UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark one)
| [X] | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended September 30, 2003 |
OR
| [ ] | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the transition period from __________ to __________ |
Commission file number 0-26339
JUNIPER NETWORKS, INC.
Delaware
77-0422528
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
1194 North Mathilda Avenue
Sunnyvale, California 94089
(408) 745-2000
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
There were approximately 389,238,000 shares of the Company’s Common Stock, par value $0.00001, outstanding as of October 31, 2003.
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Juniper Networks, Inc.
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
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| (unaudited) | (a) | |||||||||
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ | 457,510 | $ | 194,435 | ||||||
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Short-term investments
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309,143 | 384,036 | ||||||||
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Accounts receivable, net
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48,526 | 78,501 | ||||||||
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Prepaid expenses and other current assets
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24,409 | 23,957 | ||||||||
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Total current assets
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839,588 | 680,929 | ||||||||
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Property and equipment, net
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243,526 | 266,962 | ||||||||
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Long-term investments
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557,346 | 583,664 | ||||||||
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Restricted cash
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24,983 | — | ||||||||
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Goodwill
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983,397 | 987,661 | ||||||||
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Purchased intangible assets, net and other long-term assets
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79,076 | 95,453 | ||||||||
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Total assets
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$ | 2,727,916 | $ | 2,614,669 | ||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$ | 54,057 | $ | 51,747 | ||||||
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Accrued warranty
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32,598 | 32,358 | ||||||||
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Other accrued liabilities
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120,723 | 111,773 | ||||||||
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Deferred revenue
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53,779 | 46,146 | ||||||||
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Total current liabilities
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261,157 | 242,024 | ||||||||
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Convertible subordinated notes
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542,076 | 942,114 | ||||||||
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Convertible senior notes
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400,000 | — | ||||||||
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Commitments and contingencies
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Stockholders’ equity:
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Common stock and additional-paid-in-capital
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1,532,209 | 1,461,910 | ||||||||
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Deferred stock compensation
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(1,849 | ) | (11,113 | ) | ||||||
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Accumulated other comprehensive income
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7,175 | 17,052 | ||||||||
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Accumulated deficit
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(12,852 | ) | (37,318 | ) | ||||||
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Total stockholders’ equity
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1,524,683 | 1,430,531 | ||||||||
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Total liabilities and stockholders’ equity
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$ | 2,727,916 | $ | 2,614,669 | ||||||
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(a) The balance sheet at December 31, 2002 has been derived from the audited consolidated financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.
See accompanying Notes to the Condensed Consolidated Financial Statements
1
Juniper Networks, Inc.
See accompanying Notes to the Condensed Consolidated Financial Statements
2
Juniper Networks, Inc.
See accompanying Notes to the Condensed Consolidated Financial Statements
3
Juniper Networks, Inc.
Note 1. Description of Business
Juniper Networks, Inc. (“Juniper Networks” or the “Company”) was founded
in 1996 to develop and sell products that would be able to meet the stringent
demands of service providers. Juniper Networks is a leading provider of
network infrastructure solutions that transform the business of networking.
The Company’s products enable customers to convert their business models from
one of providing a commodity service to that of providing more differentiation
and value to end users as well as increased reliability and security, thereby
making the network a more valuable asset. The Company sells and markets its
products through its direct sales organization and value-added resellers.
In July 2002, the Company completed its acquisition of Unisphere Networks,
Inc. (“Unisphere”), a subsidiary of Siemens Corporation, which itself is a
subsidiary of Siemens AG (“Siemens”). Unisphere developed, manufactured and
sold data networking equipment optimized for applications at the edge of
service provider networks. Although the Company took a one-time restructuring
charge in connection with the acquisition of Unisphere to eliminate certain
duplicative activities and to rationalize costs consistent with its existing
business model, the acquisition enabled the Company to add a complementary
product to its existing product line without reorganizing its existing
organization or modifying its cost and business structure. In accordance with
Statement of Financial Accounting Standard (“SFAS”) No. 141, “Business
Combinations,” the Company included in its results of operations for 2002, the
results of Unisphere from July 1, 2002. Therefore, results for the nine months
ended September 30, 2002 only include the results of Unisphere for the three
months ended September 30, 2002, whereas results for the nine months ended September 30,
2003 include the results of the combined companies for the entire nine-month
period.
Note 2. Summary of Significant Accounting Policies
Stock-Based Compensation
The Company’s stock option plans are accounted for under the intrinsic
value recognition and measurement principles of APB Opinion No. 25, “Accounting
for Stock Issued to Employees,” and related interpretations. As the exercise
price of all options granted under these plans was equal to the market price of
the underlying common stock on the grant date, no stock-based employee
compensation cost, other than acquisition-related compensation, is recognized
in net income (loss). The following table illustrates the effect on net income
(loss) and earnings (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation,” to employee stock benefits, including shares issued under the
stock option plans and under the Company’s Stock Purchase Plan, collectively
called “options.” Pro forma information, net of the tax effect, follows (in
thousands, except per share amounts):
4
Guarantees
Financial Accounting Standards Board Interpretation No. 45, “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others” (“FIN 45”), was issued in November 2002.
FIN 45 requires that the Company recognize the fair value for guarantee and
indemnification arrangements issued or modified by the Company after December
31, 2002 if these arrangements are within the scope of FIN 45. In addition,
the Company must continue to monitor the conditions that are subject to the
guarantees and indemnifications, as required under previously existing
generally accepted accounting principles, in order to identify if a loss has
occurred. If the Company determines it is probable that a loss has occurred
then any such estimable loss would be recognized under those guarantees and
indemnifications. The Company has entered into agreements with some of its
customers that contain indemnification provisions relating to potential
situations where claims could be alleged that the Company’s products infringes
the intellectual property rights of a third party. Other examples of the
Company’s guarantees or indemnification arrangements include guarantees of
product performance and standby letters of credits for certain lease
facilities. The Company has not recorded a liability related to these
indemnification and guarantee provisions. The Company implemented the
provisions of FIN 45 as of January 1, 2003 and it has not had any significant
impact on the Company’s financial position, results of operations or cash
flows. In addition, the Company does not believe that FIN 45 will have a
material impact on its financial position, results of operations or cash flows
in the future.
Revenue Recognition
In November 2002, the Emerging Issues Task Force reached a consensus on
Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF
00-21”). EITF 00-21 addresses certain aspects of the accounting by a vendor
for arrangements under which the vendor will perform multiple revenue
generating activities. The Company adopted EITF 00-21 for transactions entered
into after July 1, 2003. The adoption did not have a material effect on the
Company’s consolidated financial position, results of operations or cash flows.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of
Variable Interest Entities” (“FIN 46”), an interpretation of Accounting
Research Bulletin (ARB) No. 51, “Consolidated Financial Statements.” FIN 46
establishes accounting guidance for consolidation of a variable interest entity
(“VIE”), formerly referred to as special purpose entities. FIN 46 applies to
any business enterprise, both public and private, that has a controlling
interest, contractual relationship or other business relationship with a VIE.
FIN 46 provides guidance for determining when an entity (the “Primary
Beneficiary”) should consolidate another entity, a VIE, that functions to
support the activities of the Primary Beneficiary. The consolidation
requirements of FIN 46 applied immediately to VIEs created after January 31,
2003; however, the FASB has deferred the effective date for VIEs created before
February 1, 2003 to the period ended December 31, 2003, for calendar year
companies. Early adoption of the provisions of FIN 46 prior to the deferred
effective date was permitted. The Company currently has no contractual
relationship or other business relationship with a VIE in which it is a Primary
Beneficiary and, therefore, the adoption did not affect its
consolidated financial position, results of operations or cash flows.
Note 3. Long-Term Debt
In June 2003, Juniper Networks received $392.8 million of net proceeds
from an offering of $400.0 million aggregate principal amount of Zero Coupon
Convertible Senior Notes due June 15, 2008 (the “Senior Notes”). The Senior
Notes are senior unsecured obligations, rank on parity in right of payment with
all of the Company’s existing and future senior unsecured debt, and rank senior
to all of the Company’s existing and future debt that expressly provides that
it is subordinated to the notes, including
5
the 4.75% Convertible Subordinated Notes due March 15, 2007 (the
“Subordinated Notes”). The Senior Notes are convertible into shares of Juniper
Networks common stock, subject to certain conditions, at any time prior to
maturity or their prior repurchase by Juniper Networks. The conversion rate is
49.6512 shares per each $1,000 principal amount of convertible notes, subject
to adjustment in certain circumstances.
During the nine months ended September 30, 2003, the Company paid
approximately $381.2 million to retire a portion of the Subordinated Notes.
This partial retirement resulted in a gain of $14.1 million in the nine months
ended September 30, 2003 for the difference between the carrying value of the
Subordinated Notes at the time of their retirement, including unamortized debt
issuance costs, and the amount paid to extinguish such Subordinated Notes. The
Company may retire additional portions of the Subordinated Notes in the future.
Note 4. Restructuring Expenses
2003
In the third quarter of 2003, the Company announced that it is no longer
developing its G-series CMTS products and recorded a one-time charge of
approximately $14.0 million that comprised of workforce reduction costs,
non-inventory asset impairment, vacating facilities costs, the costs associated
with termination of contracts and other related costs. The Company’s Board of
Directors approved the discontinuance and related restructuring charge and
expects that the plan will facilitate the focus on core competencies and
reducing cost structure. A charge of $5.6 million associated with the
workforce reduction related primarily to the termination of 76 employees that
were primarily engineers located in the Americas and Europe regions. The
Company expects to pay the remaining balance of the severance accrual by the
end of the first quarter of 2004. A non-inventory asset impairment of $2.9
million was primarily for long-lived assets that were no longer needed.
Facility charges of $3.5 million consisted primarily of the cost of vacating
facilities that were dedicated to the G-series CMTS products and the impairment
cost of certain leasehold improvements. The net present value of the facility
charge was calculated using the Company’s risk-adjusted borrowing rate.
Amounts related to the net facility charge will be paid over the respective
lease terms through July 2008. The difference between the actual future rent
payments and the net present value will be recorded as operating expenses when
incurred. Contractual commitments and other charges consist primarily of $0.9
million of excess material charges from the Company’s contract manufacturers
and suppliers for on-hand and on-order material related to the G-series CMTS
products and $0.9 million of costs to satisfy end-of-life commitments in
certain customer contracts. All of these costs were accounted for in
accordance with SFAS 146, “Accounting for Costs Associated with Exit or
Disposal Activities,” and have been included as a charge to the results of
operations in the quarter ended September 30, 2003. Changes to the estimates
of executing the currently approved plans of restructuring will be reflected in
results of operations. As of September 30, 2003, the balance of the accrued
restructuring charge consisted of the following (in thousands):
2002
During the third quarter of 2002, in connection with the acquisition of
Unisphere, Juniper Networks’ Board of Directors approved and management
initiated plans to restructure operations to eliminate certain duplicative
activities, focus on strategic product and customer bases, reduce costs and
better align
6
product and operating expenses with then existing general economic
conditions. Consequently, Juniper Networks recorded restructuring expenses of
approximately $14.9 million, net of a $2.6 million adjustment made during the
fourth quarter of 2002 for costs that were not going to be incurred due to a
change in estimate, associated primarily with workforce related costs, costs of
vacating duplicative facilities, contract termination costs, non-inventory
asset impairment charges and other associated costs. These costs were included
as a charge to the results of operations for the year ended December 31, 2002.
As of September 30, 2003, the balance of the accrued restructuring charge
consisted of the following (in thousands):
Amounts related to the net lease expense due to the consolidation of
facilities will be paid over the respective lease terms through 2009. The
Company’s estimated costs to exit these facilities are based on available
commercial rates for potential subleases. The actual loss incurred in exiting
these facilities could be different from the Company’s estimates.
Juniper Networks also recorded approximately $14.4 million of similar
restructuring costs in connection with restructuring the Unisphere
organization, net of a $0.4 million reduction to goodwill in the quarter ended
June 30, 2003 for certain estimated acquisition costs that were not incurred.
These costs were recognized as a liability assumed in the purchase business
combination and included in the allocation of the cost to acquire Unisphere.
As of September 30, 2003, there was approximately
$6.9 million of such costs remaining to be
paid, primarily for facilities, which will be paid over the respective lease
terms through 2009, and professional services.
Note 5. Warranties
Juniper Networks generally offers a one-year warranty on all of its
hardware products as well as a 90-day warranty on the media that contains the
software embedded in the products. The warranty generally includes parts,
labor and 24-hour service center support. The specific terms and conditions of
those warranties may vary depending on the products sold and the locations into
which they are sold. The Company estimates the costs that may be incurred
under its warranty obligations and records a liability in the amount of such
costs at the time revenue is recognized. Factors that affect the Company’s
warranty liability include the number of installed units, historical and
anticipated rates of warranty claims and cost per claim. The Company
periodically assesses the adequacy of its recorded warranty liabilities and
adjusts the amounts as necessary.
