set forth in the table above, the underwriters have an option to buy up
to an additional $127,500,000 principal amount of convertible notes from Juniper
Networks to cover such sales. They may exercise that option for 30 days. If any
convertible notes are purchased pursuant to this option, the underwriters will
severally purchase convertible notes in approximately the same proportion as set
forth in the table above.
The following table shows the per convertible note and total underwriting
discounts and commissions to be paid to the underwriters by Juniper Networks.
Such amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional convertible notes.
<TABLE>
<CAPTION>
Paid by the Company
----------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Convertible Note........................................ % %
Total....................................................... $ $
</TABLE>
Convertible notes sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the cover of this
prospectus. Any convertible notes sold by the underwriters to securities dealers
may be sold at a discount from the initial public offering price of up to %
of the principal amount of the convertible notes. Any such securities dealers
may resell any convertible notes purchased from the underwriters to certain
other brokers or dealers at a discount from the initial public offering price of
up to % of the principal amount of the convertible notes. If all the
convertible notes are not sold at the initial offering price, the underwriters
may change the offering price and the other selling terms.
Juniper Networks, the officers and the directors have agreed with the
underwriters not to dispose of or hedge any of its shares of common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 90 days
after the date of this prospectus, except with the prior written consent of the
underwriters, subject to certain exceptions.
The convertible notes are a new issue of securities with no established
trading market. Juniper Networks has been advised by the underwriters that the
underwriters intend to make a market in the convertible notes but are not
obligated to do so and may discontinue market
84
<PAGE> 87
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the convertible notes.
In connection with the offering, the underwriters may purchase and sell
convertible notes and common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the underwriters of a
greater principal amount of convertible notes than they are required to purchase
in this offering. Stabilizing transactions consist of certain bids or purchases
made for the purpose of preventing or retarding a decline in the market price of
the convertible notes or the common stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased convertible
notes sold by or for the account of such underwriter in stabilizing or short
covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the convertible notes and the common stock. As a
result, the price of the convertible notes or the common stock may be higher
than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
Juniper Networks estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $1,000,000. The underwriters have agreed to reimburse the Company
for certain expenses.
Juniper Networks has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
85
<PAGE> 88
(THIS PAGE INTENTIONALLY LEFT BLANK)
86
<PAGE> 89
JUNIPER NETWORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Stockholders' Equity.............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 90
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Juniper Networks, Inc.
We have audited the accompanying consolidated balance sheets of Juniper
Networks, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Juniper
Networks, Inc. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
January 17, 2000
F-2
<PAGE> 91
JUNIPER NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $158,043 $ 20,098
Short-term investments.................................... 187,915 --
Accounts receivable, net of allowance for doubtful
accounts of $632 in 1999 (none in 1998)(1)............. 23,950 8,056
Prepaid expenses and other current assets................. 7,925 680
-------- --------
Total current assets........................................ 377,833 28,834
Property and equipment, net................................. 12,416 7,702
Long-term investments....................................... 97,201 --
Intangibles and other long-term assets...................... 25,928 135
-------- --------
Total assets................................................ $513,378 $ 36,671
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 15,368 $ 4,245
Accrued warranty.......................................... 9,641 684
Accrued compensation and related liabilities.............. 5,371 1,114
Other accrued liabilities................................. 6,013 500
Deferred revenue.......................................... 19,270 5,639
Current obligations under capital leases.................. -- 2,220
-------- --------
Total current liabilities................................... 55,663 14,402
Long-term liabilities....................................... -- 5,204
Commitments
Stockholders' equity:
Convertible preferred stock, $0.00001 par value, issuable
in series: 10,000 and 10,859 shares authorized at
December 31, 1999 and 1998; none and 10,717 shares
issued and outstanding at December 31, 1999 and 1998... -- --
Common stock, $0.00001 par value, 200,000 shares
authorized; 155,939 and 61,732 shares issued and
outstanding at December 31, 1999 and 1998.............. 2 1
Additional paid-in capital................................ 513,696 65,350
Deferred stock compensation............................... (3,001) (5,153)
Accumulated other comprehensive loss...................... (815) --
Accumulated deficit....................................... (52,167) (43,133)
-------- --------
Stockholders' equity........................................ 457,715 17,065
-------- --------
Total liabilities and stockholders' equity.................. $513,378 $ 36,671
======== ========
</TABLE>
- ---------------
(1) Includes $632 due from Ericsson Business Networks AB, a related party, as of
December 31, 1999.
See accompanying notes.
F-3
<PAGE> 92
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues(1)....................................... $102,606 $ 3,807 $ --
Cost of revenues...................................... 45,272 4,416 --
-------- -------- --------
Gross profit (loss)................................... 57,334 (609) --
Operating expenses:
Research and development............................ 41,502 23,987 9,406
Sales and marketing................................. 20,931 4,216 1,149
General and administrative.......................... 5,235 2,223 1,043
Amortization of goodwill and purchased intangibles
and deferred stock compensation.................. 4,286 1,235 --
-------- -------- --------
Total operating expenses......................... 71,954 31,661 11,598
-------- -------- --------
Operating loss........................................ (14,620) (32,270) (11,598)
Interest income, net.................................. 8,011 1,301 1,235
-------- -------- --------
Loss before income taxes.............................. (6,609) (30,969) (10,363)
Provision for income taxes............................ 2,425 2 --
-------- -------- --------
Net loss.............................................. $ (9,034) $(30,971) $(10,363)
======== ======== ========
Basic and diluted net loss per share.................. $ (0.10) $ (0.80) $ (0.40)
======== ======== ========
Shares used in computing basic and diluted net loss
per share........................................... 94,661 38,871 25,773
======== ======== ========
Pro forma basic and diluted net loss per share
(unaudited)......................................... $ (0.07) $ (0.28)
======== ========
Shares used in computing pro forma basic and diluted
net loss per share (unaudited)...................... 131,480 111,210
======== ========
</TABLE>
- ---------------
(1) Includes $5.5 million in revenue from Ericsson Business Networks AB, a
related party, for the year ended December 31, 1999.
See accompanying notes.
F-4
<PAGE> 93
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED OTHER
---------------- ---------------- PAID-IN STOCK COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION LOSS DEFICIT
------- ------ ------- ------ ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........ 5,566 $-- 47,683 $-- $ 11,527 $ -- $ -- $ (1,799)
Issuance of warrants to purchase
Series B preferred stock......... -- -- -- -- 1 -- -- --
Issuance of Series C preferred
stock to investors............... 5,151 -- -- -- 45,953 -- -- --
Issuance of warrants to purchase
Series C preferred stock......... -- -- -- -- 3 -- -- --
Issuance of common stock, net of
repurchases...................... -- -- 9,681 -- 375 -- -- --
Compensation expense related to
stock options.................... -- -- -- -- 351 -- -- --
Net loss........................... -- -- -- -- -- -- -- (10,363)
------- -- ------- -- -------- ------- ----- --------
Balance at December 31, 1997........ 10,717 -- 57,364 -- 58,210 -- -- (12,162)
Exercise of stock options by
employees, net of repurchases.... -- -- 4,368 1 752 -- -- --
Deferred stock compensation........ -- -- -- -- 6,388 (6,388) -- --
Amortization of deferred stock
compensation..................... -- -- -- -- -- 1,235 -- --
Net loss........................... -- -- -- -- -- -- -- (30,971)
------- -- ------- -- -------- ------- ----- --------
Balance at December 31, 1998........ 10,717 -- 61,732 1 65,350 (5,153) -- (43,133)
Issuance of Series D and D-1
preferred stock to investors..... 3,080 -- -- -- 33,948 -- -- --
Conversion of preferred stock to
common stock..................... (13,797) -- 76,794 -- -- -- -- --
Issuance of common stock, net of
issuance costs of $1,885......... -- -- 11,613 1 389,454 -- -- --
Exercise of common stock
warrants......................... -- -- 779 -- -- -- -- --
Exercise of stock options by
employees, net of repurchases.... -- -- 4,888 -- 6,870 -- -- --
Issuance of common stock and
options in connection with the
acquisition of intellectual
property and other intangibles... -- -- 133 -- 16,960 -- -- --
Deferred stock compensation........ -- -- -- -- 1,114 (1,114) -- --
Amortization of deferred stock
compensation..................... -- -- -- -- -- 3,266 -- --
Other comprehensive loss:
Change in unrealized loss on
available-for-sale
securities..................... -- -- -- -- -- -- (815) --
Net loss......................... -- -- -- -- -- -- -- (9,034)
Comprehensive loss................. -- -- -- -- -- -- -- --
------- -- ------- -- -------- ------- ----- --------
Balance at December 31, 1999........ -- $-- 155,939 $2 $513,696 $(3,001) $(815) $(52,167)
======= == ======= == ======== ======= ===== ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31, 1996........ $ 9,728
Issuance of warrants to purchase
Series B preferred stock......... 1
Issuance of Series C preferred
stock to investors............... 45,953
Issuance of warrants to purchase
Series C preferred stock......... 3
Issuance of common stock, net of
repurchases...................... 375
Compensation expense related to
stock options.................... 351
Net loss........................... (10,363)
--------
Balance at December 31, 1997........ 46,048
Exercise of stock options by
employees, net of repurchases.... 753
Deferred stock compensation........ --
Amortization of deferred stock
compensation..................... 1,235
Net loss........................... (30,971)
--------
Balance at December 31, 1998........ 17,065
Issuance of Series D and D-1
preferred stock to investors..... 33,948
Conversion of preferred stock to
common stock..................... --
Issuance of common stock, net of
issuance costs of $1,885......... 389,455
Exercise of common stock
warrants......................... --
Exercise of stock options by
employees, net of repurchases.... 6,870
Issuance of common stock and
options in connection with the
acquisition of intellectual
property and other intangibles... 16,960
Deferred stock compensation........ --
Amortization of deferred stock
compensation..................... 3,266
Other comprehensive loss:
Change in unrealized loss on
available-for-sale
securities..................... (815)
Net loss......................... (9,034)
--------
Comprehensive loss................. (9,849)
--------
Balance at December 31, 1999........ $457,715
========
</TABLE>
See accompanying notes.