Changes
in the Company’s warranty reserve during the nine months ended
September 30, 2003 are as follows
(in thousands):
Note 6. Acquisitions
In July 2002, Juniper Networks completed its acquisition of 100% of
Unisphere, a subsidiary of Siemens, which also was a significant customer
during the three and nine months ended September 30, 2003. Total consideration
for the acquisition was $914.5 million, which consisted of $375.0 million of
cash, the issuance of 36.5 million shares of Juniper Networks’ common stock
with a fair value of approximately $359.9 million, the assumption of all of the
outstanding stock options of Unisphere with a
7
fair value of approximately
$151.2 million, direct costs associated with the acquisition of approximately
$13.6 million and an estimated liability of approximately $14.8 million,
consisting primarily of workforce reduction charges, including severance and
other employee benefits, costs of vacating duplicate facilities and the cost of
exiting certain contractual obligations.
In the quarter ended June 30, 2003, the Company reversed approximately
$4.3 million to goodwill, primarily related to liabilities that were accrued at
the time of the acquisition and certain acquisition costs that were not
realized. The total purchase price has been allocated as follows (in
thousands):
Note 7. Goodwill and Purchased Intangible Assets
The following table presents details of the Company’s total purchased
intangibles assets (in thousands):
Amortization expense of purchased intangible assets was included in
operating expenses in the amounts of $5.3 million and $15.9 million for the
three and nine months ended September 30, 2003, respectively, and $5.3 million
and $8.6 million for the three and nine months ended September 30, 2002,
respectively.
The estimated future amortization expense of purchased intangible assets
for the next five years is as follows (in thousands):
8
The changes in the carrying amount of goodwill for the nine months ended
September 30, 2003 are as follows (in thousands):
The Company is required to perform goodwill impairment tests on an annual
basis and between annual tests in certain circumstances. The Company performed
an impairment analysis during November 2002 and determined that there was no
impairment of the goodwill at that time. The Company considered the G-series
CMTS product discontinuance as an impairment indicator and, accordingly,
reviewed goodwill to determine if there was any impairment. Since the Company
has one reportable segment, the Company compared its estimated fair value, as
measured by it’s market capitalization, to its net assets as of July 31, 2003
and since the fair value was substantially greater than the net assets, the
Company concluded that there was no impairment of goodwill at the time of the
CMTS product discontinuance.
Note 8. Equity Investments
As of September 30, 2003 and December 31, 2002, the carrying values of the
Company’s minority equity investments in privately held companies were $5.7
million and $5.0 million, respectively. During the nine months ended September
30, 2003, the Company made additional investments of approximately $0.9 million
in certain privately held companies. During the quarter ended March 31, 2003,
the Company sold its entire position in one privately held company for
approximately $0.3 million, which did not result in a material gain or loss.
During the nine months ended September 30, 2002, the Company wrote down certain
investments for declines in value determined to be other than temporary by
$50.5 million. No such write-downs have been made during the nine months ended
September 30, 2003.
In addition to the equity investments in privately held companies, the
Company held certain marketable equity securities classified as
available-for-sale. During the quarter ended March 31, 2003, the Company sold
some of these investments, which had a cost basis of approximately $2.1
million, and recognized a gain of approximately $4.4 million. During the
quarter ended June 30, 2003, the Company sold its remaining marketable equity
securities classified as available-for-sale, which had a cost basis of $2.2
million, and recognized a gain of approximately $4.4 million.
Note 9. Restricted Cash
In the quarter ended June 30, 2003, the Company established a trust in the
amount of $25.0 million to secure its indemnification obligations to certain
directors and officers arising from their activities as such in the event that
the Company does not provide or is financially incapable of providing
indemnification. The Company can terminate the trust at the five-year
anniversary of establishment and each five-year anniversary thereafter. Upon
termination, the Company has the right to any amounts remaining in the trust.
The trust corpus is restricted cash and is reported as a long-term asset. The
$25.0 million is invested per the Company’s investment policy and the
investments are classified as available-for-sale; therefore, any changes in
valuation are reflected on the balance sheet.
Note 10. Segment Information
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The Company operates as one
operating segment. The following table shows net revenues by geographic region
(in thousands):
9
The Americas region includes net revenues from countries other than the
United States of approximately $11.0 million and $7.8 million for the three
months ended September 30, 2003 and 2002, respectively, and approximately $34.4
million and $17.7 million for the nine months ended September 30, 2003 and
2002, respectively.
During the three months ended September 30, 2003 and 2002 and the nine
months ended September 30, 2003, Ericsson Telekom AB (“Ericsson”) and Siemens
each accounted for greater than 10% of net revenues. Ericsson was the only
customer that accounted for greater than 10% of revenue for the nine months
ended September 30, 2002.
Note 11. Net Income (Loss) Per Share
The following table presents the calculation of basic and diluted net
income (loss) per share (in thousands, except per share amounts):
For the three and nine months ended September 30, 2002, Juniper Networks
excluded approximately 11.4 million and 12.0 million common stock equivalents
from the calculation of diluted loss per share because such securities were
antidilutive in that period due to the net loss. Employee stock options to
purchase approximately 9.8 million shares and 60.1 million shares in the three
months ended September 30, 2003 and 2002, respectively, and approximately 11.0
million shares and 24.5 million shares in the nine months ended September 30,
2003 and 2002, respectively, were outstanding, but were not included in the
computation of diluted earnings per share because the exercise price of the
stock options was greater than the average share price of the common shares
and, therefore, the effect would have been
antidilutive. For each of the periods presented, the Subordinated Notes
were also excluded from the calculation of diluted loss per share because the
effect of the assumed conversion of the notes would have been antidilutive. In
addition, for the three and nine months ended September 30, 2003, the Senior
Notes were excluded from the calculation of the diluted loss per share because
the Senior Notes were not convertible by their terms.
10
Note 12. Other Comprehensive Income (Loss)
Comprehensive income (loss) is as follows (in thousands):
Note 13. Legal Proceedings
The Company is subject to legal claims and litigation arising in the
ordinary course of business, including the matters described below. The
outcome of these matters is currently not determinable. However, the Company
does not expect that such legal claims and litigation will ultimately have a
material adverse effect on the Company’s consolidated financial position or
results of operations.
IPO Allocation Case
In December 2001, a class action complaint was filed in the United States
District Court for the Southern District of New York against the Goldman Sachs
Group, Inc., Credit Suisse First Boston Corporation, FleetBoston Robertson
Stephens, Inc., Royal Bank of Canada (Dain Rauscher Wessels), SG Cowen
Securities Corporation, UBS Warburg LLC (Warburg Dillon Read LLC), Chase
(Hambrecht & Quist LLC), J.P. Morgan Chase & Co., Lehman Brothers, Inc.,
Salomon Smith Barney, Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated
(collectively, the “Underwriters”), the Company and certain of the Company’s
officers. This action was brought on behalf of purchasers of the Company’s
common stock in the Company’s initial public offering in June 1999 and its
secondary offering in September 1999.
Specifically, among other things, this complaint alleged that the
prospectus pursuant to which shares of common stock were sold in the Company’s
initial public offering and its subsequent secondary offering contained certain
false and misleading statements or omissions regarding the practices of the
Underwriters with respect to their allocation of shares of common stock in
these offerings and their receipt of commissions from customers related to such
allocations. Various plaintiffs have filed actions asserting similar
allegations concerning the initial public offerings of approximately 300 other
issuers. These various cases pending in the Southern District of New York have
been coordinated for pretrial proceedings as
In re Initial Public Offering
Securities Litigation,
21 MC 92. In April 2002, plaintiffs filed a
consolidated amended complaint in the action against the Company, alleging
violations of the Securities Act of 1933 and the Securities Exchange Act of
1934. Defendants in the coordinated proceeding filed motions to dismiss. In
October 2002, the Company’s officers were dismissed from the case without
prejudice pursuant to a stipulation. On February 19, 2003, the Court granted
in part and denied in part the motion to dismiss, but declined to dismiss the
claims against the Company. A proposal has been made for the settlement and
release of claims against the issuer defendants, including the Company. The
settlement is subject to a number of conditions, including approval of the
proposed settling parties and the court. If the settlement does not occur, and
litigation against the Company continues, the Company believes it has
meritorious defenses and intends to defend the case vigorously.
Federal Securities Class Action Suit
During the quarter ended March 31, 2002, a number of essentially identical
shareholder class action lawsuits were filed in the United States District
Court for the Northern District of California against the Company and certain
of its officers and former officers purportedly on behalf of those stockholders
who purchased the Company’s publicly traded securities between April 12, 2001
and June 7, 2001. In April 2002, the judge granted the defendants’ motion to
consolidate all of these actions into one; in May 2002,
11
the court appointed the
lead plaintiffs and approved their selection of lead counsel and an amended
complaint was filed in July 2002. The plaintiffs allege that the defendants
made false and misleading statements, assert claims for violations of the
federal securities laws and seek unspecified compensatory damages and other
relief. In September 2002, the defendants moved to dismiss the amended
complaint. In March 2003, the judge granted defendants motion to dismiss with
leave to amend. The plaintiffs filed their amended complaint in April 2003 and
the defendants moved to dismiss the amended complaint in May 2003. The hearing
on defendants’ motion to dismiss was held on September 12, 2003. The judge has
not yet ruled on the motion. There has been no discovery to date and no trial
is scheduled. The Company continues to believe the claims are without merit
and intends to defend the action vigorously.
State Derivative Claim Based on the Federal Securities Class Action Suit
In August 2002, a consolidated amended shareholder derivative complaint
purportedly filed on behalf of the Company, captioned
In re Juniper Networks,
Inc. Derivative Litigation,
Civil Action No. CV 807146, was filed in the
Superior Court of the State of California, County of Santa Clara. The
complaint alleges that certain of the Company’s officers and directors breached
their fiduciary duties to the Company by engaging in alleged wrongful conduct
including conduct complained of in the securities litigation described above.
The complaint also asserts claims against a Juniper Networks investor. The
Company is named solely as a nominal defendant against whom the plaintiff seeks
no recovery. In October 2002, the Company as a nominal defendant and the
individual defendants filed demurrers to the consolidated amended shareholder
derivative complaint. In March 2003, the judge sustained defendants’ demurrers
with leave to amend. The plaintiffs lodged their amended complaint in May 2003
and the defendants demurred to the amended complaint and moved to stay the
consolidated action pending resolution of the federal action. On August 25,
2003, the Court sustained defendants’ demurrer with leave to amend and denied
the motion to stay without prejudice. Plaintiffs’ third amended complaint is
due December 16, 2003. There has been limited discovery to date and no trial
is scheduled. The Company continues to believe the claims are without merit
and intends to defend the action vigorously.
Note 14. Subsequent Events
During October 2003, the Company called for the redemption on November 26,
2003, of $400.0 million principal amount of its 4.75% Convertible Subordinated
Notes due March 15, 2007 (the “Subordinated Notes”). Prior to November 26,
2003, holders may convert their Subordinated Notes called for redemption into
shares of Juniper Networks common stock at a price of approximately $163.9559
per share, or 6.0992 shares of Juniper Networks common stock per $1,000
principal amount of the Subordinated Notes. Cash will be paid in lieu of
fractional shares. Alternatively, if holders do not elect to convert their
Subordinated Notes, they will be redeemed on November 26, 2003. Upon
redemption, holders will receive a total of $1,036.508 per $1,000 principal
amount of the Subordinated Notes (consisting of the redemption price of
$1,027.14 per $1,000 principal amount of the Subordinated Notes, plus accrued
and unpaid interest thereon from September 15, 2003 up to but not including
November 26, 2003, of $9.368 per $1,000 principal of the Subordinated Notes).
Any of the Subordinated Notes called for redemption and not converted on or
before November 25, 2003, will be redeemed automatically on November 26, 2003,
and no further interest will accrue.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Report on Form 10-Q (the “Report”), including the “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”,
contains forward-looking statements regarding future events and the future
results of Juniper Networks that are based on current expectations, estimates,
forecasts, and projections about the industry in which Juniper Networks
operates and the beliefs and assumptions of the management of Juniper Networks.
Words such as ‘expects,’ ‘anticipates,’ ‘targets,’ ‘goals,’ ‘projects,’
‘intends,’ ‘plans,’ ‘believes,’ ‘seeks,’ ‘estimates,’ variations of such words,
and similar expressions are intended to identify such forward-looking
statements. These forward-looking statements are only predictions and are
subject to risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual results may differ materially and adversely from those
expressed in any forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in our Annual Report on Form 10-K filed March 11, 2003 under the section
entitled “Risk Factors” and “Factors That May Affect Future Results” included
herein. Juniper Networks undertakes no obligation to revise or update publicly
any forward-looking statements for any reason.
Overview
Juniper Networks, Inc. (“Juniper Networks” or “we”) was founded in 1996 to
develop and sell products that would be able to meet the stringent demands of
service providers. We are a leading provider of network infrastructure
solutions that transform the business of networking. Our products enable
customers to convert their business models from one of providing a commodity
service to that of providing more differentiation and value to end users as
well as increased reliability and security, thereby making the network a more
valuable asset. We sell and market our products through our direct sales
organization and value-added resellers.
Critical Accounting Policies
The preparation of the condensed consolidated financial statements and
related disclosures in conformity with accounting principles generally accepted
in the United States requires us to establish accounting policies that contain
estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. These policies
include revenue recognition; the allowance for doubtful accounts, which impacts
general and administrative expenses; the valuation of exposures associated with
the contract manufacturing operations; and estimating future warranty costs,
which impacts cost of product revenues and gross margins. We base our
estimates on our historical experience and also on assumptions that we believe
are standard and reasonable.
We have other equally important accounting policies and practices;
however, once adopted, these other policies either generally do not require us
to make significant estimates or assumptions or otherwise only require
implementation of the adopted policy not a judgment as to the policy itself.
Despite our intention to establish accurate estimates and assumptions, actual
results could differ from those estimates.
Revenue Recognition
We recognize product revenue in accordance with Staff Accounting Bulletin
No. 101, “Revenue Recognition in Financial Statements.” Specifically, product
revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable and collectibility is
reasonably assured, unless we have future obligations for such things as
network interoperability or customer acceptance, in which case revenue and
related costs are deferred until those obligations are met. In most cases, we
recognize product revenue upon shipment to our customers, including resellers,
as it is our policy to ensure an end user has been identified prior to
shipment. Service revenue is recognized over the service period. Beginning
July 1, 2003, we recognized revenue on arrangements where products and services
are bundled in accordance with EITF 00-21, “Revenue Arrangements with Multiple
Deliverables.” We allocate the total fee on such arrangements to
the individual deliverables either based on their relative fair
values or using the residual method, as circumstances dictate. Our
ability to recognize revenue in the future may be affected if actual selling
prices are significantly less than
13
the fair values. In addition, our ability
to recognize revenue in the future will be impacted by conditions imposed by
our customers and by our assessment of collectibility. We assess the
probability of collection by reviewing our customers’ payment history,
financial condition and credit report. If the probability of collection is not
reasonably assured, revenue is deferred until the payment is collected.
The amount of product revenue recognized in a given period is also
impacted by our judgments made in establishing our reserve for potential future
product returns. Although our arrangements do not include any contractual
rights of return, and our general policy is that we do not accept returns,
under unique circumstances we have and may in the future accept product returns
from our customers. Therefore, we do provide a reserve for our estimate of
future returns against revenue in the period the revenue is recorded. Our
estimate of future returns is based on such factors as historical return data
and current economic condition of our customer base. In addition, we get input
from our sales and support organizations with respect to specific customer
issues. The amount of revenue we recognize will be directly impacted by our
estimates made to establish the reserve for potential future product returns.
Allowance for Doubtful Accounts
We make ongoing assumptions relating to the collectibility of our accounts
receivable. In determining the amount of the allowance, we consider our
historical level of credit losses. We also make judgments about the
creditworthiness of significant customers based on ongoing credit evaluations,
and assess current economic trends affecting our customers that might impact
the level of credit losses in the future and result in different rates of bad
debts than previously seen. Our reserves have historically been adequate to
cover our actual credit losses. However, since we cannot predict future
changes in the financial stability of our customers or the industries that we
sell to, we cannot guarantee that our current level of reserves will continue
to be adequate. If actual credit losses were to be significantly greater than
the reserves we have established, that would increase our general and
administrative expenses. Conversely, if actual credit losses were to be
significantly less than our reserves, our general and administrative expenses
would decrease.
Contract Manufacturer Exposures
We outsource most of our manufacturing, repair and supply chain management
operations to our independent contract manufacturers. Accordingly, a
significant portion of the cost of revenues consists of payments to them. Our
independent contract manufacturers procure components and manufacture products
based on build forecasts we provide them. Our forecasts are based on our
estimates of future demand for our products. Our estimates of future demand
for our products are based on historical trends and an analysis from our sales
and marketing organizations, adjusted for overall market conditions. If the
actual component usage and product demand are significantly lower than
forecast, we have contractual liabilities and exposures with all of the
contract manufacturers, such as carrying costs and excess material exposures,
that would have an adverse impact on our gross margins and profitability. The
majority of factors that affect component usage and demand for our products are
outside of our control.
Warranty Reserves
We generally offer a one-year warranty on all of our hardware products as
well as a 90-day warranty on the media that contains the software embedded in
the products. The warranty generally includes parts, labor and 24-hour service
center support. The specific terms and conditions of those warranties may
vary. We estimate the costs that may be incurred under our warranty
obligations and record a liability and charge to cost of product sales in the
amount of such costs at the time revenue is recognized. Factors that affect
our warranty liability include the number of installed units, our estimates of
anticipated rates of warranty claims and costs per claim. Our estimates of
anticipated rates of warranty claims and costs per claim are primarily based on
historical information. We periodically assess the adequacy of our recorded
warranty liabilities and adjust the amounts as necessary. If actual warranty
claims are significantly higher than forecast, or if the actual costs incurred
to provide the warranty is greater than the forecast, our gross margins could
be adversely affected.
14
Results of Operations
In July 2002, we completed our acquisition of Unisphere Networks, Inc.
(“Unisphere”), a subsidiary of Siemens Corporation, which itself is a
subsidiary of Siemens AG (“Siemens”). Following the acquisition, Siemens,
directly and indirectly through its local country affiliates, was one of our
significant resellers. Unisphere developed, manufactured and sold data
networking equipment optimized for applications at the edge of service provider
networks. Although we took a one-time restructuring charge in connection with
our acquisition of Unisphere, the acquisition enabled us to add a complementary
product to our existing product line without reorganizing our existing
organization or modifying our cost and business structure. We included in our
results of operations for 2002 the results of Unisphere from July 1, 2002.
Therefore, results for the nine months ended September 30, 2002 only include
the results of Unisphere for the three months ended September 30, 2002, whereas
the nine months ended September 30, 2003 include the results of the combined
companies for the entire nine-month period.
Net Revenues
The following table shows product and service net revenues for the three
and nine months ended September 30, 2003 and 2002 (in thousands):
Product net revenues for the three and nine months ended September 30,
2003 increased 13% and 27% compared to the three and nine months ended
September 30, 2002, respectively. The increases for both periods were due
primarily to increases in the number of units of 26% and 28% for the three and
nine months ended September 30, 2003, compared to the three and nine months
ended September 30, 2002, respectively. The increase in units sold is attributed to greater
demand. The change in product net revenues for the three and
nine-month periods was also affected by shifts in our product mix. We did not experience any significant pricing pressure on our products
during the periods reported on herein.
Service net revenues for the three and nine months ended September 30,
2003 increased 15% and 24% compared to the three and nine months ended
September 30, 2002, respectively. The increase for both periods
was primarily a result of a
larger installed base of customers and products. Our service revenue primarily
is from customers who previously purchased our products and enter into service
contracts. In addition to product-related service contracts, service revenue
is generated from providing professional and educational services.
During the three months ended September 30, 2003 and 2002 and the nine
months ended September 30, 2003, Ericsson Telekom AB (“Ericsson”) and Siemens
each accounted for greater than 10% of net revenues. Ericsson was the only
customer that accounted for greater than 10% of revenue for the nine months
ended September 30, 2002.
The following table shows net revenues and the percent of total net
revenues by geographic region for the three and nine months ended September 30,
2003 and 2002 (in thousands):
For the three and nine months ended September 30, 2003, we experienced a
shift in net revenues as a percentage of total net revenues from the Americas
region to Europe and Asia compared to the three
15
and nine months ended September 30, 2002. The shift was primarily due to
both the decline in spending for capital expenditures in the United States, as
well as the increase in the number of our international customers, particularly
in Asia.
Cost of Revenues
The following table shows cost of product and service revenues and the
related gross margin percentages for the three and nine months ended September
30, 2003 and 2002 (in thousands):
Most of our manufacturing, repair and supply chain management operations
are outsourced to independent contract manufacturers; accordingly, most of the
cost of revenues consists of payments to our independent contract
manufacturers. The independent contract manufacturers manufacture our products
using quality assurance programs and standards that we establish. Controls
around manufacturing, engineering and documentation are conducted at our
facilities in Sunnyvale, California and Westford, Massachusetts. Our
independent contract manufacturers have facilities in Neenah, Wisconsin and
Toronto, Canada. Generally, our contract manufacturers retain title to the
underlying components and finished goods inventory until our customers take
title to the assembled final product upon shipment from the contract
manufacturer’s facility.
Cost of product revenues was 33% and 42% of product revenue for the three
months ended September 30, 2003 and 2002, respectively. Cost of product
revenues was 34% and 39% of product revenue for the nine months ended September
30, 2003, and 2002, respectively. The decrease in both periods was primarily
due to a one-time charge of $5.1 million recognized in the three months ended
September 30, 2002 related to the Unisphere acquisition and savings in the
three months ended September 30, 2003 in outsourced manufacturing costs as a
result of improved efficiencies and cost cutting initiatives at our contract
manufacturers.
Cost of service revenues was 57% and 67% of service revenue for the three
months ended September 30, 2003 and 2002, respectively. Cost of service
revenues was 57% and 64% of service revenue for the nine months ended September
30, 2003 and 2002, respectively. The decrease in both periods was primarily
due to improved efficiencies in our customer service organization. In
addition, the decrease in the three-month period was due to less spares being
shipped on a comparative basis.
We expect our overall gross margin to remain relatively consistent next
quarter as compared to this quarter.
Operating Expenses
The following table shows operating expenses for the three and nine months
ended September 30, 2003 and 2002 (in thousands):
16
For the three months ended September 30, 2003, research and development
expenses decreased 8% compared to the three months ended September 30, 2002.
The change was primarily due to a 67% decrease in expenses for outside services and a 5%
decrease in headcount related expenses. Outside services primarily consist of
certain certification expenses, outsourced development costs and costs
associated with independent contractors. The decrease in headcount related
expenses was primarily due to the savings realized from the restructuring
activities performed in 2003 in connection with the discontinuance of the
G-series CMTS product.
For the nine months ended September 30, 2003, research and development
expenses increased 12% compared to the nine months ended September 30, 2002.
The change was primarily due to a 20% increase in headcount related expenses,
partially offset by a 47% decrease in outside services and a 50% decrease in
prototype expenses. The increase in headcount related expenses was primarily
due to a full nine months of results of the combined company after the
Unisphere acquisition, compared to only three months of combined results for
the nine months ended September 30, 2002. Outside services primarily consist
of certain certification expenses, outsourced development costs and costs
associated with independent contractors. The decrease in prototype expenses
was due to a product launch in the third quarter of 2002, which required more
prototype expenses than in 2003.
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. 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. Although we may experience
significant quarterly variability in our research and development expenses, we
expect next quarter’s research and development expenses to be relatively
consistent in absolute dollars as compared to this quarter.
For the three months ended September 30, 2003, sales and marketing
expenses decreased 8% compared to the three months ended September 30, 2002.
The change was primarily due to a 57% decrease in demonstration equipment and a
12% decrease in facility related allocations. The decrease in demonstration
equipment costs was due to higher expenditures in the third quarter of 2002 as
a result of the Unisphere acquisition, and cost cutting initiatives implemented
over the past year.
For the nine months ended September 30, 2003, sales and marketing expenses
increased 11% compared to the nine months ended September 30, 2002. The change
was primarily due to a 16% increase in headcount related expenses and a 13%
increase in marketing programs, partially offset by a 15% decrease in
demonstration equipment. The increase in headcount related expenses was a
result of the Unisphere acquisition and higher commissions associated with the
increase in revenues. The increase in marketing programs costs was primarily
due to the increase in revenues. The decrease in demonstration equipment costs
was due to higher expenditures in the third quarter of 2002 as a result of the
Unisphere acquisition, and cost cutting initiatives implemented over the past
year.
We expect next quarter’s sales and marketing expenses to remain relatively
consistent in absolute dollars as compared to this quarter.