F-5
<PAGE> 94
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $ (9,034) $ (30,971) $ (10,363)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation and amortization............................. 5,306 2,171 712
Amortization of goodwill and purchased intangibles,
prepaid maintenance contracts and deferred stock
compensation............................................ 4,933 1,602 589
Loss on disposal of property and equipment................ -- -- 59
Issuance of stock for consulting services................. -- 30 21
Issuance of warrants in connection with certain leasing
arrangements............................................ -- -- 14
Changes in operating assets and liabilities:
Accounts receivable..................................... (15,894) (8,056) --
Prepaid expenses and other current assets............... (7,892) (504) (699)
Other long-term assets.................................. (398) (10) (104)
Accounts payable and other current liabilities.......... 16,593 4,084 489
Accrued warranty........................................ 8,957 684 --
Accrued milestone payment............................... -- (423) 423
Accrued compensation and related liabilities............ 4,257 869 245
Deferred revenue........................................ 13,631 5,639 --
Other long-term liabilities............................. -- 43 --
--------- --------- ---------
Net cash provided by (used in) operating activities......... 20,459 (24,842) (8,614)
INVESTING ACTIVITIES:
Purchases of property and equipment, net.................... (10,020) (6,531) (3,110)
Purchases of available-for-sale investments................. (324,437) (3,501) (20,715)
Maturities of available-for-sale investments................ 38,506 19,286 10,800
Minority equity investments................................. (8,000) -- --
Acquisition of intellectual property and other
intangibles............................................... (1,456) -- --
--------- --------- ---------
Net cash provided by (used in) investing activities......... (305,407) 9,254 (13,025)
FINANCING ACTIVITIES:
Proceeds from sale-leaseback liabilities.................... -- 5,705 2,603
Payments on lease obligations............................... (7,381) (1,157) (439)
Proceeds from issuance of preferred stock................... 33,948 -- 45,953
Proceeds from issuance of common stock...................... 396,326 696 366
--------- --------- ---------
Net cash provided by financing activities................... 422,893 5,244 48,483
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 137,945 (10,344) 26,844
Cash and cash equivalents at beginning of period............ 20,098 30,442 3,598
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 158,043 $ 20,098 $ 30,442
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 477 $ 592 $ 210
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of property and equipment under capital lease... $ -- $ 5,692 $ 2,243
========= ========= =========
Deferred stock compensation................................. $ 1,114 $ 6,388 $ --
========= ========= =========
Common stock issued in connection with the acquisition of
intellectual property and other intangibles............... $ 16,960 $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 95
JUNIPER NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Juniper Networks, Inc. ("Juniper Networks") was incorporated in the state
of California on February 2, 1996. Juniper Networks was reincorporated in the
state of Delaware effective as of March 15, 1998. Juniper Networks was
established for the purpose of providing Internet infrastructure solutions to
Internet service providers and other telecommunication service providers.
Juniper Networks develops next generation Internet backbone routers.
From inception, in February 1996, through September 1998, Juniper Networks'
operating activities were primarily devoted to increasing research and
development capabilities, designing ASICs, developing software, developing and
testing the M40 and other products, staffing the administrative, marketing and
sales organizations and establishing strategic relationships. Accordingly,
Juniper Networks was classified as a development stage company through that
date. Juniper Networks commenced product shipments in October 1998 and therefore
emerged from the development stage.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Juniper
Networks and its wholly-owned subsidiaries. All significant inter-company
balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
RECLASSIFICATIONS
Certain reclassifications, none of which affected operating or net loss,
have been made to prior year amounts to conform to the current year
presentation.
CASH, CASH EQUIVALENTS, SHORT-TERM AND LONG-TERM INVESTMENTS
Juniper Networks considers all highly liquid investment securities with
maturities from date of purchase of 90 days or less to be cash equivalents.
Short-term and long-term investments consist of debt securities with original
maturities between three months and three years.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and evaluates such designation as of each
balance sheet date. To date, all marketable debt securities have been classified
as available-for-sale and are carried at fair value with unrealized gains and
losses, if any, included in stockholders' equity. Realized gains and losses and
declines in value of securities judged to be other than temporary are included
in interest income and have not been significant to date. Interest and dividends
on all securities are included in interest income.
CONCENTRATIONS
Financial instruments that potentially subject Juniper Networks to
concentrations of credit risk consist principally of investments in debt
securities and trade receivables. Management
F-7
<PAGE> 96
believes the financial risks associated with these financial instruments are
minimal. Juniper Networks maintains its cash, cash equivalents and investments
with high quality financial institutions. Juniper Networks performs ongoing
credit evaluations of its customers and generally does not require collateral on
accounts receivable.
Juniper Networks' revenues to date have been derived for the sale of one
product, the M40. For the year ended December 31, 1999, two customers, A and C,
accounted for 32% and 26% of Juniper Networks' net revenues. For the year ended
December 31, 1998, two customers, A and B, accounted for 78% and 22% of Juniper
Networks' net revenues. For the year ended December 31, 1999, export sales to
Europe and Asia accounted for a total of 21.9% of net revenues.
Juniper Networks purchases certain custom semiconductor chips from a sole
supplier. Additionally, Juniper Networks relies on one hardware manufacturer for
the production of its product. The inability of the supplier or manufacturer to
fulfill supply requirements of Juniper Networks could negatively impact future
results.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of Juniper Networks' short-term and long-term investments is
based on quoted market prices.
The fair value of short-term and long-term capital lease obligations is
estimated based on current interest rates available to Juniper Networks for debt
instruments with similar terms, degrees of risk, and remaining maturities. The
carrying values of these obligations approximate their respective fair values as
of December 31, 1998.
PROPERTY AND EQUIPMENT
Property and equipment, including equipment leased under capital leases,
are recorded at cost less accumulated depreciation. Depreciation is calculated
using the straight-line method over the lesser of the estimated useful life,
generally three to five years, or the lease term of the respective assets.
INTANGIBLES AND OTHER ASSETS
Intangibles and other assets include equity investments made in privately
held companies in which Juniper Networks has less than a 20% equity ownership
interest and over which Juniper Networks has no ability to exercise significant
influence. Such investments are accounted for on the cost basis and are reviewed
for impairment indicators. Through December 31, 1999, no impairment indicators
have been identified and no write-downs of the cost basis of these investments
has been made. Also included in intangibles and other assets is goodwill and
other intangibles as a result of the November 1999 acquisition of intellectual
property and other intangible assets. The goodwill and other intangibles are
being amortized over a three-year period.
REVENUE RECOGNITION
Juniper Networks generally recognizes product revenue at the time of
shipment, assuming that collectibility is probable, unless Juniper Networks has
future obligations for network interoperability or has to obtain customer
acceptance, in which case revenue is deferred until these obligations are met.
Revenue from service obligations is deferred and recognized on a straight-line
basis over the contractual period. Amounts billed in excess of revenue
recognized are included as deferred revenue and accounts receivable in the
accompanying consolidated balance sheets.
F-8
<PAGE> 97
WARRANTY RESERVES
Juniper Networks' product generally carries a one-year warranty that
includes factory repair services as needed for replacement of parts. Estimated
expenses for warranty obligations are accrued as revenue is recognized.
RESEARCH AND DEVELOPMENT
Costs to develop Juniper Networks' products are expensed as incurred in
accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 2, "Accounting for Research and Development
Costs," which establishes accounting and reporting standards for research and
development.
Juniper Networks adopted SOP 98-1 "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use" during 1999, which requires
that all costs related to the development of internal use software be expensed
as incurred, other than those incurred during the application development stage.
Costs incurred during the application development stage were insignificant for
all periods presented.
STOCK-BASED COMPENSATION
Juniper Networks accounts for its stock options and equity awards in
accordance with the provisions of the Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and has elected to follow the
"disclosure only" alternative prescribed by Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123).
STOCK SPLITS
Juniper Networks effected a three-for-two stock split of its common stock
on June 27, 1997 and October 2, 1998 and a three-for-one stock split in the form
of a 200% common stock dividend paid on January 14, 2000. All share and per
share amounts have been adjusted to reflect the splits.
NET LOSS PER SHARE
Basic net loss per share and diluted net loss per share are presented in
conformity with Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (FAS 128), for all periods
presented. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 98, common stock and convertible preferred stock issued or granted
for nominal consideration prior to the anticipated effective date of the initial
public offering must be included in the calculation of basic and diluted net
loss per common share as if they had been outstanding for all periods presented.
To date, Juniper Networks has not had any issuances or grants for nominal
consideration.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock outstanding
during the period, less the weighted-average number of shares of common stock
issued to founders, investors and employees that are subject to repurchase (see
Note 5). Basic and diluted pro forma net loss per share, as presented in the
consolidated statements of operations, has been computed as described above and
also gives effect, under Securities and Exchange Commission guidance, to the
conversion of the convertible preferred stock (using the if-converted method)
from the original date of issuance, using the initial public offering price of
$11.33 per share to calculate the conversion ratio for Series D-1 convertible
preferred stock.
F-9
<PAGE> 98
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share(in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss.............................................. $ (9,034) $(30,971) $(10,363)
-------- -------- --------
BASIC AND DILUTED:
Weighted-average shares of common stock
outstanding...................................... 109,652 59,073 55,869
Less: weighted-average shares subject to
repurchase....................................... (14,991) (20,202) (30,096)
-------- -------- --------
Weighted-average shares used in computing basic and
diluted net loss per share....................... 94,661 38,871 25,773
======== ======== ========
Basic and diluted net loss per share................ $ (0.10) $ (0.80) $ (0.40)
======== ======== ========
PRO FORMA:
Net loss............................................ $ (9,034) $(30,971)
======== ========
Shares used above................................... 94,661 38,871
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred
stock............................................ 36,819 72,339
-------- --------
Shares used in computing pro forma basic and diluted
net loss per common share (unaudited)............ 131,480 111,210
======== ========
Pro forma basic and diluted net loss per common
share (unaudited)................................ $ (0.07) $ (0.28)
======== ========
</TABLE>
Juniper Networks has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options and shares subject to
repurchase from the calculation of diluted loss per share because all such
securities are antidilutive for all periods presented. The total number of
shares excluded from the calculations of diluted net loss per share were
68,288,000, 101,769,000 and 86,811,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
SEGMENT INFORMATION
Juniper Networks has adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 131, "Disclosure About Segments
of an Enterprise and Related Information" (FAS 131). Juniper Networks operates
solely in one segment, the development and marketing of Internet infrastructure
equipment, and therefore there is no impact to Juniper Networks' consolidated
financial statements due to the adoption of FAS 131.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS
133, as amended, establishes methods for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. Juniper Networks is required to adopt FAS 133 effective January 1,
2001. Because Juniper Networks currently does not hold any derivative
instruments and does not engage in hedging activities, Juniper Networks does not
currently believe that the adoption of FAS 133, as amended, will have a
significant impact on its financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101). SAB 101 summarizes certain areas of the
Staff's views in applying generally
F-10
<PAGE> 99
accepted accounting principles to revenue recognition in financial statements.