For the three and nine months ended September 30, 2003, general and
administrative expenses decreased 28% and 23% compared to the three and nine
months ended September 30, 2002, respectively. The decrease in the three-month
period was almost entirely a result of decreases in bad debt expenses. The
decrease in the nine-month period was also due to decreases in bad debt
expenses, partially offset by a 16% increase in professional services. The
increase in professional services was due
17
to certain strategic consulting activities. We expect next quarter’s
general and administrative expenses to remain relatively consistent in absolute
dollars compared to this quarter.
In the third quarter of 2003, we announced that we are no longer
developing our G-series CMTS products and recorded a one-time charge of
approximately $14.0 million that was comprised of workforce reduction costs,
non-inventory asset impairment, vacating facilities costs, the costs associated
with termination of contracts and other related costs. Our Board of Directors
approved the discontinuance and the related restructuring charge and expects
that the plan will facilitate the focus on core competencies and reducing our
cost structure. A charge of $5.6 million associated with the workforce
reduction related primarily to the termination of 76 employees that were mainly
located in the Americas and Europe regions. We expect to pay the remaining
balance of the severance accrual by the end of the first quarter of 2004.
A non-inventory asset impairment of $2.9 million was primarily for long-lived
assets that were no longer needed as a result of the discontinuance of the
product line. Facility charges of $3.5 million consisted primarily of the cost
of vacating facilities that were dedicated to the G-series CMTS products and
the impairment cost of certain leasehold improvements. The net present value
of the facility charge was calculated using our risk-adjusted borrowing rate.
Amounts related to the net facility charge will be paid over the respective
lease term through July 2008. The difference between the actual future rent
payments and the net present value will be recorded as operating expenses when
incurred. Contractual commitments and other charges consist primarily of $0.9
million of excess material charges from our contract manufacturers and
suppliers for on-hand and on-order material related to the G-series CMTS
products and $0.9 million of costs to satisfy end-of-life commitments in
certain customer contracts. All of these costs were accounted for in
accordance with SFAS 146, “Accounting for Costs Associated with Exit or
Disposal Activities,” and have been included as a charge to the results of
operations in the quarter ended September 30, 2003. Changes to the estimates
of executing the currently approved plans of restructuring will be reflected in
results of operations.
During the third quarter of 2002, in connection with the acquisition of
Unisphere, we approved and initiated plans to restructure the operations to
eliminate certain duplicative activities, focus on strategic product and
customer bases, reduce costs and better align product and operating expenses
with then existing general economic conditions. Consequently, we recorded
restructuring expenses of approximately $14.9 million, net of a $2.6 million
adjustment made during the fourth quarter of 2002 for costs that were not going
to be incurred due to a change in estimate, associated primarily with workforce
related costs, costs of vacating duplicative facilities, contract termination
costs, non-inventory asset impairment charges and other associated costs.
These costs are accounted for under EITF Issue No. 94-3 (“EITF 94-3”),
“Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity,” and have been included as a charge to the results
of operations during the third quarter of 2002.
We also recognized a charge of approximately $5.3 million during the
quarter ended September 30, 2002 related to the land acquired in January 2001
located in Sunnyvale, California. The charge was primarily for costs of
exiting certain contractual obligations associated with the land. We currently
have no plans to continue developing the land in the foreseeable future.
Of the total Unisphere purchase price, approximately $82.7 million has
been allocated to in-process research and development (“IPR&D”) and was
expensed in the quarter ended September 30, 2002. Projects that qualify as
IPR&D represent those that have not yet reached technological feasibility and
which have no alternative future use. Technological feasibility is defined as
being equivalent to a beta-phase working prototype in which there is no
remaining risk relating to the development. At the time of acquisition,
Unisphere had multiple IPR&D efforts under way for certain current and future
product lines. These efforts included developing new cards and modules for
different bandwidths and various software developments. We utilized the
discounted cash flow (“DCF”) method to value the IPR&D, using rates ranging
from 30% to 35%. In applying the DCF method, the value of the acquired
technology was estimated by discounting to present value the free cash flows
expected to be generated by the products with which the technology is
associated, over the remaining economic life of the technology. To distinguish
between the cash flows attributable to the underlying technology and the cash
flows attributable to other assets available for generating product revenues,
adjustments were made to provide
18
for a fair return to fixed assets, working capital and other assets that
provide value to the product lines. At the time of acquisition, it was
estimated that these development efforts were 55% complete and would be
completed over the next six to twelve months. As of September 30, 2003 these
development efforts were substantially completed.
We incurred integration expenses of approximately $2.5 million in the
quarter ended September 30, 2002 resulting from our acquisition of Unisphere.
Integration expenses are incremental costs directly related to the integration
of the two companies that have no future benefit, which consisted
principally of workforce related expenses for individuals transitioning their
positions and professional fees during the quarter ended September 30, 2002.
We
amortize purchased intangible assets and deferred stock compensation
over their estimated lives. The amortization expense of intangible
assets for the three-month period ended September 30, 2003 was
the same as the amortization expense for the three-month period ended
September 30, 2002. Amortization expense of intangible assets for the
nine months ended September 30, 2003 increased 85% compared to
the nine months ended September 30, 2002 due to the intangible assets purchased in the
Unisphere acquisition in July 2002. The amortization expense of
deferred stock compensation resulted in a credit of approximately
$3.3 million for the three
months ended September 30, 2003 due to employees who forfeited options for
which compensation expense had been recognized on the graded vesting method,
but which were unvested on the date their employment was terminated. These
employees were primarily a part of the restructuring plan in the current
quarter. Amortization of deferred stock compensation in the nine
months ended September 30, 2003 decreased 84% compared to the
nine months ended September 30, 2002 primarily due to a reduction of stock-based compensation
expense recorded in the three months ended September 30, 2003 relating to employees
who forfeited options for which compensation expense had been recognized on the
graded vesting method, but which were unvested on the date their employment was
terminated.
Other Income and Expenses
The following table shows other income and expenses for the three and nine
months ended September 30, 2003 and 2002 (in thousands):
For the three and nine months ended September 30, 2003, interest and other
income decreased $6.0 million and $18.8 million compared to the three and nine
months ended September 30, 2002. The decrease in both periods was primarily
due to lower interest rates earned on cash, cash equivalents and investments
compared to the same period a year ago. The decrease in the nine-month period
was partially offset by a $1.2 million deposit received related to the Pacific
Broadband acquisition that, because of concerns regarding recoverability, was
not valued in the allocation of the purchase price.
For the three and nine months ended September 30, 2003, interest and other
expense decreased $4.2 million and $9.8 million compared to the three and nine
months ended September 30, 2002, respectively. The decrease was a result of the partial
retirement of the Subordinated Notes in the third quarter of 2002 and second
and third quarters of 2003.
During the first and second quarters of 2003, we sold some of our
marketable equity securities classified as available-for-sale, which had a cost
basis of approximately $4.3 million, and recognized gains of approximately $8.7
million.
During the first and third quarters of 2002, we recorded impairment
write-downs of our minority equity investments of $50.5 million. There have
been no such an impairments recorded in the nine months ended
September 30, 2003.
19
During the second and third quarters of 2003, we paid approximately $381.2
million to retire a portion of our Subordinated Notes. This partial repurchase
resulted in a gain of approximately $14.1 million, which was the difference
between the carrying value of the notes at the time of their retirement,
including unamortized debt issuance costs, and the amount paid to extinguish
such Subordinated Notes.
In
October 2003 we called for redemption on November 26, 2003, $400.0
million principal amount of our Subordinated Notes. Prior to November 26,
2003, holders may convert their Subordinated Notes into shares of our common
stock at a price of approximately $163.9559 per share and cash for any fractional shares.
If the holders do not elect to convert the Subordinated Notes, they will be
redeemed for which the holders will receive a total of $1,036.508 per $1,000
principal amount of the Subordinated Notes, consisting of the redemption price
of $1,027.14 per $1,000 principal amount of the Subordinated Notes, plus
accrued and unpaid interest from September 15, 2003 of $9.368 per $1,000
principal of the Subordinated Notes. Any of the Subordinated Notes called for
redemption and not converted before November 26, 2003 will be redeemed
automatically on November 26, 2003 and no further interest will accrue.
During the third quarter of 2002, we paid approximately $146.0 million to
retire a portion of our Subordinated Notes. This partial repurchase resulted
in a gain of $62.9 million, which was the difference between the carrying value
of the notes at the time of their retirement, including unamortized debt
issuance costs, and the amount paid to extinguish such Subordinated Notes.
Equity in net loss of joint venture was $0.1 million and $1.1 million for
the three and nine months ended June 30, 2002. During the quarter ended June
30, 2001, we entered into a joint venture agreement with Ericsson, through our
respective subsidiaries, to develop and market products for the wireless
Internet infrastructure market. Accordingly, we began recording our 40% share
of the joint venture’s loss. In addition to this joint venture, Ericsson is
also one of our significant resellers, representing greater than 10% of our
revenues in each of the three and nine-month periods ending September 30, 2003
and 2002. To date, we have funded the joint venture in the amount of $5.4
million; however, we had no further funding obligations related to this joint
venture after December 31, 2002.
Provision for Income Taxes
We recorded tax provisions of $7.7 million and $14.3 million for the three
and nine months ended September 30, 2003, or effective tax rates of 52% and
37%, respectively. The rate for the nine months ended September 30, 2003
reflects taxes payable in certain foreign jurisdictions, the benefit of
research credits and capital loss carryforwards and the inability to benefit
certain charges and losses. The rate for the most recent three-month period is
higher because of these unbenefited charges and losses.
For the three and nine months ended September 30, 2002, we recorded tax
provisions of $1.5 million and $3.0 million, or effective
rates
The IRS is currently auditing the Company’s federal income tax returns for
fiscal years 1999 and 2000. Proposed adjustments have not been received for
these years. Management believes the ultimate outcome of the IRS audits will
not have a material adverse impact on the Company’s financial position or
results of operations.
Liquidity and Capital Resources
Operating Activities
Net cash provided by operating activities was $115.6 million for the nine
months ended September 30, 2003, compared to cash used in operations of $3.9
million for the nine months ended September 30, 2002. Net cash provided by
operating activities during the nine months ended September 30, 2003 was due to
our net income of $24.5 million, which was adjusted by:
20
Net cash used in operating activities during the nine months ended
September 30, 2002 was due to our net loss of $128.1 million, which was
adjusted by:
Investing Activities
Cash provided by investing activities was $58.5 million for the nine
months ended September 30, 2003. The cash provided by investing activities was
a result of maturities and sales of available-for-sale investments, partially
offset by purchases of available-for-sale investment, increases in restricted
cash and purchases of capital equipment. The increase in restricted cash was
due to the establishment of a trust to secure our indemnification obligations
to certain directors and officers.
Cash used in investing activities was $226.4 million for the nine months
September 30, 2002 due to purchases of available-for-sale investments, the
Unisphere acquisition and purchases of capital equipment, partially offset by
maturities and sales of available-for-sale investments.
Financing Activities
Cash provided by financing activities was $89.0 million for the nine
months ended September 30, 2003 due to proceeds from the issuance of the Senior
Notes and common stock through employee option exercises and employee stock
purchase plans, partially offset by the partial retirement of our Subordinated
Notes.
Cash used in financing activities was $127.8 million for the nine months
ended September 30, 2002 due to the partial retirement of our Subordinated
Notes, partially offset by the issuance of common stock through employee option
exercises and employee stock purchase plans.
Cash Requirements and Contractual Obligations
As of
September 30, 2003, our principal commitments consisted of obligations
outstanding under operating leases, the 4.75% Convertible Subordinated Notes
due March 15, 2007 (“Subordinated Notes”) and the Zero Coupon Convertible
Senior Notes due June 15, 2008 (“Senior Notes”). The contractual obligations
under operating leases are primarily for our facilities.
Interest is paid semi-annually on March 15 and September 15 for the
Subordinated Notes at an annual rate of 4.75%. Anytime we retire a portion of
the Subordinated Notes, the interest accrued on that portion is due. For the
nine months ended September 30, 2003, we have paid approximately $42.9 million
in interest related to the Subordinated Notes.
During November 2003, we will redeem $400.0 million principal amount of
our Subordinated Notes. Holders may convert their Subordinated Notes into
shares of our common stock at a price of approximately $163.9559 per
share, or cash, for
which they will receive a total of $1,036.508 per $1,000 principal amount of
the Subordinated Notes, consisting of the redemption price of $1,027.14 per
$1,000 principal amount of the Subordinated Notes, plus accrued and unpaid
interest from September 15, 2003 of $9.368 per $1,000 principal of the
Subordinated Notes. If we do not retire any additional Subordinated Notes
before March 15, 2004, our interest payment at that time will be approximately
$3.4 million.