Juniper Networks believes that its current revenue recognition principles comply
with SAB 101.
2. CASH EQUIVALENTS, SHORT-TERM AND LONG-TERM INVESTMENTS
Cash equivalents, short-term and long-term investments consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Money market funds............................ $ 56,034 $ -- $ -- $ 56,034
Commercial paper.............................. 79,862 -- -- 79,862
Certificates of deposit....................... 66 -- -- 66
Government securities......................... 135,325 5 (181) 135,149
Corporate debt securities..................... 151,829 12 (651) 151,190
Asset-backed securities....................... 8,000 -- -- 8,000
-------- -------- -------- --------
$431,116 $ 17 $ (832) $430,301
======== ======== ======== ========
Included in cash and cash equivalents......... $145,179 $ 6 $ -- $145,185
Included in short-term investments............ 188,170 11 (266) 187,915
Included in long-term investments............. 97,767 -- (566) 97,201
-------- -------- -------- --------
$431,116 $ 17 $ (832) $430,301
======== ======== ======== ========
Due within one year........................... $333,349 $ 17 $ (266) $333,100
Due between one year and two years............ 94,500 -- (537) 93,963
Due between two years and three years......... 3,267 -- (29) 3,238
-------- -------- -------- --------
$431,116 $ 17 $ (832) $430,301
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Money market funds............................ $ 3,037 $ -- $ -- $ 3,037
Commercial paper.............................. 16,520 -- -- 16,520
-------- -------- -------- --------
$ 19,557 $ -- $ -- $ 19,557
======== ======== ======== ========
Included in cash and cash equivalents......... $ 19,557 $ -- $ -- $ 19,557
======== ======== ======== ========
</TABLE>
F-11
<PAGE> 100
3. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- ------
<S> <C> <C>
Computers and equipment..................................... $14,953 $7,435
Purchased software.......................................... 4,252 2,540
Furniture and fixtures...................................... 1,383 594
------- ------
Total....................................................... 20,588 10,569
Less accumulated depreciation and lease amortization........ (8,172) (2,867)
------- ------
Property and equipment , net................................ $12,416 $7,702
======= ======
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
Juniper Networks enters into various capital leases, including sale and
leaseback transactions, to finance purchases of property and equipment. As of
December 31, 1998, under various lease lines of credit, Juniper Networks had
$1,891,000 available for future purchases of property and equipment that expired
on June 30, 1999. Under the terms of certain lease agreements, warrants to
purchase the Company's preferred stock were granted as described in Note 5.
Capitalized costs of $8,470,000, and accumulated amortization of $905,000 are
included in property and equipment at December 31, 1998. During the year ending
December 31, 1999, Juniper Networks paid off all of the then outstanding capital
lease balances.
5. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>
SHARES ISSUED
AND OUTSTANDING AT
SHARES DECEMBER 31,
INITIALLY ------------------------
AUTHORIZED 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Series A......................................... 1,743,751 -- 1,743,751
Series B......................................... 3,915,308 -- 3,821,975
Series C......................................... 5,200,000 -- 5,151,178
Series D......................................... 600,000 -- --
Series D-1....................................... 2,580,000 -- --
---------- ---------- ----------
Total preferred stock............................ 14,039,059 -- 10,716,904
========== ========== ==========
</TABLE>
All outstanding shares of Juniper Networks' convertible preferred stock
automatically converted into 76,794,000 shares of Common Stock upon completion
of Juniper Networks' initial public offering. As of December 31, 1999,
10,000,000 shares of convertible preferred stock remain authorized and available
for issuance.
F-12
<PAGE> 101
WARRANTS
Juniper Networks periodically grants warrants in connection with certain
lease arrangements. Juniper Networks had the following warrants to purchase
shares of preferred stock outstanding at December 31, 1998:
<TABLE>
<CAPTION>
EXERCISE
PRICE EXPIRATION OF NUMBER OF SHARES
PREFERRED STOCK SERIES PER SHARE DATE ISSUED WARRANTS (PREFERRED STOCK)
- ---------------------- --------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Series B................. $2.40 December 1996 December 2003 83,333
Series B................. 2.40 June 1997 December 2003 10,000
Series C................. 8.93 June 1997 December 2003 23,516
-------
Total.............................................................. 116,849
=======
</TABLE>
During the year ended December 31, 1999, all warrants were exercised for a
total of approximately 779,000 shares of Common Stock. All of the warrants were
exercisable immediately. The fair value of the warrants was amortized as
interest expense in accordance with the lease payments.
COMMON STOCK
Juniper Networks is authorized to issue up to 200,000,000 shares of its
common stock. At December 31, 1999 and 1998, 155,938,599 and 61,731,984 shares
were issued and outstanding. Prior to the adoption of the 1996 Stock Option
Plan, Juniper Networks issued shares of common stock to founders, investors, and
employees. The shares issued to investors were fully vested upon purchase.
Generally, shares issued to founders and employees were sold pursuant to
restricted stock purchase agreements containing provisions established by the
Board of Directors. These provisions give Juniper Networks the right to
repurchase the shares at the original sales price. This right expires at the
rate of 25% after one year and 2.0833% per month thereafter. At December 31,
1999 and 1998, 840,001 and 4,148,439 of these shares, issued outside of the 1996
Stock Option Plan, remained subject to repurchase.
STOCK OPTION PLAN
Juniper Networks' 1996 Stock Option Plan (the Plan) provides for the
granting of incentive stock options to employees and nonstatutory stock options
to employees, directors and consultants. Incentive stock options are granted at
an exercise price of not less than the fair value per share of the common stock
on the date of grant. Nonstatutory stock options may be granted at an exercise
price of not less than 85% of the fair value per share on the date of grant;
however, no statutory stock options have been granted for less than fair market
value on the date of grant. Vesting and exercise provisions are determined by
the Board of Directors. Options granted under the Plan generally become
exercisable over a four-year period beginning on the date of grant. Options
granted under the Plan have a maximum term of ten years. Options granted to
consultants are in consideration for the fair value of services previously
rendered, are not contingent upon future events and are expensed in the period
of grant. Juniper Networks has authorized 57,562,500 shares of common stock for
issuance under the Plan. At December 31, 1999, 1,896,356 shares were available
for future option grants or stock sales under the Plan.
F-13
<PAGE> 102
Option activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Options granted............................................ 5,393,250 $ 0.07
----------
Balance at December 31, 1997............................... 5,393,250 0.07
Options granted............................................ 10,537,440 0.62
Options exercised.......................................... (4,521,948) 0.16
Options canceled........................................... (365,028) 0.09
----------
Balance at December 31, 1998............................... 11,043,714 0.56
Options granted............................................ 16,837,006 33.76
Options exercised.......................................... (4,935,090) 1.13
Options canceled........................................... (476,465) 7.78
----------
Balance at December 31, 1999............................... 22,469,165 25.11
==========
</TABLE>
The Plan also provides for the sale of shares of common stock to employees
and consultants at the fair value per share of the common stock. Shares issued
to consultants are for the fair value of services previously rendered and are
not contingent upon future events. Shares sold to employees are made pursuant to
restricted stock purchase agreements containing provisions established by the
Board of Directors. These provisions give Juniper Networks the right to
repurchase the shares at the original sales price. This right expires at a rate
determined by the Board of Directors, generally at the rate of 25% after one
year and 2.0833% per month thereafter.
During the year ended December 31, 1997 and the period from inception
(February 2, 1996) to December 31, 1996, Juniper Networks issued 10,717,299 and
14,522,652 shares under the Plan. No shares were issued under the Plan in the
years ended December 31, 1999 and 1998. At December 31, 1999 and 1998, 9,158,052
and 14,055,312 shares were subject to repurchase rights under the Plan. At
December 31, 1999 and 1998, 1,266,509 and 1,189,275 shares, respectively, had
been repurchased under the Plan.
The following schedule summarizes information about stock options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.04-$ 0.56 4,648,857 8.22 $ 0.29 1,177,599 $ 0.24
$ 0.64-$ 4.67 5,294,415 9.01 $ 2.88 353,777 $ 1.77
$ 7.00-$ 9.33 4,715,349 9.39 $ 7.61 4,125 $ 7.00
$21.44-$ 60.71 6,666,345 9.76 $60.44 31,095 $21.44
$63.63-$112.57 1,144,199 9.89 $89.60 -- $ --
---------- ---------
$ 0.04-$112.57 22,469,165 9.19 $25.11 1,566,596 $ 1.03
========== =========
</TABLE>
As of December 31, 1998, 325,608 options are exercisable at an average
exercise price of $0.05, and as of December 31, 1997, 79,980 options are
exercisable at an average price of $0.01.
During the year ended December 31, 1998 and the three months ended March
31, 1999, in connection with the grant of certain stock options to employees,
Juniper Networks recorded
F-14
<PAGE> 103
deferred stock compensation of $6,388,000 and $1,114,000 representing the
difference between the exercise price and the deemed fair value of Juniper
Networks' common stock on the date such stock options were granted. Such amount
is included as a reduction of stockholders' equity and is being amortized by
charges to operations on a graded vesting method. Juniper Networks recorded
amortization of deferred stock compensation expense of $3,266,000 and $1,235,000
for the years ended December 31, 1999 and 1998. At December 31, 1999 and 1998,
Juniper Networks had a total of $3,001,000 and $5,153,000 remaining to be
amortized over the corresponding vesting period of each respective option,
generally four years. The amortization expense relates to options awarded to
employees in all operating expense categories. This amount has not been
separately allocated to these categories.