21
The Senior Notes were issued in June 2003 and are senior unsecured
obligations, rank on parity in right of payment with all of our existing and
future senior unsecured debt, and rank senior to all of our existing and future
debt that expressly provides that it is subordinated to the notes, including
our Subordinated Notes. The Senior Notes bear no interest, but are convertible
into shares of our common stock, subject to certain conditions, at any time
prior to maturity or their prior repurchase by Juniper Networks. The
conversion rate is 49.6512 shares per each $1,000 principal amount of
convertible notes, subject to adjustment in certain circumstances.
We do not have firm purchase commitments with our contract manufacturers;
however, we do have potential contractual liabilities and exposures to the
independent contract manufacturers, such as carrying costs and excess material
exposures, in the event that they procure components and build products based
on our build forecasts and the actual component usage and product sales are
lower than forecast. As of September 30, 2003, we had accrued $20.6 million
for potential exposures with our contract manufacturers, such as excess
material and carrying costs.
Sources of Cash
We have funded our business by issuing securities and through our
operating activities. At September 30, 2003, we had cash and cash equivalents
of $457.5 million, short-term investments of $309.1 million and long-term
investments of $557.3 million. We regularly invest excess funds in money
market funds, commercial paper and government and non-government debt
securities with maturities of up to five years.
Based on past performance and current expectations, we believe that our
cash and cash equivalents, short-term investments, and cash generated from
operations will satisfy our working capital needs, capital expenditures,
commitments and other liquidity requirements associated with our existing
operations through at least the next 12 months. In addition, there are no
transactions, arrangements, and other relationships with unconsolidated
entities or other persons that are reasonably likely to materially affect
liquidity or the availability of our requirements for capital resources.
Factors That May Affect Future Results
Set forth below and elsewhere in this Report and in other documents we
file with the Securities and Exchange Commission are risks and uncertainties
that could cause our business, results of operations or financial
condition to be harmed and cause actual results to differ materially from the results
contemplated by the forward-looking statements contained in this Report.
We face intense competition that could reduce our market share and
adversely affect our ability to generate revenues.
Competition
in the network infrastructure market is intense. This market
has historically been dominated by Cisco with other companies such as Nortel
Networks and Lucent Technologies providing products to a smaller segment of the
market. In addition, a number of other small public or private companies have
announced plans for new products to address the same challenges that our
products address.
If we are unable to compete successfully against existing and future
competitors from a product offering standpoint or from potential price
competition by such competitors, we could experience a loss in market share
and/or be required to reduce prices, resulting in reduced gross margins, either
of which could materially and adversely affect our business, operating results
and financial condition.
The current economic conditions, combined with the financial condition of
some of our customers, make it difficult to predict revenues for a particular
period and a shortfall in revenues may harm our operating results.
The continuing economic downturn generally, and in the telecommunication
industry specifically, combined with our own relatively limited operating
history in the context of such a continuing economic downturn, makes it
difficult to accurately forecast revenue.
22
We have experienced and expect, in the foreseeable future, to continue to
experience limited visibility into our customers’ spending plans and capital
budgets. This limited visibility complicates the revenue forecasting process.
Additionally, many customers funded their network infrastructure purchases
through a variety of debt and similar instruments and many of these same
customers are carrying a significant debt burden and are experiencing reduced
cash flow with which to carry the cost of the debt and the corresponding
interest charges, which reduces their ability to both justify and make future
purchases. The telecommunications industry has experienced consolidation and
rationalization of its participants and we expect this trend to continue.
There have been adverse changes in the public and private equity and debt
markets for telecommunications industry participants, which have affected their
ability to obtain financing or to fund capital expenditures. In some cases the
significant debt burden carried by these customers has reduced their ability to
pay for the purchases made to date. This has contributed, and we expect it to
continue to contribute, to the uncertainty of the amounts and timing of capital
expenditures, further limiting visibility and complicating the forecasting
process. Certain of these customers have filed for bankruptcy as a result of
their debt burdens. Although these customers generally expect that they will
emerge from the bankruptcy proceedings in the future, a bankruptcy proceeding
can be a slow and cumbersome process further limiting the visibility and
complicating the revenue forecasting process as to these customers. Even if
they should emerge from such proceedings, the extent and timing of any future
purchases of equipment is uncertain. This uncertainty will further complicate
the revenue forecasting process.
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. If we do not achieve our expected revenues, the
operating results will be below our expectations and those of investors and
market analysts, which could cause the price of our common stock to decline.
A limited numbers of customers comprise a significant portion of our
revenues and any decrease in revenue from these customers could have an adverse
effect on us.
Even
though our customer base has increased substantially, we expect that a large portion of our net revenues will continue to depend
on sales to a limited number of customers. During the three months ended September 30, 2003 and 2002 and the
nine months ended September 30, 2003, Ericsson and Siemens each accounted for
greater than 10% of net revenues. Ericsson was the only customer that
accounted for greater than 10% of revenue for the nine months ended
September 30, 2002. Any downturn in the business of
these customers or potential new customers could significantly decrease sales
to such customers that could adversely affect our net revenues and results of
operations.
We rely on distribution partners to sell our products, and disruptions to
these channels could adversely affect our ability to generate revenues from the
sale of our products.
We believe that our future success is dependent upon establishing and
maintaining successful relationships with a variety of distribution partners.
We have entered into agreements with several value added resellers, some of
which also sell products that compete with our products. We cannot be certain
that we will be able to retain or attract resellers on a timely basis or at
all, or that the resellers will devote adequate resources to selling our
products.
Our products are highly technical and if they contain undetected software
or hardware errors, our business could be adversely impacted.
Our products are highly technical and are designed to be deployed in very
large and complex networks. Certain of our products can only be fully tested
when deployed in networks that generate high amounts of data and/or voice
traffic. As a result, we may experience errors in connection with
such products
and for new products and enhancements. Any defects or errors in our products
discovered in the future could result in loss of or delay in revenue, loss of
customers and increased service and warranty cost, any of which could adversely
impact our business and our results of operations.
23
If our products do not interoperate with our customers’ networks,
installations will be delayed or cancelled and could harm our business.
Our products are designed to interface with our customers’ existing
networks, each of which have different specifications and utilize 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 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 damage
our reputation, which could seriously harm our business and prospects.
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, any of which could adversely affect our business
and financial condition.
Traditional telecommunications companies generally require more onerous
terms and conditions of their vendors. As we seek to sell more products to
such customers we may be required to agree to terms and conditions that may
have an adverse effect on our business.
Traditional telecommunications companies because of their size generally
have had greater purchasing power and accordingly have requested and received
more favorable terms, which often translate into more onerous terms and
conditions for their vendors. As we seek to sell more products to this class of
customer, we may be required to agree to such terms and conditions which may
include terms that effect our ability to recognize revenue and have an adverse
effect on our business and financial condition.
In addition, many of this class of customer have purchased products from
other vendors who promised certain functionality and failed to deliver such
functionality and/or had products that caused problems and outages in the
networks of these customers. As a result, this class of customer may request
additional features from us and require substantial penalties for failure
to deliver such features or may require substantial penalties for any
network outages that may be caused by our products. These additional requests
and penalties, if we are required to agree to them, may affect our ability to
recognize the revenue from such sales, which may negatively affect our business
and our financial condition.
If we do not successfully anticipate market needs and develop products and
product enhancements that meet those needs, or if those products do not gain
market acceptance, we may not be able to compete effectively and our ability to
generate revenues will suffer.
We cannot ensure that we will be able to anticipate future market needs or
that we will be able to develop new products or product enhancements to meet
such needs or to meet them in a timely manner. If we fail to anticipate the
market requirements or to develop new products or product enhancements to meet
those needs, such failure could substantially decrease market acceptance and
sales of our present and future products, which would significantly harm our
business and financial results. Even if we are able to anticipate and develop
and commercially introduce new products and enhancements, there can be no
assurance that new products or enhancements will achieve widespread market
acceptance. Any failure of our future products to achieve market acceptance
could adversely affect our business and financial results.
24
Our ability to develop, market and sell products could be harmed if we
are unable to retain or hire key personnel.
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.
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, could delay the development and
introduction of and negatively impact our ability to develop, market or sell
our products.
If we fail to accurately predict our manufacturing requirements, we could
incur additional costs which would harm our results of operations or
experience manufacturing delays which would harm our business.
Our contract manufacturers are not obligated to supply products for any
specific period, in any specific quantity or at any specific price, except as
may be provided in a particular purchase order because we do not have long-term
supply contracts with them. In addition, lead times for required materials and
components vary significantly and depend on factors such as the specific
supplier, contract terms and demand for each component at a given time. We
provide to our contract manufacturers a demand forecast. If we overestimate
our requirements, the contract manufacturers may assess charges that could
negatively impact our gross margins. For example, for the quarter
ended September 30, 2001, we recorded a charge for approximately
$39.9 million associated with contractual liabilities and
carrying charges on excess materials at our contract manufacturers. If we underestimate our requirements, the
contract manufacturers may have inadequate inventory, which could interrupt
manufacturing of our products and result in delays in shipments and revenues.
We currently depend on contract manufacturers with whom we do not have
long-term supply contracts, and changes to those relationships,
expected or unexpected, may result in delays or disruptions that could
cause us to lose revenue and damage our customer
relationships.
We depend on independent contract manufacturers (each of whom is a third
party manufacturer for numerous companies) to manufacture our products. We do
not have a long-term supply contract with such manufacturers and if we should
fail to effectively manage our contract manufacturer relationships or if one or
more of them should experience delays, disruptions or quality control problems
in its manufacturing operations, our ability to ship products to our customers
could be delayed which could adversely affect 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, the 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 our products. Even
after making the decision to purchase, customers tend to deploy the products
slowly and deliberately. Timing of deployment can vary widely and depends on
the skill set of the 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. These long cycles, as well as our 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.
25
If our restructuring initiatives are not sufficient to meet industry and
market conditions and to achieve future profitability, we may undertake further
restructuring initiatives, which may adversely affect our business, operating
results and financial condition.
In response to industry and market conditions, we have restructured our
business and reduced our workforce. The assumptions underlying our
restructuring efforts will be assessed on an ongoing basis and may prove to be
inaccurate and we may have to restructure our business again in the future to
achieve certain cost savings and to strategically realign our resources.
Our restructuring initiatives are based on certain assumptions regarding
the cost structure of our business and the nature, severity, and duration of
the current industry adjustment, which may not prove to be accurate. While
restructuring, we have assessed, and will continue to assess, whether we should
further reduce our workforce, as well as review the recoverability of our
tangible and intangible assets, including the land purchased in January 2001.
Any such decisions may result in the recording of additional charges, such as
workforce reduction costs, facilities reduction costs, asset write-downs, and
contractual settlements.
Additionally, estimates and assumptions used in asset valuations are
subject to uncertainties, as are accounting estimates with respect to the
useful life and ultimate recoverability of our carrying basis of assets,
including goodwill and other intangible assets. As a result, future market
conditions may result in further charges for the write down of tangible and
intangible assets.
We may not be able to successfully implement the initiatives we have
undertaken in restructuring our business and, even if successfully implemented,
these initiatives may not be sufficient to meet the changes in industry and
market conditions and to achieve future profitability. Furthermore, our
workforce reductions may impair our ability to realize our current or future
business objectives. Lastly, costs actually incurred in connection with
restructuring actions may be higher than the estimated costs of such actions
and/or may not lead to the anticipated cost savings. As a result, our
restructuring efforts may not result in our return to profitability.
If we become subject to litigation regarding intellectual property rights,
such litigation will likely be time consuming and require a significant amount
of resources to prosecute or defend, we may have to expend a substantial amount
of resources to make our products non-infringing and may have to pay a
substantial amount of money in damages.
In recent years, there has been significant litigation in the United
States involving patents and other intellectual property rights. Although we
are not 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
and may require us to redesign or stop selling, incorporating or using products
that use the challenged intellectual property, all of which could
seriously harm our business. These lawsuits, regardless of
their ultimate outcome, would likely be time-consuming and expensive to resolve and
would divert management time and attention.
Our products incorporate and rely upon licensed third-party technology and
if licenses of third-party technology do not continue to be available to us or
become very expensive, our revenues and ability to develop and introduce new
products could be adversely affected.
We integrate licensed third-party technology in certain of our products.
From time to time we may be required to license additional technology from
third parties to develop new products or product enhancements. Third-party
licenses may not be available or continue to be available to us on commercially
reasonable terms. Our inability to maintain or re-license any third party
licenses required in our current products or our inability to obtain
third-party licenses necessary to develop new products and product
enhancements, could require us to obtain substitute technology of lower quality
or performance standards or at a greater cost, any of which could harm our
business, financial condition and results of operations.