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, the Board of Directors approved the adoption of Juniper
Networks' 1999 Employee Stock Purchase Plan (the Purchase Plan). A total of
1,500,000 shares of common stock have been reserved for issuance under the 1999
Purchase Plan, plus, commencing on January 1, 2000, annual increases equal to
the lesser of 1,500,000 shares, or 1% of the outstanding common shares on such
date or a lesser amount determined by the Board of Directors. The 1999 Purchase
Plan permits eligible employees to acquire shares of Juniper Networks' common
stock through periodic payroll deductions of up to 10% of base compensation. No
more than 3,000 shares may be purchased by each employee in any twelve month
period, and in no event, may an employee purchase more than $25,000 worth of
stock, determined at the fair market value of the shares at the time such option
is granted, in one calendar year. The Purchase Plan will be implemented in a
series of offering periods, each six months in duration; provided, however, that
the first offering period will be approximately thirteen months in duration,
ending on the last trading day on or before July 31, 2000. The price at which
the common stock may be purchased is 85% of the lesser of the fair market value
of Juniper Networks' common stock on the first day of the applicable offering
period or on the last day of the respective offering period.
STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock-based compensation plans. Because the exercise
price of Juniper Networks' employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense was recognized.
Pro forma information regarding net loss has been determined as if Juniper
Networks had accounted for its employee stock options under the fair value
method prescribed by FAS 123. The resulting effect on pro forma net loss
disclosed is not likely to be representative of the effects on net income/(loss)
on a pro forma basis in future years, due to subsequent years including
additional grants and years of vesting.
The fair value of each option granted through December 31, 1999 was
estimated on the date of grant using the minimum value (before the Company went
public) or the Black-Scholes method. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. The Black-Scholes model
requires the input of highly subjective assumptions including the expected stock
price volatility. Because Juniper Networks' stock-based awards have
characteristics significantly different from those in traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock-based awards. The fair
F-15
<PAGE> 104
value of Juniper Networks' stock-based awards was estimated using the following
weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield.................................... -- -- --
Volatility factor................................. 80% -- --
Risk-free interest rate........................... 5.49% 5.23% 6.20%
Expected life..................................... 3.0 years 4.5 years 4.5 years
Weighted-average fair value of options granted in
the period...................................... $17.97 $0.37 $0.03
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to pro forma expense over the options' vesting period. Pro forma
information follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported..................................... $ (9,034) $(30,971) $(10,363)
Pro forma....................................... (43,488) (31,143) (10,403)
Basic and diluted net loss per share:
As reported..................................... (0.10) (0.80) (0.40)
Pro forma....................................... (0.46) (0.80) (0.40)
</TABLE>
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
The Company has reserved 25,865,521 shares of common stock for future
issuance under its 1996 Stock Option Plan and 1999 Employee Stock Purchase Plan.
6. 401(K) PLAN
Juniper Networks maintains a savings and retirement plan qualified under
Section 401(k) of the Internal Revenue Code of 1986, as amended. All employees
are eligible to participate on their first day of employment with Juniper
Networks. Under the plan, employees may contribute up to 20% of their pretax
salaries per year but not more than the statutory limits. Juniper Networks does
not contribute to the plan.
F-16
<PAGE> 105
7. COMMITMENTS
Juniper Networks leases its facilities under operating leases that expire
in 2012. Rental expense for the years ended December 31, 1999, 1998 and 1997,
were approximately $1,847,000, $937,000 and $529,000, respectively.
Future minimum payments under the noncancellable operating leases consist
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2000........................................................ $ 3,892
2001........................................................ 5,401
2002........................................................ 4,660
2003........................................................ 4,762
2004........................................................ 4,898
Thereafter.................................................. 42,072
-------
Total minimum lease payments........................... $65,685
=======
</TABLE>
Juniper Networks has outstanding purchase order commitments for production
materials of approximately $6,357,000 and $2,442,000 at December 31, 1999 and
1998. Juniper Networks expects the purchase orders to be fulfilled in the first
quarter of 2000.
8. INCOME TAXES
Due to operating losses and the inability to recognize the benefits
therefrom, there is no tax provision for the years ended December 31, 1997. For
the year ended December 31, 1999 the provision for income taxes consists of the
following (in thousands):
<TABLE>
<S> <C>
Current Provision:
Federal................................................... $ 700
State..................................................... 800
Foreign................................................... 925
------
Total current provision..................................... $2,425
======
</TABLE>
The difference between the provision for income taxes and the amount
computed by applying the Federal statutory income tax rate (35 percent) to loss
before taxes is explained below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Tax provision (benefit) at federal statutory rate........ $(2,313) $(10,839) $(3,627)
Federal alternative minimum tax.......................... 700 -- --
State taxes.............................................. 800 2 --
Foreign taxes............................................ 925 -- --
Unbenefitted net operating losses, reserves and
accruals............................................... 2,313 10,839 3,627
------- -------- -------
Total............................................... $ 2,425 $ 2 $ --
======= ======== =======
</TABLE>
F-17
<PAGE> 106
Significant components of Juniper Networks' deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 14,000 $ 13,470
Research credit carryforwards............................ 2,830 1,490
Deferred revenue......................................... 6,200 2,700
Reserves and accruals not currently deductible........... 7,250 500
Other temporary differences.............................. 840 (110)
-------- --------
Total deferred tax assets.................................. 31,120 18,050
Valuation allowance........................................ (31,120) (18,050)
-------- --------
Net deferred tax assets.................................... $ -- $ --
======== ========
</TABLE>
FASB Statement No. 109 provides for the recognition of deferred tax assets
if realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes the Company's historical operating
performance and the reported cumulative net losses in all prior years, Juniper
Networks has provided a full valuation allowance against its net deferred tax
assets.
The net valuation allowance increased by $13,070,000 during the year ended
December 31, 1999 and increased by $12,850,000 during the year ended December
31, 1998, respectively. As of December 31, 1999 approximately $14,500,000 of the
valuation allowance reflected above relates to the tax benefits of stock option
deductions which will be credited to equity when realized.
As of December 31, 1999, Juniper Networks had net operating loss
carryforwards for federal and state tax purposes of approximately $37,000,000
and $32,000,000, respectively. Juniper Networks also had federal and state
research and development tax credit carryforwards of approximately $1,700,000
and $1,700,000, respectively. The federal and state net operating loss
carryforwards will expire at various dates beginning in year 2004, if not
utilized.
Utilization of the net operating losses and tax credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and tax credits
before utilization.
F-18
<PAGE> 107
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 108
APPENDIX -- DESCRIPTION OF GRAPHICS
PROSPECTUS COVER
Juniper Networks, Inc. Logo
PAGE 32
Diagram showing areas of bottleneck when packet/cell switching and fiber optic
technologies are deployed together. The left side of the diagram is labeled
"Electronic Packet/Cell Switching" above pictures of computers. To the right of
the diagram is the text "Electronic Packet/Cell Switching" above pictures of
servers which are labeled "Servers." Between these pictures are links labeled
"Fiber Optic Core" and the text "Bottleneck" at the edges of the Fiber Optic
Core links.
PAGE 34
Diagram showing a typical architecture for a service provider's network
backbone, including the placement of network routes, switches and access
concentration points. Diagram contains the text "Enterprise Routers," "DS3,"
"DS1," "DS0," "OC-12," "OC-3," "ATM," "OC-12 ATM or OC-12 SONET or OC-48 SONET,"
"Core Backbone," "Intra-POP," "Access," "Router," "Switch" and "Access
Concentration Point."
PAGE 37
Diagram showing traffic path between router points labeled "San Francisco" and
"New York." Below the diagram is a legend of icons in the diagram which are
labeled "Shortest path," "Traffic Engineered Path" and "Router."
PAGE 39
Diagram showing the JUNOS Routing Engine with the text "Forwarding Table"
contained in the diagram. Also includes a diagram below this diagram of the
Packet Forwarding Engine containing the text "Forwarding Table," "Internet
Processor," "Memory-based Switch Fabric" and "I/O Card."
PROSPECTUS BACK COVER
Juniper Networks, Inc. Logo
<PAGE> 109
- ---------------------------------------------------------
- ---------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the convertible notes offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................... 1
Risk Factors............................. 6
Note Regarding Forward-Looking
Statements............................. 17
How We Intend to Use the Proceeds from
this Offering.......................... 17
Price Range of Common Stock.............. 18
Dividend Policy.......................... 18
Capitalization........................... 19
Selected Consolidated Financial Data..... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 22
Business................................. 31
Management............................... 50
Certain Transactions..................... 57
Principal Stockholders................... 59
Description of Convertible Notes......... 62
Description of Capital Stock............. 76
Certain United States Federal Income and
Estate Tax Consequences................ 77
Where You May Find Additional
Information............................ 82
Legal Matters............................ 83
Experts.................................. 83
Underwriting............................. 84
Index to Consolidated
Financial Statements................... F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
$850,000,000
JUNIPER NETWORKS, INC.
% Convertible Subordinated Notes due March 15, 2007
------------------
LOGO
------------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
SG COWEN
WARBURG DILLON READ LLC
---------------------------------------------------------
---------------------------------------------------------
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the convertible notes being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 258,060
NASD filing fee............................................. 30,500
Printing and engraving expenses............................. 175,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 75,000
Blue sky fees and expenses.................................. 3,000
Trustee fees................................................ 20,000
Miscellaneous fees and expenses............................. 138,440
----------
Total.................................................. $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by current law.
Article Eighth of our Amended and Restated Certificate of Incorporation
provides for the indemnification of directors and officers to the fullest extent
permissible under Delaware law.
Article VI of our Bylaws provides for the indemnification of officers,
directors and third parties acting on behalf of Juniper Networks if such person
acted in good faith and in a manner reasonably believed to be in and not opposed
to our best interest, and, with respect to any criminal action or proceeding,
the indemnified party had no reason to believe his or her conduct was unlawful.
We have entered into indemnification agreements with our directors and
officers, in addition to indemnification provided for in our Bylaws, and intend
to enter indemnification agreements with any new directors and officers in the
future. The indemnification agreements may require us, among other things, to
indemnify our directors and officers against certain liabilities that may arise
by reason of their status or service as directors and officers (other than
liabilities arising from willful misconduct of culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors and officers insurance, if
available on reasonable terms.
Reference is also made to Section 8 of the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying officers and directors of Juniper Networks
against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, we have issued unregistered securities to a limited number
of persons as described below:
1. On February 6, 1996 we sold 4,050,000 shares of our common stock at
an aggregate purchase price of $8,910.00.
II-1
<PAGE> 111
2. On April 15, 1996 we sold 225,000 shares of our common stock for an
aggregate purchase price of $2,002.50.
3. On June 12, 1996 we sold 450,000 shares of our common stock for an
aggregate purchase price of $20,025.40.
4. From inception through June 30, 1999, we granted stock options and
restricted stock purchase rights to purchase an aggregate of 16,677,997
shares of our common stock at prices ranging from $0.11 to $28.00 per share
to employees, consultants and directors pursuant to our 1996 Stock Plan.
5. From inception through June 30, 1999, we issued and sold an
aggregate of 11,302,289 shares of our common stock to employees,
consultants and directors for an aggregate consideration of $6,492,421
pursuant to exercise of options granted under our 1996 Stock Plan.
6. From inception through June 30, 1999 we issued an aggregate of
111,283 shares of our common stock under our 1996 Stock Plan to consultants
in consideration for past services rendered for an aggregate value of
$74,365.00.
7. On June 11, 1996 we sold 1,743,751 shares of Series A Preferred
Stock for $1.00 per share to the following private investors for an
aggregate purchase price of $1,743,751: Kleiner Perkins Caulfield & Byers
Fund VII, KPBC Information Sciences Zaibatsu Fund II, Kleiner Perkins
Caulfield & Byers VII and WS Investment Company 96A.
8. On June 11, 1996 we sold 6,328,123 shares of common stock for $0.44
per share to a the following private investors for an aggregate purchase
price of $281,249.90: Kleiner Perkins Caulfield & Byers Fund VII, KPCB
Information Sciences Zaibatsu Fund II, Kleiner Perkins Caulfield & Byers
VII and WS Investments 96A.
9. On August 5, 1996 and November 18, 1996 we sold 3,818,017 shares of
Series B Preferred Stock for $2.40 per share to the following private
investors for an aggregate purchase price of $9,163,240.80: Benchmark
Capital Partners, L.P., Benchmark Founders' Fund, L.P., Crosspoint Venture
Partners 1996, Institutional Venture Management VII, L.P., IVP Founders
Fund I, L.P., Institutional Venture Partners VI, L.P., KPCB Informational
Sciences Zaibatsu Fund II, Kleiner Perkins Caulfield & Byers VII, Kriens
1996 Trust U/T/A October 29, 1996, McQuillan Consulting Self-Employed
Profit Sharing Plan, NEA Presidents Fund L.P., NEA Ventures 1996, L.P., New
Enterprise Associates VI, Limited Partnership, O'Brien Family Trust, U/T/A
dated 7/1/92, Larry Sonsini, Stensrud Family Trust U/T/A September 16, 1993
and WS Investment Company 96B.
10. On December 16, 1996, in connection with an equipment lease, we
issued a warrant to purchase 83,333 shares of our Series B Preferred Stock
at an exercise price of $2.40 per share to Venture Lending & Leasing, Inc..
11. On December 30, 1996 we issued 3,958 shares of Series B Preferred
Stock at $2.40 per share to William Gunning and Florin Oprescu as
consideration for past services rendered.
12. On June 18, 1997, in connection with a lease agreement, we issued
a warrant to purchase 10,000 shares of our Series B Preferred Stock at an
exercise price of $2.40 per share to Excite@Home, a lessor of real
property.
13. On July 1, 1997 and September 30, 1997 we sold 5,151,178 shares of
our Series C Preferred Stock at $8.93 per share to the following private
investors for an aggregate purchase price of $46,000,020: 3Com Corporation,
Anschutz Family Investment Company LLC, AT&T Venture Fund II., L.P.,
Crosspoint Venture Partners 1996, Ericsson Business
II-2
<PAGE> 112
Networks AB, Lucent Technologies Inc., Newbridge Networks Corporation,
Nortel Networks Corporation and UUNet Technologies, Inc.
14. On September 30, 1997, in connection with an equipment lease, we
issued a warrant to purchase 23,516 shares of our Series C Preferred Stock
at an exercise price of $8.93 per share to Venture Lending & Leasing, Inc.
15. On March 3, 1999 we issued 130,000 shares of common stock to an
employee at an exercise price of $9.90 per share pursuant to a restricted
stock purchase agreement.
16. On March 16, 1999 we sold 500,000 shares of our Series D Preferred
Stock and 2,580,000 shares of our Series D-1 Preferred Stock both for
$11.03 per share to Ericsson Business Networks AB for an aggregate purchase
price of $33,972,400.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of prospectus included herein.
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions or any public offering, and
we believe that each transaction was exempt from the registration requirements
of the Securities Act by virtue of Section 4(2) thereof, Regulation D
promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients in such transactions represented their intention to acquire the
securities for investment only and not with a view to or for resale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with us, to
information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the
Registrant
3.3*** Amended and Restated Bylaws of the Registrant
4.1*** Form of Registrant's Convertible Note
4.2* Third Amended and Restated Registration Rights Agreement
dated March 9, 1999
4.3*** Form of Indenture by and between the Registrant and Norwest
Bank Minnesota, N.A.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati Professional
Corporation
10.1* Form of Indemnification Agreement entered into by the
Registrant with each of its directors, officers and certain
employees
10.2* Amended and Restated 1996 Stock Plan
10.3* 1999 Employee Stock Purchase Plan
10.4* Sublease between Trident Microsystems, Inc. and the
Registrant dated July 1, 1998
10.5* Sublease between At Home Corporation and the Registrant
dated June 4, 1998
10.6* Change of Control Agreement between Scott Kriens and the
Registrant dated October 1, 1996
</TABLE>
II-3
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.7** Change of Control Agreement between Marcel Gani and the
Registrant dated February 18, 1997
10.8** Agreement for ASIC Design and Purchase of Products between
IBM Microelectronics and the Registrant dated August 26,
1997
10.8.1** Amendment One to Agreement for ASIC Design and Purchase of
Products between IBM Microelectronics and the Registrant
dated January 5, 1998
10.8.2** Amendment Two to Agreement for ASIC Design and Purchase of
Products between IBM Microelectronics and the Registrant
dated March 2, 1998
10.9** Standard Manufacturing Agreement between Solectron
California Corporation, Fine Pitch Technology Inc. and the
Registrant dated June 10, 1998
10.10* Lease between Mathilda Associates LLC and the Registrant
dated June 18, 1999
21.1*** Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
23.3*** Consent of International Data Corporation
23.4*** Consent of Ryan, Hankin, Kent, Inc.
24.1 Power of Attorney (see page II-6)
25.1*** Form T-1 Statement of Eligibility of Trustee for Indenture
under the Trust Indenture Act of 1939.
27.1*** Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference herein to the Registration Statement of Form S-1
and all amendments thereto filed with the Securities and Exchange Commission
on April 21, 1999 and declared effective June 24, 1999.
** Confidential treatment requested and received as to certain portions. These
exhibits are incorporated by reference herein to the Registration Statement
of Form S-1 and all amendments thereto filed with the Securities and
Exchange Commission on April 21, 1999 and declared effective June 24, 1999.
*** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of Juniper Networks is filed as
part of this Report and should be read in conjunction with the Financial
Statements of Juniper Networks.
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- ---------------------------------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification by us for liabilities arising under the
Securities Act may be permitted to our directors, officers and certain employees
pursuant to the provisions referenced in Item 14 of this Registration Statement
or otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore unenforceable. In the event of a claim
for indemnification against such liabilities (other than the payment by us of
expenses incurred or
II-4
<PAGE> 114
paid by a director, officer or other covered employee of Juniper Networks in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or other covered employee in connection with the securities being
registered hereunder, we will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance on Rule 430A and contained in a
form of Prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mountain
View, State of California, on the second day of March, 2000.
JUNIPER NETWORKS, INC.
By: *
------------------------------------
Scott Kriens
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that the persons whose signatures appear
below each severally constitutes and appoints Marcel Gani and Lisa C. Berry, and
each of them, as true and lawful attorneys-in-fact and agents, with full powers
of substitution and resubstitution, for them in their name, place and stead, in
any and all capacities, to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement and to sign any
registration statement (and any post-effective amendments thereto) relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as they might or
could do in person, hereby ratifying and confirming all which said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do, or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive Officer and March 2, 2000
- --------------------------------------------- Chairman of the Board (Principal
Scott Kriens Executive Officer)
* Chief Financial Officer (Principal March 2, 2000
- --------------------------------------------- Financial and Accounting Officer)
Marcel Gani
* Chief Technical Officer and Vice March 2, 2000
- --------------------------------------------- Chairman of Board
Pradeep Sindhu
* Director March 2, 2000
- ---------------------------------------------
William R. Hearst III
* Director March 2, 2000
- ---------------------------------------------
Vinod Khosla
* Director March 2, 2000
- ---------------------------------------------
C. Richard Kramlich
* Director March 2, 2000
- ---------------------------------------------
William Stensrud
* /s/ LISA C. BERRY Attorney-in-Fact March 2, 2000
- ------------------------------------------
Lisa C. Berry
</TABLE>
II-6
<PAGE> 116
JUNIPER NETWORKS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful accounts................ $ -- $632 $ -- $632
Year ended December 31, 1998
Allowance for doubtful accounts................ $ -- $ -- $ -- $ --
Year ended December 31, 1997
Allowance for doubtful accounts................ $ -- $ -- $ -- $ --
</TABLE>
<PAGE> 117
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the
Registrant
3.3*** Amended and Restated Bylaws of the Registrant
4.1*** Form of Registrant's Convertible Note
4.2* Third Amended and Restated Registration Rights Agreement
dated March 9, 1999
4.3** Form of Indenture by and between the Registrant and Norwest
Bank Minnesota, N.A.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati Professional
Corporation
10.1* Form of Indemnification Agreement entered into by the
Registrant with each of its directors, officers and certain
employees
10.2* Amended and Restated 1996 Stock Plan
10.3* 1999 Employee Stock Purchase Plan
10.4* Sublease between Trident Microsystems, Inc. and the
Registrant dated July 1, 1998
10.5* Sublease between At Home Corporation and the Registrant
dated June 4,1998
10.6* Change of Control Agreement between Scott Kriens and the
Registrant dated October 1, 1996
10.7* Change of Control Agreement between Marcel Gani and the
Registrant dated February 18, 1997
10.8** Agreement for ASIC Design and Purchase of Products between
IBM Microelectronics and the Registrant dated August 26,
1997
10.8.1** Amendment One to Agreement for ASIC Design and Purchase of
Products between IBM Microelectronics and the Registrant
dated January 5, 1998
10.8.2** Amendment Two to Agreement for ASIC Design and Purchase of
Products between IBM Microelectronics and the Registrant
dated March 2, 1998
10.9** Standard Manufacturing Agreement between Solectron
California Corporation, Fine Pitch Technology Inc. and the
Registrant dated June 10, 1998
10.10* Lease between Mathilda Associates LLC and the Registrant
dated June 18, 1999
21.1*** Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
23.3*** Consent of International Data Corporation
23.4*** Consent of Ryan, Hankin, Kent, Inc.