26
Due to the global nature of our operations, economic or social conditions
or changes in a particular country or region could adversely affect our sales
or increase our costs and expenses, which would have a material adverse impact
on our financial condition.
We conduct significant sales and customer support operations directly and
indirectly through our distributors in countries outside of the United States
and also depend on the operations of our contract manufacturers that are
located outside of the United States. For the nine months ended September 30,
2003 and 2002, we derived approximately 58% and 42% of our revenues,
respectively, from sales outside North America. Accordingly, our future
results could be materially adversely affected by a variety of
uncontrollable and changing factors
including, among others, political or social unrest or economic instability in a specific
country or region; trade protection measures and other regulatory requirements
which may affect our ability to import or export our products from
various countries; service provider and
government spending patterns affected by political considerations; and
difficulties in staffing and managing international operations. Any or
all of these factors could have a material adverse impact on our revenue,
costs, expenses and financial condition.
We are exposed to fluctuations in currency exchange rates which could
negatively affect our financial results and cash flows.
Because a significant portion of our business is conducted outside the
United States, we face exposure to adverse movements in non-US currency
exchange rates. These exposures may change over time as business practices
evolve and could have a material adverse impact on our financial results and
cash flows.
The majority of our revenue and expenses are transacted in US Dollars. We
also have some transactions that are denominated in foreign currencies,
primarily the Japanese Yen, Hong Kong Dollar, British Pound and the Euro,
related to our sale and service operations outside of the United States. An
increase in the value of the US Dollar could increase the real cost to our
customers of our products in those markets outside the United States where we
sell in US Dollars, and a weakened dollar could increase the cost of local
operating expenses and procurement of raw materials to the extent we must
purchase components in foreign currencies.
Currently, we hedge only those currency exposures associated with certain
assets and liabilities denominated in nonfunctional currencies and periodically
will hedge anticipated foreign currency cash flows. The hedging activities
undertaken by us are intended to offset the impact of currency fluctuations on
certain nonfunctional currency assets and liabilities. Our attempts to hedge
against these risks may not be successful resulting in an adverse impact on our
net income.
Any acquisition we make could disrupt our business and harm our financial
condition if we are not able to successfully integrate acquired businesses and
technologies or if expected synergies do not materialize.
We have made and may continue to make acquisitions and investments in
order to enhance our business. Acquisitions 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. There can be no
assurance that we will be able to successfully integrate any businesses,
products, technologies or personnel that we might acquire.
The integration of businesses that we have acquired into our business has
been and will continue to be a complex, time consuming and expensive process.
We must operate as a combined organization utilizing common information and
communication systems, operating procedures, financial controls and human
resources practices to be successful. For example, although we completed the
acquisition of Unisphere Networks on July 1, 2002, integration of the products,
product roadmap and operations is a continuing activity and will be for the
foreseeable future. As a result of these activities, we may lose opportunities
and employees, which could disrupt our business and harm our financial results.
We also 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
purchases of intangible assets, or incur large and immediate write-offs.
We
are a party to lawsuits, which, if determined adversely to us, could
require us to pay damages which could harm our business and financial
condition.
We and certain of our former officers and current and former members of
our board of directors are subject to various lawsuits brought by classes of
stockholders alleging, among other things, violations of federal and state
securities laws breach of various fiduciary obligations. There can be no
assurance that actions that have been or will be brought against us will be
resolved in our favor. Regardless of whether they are in our favor, these
lawsuits are, and any future lawsuits to which we may become a party in the
future will likely be, expensive and time consuming to defend or resolve. Any
losses resulting from these claims could adversely affect our profitability and
cash flow.
27
Our quarterly results are inherently unpredictable and subject to
substantial fluctuations and, as a result we may fail to meet the expectations
of securities analysts, which could adversely affect the trading price of our
common stock.
Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, including many of which are outside of our
control and any of which may cause our stock price to fluctuate.
The factors that may impact the unpredictability of our quarterly results
include the reduced visibility into customers’ spending plans, the changing
market conditions, which have resulted in some customer and potential customer
bankruptcies, a change in the mix of our products sold, from higher priced core
products to lower priced edge products, and long sales and implementation
cycle.
As a result, we believe that quarter-to-quarter comparisons of
operating results are not a good indication of future performance. It is
likely that in some future quarters, operating results may be below the
expectations of public market analysts and investors in which case the price of
our common stock may fall.
We are dependent on sole source and limited source suppliers for several
key components which may make us susceptible to supply shortages or price fluctuations.
With the current demand for electronic products, component shortages are
possible and the predictability of the availability of such components may be
limited. We currently purchase several key components, including ASICs, from
single or limited sources. For example, IBM is our ASIC supplier. We may not
be able to develop an alternate or second source in a timely manner, which
could hurt our ability to deliver product to customers. If we are unable to
buy these components on a timely basis, we will not be able to deliver product
to our customers, which would seriously impact present and future sales, which
would, in turn, adversely affect our business.
If we fail to adequately evolve our financial and managerial control and
reporting systems and processes, our ability to manage and grow our business
will be negatively impacted.
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 expect that we will need to continue to improve our financial and
managerial control and our reporting systems and procedures in order to manage
our business effectively in the future. If we fail to continue to implement
improved systems and processes, our ability to manage our business and results
of operations may be negatively impacted.
We
sell our products to customers that use those products to build
networks and Internet infrastructure and if the Internet and
Internet-based
systems do not continue to grow then our business, operating results and
financial condition will be adversely affected.
A substantial portion of our business and revenue depends on growth of the
Internet and on the deployment of our product by customers that depend on the
continued growth of the Internet. As a result of the economic slowdown and the
reduction in capital spending, which have particularly affected
telecommunications service providers, spending on Internet infrastructure has
declined, which has had a material adverse effect on our business. To the
extent that the economic slowdown and reduction in
capital spending continue to adversely affect spending on Internet
infrastructure, we could continue to experience material adverse effects on our
business, operating results and financial condition.
28
Regulation of the telecommunications industry as well as the Internet and
commerce over the Internet could harm our operating results and future
prospects.
The telecommunications industry is highly regulated and our business and
financial condition could be adversely affected by the changes in the
regulations relating to the telecommunications industry. Currently, there are
few laws or regulations that apply directly to access to or commerce on the
Internet. We could be adversely affected by regulation of the Internet and
Internet commerce in any country where we operate. Such regulations could
include matters such as voice over the Internet or using Internet Protocol,
encryption technology, and access charges for Internet service providers. The
adoption of regulation of the Internet and Internet commerce could decrease
demand for our products, and at the same time increase the cost of selling our
products, which could have a material adverse effect on our business, operating
result and financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We maintain an investment portfolio of various holdings, types and
maturities. These securities are classified as available-for-sale and,
consequently, are recorded on the Condensed Consolidated Balance Sheet at fair
value with unrealized gains or losses reported as a separate component of
accumulated other comprehensive income (loss).
At any time, a rise in interest rates could have a material adverse impact
on the fair value of our investment portfolio. Conversely, declines in
interest rates could have a material impact on interest earnings of our
investment portfolio. We do not currently hedge these interest rate exposures.
The following table presents the hypothetical changes in fair value of the
financial instruments held at September 30, 2003 that are sensitive to changes
in interest rates (in thousands):
These instruments are not leveraged and are held for purposes other than
trading. The modeling technique used measures the changes in fair value
arising from selected potential changes in interest rates. Market changes
reflect immediate hypothetical parallel shifts in the yield curve of plus or
minus 50 basis points (BPS), 100 BPS and 150 BPS, which are representative of
the historical movements in the Federal Funds Rate.
Foreign Currency Risk and Foreign Exchange Forward Contracts.
The majority of our revenue and expenses are transacted in US dollars.
However, since we have sales and service operations outside of the US, we do
have some transactions that are denominated in foreign currencies, primarily
the Euro, Japanese Yen, Hong Kong Dollar, British Pound and the Australian
Dollar.
We enter into foreign exchange forward contracts to mitigate the effect of
gains and losses generated by the re-measurement of certain assets and
liabilities denominated primarily in the Euro, Japanese Yen,
British Pound and Australian Dollar. These derivatives are not designated
as hedges under SFAS No. 133 (“SFAS 133”), “Accounting for Derivative
Instruments and Hedging Activities.” At September 30,
29
2003, the notional and
fair values of these contracts were not material. We do not expect gains and
losses on these contracts to have a material impact on our financial results.
We also use foreign exchange forward contracts to hedge foreign currency
forecasted transactions related to certain operating expenses, denominated
primarily in the Euro, Japanese Yen, British Pound and Australian Dollar.
These derivatives are designated as cash flow hedges under SFAS 133. At
September 30, 2003, the notional and fair values of these contracts were not
material. We do not expect gains and losses on these contracts to have a
material impact on our financial results.
These contracts have original maturities ranging from one to three months.
We do not enter into foreign exchange contracts for speculative or trading
purposes. We attempt to limit our exposure to credit risk by executing foreign
contracts with credit worthy financial institutions.
Item 4. Controls and Procedures
(a) We carried out an evaluation, under the supervision and with the
participation of our management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by
this report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in
our Exchange Act filings.
(b) There have been no significant changes in our internal controls over
the financial reporting that occurred during the period covered by this report
that have materially affected, or are reasonably likely to affect our internal
control over financial reporting.
30
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to legal claims and litigation arising in the
ordinary course of business, including the matters described below. The
outcome of these matters is currently not determinable. However, the Company
does not expect that such legal claims and litigation will ultimately have a
material adverse effect on the Company’s consolidated financial position or
results of operations.
IPO Allocation Case
In December 2001, a class action complaint was filed in the United States
District Court for the Southern District of New York against the Goldman Sachs
Group, Inc., Credit Suisse First Boston Corporation, FleetBoston Robertson
Stephens, Inc., Royal Bank of Canada (Dain Rauscher Wessels), SG Cowen
Securities Corporation, UBS Warburg LLC (Warburg Dillon Read LLC), Chase
(Hambrecht & Quist LLC), J.P. Morgan Chase & Co., Lehman Brothers, Inc.,
Salomon Smith Barney, Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated
(collectively, the “Underwriters”), the Company and certain of the Company’s
officers. This action was brought on behalf of purchasers of the Company’s
common stock in the Company’s initial public offering in June 1999 and its
secondary offering in September 1999.
Specifically, among other things, this complaint alleged that the
prospectus pursuant to which shares of common stock were sold in the Company’s
initial public offering and its subsequent secondary offering contained certain
false and misleading statements or omissions regarding the practices of the
Underwriters with respect to their allocation of shares of common stock in
these offerings and their receipt of commissions from customers related to such
allocations. Various plaintiffs have filed actions asserting similar
allegations concerning the initial public offerings of approximately 300 other
issuers. These various cases pending in the Southern District of New York have
been coordinated for pretrial proceedings as
In re Initial Public Offering
Securities Litigation,
21 MC 92. In April 2002, plaintiffs filed a
consolidated amended complaint in the action against the Company, alleging
violations of the Securities Act of 1933 and the Securities Exchange Act of
1934. Defendants in the coordinated proceeding filed motions to dismiss. In
October 2002, the Company’s officers were dismissed from the case without
prejudice pursuant to a stipulation. On February 19, 2003, the Court granted
in part and denied in part the motion to dismiss, but declined to dismiss the
claims against the Company. A proposal has been made for the settlement and
release of claims against the issuer defendants, including the Company. The
settlement is subject to a number of conditions, including approval of the
proposed settling parties and the court. If the settlement does not occur, and
litigation against the Company continues, the Company believes it has
meritorious defenses and intends to defend the case vigorously.
Federal Securities Class Action Suit
During the quarter ended March 31, 2002, a number of essentially identical
shareholder class action lawsuits were filed in the United States District
Court for the Northern District of California against the Company and certain
of its officers and former officers purportedly on behalf of those stockholders
who purchased the Company’s publicly traded securities between April 12, 2001
and June 7, 2001. In April 2002, the judge granted the defendants’ motion to
consolidate all of these actions into one; in May 2002, the court appointed the
lead plaintiffs and approved their selection of lead counsel and an amended
complaint was filed in July 2002. The plaintiffs allege that the defendants
made false and misleading statements, assert claims for violations of the
federal securities laws and seek unspecified compensatory damages and other
relief. In September 2002, the defendants moved to dismiss the amended
complaint. In March 2003, the judge granted defendants motion to dismiss with
leave to amend. The plaintiffs filed their amended complaint in April 2003 and
the defendants moved to dismiss the amended complaint in May 2003. The hearing
on defendants’ motion to dismiss was held on September 12, 2003. The judge has
not yet ruled on the motion. There has been no discovery to date and no trial
is scheduled. The Company continues to believe the claims are without merit
and intends to defend the action vigorously.