24.1 Power of Attorney (see page II-6)
25.1*** Form T-1 Statement of Eligibility of Trustee for Indenture
Under the Trust Indenture Act of 1939.
27.1*** Financial Data Schedule
</TABLE>
<PAGE> 118
- ---------------
* Incorporated by reference herein to the Registration Statement of Form S-1
and all amendments thereto filed with the Securities and Exchange Commission
on April 21, 1999 and declared effective June 24, 1999.
** Confidential treatment requested and received as to certain portions. These
exhibits are incorporated by reference herein to the Registration Statement
of Form S-1 and all amendments thereto filed with the Securities and
Exchange Commission on April 21, 1999 and declared effective June 24, 1999.
*** Previously filed.
<PAGE> 1
Exhibit 1.1
JUNIPER NETWORKS, INC.
% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 15, 2007
UNDERWRITING AGREEMENT
, 2000
Goldman, Sachs & Co.,
Credit Suisse First Boston Corporation
FleetBoston Robertson Stephens Inc.
Dain Rauscher Wessels
SG Cowen Securities Corporation
Warburg Dillon Read LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Juniper Networks, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of $
principal amount of the % Convertible Subordinated Notes, convertible into
common stock $0.00001 par value per share ("Stock") of the Company, specified
above (the "Firm Securities") and, at the election of the Underwriters, up to an
aggregate of $ additional aggregate principal amount (the "Optional Securities")
(the Firm Securities and the Optional Securities which the Underwriters elect to
purchase pursuant to Section 2 hereof are herein collectively called the
"Securities").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-96171) (the
"Initial Registration Statement") in respect of the Securities and shares of the
Stock issuable upon conversion thereof has been filed with the Securities and
Exchange Commission (the "Commission"); the Initial Registration Statement and
any post-effective amendment thereto, each in the form heretofore delivered to
you, and, excluding exhibits thereto, to you for each of the other Underwriters,
have been declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a "Rule
462(b) Registration Statement"), filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), which became effective upon
filing, no other document with respect to the Initial Registration Statement has
heretofore been filed with the
1
<PAGE> 2
Commission; and to the Company's knowledge no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has been
issued and to the Company's knowledge no proceeding for that purpose has been
initiated or threatened by the Commission; any preliminary prospectus included
in the Initial Registration Statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the Act, is
hereinafter called a "Preliminary Prospectus"; the various parts of the Initial
Registration Statement and the Rule 462(b) Registration Statement, if any,
including all exhibits thereto but excluding Form T-1 and including the
information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and
deemed by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective, each as amended at
the time such part of the Initial Registration Statement became effective or
such part of the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant to Rule
424(b) under the Act, is hereinafter called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the Trust Indenture Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date as to
the Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus through the date hereof, there has not been any change in the
authorized capital stock, or long-term debt (except such changes in long-term
debt as do not exceed $500,000) of the Company or any of its subsidiaries, or
any change in the net current assets, stockholders' equity, net sales or net
loss except if such change would not have a Material Adverse Effect (as defined
below), or any development which the Company reasonably expects to
2
<PAGE> 3
cause a Material Adverse Effect (as defined below), otherwise than as set forth
or contemplated in the Prospectus;
(e) The Company and its subsidiaries own no real property. The
Company and its subsidiaries have good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, existing and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
power and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or except where
the failure to be so qualified would not have a material adverse effect on the
business, results of operations or financial condition of the Company and
subsidiaries taken as a whole (a "Material Adverse Effect"); and each subsidiary
of the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform in all material respects to the description of the Securities
contained in the Prospectus; and all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and (except for directors' qualifying shares)
are owned directly or indirectly by the Company, free and clear of all liens,
encumbrances or claims;
(h) The Firm Securities and the Optional Securities have been duly
authorized and, when issued and delivered in accordance with the terms of this
Agreement and when executed and authenticated in accordance with the Indenture
(as defined below), will have been duly executed, authenticated, issued and
delivered and will constitute valid and legally binding obligations of the
Company entitled to the benefits provided by the Indenture dated as of February
15, 2000 (the "Indenture") between the Company and Norwest Bank Minnesota,
National Association, as Trustee (the "Trustee"), under which they are to be
issued, and will be substantially in the form filed as an exhibit to the
Registration Statement; the Indenture has been duly authorized and duly
qualified under the Trust Indenture Act and, when executed and delivered by the
Company and the Trustee, will constitute a valid and legally binding instrument,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles; and
the Securities and the Indenture will conform to the descriptions thereof in the
Prospectus;
(i) The issue and sale of the Securities and the compliance by the
Company with all of the provisions of the Securities, the Indenture and this
Agreement and the consummation of the
3
<PAGE> 4
transactions herein and therein contemplated will not conflict with or result in
a breach or violation of any of the terms or provisions of, or constitute a
default under, any material indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or, to the Company's
knowledge, any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties except where such breach, or violation
could not reasonably be expected to have a Material Adverse Effect; and no
consent, approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the issue and
sale of the Securities or the consummation by the Company of the transactions
contemplated by this Agreement or the Indenture, except the registration under
the Act of the Securities and the shares of Stock issuable upon conversion
thereof, such as have been obtained under the Trust Indenture Act and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the purchase
and distribution of the Securities by the Underwriters;
(j) None of the Company's subsidiaries is a "significant subsidiary"
as that term is defined in Rule 1-02(w) of Regulation S-X ("Significant
Subsidiary"). Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
(k) The statements set forth in the Prospectus under the captions
"Description of Notes" and "Description of Common Stock", insofar as such
statements purport to constitute a summary of the terms of the Securities and
the Stock and under the caption "Certain United States Federal Income and Estate
Tax Consequences" and under the caption "Underwriting", insofar as such
statements purport to summarize the provisions of the laws and documents
referred to therein, are accurate and fairly summarize in all material respects
such terms, laws and documents;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material Adverse
Effect on the current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries; and, to the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(m) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(n) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes; and
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(o) Ernst & Young LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(p) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its subsidiaries has been or
will be affected by the Year 2000 Problem. As a result of such review, the
Company has no reason to believe, and does not believe, that the Year 2000
Problem has had or will have a Material Adverse Effect or has resulted or will
result in any material loss or interference with the Company's business or
operations. The "Year 2000 Problem" as used herein means any significant risk
that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind is not functioning or will not function, in the case of dates or time
periods occurring after December 31, 1999, at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000; and
(q) The Company owns, or possesses adequate rights to use, all
material patents necessary for the conduct of its business as now conducted; to
the Company's knowledge, no valid United States patent is or would be infringed
by the activities of the Company, except as would not have a Material Adverse
Effect; there are no actions, suits or judicial proceedings pending relating to
patents or proprietary information to which the Company is a party or of which
any property of the Company is subject, and, to the knowledge of the Company, no
actions, suits or judicial proceedings are threatened by governmental
authorities or, except as set forth in the Prospectus, others, in each case
except as would not result in any Material Adverse Effect, or, to the Company's
knowledge, in any development which the Company reasonably expects to cause a
Material Adverse Effect. The Company is not aware of any claim by others that
the Company is infringing or otherwise violating the patents or other
intellectual property of others and is not aware of any rights of third parties
to any of the Company's patent applications, licensed patents or licenses which
could affect materially the use thereof by the Company.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price of _____% of the principal amount thereof, plus accrued
interest, if any, from ____________________, 2000 to the First Time of Delivery
(as defined in Section 4 hereof) hereunder, the principal amount of Securities
set forth opposite the name of such Underwriter in Schedule I hereto, and (b) in
the event and to the extent that the Underwriters shall exercise the election to
purchase Optional Securities as provided below, the Company agrees to issue and
sell to each of the Underwriters, and each of the Underwriters agrees, severally
and not jointly, to purchase from the Company, at the same purchase price set
forth in clause (a) of this Section 2, that portion of the aggregate principal
amount of the Optional Securities as to which such election shall have been
exercised (to be adjusted by you so as to eliminate fractions of less than
$1,000) determined by multiplying such aggregate principal amount of Optional
Securities by a fraction, the numerator of which is the maximum aggregate
principal amount of Optional Securities which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the maximum aggregate principal amount of
Optional Securities which all of the Underwriters are entitled to purchase
hereunder.
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The Company hereby grants to the Underwriters the right to purchase at
their election up to $75,000,000 aggregate principal amount of Optional
Securities, at the same purchase price set forth in clause (a) of the first
paragraph of this Section 2, for the sole purpose of covering sales of
securities in excess of the aggregate principal amount of Firm Securities. Any
such election to purchase Optional Securities may be exercised by written notice
from you to the Company, given within a period of 30 calendar days after the
date of this Agreement, setting forth the aggregate principal amount of Optional
Securities to be purchased and the date on which such Optional Securities are to
be delivered, as determined by you but in no event earlier than the First Time
of Delivery (as defined in Section (4) hereof) or, unless you and the Company
otherwise agree in writing, earlier than two or later than ten business days
after the date of such notice.
3. Upon the authorization by you of the release of the Firm Securities,
the several Underwriters propose to offer the Firm Securities for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) The Securities to be purchased by each Underwriter hereunder,
in definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of The Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The time and date of such delivery and
payment shall be, with respect to the Firm Securities, 9:30 a.m., New York City
time, on _____________, 2000, or at such other time and date as you and the
Company may agree upon in writing, and, with respect to the Optional Securities,
9:30 a.m., New York City time, on the date specified by you in the written
notice given by you of the Underwriters' election to purchase the Optional
Securities, or at such other time and date as you and the Company may agree upon
in writing. Such time and date for delivery of the Firm Securities is herein
called the "First Time of Delivery", such time and date for delivery of the
Optional Securities, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery". The Securities to be purchased by each Underwriter
hereunder will be represented by one or more definitive global Securities in
book-entry form which will be deposited by or on behalf of the Company with DTC
or its designated custodian. The Company will deliver the Securities to Goldman,
Sachs & Co., for the account of each Underwriter, against payment by or on
behalf of such Underwriter of the purchase price therefor by wire transfer of
Federal (same-day) funds to the account specified by the Company to Goldman,
Sachs & Co. at least forty-eight hours in advance, by causing DTC to credit the
Securities to the account of Goldman, Sachs & Co. at DTC. The Company will cause
the certificates representing the Securities to be made available to Goldman,
Sachs & Co. for checking at least twenty-four hours prior to the Time of
Delivery (as defined below) at the office of DTC or its designated custodian
(the "Designated Office").
(b) The documents to be delivered at the Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested by the
Underwriters pursuant to Section 7j hereof, will be delivered at the offices of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road,
Palo Alto, California 94304 (the "Closing Location"), and the Securities will be
delivered at the Designated Office, all at the Time of Delivery. A meeting will
be held at the Closing Location at 6:00 p.m., New York City time, on the New
York Business Day next preceding the Time of Delivery, at which meeting
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<PAGE> 7
the final drafts of the documents to be delivered pursuant to the preceding
sentence will be available for review by the parties hereto. For the purposes of
this Section 4, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in New York City are generally authorized or obligated by law or executive order
to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with copies thereof; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Securities or the
shares issuable upon conversion of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities or the shares of Stock issuable
upon conversion of the Securities for offering and sale under the securities
laws of such jurisdictions as you may request and to comply with such laws so as
to permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the Securities,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time prior to the expiration the earlier of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Securities and the shares of Stock issuable upon conversion of the
Securities or the date the distribution of the Securities is completed, and if
at such time any events shall have occurred as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such same period to amend or supplement the
Prospectus in order to comply with the Act or the Trust Indenture Act, to notify
you and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may from time
to time reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
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<PAGE> 8
compliance; and in case any Underwriter is required to deliver a prospectus in
connection with sales of any of the Securities and the shares of Stock issuable
upon conversion of the Securities through the earlier of nine months or the date
the distribution of the Securities is completed, upon your request but at the
expense of such Underwriter, to prepare and deliver to such Underwriter as many
copies as you may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
(e) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder any securities of the Company that are substantially similar to the
Securities or the Stock, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than pursuant to
employee stock option plans and employee stock purchase plans existing on, or
upon the conversion or exchange of convertible or exchangeable securities or the
exercise of warrants outstanding as of, the date of this Agreement), without
your prior written consent or pursuant to an acquisition transaction, provided,
however, that any recipient of securities of the Company pursuant to such an
acquisition transaction agrees to receive and hold such securities subject to
the provisions of a lock-up as described in this section, provided, however,
that ten percent (10%) of such securities shall be released from such lock-up
as described in this section after 60 days;
(f) To furnish to the holders of the Securities as soon as
practicable after the end of each fiscal year an annual report (including a
balance sheet and statements of income, stockholders' equity and cash flows of
the Company and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter ending
after the effective date of the Registration Statement), to make available to
its stockholders consolidated summary financial information of the Company and
its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which the Securities or any class of securities of the Company is
listed;
(h) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act;
and
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(j) To reserve and keep available at all times, free of preemptive
rights, shares of Stock for the purpose of enabling the Company to satisfy any
obligation to issue shares of its Stock upon conversion of the Securities.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Securities and the shares of Stock
issuable upon conversion of the Securities under the Act and all other expenses
in connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or producing any Agreement
among Underwriters, this Agreement, the Indenture, the Blue Sky Memorandum,
closing documents and any other documents in connection with the offering,
purchase, sale and delivery of the Securities; (iii) all expenses in connection
with the qualification of the Securities and the shares of Stock issuable upon
conversion of the Securities for offering and sale under state securities laws
as provided in Section 5(b) hereof, including the fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky survey; (iv) the filing fees incident to any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Securities; (v) the cost of preparing the Securities;
(vi) the fees and expenses of the Trustee and any agent of the Trustee and the
fees and disbursements of counsel for the Trustee in connection with the
Indenture and the Securities; and (vii) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that,
except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, transfer taxes on resale of any of the Securities by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Company herein are, at and as of the Time of Delivery,
true and correct, the condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Brobeck, Phleger & Harrison LLP, counsel for the Underwriters,
shall have furnished to you such written opinion or opinions dated such Time of
Delivery, with respect to the matters covered in paragraphs (i), (ii), (vii),
(viii), (ix), (x), (xiii) and (xv) of subsection (c) below as well as such other
related matters as you may reasonably request, and such counsel shall have
received
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such papers and information as they may reasonably request to enable them to
pass upon such matters;
(c) Wilson Sonsini Goodrich & Rosati, counsel for the Company, shall
have furnished to you their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued and outstanding shares of
capital stock of the Company have been duly and validly authorized and
issued and to such counsel's knowledge are fully paid and
non-assessable; and the shares of Stock initially issuable upon
conversion of the Securities have been duly and validly authorized and
reserved for issuance and, when issued and delivered in accordance
with the provisions of the Securities and the Indenture, will be duly
and validly issued and fully paid and non-assessable, and will conform
to the description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, except where the failure to be so qualified would not
have a Material Adverse Effect (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel
and in respect of matters of fact upon certificates of officers of the
Company, provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions and
certificates);
(iv) Each domestic Significant Subsidiary of the Company has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation; and all
of the issued and outstanding shares of capital stock of each such
subsidiary have been duly and validly authorized and issued, to such
counsel's knowledge are fully paid and non-assessable, and (except for
directors' qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances or claims (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that both you
and they are justified in relying upon such opinions and
certificates); no foreign Significant Subsidiary (as defined in Rule
1-02(w) of Regulation S-X) exists;
(v) Any real property and buildings held under lease by the
Company and its domestic Significant Subsidiaries are held by them
under valid, existing and enforceable leases with such exceptions as
are not material and do not interfere with
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the use made and proposed to be made of such property and buildings by
the Company and its domestic Significant Subsidiaries (in giving the
opinion in this clause, such counsel may state that no examination of
record titles for the purpose of such opinion has been made, and that
they are relying upon a general review of the titles of the Company
and its domestic Significant Subsidiaries, upon opinions of local
counsel and abstracts, reports and policies of title companies
rendered or issued at or subsequent to the time of acquisition of such
property by the Company or its domestic Significant Subsidiaries, upon
opinions of counsel to the lessors of such property and, in respect of
matters of fact, upon certificates of officers of the Company or its
domestic Significant Subsidiaries, provided that such counsel shall
state that they believe that both you and they are justified in
relying upon such opinions, abstracts, reports, policies and
certificates);
(vi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company of
a character required to be disclosed in the Registration Statement or
Prospectus by the Act or the rules and regulations of the Commission
thereunder, other than those described therein;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The Securities being issued at such Time of Delivery have
been duly authorized and when executed and authenticated in accordance
with the Indenture and paid for, issued and delivered to the
Underwriters in accordance with this Agreement will constitute valid
and legally binding obligations of the Company entitled to the
benefits provided by the Indenture; and the Securities and the
Indenture conform to the descriptions thereof in the Prospectus;
(ix) The Indenture has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company, enforceable in accordance with its terms;
and the Indenture has been duly qualified under the Trust Indenture
Act;
(x) The issue and sale of the Securities being issued at such
Time of Delivery and the compliance by the Company with all of the
provisions of the Securities, the Indenture and this Agreement and the
issuance and sale of the Securities pursuant to this Agreement will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any material
agreement of the Company filed as an exhibit to the Registration
Statement pursuant to Item 601 of Regulation S-K, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
properties which would have a Material Adverse Effect;
(xi) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Securities or the
consummation by the Company of the transactions
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contemplated by this Agreement or the Indenture, except such as have
been obtained under the Act and the Trust Indenture Act, such as may
be required under the Act in connection with the shares of Stock
issuable upon conversion of the Securities and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with
the purchase and distribution of the Securities by the Underwriters;
(xii) To such counsel's knowledge, neither the Company nor any of
its domestic Significant Subsidiaries is in violation of its
Certificate of Incorporation or By-laws;
(xiii) The statements set forth in the Prospectus under the
captions "Description of Convertible Notes" and "Description of Common
Stock", insofar as they purport to constitute a summary of the terms
of the Securities and the Stock and under the caption "Certain United
States Federal Income and Estate Tax Consequences," insofar as such
statements purport to summarize the provisions of the laws and
documents referred to therein, are accurate and fairly summarize in
all material respects such terms, laws and documents;
(xiv) The Company is not an "investment company", as such term is
defined in the Investment Company Act; and
(xv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules and financial data therein, as to which such counsel
need express no opinion) comply as to form in all material respects
with the requirements of the Act and the rules and regulations
thereunder. In addition, such counsel's opinion shall also state that
although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to
in the opinion in subsection (xiii) of this Section 7(c), no facts
have come to their attention that have caused them to believe, as of
its effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules and
financial data therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its date,
the Prospectus or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
and financial data therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits to
state a material fact necessary to make the
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statements therein, in the light of the circumstances under which they
were made, not misleading; and they do not know of any amendment to
the Registration Statement required to be filed or of any contracts or
other documents of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or
described in all material respects as required.