31
State Derivative Claim Based on the Federal Securities Class Action Suit
In August 2002, a consolidated amended shareholder derivative complaint
purportedly filed on behalf of the Company, captioned
In re Juniper Networks,
Inc. Derivative Litigation,
Civil Action No. CV 807146, was filed in the
Superior Court of the State of California, County of Santa Clara. The
complaint alleges that certain of the Company’s officers and directors breached
their fiduciary duties to the Company by engaging in alleged wrongful conduct
including conduct complained of in the securities litigation described above.
The complaint also asserts claims against a Juniper Networks investor. The
Company is named solely as a nominal defendant against whom the plaintiff seeks
no recovery. In October 2002, the Company as a nominal defendant and the
individual defendants filed demurrers to the consolidated amended shareholder
derivative complaint. In March 2003, the judge sustained defendants’ demurrers
with leave to amend. The plaintiffs lodged their amended complaint in May 2003
and the defendants demurred to the amended complaint and moved to stay the
consolidated action pending resolution of the federal action. On August 25,
2003, the Court sustained defendants’ demurrer with leave to amend and denied
the motion to stay without prejudice. Plaintiffs’ third amended complaint is
due December 16, 2003. There has been limited discovery to date and no trial
is scheduled. The Company continues to believe the claims are without merit
and intends to defend the action vigorously.
Item 6. Exhibits and Report on Form 8-K
(a) List of Exhibits:
32
(b) Reports on Form 8-K
None.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in this City of Sunnyvale, State of
California, on the 14th day of November 2003.
34
(in thousands, except per share amounts)
(unaudited)
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(in thousands)
(unaudited)
Nine months ended
September 30,
2003
2002
$
24,466
$
(128,102
)
35,754
28,919
23,597
25,735
—
83,479
(8,739
)
—
—
50,451
(14,108
)
(62,855
)
29,975
40,563
1,268
10,222
5,783
(18,351
)
240
3,778
9,740
(31,877
)
7,633
(5,828
)
115,609
(3,866
)
(14,136
)
(24,755
)
(671,826
)
(707,688
)
770,334
882,902
(25,000
)
—
—
(375,803
)
(900
)
(1,075
)
58,472
(226,419
)
77,403
18,185
392,750
—
(381,159
)
(145,975
)
88,994
(127,790
)
263,075
(358,075
)
194,435
606,845
$
457,510
$
248,770
$
42,863
$
53,787
$
—
$
359,888
$
—
$
10,844
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(unaudited)
Three months ended
Nine months ended
September 30,
September 30,
2003
2002
2003
2002
$
7,205
$
(88,330
)
$
24,466
$
(128,102
)
(2,048
)
2,124
878
5,609
(8,081
)
(24,760
)
(43,839
)
(71,198
)
$
(2,924
)
$
(110,966
)
$
(18,495
)
$
(193,691
)
$
0.02
$
(0.24
)
$
0.06
$
(0.37
)
$
(0.01
)
$
(0.30
)
$
(0.05
)
$
(0.56
)
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$
0.02
$
(0.24
)
$
0.06
$
(0.37
)
$
(0.01
)
$
(0.30
)
$
(0.05
)
$
(0.56
)
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Remaining
liability as of
Initial
Non-cash
Cash
September 30,
charge
charges
payments
2003
$
5,550
$
(744
)
$
(2,485
)
$
2,321
2,887
(2,887
)
—
—
3,455
—
—
3,455
2,093
—
(257
)
1,836
$
13,985
$
(3,631
)
$
(2,742
)
$
7,612
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Remaining
liability as of
Initial
Non-cash
Cash
September 30,
charge
charges
payments
Adjustments
2003
$
10,522
$
—
$
(8,975
)
$
(1,547
)
$
—
944
(944
)
—
—
—
6,083
—
(1,626
)
(1,054
)
3,403
$
17,549
$
(944
)
$
(10,601
)
$
(2,601
)
$
3,403
$
32,358
21,963
(21,723
)
$
32,598
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$
(5,619
)
61,100
6,900
2,400
3,600
74,000
82,700
499
762,953
$
914,533
Accumulated
Gross
Amortization
Net
$
75,359
$
(28,630
)
$
46,729
10,576
(4,089
)
6,487
$
85,935
$
(32,719
)
$
53,216
$
75,359
$
(14,964
)
$
60,395
10,576
(1,848
)
8,728
$
85,935
$
(16,812
)
$
69,123
Year ending December 31,
Amount
$
4,753
14,025
13,425
12,813
7,150
1,050
$
53,216
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$
987,661
—
—
(4,264
)
$
983,397
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Three months ended
Nine months ended
September 30,
September 30,
2003
2002
2003
2002
$
75,906
$
76,882
$
205,102
$
225,822
40,870
34,170
129,769
95,564
55,352
40,974
159,567
69,895
$
172,128
$
152,026
$
494,438
$
391,281
Three months ended
Nine months ended
September 30,
September 30,
2003
2002
2003
2002
$
7,205
$
(88,330
)
$
24,466
$
(128,102
)
384,879
370,367
379,941
344,110
(84
)
(423
)
(149
)
(687
)
384,795
369,944
379,792
343,423
23,288
—
19,733
—
408,083
369,944
399,525
343,423
$
0.02
$
(0.24
)
$
0.06
$
(0.37
)
$
0.02
$
(0.24
)
$
0.06
$
(0.37
)
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Three months ended
Nine months ended
September 30,
September 30,
2003
2002
2003
2002
$
7,205
$
(88,330
)
$
24,466
$
(128,102
)
—
—
(8,739
)
—
(3,478
)
7,229
(2,703
)
(2,889
)
(545
)
(228
)
1,565
(923
)
$
3,182
$
(81,329
)
$
14,589
$
(131,914
)
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Three months ended September 30,
Nine months ended September 30,
% of net
% of net
% of net
% of net
2003
revenues
2002
revenues
2003
revenues
2002
revenues
$
147,110
85
%
$
130,264
86
%
$
423,351
86
%
$
333,822
85
%
25,018
15
%
21,762
14
%
71,087
14
%
57,459
15
%
$
172,128
$
152,026
$
494,438
$
391,281
Three months ended September 30,
Nine months ended September 30,
% of net
% of net
% of net
% of net
2003
revenues
2002
revenues
2003
revenues
2002
revenues
$
75,906
44
%
$
76,882
51
%
$
205,102
42
%
$
225,822
58
%
40,870
24
%
34,170
22
%
129,769
26
%
95,564
24
%
55,352
32
%
40,974
27
%
159,567
32
%
69,895
18
%
$
172,128
$
152,026
$
494,438
$
391,281
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Three months ended September 30,
Nine months ended September 30,
Gross
Gross
Gross
Gross
2003
margin %
2002
margin %
2003
margin %
2002
margin %
$
48,694
67
%
$
54,336
58
%
$
145,868
66
%
$
130,200
61
%
14,245
43
%
14,529
33
%
40,852
43
%
36,816
36
%
$
62,939
63
%
$
68,865
55
%
$
186,720
62
%
$
167,016
57
%
Three months ended September 30,
Nine months ended September 30,
% of net
% of net
% of net
% of net
2003
revenues
2002
revenues
2003
revenues
2002
revenues
$
44,932
26
%
$
48,771
32
%
$
131,409
27
%
$
117,610
30
%
$
34,710
20
%
$
37,749
25
%
$
101,404
21
%
$
91,221
23
%
$
6,524
4
%
$
9,108
6
%
$
21,292
4
%
$
27,761
7
%
$
13,985
8
%
$
22,830
15
%
$
13,985
3
%
$
22,830
6
%
$
—
$
83,479
55
%
$
—
$
83,479
21
%
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Three months ended September 30,
Nine months ended September 30,
% of net
% of net
% of net
% of net
2003
revenues
2002
revenues
2003
revenues
2002
revenues
$
—
$
2,507
2
%
$
—
$
2,507
1
%
$
1,998
1
%
$
8,727
6
%
$
17,323
4
%
$
17,640
5
%
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Three months ended
Nine months ended
September 30,
September 30,
2003
2002
2003
2002
$
8,031
$
13,987
$
27,300
$
46,119
$
(9,386
)
$
(13,631
)
$
(33,689
)
$
(43,526
)
$
—
$
—
$
8,739
$
—
$
—
$
(19,851
)
$
—
$
(50,451
)
$
9,220
$
62,855
$
14,108
$
62,855
$
—
$
(180
)
$
—
$
(1,316
)
Table of Contents
of -2% and -2%,
respectively, reflecting taxes payable in certain foreign jurisdictions and the
inability to benefit certain charges and losses.
•
non-cash charges, including depreciation and amortization expenses;
•
a decrease in accounts receivable; and
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•
increases in accounts payable, other accrued liabilities and deferred revenue;
•
partially offset by gains on the sale of available-for-sale
investments and the partial retirement of the Subordinated
Notes.
•
non-cash charges, including depreciation and amortization expenses,
in-process research and development charges, and the write-down of
investments;
•
decreases in accounts receivable and other assets; and
•
increases in accrued warranty;
•
partially offset by the gains on the sale of available-for-sale investments; and
•
decreases in accounts payable, other accrued liabilities and deferred revenue.
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Valuation of Securities Given an Interest
Fair Value
Valuation of Securities Given an Interest
Rate Decrease of X Basis Points (BPS)
as of
Rate Increase of X BPS
September
Issuer
(150 BPS)
(100 BPS)
(50 BPS)
30, 2003
50 BPS
100 BPS
150 BPS
$
275,325
$
273,793
$
272,261
$
270,729
$
269,197
$
267,666
$
266,134
481,800
479,183
476,567
473,950
471,333
468,716
466,099
298,350
297,921
297,491
297,061
296,631
296,201
295,772
$
1,055,475
$
1,050,897
$
1,046,319
$
1,041,740
$
1,037,161
$
1,032,583
$
1,028,005
Table of Contents
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Exhibit Number
Description of Document
3.1
Juniper Networks, Inc. Amended and Restated Certificate of
Incorporation (incorporated by reference to exhibit 3.1 to
the Registrant’s annual report on Form 10-K for the fiscal
year ended December 31, 2000)
3.2
Amended and Restated Bylaws of Juniper Networks, Inc.
10.1
Form of Indemnification Agreement entered into by the
Registrant with each of its directors, officers and certain
employees
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Exhibit Number
Description of Document
31.1
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934
31.2
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934
32.1
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 (this
certification is furnished to the Securities and Exchange
Commission pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934 and shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of
1934
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Juniper Networks, Inc.
By:
/s/ Marcel Gani
Marcel Gani
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
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Exhibit Index
Exhibit Number
Description of Document
3.1
Juniper Networks, Inc. Amended and Restated Certificate of
Incorporation (incorporated by reference to exhibit 3.1 to
the Registrant’s annual report on Form 10-K for the fiscal
year ended December 31, 2000)
3.2
Amended and Restated Bylaws of Juniper Networks, Inc.
10.1
Form of Indemnification Agreement entered into by the
Registrant with each of its directors, officers and certain
employees
31.1
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934
31.2
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934
32.1
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 (this
certification is furnished to the Securities and Exchange
Commission pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934 and shall not be deemed filed for
purposes of Section 18 of the Securities Exchange Act of
1934
35
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
JUNIPER NETWORKS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the Corporation shall be 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware, 19801. The name of the registered agent of the Corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the (i) board of directors, (ii) the chairman of the board, (iii) the president, or (iv) the chief executive officer.
Prior to such time as a Registration Statement regarding the sale of the Corporation's Common Stock to the public is declared effective by the Securities and Exchange Commission, a special meeting of the stockholders may be called at any time by one or more stockholders holding a majority of the outstanding voting shares.
If a special meeting is called by any person other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.6 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
To be properly brought before an annual meeting or special meeting, nominations for the election of director or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For such nominations or other business to be considered properly brought before the meeting by a stockholder, such stockholder must have given timely written notice and in proper form of his intent to bring such business before such meeting. To be timely, such stockholder's notice must be delivered to or mailed and received by the secretary of the Corporation not less than one hundred twenty (120) days prior to the date of the Corporation's proxy statement released to stockholders in connection with the Corporation's previous year's annual meeting of stockholders. To be in proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the nominations, propose the business, and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice;
(iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting, or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provisions of the statutes or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of the question.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Sections 2.12 and 2.14 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Notwithstanding the following provisions of this Section 2.11, effective upon the listing of the Common Stock of the Corporation on the Nasdaq Stock Market and the registration of any class of securities of the Corporation pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the stockholders of the Corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting.