(d) Fish & Richardson P.C., patent counsel for the Company, shall
have furnished to you their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company is listed in the records of the United States
Patent and Trademark Office as the holder of record of the patents
listed on a schedule to such opinion (the "Patents") and each of the
applications listed on a schedule to such opinion (the
"Applications"). To the knowledge of such counsel, there are no claims
of third parties to any ownership interest or lien with respect to any
of the Patents or Applications. Such counsel is not aware of any
material defect in form in the preparation or filing of the
Applications on behalf of the Company. To the knowledge of such
counsel, the Applications are being pursued by the Company. To the
knowledge of such counsel, the Company owns all right, title and
interest to the Patents and pending Applications;
(ii) The Company is listed in the records of the appropriate
foreign offices as the sole holder of record of the foreign patents
listed on a schedule to such opinion (the "Foreign Patents") and each
of the applications listed on a schedule to such opinion (the "Foreign
Applications"). Such counsel knows of no claims of third parties to
any ownership interest or lien with respect to the Foreign Patents or
Foreign Applications. Such counsel is not aware of any material defect
of form in the preparation or filing of the Foreign Applications on
behalf of the Company. To the knowledge of such counsel, the Foreign
Applications are being pursued by the Company. To the knowledge of
such counsel, the Company owns all right, title and interest to the
Foreign Patents and pending Foreign Applications;
(iii) Such counsel knows of no reason why the Patents or Foreign
Patents are not valid as issued. Such counsel has no knowledge of any
reason why any patent to be issued as a result of any Application or
Foreign Application would not be valid or would not afford the Company
useful patent protection with respect thereto;
(iv) As to the statements under the captions "Risk Factors-- Our
business will be adversely affected if we are unable to protect our
intellectual property rights from third-party challenges" and
"Business-- Intellectual Property," nothing has come to the attention
of such counsel which caused them to believe that the above-mentioned
sections of the Registration Statement, at the time the Registration
Statement became effective and at all times subsequent thereto up to
and on the Closing Date and on any later date on which the Optional
Securities are to be, as the case may be, the above-mentioned sections
of the Registration Statement, Prospectus and any amendment or
supplement thereto made available and reviewed by such counsel
contained any untrue statement of a material
13
<PAGE> 14
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
Such counsel knows of no material action, suit, claim or
proceeding relating to patents, patent rights or licenses, trademarks
or trademark rights, copyrights, collaborative research, licenses or
royalty arrangements or agreements or trade secrets, know-how or
proprietary techniques, including processes and substances, owned by
or affecting the business or operations of the Company which are
pending or threatened against the Company or any of its officers or
directors.
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery. Ernst & Young LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto");
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock, net current assets, stockholders' equity, net
sales, net loss or long-term debt of the Company or any of its subsidiaries or
any change, or any development involving a prospective change, in or affecting
the general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in the reasonable judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Securities being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on Nasdaq; (ii) a suspension or
material limitation in trading in the Company's securities on Nasdaq; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York or California State authorities; or (iv) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event specified
in this clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities being delivered at such Time of Delivery on the terms and in
the manner contemplated in the Prospectus;
(h) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement;
14
<PAGE> 15
(i) The shares of Stock issuable upon conversion of the Securities
shall have been duly listed for quotation on the Nasdaq; and
(j) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (f) of this Section
and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to
15
<PAGE> 16
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Securities. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
16
<PAGE> 17
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Securities which it has agreed to purchase hereunder at the Time of Delivery,
you may in your discretion arrange for you or another party or other parties to
purchase such Securities on the terms contained herein. If within thirty-six
hours after such default by any Underwriter you do not arrange for the purchase
of such Securities, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
reasonably satisfactory to you to purchase such Securities on such terms. In the
event that, within the respective prescribed periods, you notify the Company
that you have so arranged for the purchase of such Securities, or the Company
notifies you that it has so arranged for the purchase of such Securities, you or
the Company shall have the right to postpone such Time of Delivery for a period
of not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Securities.
(b) If, after giving effect to any arrangements for the purchase of
the Securities of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate principal amount of
such Securities which remains unpurchased does not exceed one-eleventh of the
aggregate principal amount of all the Securities to be purchased at such Time of
Delivery, then the Company shall have the right to require each non-defaulting
Underwriter to purchase the principal amount of Securities which such
Underwriter agreed to purchase hereunder and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the
principal amount of Securities which such Underwriter agreed to purchase
hereunder at such Time of Delivery) of the Securities of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Securities of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate principal amount of
Securities which remains unpurchased exceeds one-eleventh of the aggregate
principal amount of all the Securities to be purchased at such Time of Delivery,
or if the
17
<PAGE> 18
Company shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Securities of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligation of the Underwriters to purchase and of the
Company to sell the Optional Securities) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company, except
for the expenses to be borne by the Company and the Underwriters as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any
Securities are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Securities, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives at in care of Goldman,
Sachs & Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention:
Registration Department; and if to the Company shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: Secretary; provided, however, that any
notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or
sent by mail, telex or facsimile transmission to such Underwriter at its address
set forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
18
<PAGE> 19
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" (unless specified as a New York Business Day as defined in
Section 4(b)) shall mean any day when the Commission's office in Washington,
D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
19
<PAGE> 20
If the foregoing is in accordance with your understanding, please sign and
return to us one for the Company and each of the Representatives plus one for
each counsel counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
Juniper Networks, Inc.
By:
--------------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Credit Suisse First Boston Corporation
FleetBoston Robertson Stephens Inc.
Dain Rauscher Wessels
SG Cowen Securities Corporation
Warburg Dillon Read LLC
By:
----------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
20
<PAGE> 21
SCHEDULE I
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
AMOUNT OF
OPTIONAL
SECURITIES TO
BE PURCHASED
IF
PRINCIPAL AMOUNT MAXIMUM OPTION
OF SECURITIES
TO BE PURCHASED EXERCISED
---------------- --------------
UNDERWRITER
-----------
<S> <C> <C>
Goldman, Sachs & Co...................................................... $ $
Credit Suisse First Boston Corporation...................................
FleetBoston Robertson Stephens Inc.......................................
Dain Rauscher Wessels....................................................
SG Cowen Securities Corporation..........................................
Warburg Dillon Read LLC..................................................
---------------- --------------
================ ==============
---------------- --------------
Total.................................................. $ $
================ ==============
</TABLE>
Schedule I-1
<PAGE> 22
ANNEX I
FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
FOR REGISTRATION STATEMENTS ON FORM S-1
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been separately furnished to the
Representatives;
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
nothing came to their attention that cause them to believe that the
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in the
audited consolidated financial statements for such five fiscal years which
were included or incorporated by reference in the Company's Annual Reports
on Form 10-K for such fiscal years;
ANNEX I-1
<PAGE> 23
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited condensed
financial statements referred to in clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
ANNEX I-2
<PAGE> 24
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated
long-term debt of the Company and its subsidiaries, or any decreases
in consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
ANNEX I-3
<PAGE> 1
Exhibit 5.1
March 2, 2000
Juniper Networks, Inc.
385 Ravendale Drive
Mountain View, CA 94043
RE: JUNIPER NETWORKS, INC. -
REGISTRATION STATEMENT ON FORM S-1
SEC FILE NO. 333-96171
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by Juniper
Networks, Inc. (the "Company") with the Securities and Exchange Commission (the
"Commission") on February 4, 2000, as amended by Amendment No. 1 thereto filed
with the Commission on February 14, 2000, Amendment No. 2 thereto filed with the
Commission on February 23, 2000 and Amendment No. 3 thereto filed with the
Commission on March 2, 2000 (such registration statement, as so amended, herein
the "Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of up $850,000,000 in aggregate
principal amount of the Company's Convertible Subordinated Notes due March 15,
2007 (including up to $127,500,000 in aggregate principal amount subject to an
over-allotment option to be granted to the underwriters) (the "Notes") and the
Company's common stock, $0.00001 par value, into which the Notes may be
converted (the "Common Stock") pursuant to the terms of the Notes and the
indenture in substantially the form filed as an exhibit to the Registration
Statement (the "Indenture"), to be entered into by the Company and Norwest Bank
Minnesota, National Association, as trustee thereunder (the "Trustee"). The
Notes are to be issued pursuant to the Indenture and sold pursuant to an
underwriting agreement (the "Underwriting Agreement") in substantially in the
form filed as an exhibit to the Registration Statement.
We have examined instruments, documents and records that we deemed relevant
and necessary for the basis of our opinion hereinafter expressed. In such
examination, we have assumed the following: (a) the authenticity of original
documents and the genuineness of all signatures; (b) the conformity to the
originals of all documents submitted to us as copies; and (c) the truth,
accuracy and completeness of the information, representations and warranties
contained in the records, documents, instruments and certificates we have
reviewed.
<PAGE> 2
Juniper Networks, Inc.
March 2, 2000
Page 2
Based on such examination, we are of the opinion that:
1. When the Indenture and the issuance of the Notes has been duly
authorized by appropriate corporate action of the Company and the Notes, in the
form filed as an exhibit to the Registration Statement have been appropriately
completed and duly executed, authenticated and delivered in accordance with the
Indenture and sold pursuant to the Underwriting Agreement and as described in
the Registration Statement, assuming that the Indenture has been appropriately
completed and duly authorized, executed and delivered by the Company and the
Trustee, the Notes will constitute valid and legally binding obligations of the
Company.
2. When the issuance of the Common Stock has been duly authorized by
appropriate corporate action of the Company and the Common Stock, has been duly
issued, sold and delivered in accordance with the Indenture and as described in
the Registration Statement, the Common Stock will be legally and validly
issued, fully paid and nonassessable.
Our opinions are qualified as to:
(a) limitations imposed by bankruptcy, insolvency, reorganization,
liquidation, conservatorship, readjustment of debt, fraudulent conveyance,
moratorium or other similar laws relating to or affecting the rights of
creditors generally;
(b) rights to indemnification and contribution, which may be limited
by applicable law or equitable principles; and
(c) general principles of equity, including without limitation
concepts of materiality, reasonableness, good faith and fair dealing, and the
possible unavailability of specific performance or injunctive relief, and other
equitable remedies (regardless of whether any remedy is considered in a
proceeding at law or in equity).
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name whether it
appears in the Registration Statement, the prospectus included therein, or in
any amendment or supplement thereto. In giving such consent, we do not believe
that we are "experts" within the meaning of such terms as used in the Act or the
rules and regulations of the Securities and Exchange Commission issued
thereunder with respect to any part of the Registration Statement, including
this opinion as an exhibit or otherwise. We disclaim any obligation to, and will
not, update this opinion for events occurring or coming to our attention after
the date hereof.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI, P.C.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports dated
January 17, 2000, in Amendment No. 3 to the Registration Statement (Form S-1 No.
333-96171) and related Prospectus of Juniper Networks, Inc. for the registration
of its common stock issuable under the conversion of convertible notes.
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Palo Alto, California
February 23, 2000