Except as otherwise provided in this Section 2.11, any action required by this chapter to be taken at any annual or special meeting of stockholders of a Corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action.
If the board of directors does not so fix a record date, the fixing of such record date shall be governed by the provisions of Section 213 of the General Corporation Law of Delaware.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the Corporation, but no such proxy shall be voted or acted upon after 3 years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a Corporation shall prepare and make, at least 10 days
before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The stock ledger shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each such stockholder.
2.15 CONDUCT OF BUSINESS
Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his absence by the president, or in his absence by a vice president, or in the absence of the foregoing persons by a chairman designated by the board of directors, or in the absence of such designation by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and conduct of business.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER
The authorized number of directors of the Corporation shall be nine (9). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires.
3.3 CLASSES OF DIRECTORS
At such time as a Registration Statement regarding the sale of the Corporation's Common Stock to the public is declared effective by the Securities and Exchange Commission, the Directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I Directors shall expire and Class I Directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II Directors shall expire and Class II Directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class III Directors shall expire and Class III Directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, Directors shall be elected for a full term of three years to succeed the Directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each Director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the Corporation. Stockholders may remove directors with or without cause. Any vacancy occurring in the board of directors with or without cause may be filled by a majority of the remaining members of the board of directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced.
Unless otherwise provided in the Certificate of Incorporation or these Bylaws:
(i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least 4 days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.
3.10 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
3.11 CONDUCT OF BUSINESS
Meetings of the board of directors shall be presided over by the chairman of the board, if any, or in his absence by the chief executive officer, or in their absence by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting shall determine the order of business and the procedures at the meeting.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
3.14 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. If at any time a class or series of shares is entitled to elect one or more directors, the provisions of this Article 3.14 shall apply to the vote of that class or series and not to the vote of the outstanding shares as a whole.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the Bylaws of the Corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken in
accordance with, the provisions of Article III of these Bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), Section 3.10 (adjournment and notice of adjournment),
Section 3.11 (conduct of business) and 3.12 (action without a meeting), with
such changes in the context of those Bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may also be called by
resolution of the board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the Corporation shall be a chief executive officer, one or more vice presidents, a secretary and a chief financial officer. The Corporation may also have, at the discretion of the board of directors, a chairman of the board, a president, a chief operating officer, one or more executive, senior or assistant vice presidents, assistant secretaries and any such other officers as may be appointed in accordance with the provisions of Section 5.2 of these Bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
Except as otherwise provided in this Section 5.2, the officers of the Corporation shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment. The board of directors may appoint, or empower an officer to appoint, such officers and agents of the business as the Corporation may require (whether or not such officer or agent is described in this Article V), each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the board of directors may from time to time determine. Any vacancy occurring in any office of the Corporation shall be filled by the board of directors or may be filled by the officer, if any, who appointed such officer.
5.3 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors or, in the case of an officer appointed by another officer, by such other officer.
Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.
5.4 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these Bylaws. If there is no chief
executive officer, then the chairman of the board shall also be the chief executive officer of the Corporation and shall have the powers and duties prescribed in Section 5.5 of these Bylaws.
5.5 CHIEF EXECUTIVE OFFICER
The Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board at all meetings of the Board of Directors. He or she shall have the general powers and duties of management usually vested in the chief executive officer of a Corporation, including general supervision, direction and control of the business and supervision of other officers of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the authority to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.
5.6 PRESIDENT
Subject to such supervisory powers as may be given by these Bylaws or the Board of Directors to the Chairman of the Board or the Chief Executive Officer, if there be such officers, the president shall have general supervision, direction and control of the business and supervision of other officers of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. In the event a Chief Executive Officer shall not be appointed, the President shall have the duties of such office.
5.7 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the chief executive officer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the chief executive officer. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these Bylaws, the chief executive officer or the chairman of the board.
5.8 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these Bylaws.
5.9 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the Corporation as may be ordered by the board of directors, shall render to the chief executive officer and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these Bylaws.
5.10 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.11 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that the person is or was a director, officer, employee or an agent of the Corporation, or is or was serving at the request of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, as a director or officer of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
The Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that the
person is or was a director, officer, employee or an agent of the Corporation, or is or was serving at the request of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, as an employee or agent of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, to procure a judgment in its favor by reason of the fact that he is or was a director or officer of Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, or is or was serving at the request of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in manner he reasonably believed to be in or not opposed to the best interests of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.
The Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, to procure a judgment in its favor by reason of the fact that he is or was an employee or agent of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, or is or was serving at the request of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney's fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in manner he reasonably believed to be in or not opposed to the best interests of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall
be made by the Corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made
(1) by the board of Directors or the Executive Committee by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) or if such quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted pursuant to the other subsections of this section shall not be deemed exclusive of any other rights or limiting any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, certificate of incorporation, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another while holding such office.
6.7 INSURANCE INDEMNIFICATION
The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the Corporation" shall include, in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation the provisions of Section 6.4) with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advanced of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
6.11 INDEMNITY FUND
Upon resolution passed by the Board, the Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or similar arrangements), to ensure the payment of certain of its obligations arising under this Article VI and/or agreements which may be entered into between the Corporation and its officers and/or directors from time to time.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The Corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, any vice president, the chief financial officer, the secretary or assistant secretary of this Corporation, or any other person authorized by the board of directors or the chief executive officer or a vice president, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided that the board of directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and"or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and"or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a Corporation and a natural person.
8.7 DIVIDENDS
The directors of the Corporation, subject to any restrictions contained in the Certificate of Incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.
8.9 SEAL
The Corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The original or other Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the Corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of directors of the Corporation that the Corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the Corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the Corporation shall be dissolved.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the Corporation is insolvent, to be receivers, of and for the Corporation when:
(i) at any meeting held for the election of directors the stockholders are so divided that they have failed to
elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or
(ii) the business of the Corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the Corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or
(iii) the Corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed under
Section 291 of the General Corporation Law of Delaware, but the authority of the
custodian shall be to continue the business of the Corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
ARTICLE XII
LOANS TO OFFICERS
The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a Director of the Corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the Corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this Bylaw shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.
Exhibit 10.1
JUNIPER NETWORKS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is effective as of ___________, by and between Juniper Networks, Inc., a Delaware corporation (the "Company"), and ________________ (the "Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and the Indemnitee and certain other directors, officers, employees, agents and fiduciaries of the Company may not be willing to continue to serve in such capacities without additional protection;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant and continual increases in the cost of such insurance and the general trend of insurance companies to reduce the scope of coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and scope of coverage of liability insurance provide increasing challenges for the Company; and
WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified by the Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
(a) "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banks in the State of Delaware are required or permitted to be closed.
(b) "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets.
(c) "Claim" shall mean any threatened, pending or completed action, suit, proceeding, arbitration or other alternative dispute resolution mechanism whether brought by or in the right of the Company or otherwise, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding, arbitration or other alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other, or any appeal therefrom.
(d) References to the "Company" shall include, in addition to Juniper Networks, Inc., any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Juniper Networks, Inc. (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
(e) "Expenses" shall mean any expenses including, without limitation, fees, charges and disbursements of counsel and all other costs, expenses and obligations paid or incurred by Indemnitee in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Claim relating to any Indemnifiable Event.
(f) "Expense Advance" shall mean an advance payment of Expenses to Indemnitee pursuant to Section 3(a).
(g) "Indemnifiable Event" shall mean any event or occurrence,
whether occurring on, prior to, or after the date of this Agreement, related to
(i) the fact that Indemnitee is or was a director, officer, employee, trustee,
agent or fiduciary of the Company, or any subsidiary of the Company, or is or
was serving at the request of or for the convenience of or to
represent the interests of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, or (ii) any action or inaction on the part of Indemnitee while serving in any capacity set forth in clause (i), including, without limitation, any breach of duty, neglect, error, misstatement, misleading statement, omission, or other act done or wrongfully attempted by the Indemnitee, or any of the foregoing alleged by any claimant, in any such capacity.
(h) "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(c), who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement or the Trust Agreement, or of other indemnitees under similar indemnity agreements).
(i) "Losses" shall mean (i) any amounts or sums which Indemnitee is legally obligated to pay as a result of a Claim or Claims made against Indemnitee for Indemnifiable Events including, without limitation, damages, judgments, fines, penalties and sums or amounts paid in settlement (if such settlement is approved in advance by the Company) of a Claim or Claims, and (ii) to the extent not paid in advance pursuant to the terms of this Agreement or the Trust Agreement for any reason, Expenses.
(j) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request or for the convenience or to represent the interests of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement.
(k) "Reviewing Party" shall mean any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification or Independent Legal Counsel as provided in Section 2(c).
(l) "Trust" has the meaning set forth in Section 3(f).
(m) "Trust Agreement" has the meaning set forth in Section 3(f).
(n) "Voting Securities" shall mean any securities of the Company (or a surviving entity as described in the definition of a "Change in Control") that vote generally in the election of directors.
2. Indemnification.
(a) Agreement to Indemnify. If Indemnitee is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company will, to the maximum extent permitted by law, indemnify Indemnitee against, and will
make Expense Advances from time to time of, any and all Expenses and Losses (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses and Losses, but excluding amounts paid in settlement of any Claim if such settlement was not approved by the Company) arising from or relating to such Claim, whether or not such Claim proceeds to judgment or is settled or otherwise is brought to a disposition. If requested by Indemnitee, the Company agrees that it will not unreasonably withhold its consent to any proposed settlement of any such Claim. Such payment of Expenses and Losses shall be made by the Company as soon as practicable after written demand by Indemnitee therefor is presented to the Company, but in any event payment of a demand for an Expense Advance shall be made not later than five (5) Business Days after the receipt by the Company of written demand therefor, which is accompanied by an explanation in reasonable detail and copies of invoices received by Indemnitee in connection with such Expenses (but, in the case of invoices in connection with legal services, any reference to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice).
(b) Reviewing Party's Role. Notwithstanding the provisions of
Section 2(a), (i) the obligations of the Company under Section 2(a) to make
indemnification payments for Losses shall be subject to the condition that the
Reviewing Party shall have determined (in a written opinion, in any case in
which Independent Legal Counsel is the Reviewing Party) that Indemnitee would be
permitted to be indemnified under this Agreement and applicable law, and (ii)
the obligation of the Company to make an Expense Advance shall be unconditional
with no need for approval by the Reviewing Party. If a court specified in
Section 15 ultimately determines that Indemnitee was not entitled as a matter of
law to retain any Expense Advance previously made by the Company or the Trust,
Indemnitee hereby agrees to reimburse the Company (or, if such Expense Advance
was made by the Trust, the Trust) for any such amount, provided that if
Indemnitee contests such entitlement in a proceeding or has commenced or
thereafter commences legal proceedings in such court to secure a determination
that Indemnitee should be indemnified under applicable law, any determination
made by the Reviewing Party that Indemnitee would not be permitted to be
indemnified under this Agreement or applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under this Agreement or applicable law, Indemnitee shall have the right to
commence litigation seeking an initial determination by the court or challenging
any such determination by the Reviewing Party or any aspect thereof, including
the legal or factual bases therefor, and the Company hereby consents to service
of process and to appear in any such proceeding. Absent such litigation, any
determination by the Reviewing Party shall be conclusive and binding on the
Company and Indemnitee.
(c) The Reviewing Party in Various Circumstances. For matters that require a determination by the Reviewing Party in respect of Losses, the Reviewing Party shall be the following:
(i) If Indemnitee is a director or officer claiming a right to indemnity for Losses under this Agreement or under the Company's Certificate of Incorporation or Bylaws at the time a determination by the Reviewing Party is required (a "Current Director or Officer") and if no Change in Control has occurred that was not approved by a majority of the Company's
Board of directors who were directors immediately prior to such Change in Control (any such non-preapproved transaction, a "Triggering Change in Control"), then the Reviewing Party will be the members of the Company's Board of Directors who are not parties to the Claim for which indemnification is being sought, or a committee of such directors designated by majority vote of the directors who are not parties to the Claim for which indemnification is being sought, or if such directors or committee so decide, the Independent Legal Counsel.
(ii) If Indemnitee is not a Current Director or Officer and no Triggering Change in Control has occurred, then the Reviewing Party will be the Company's chief executive officer or chief financial officer, acting on behalf of the Company, unless the Indemnitee expressly demands in writing at the time that he or she makes a demand for indemnification of a Loss that Independent Legal Counsel be the Reviewing Party, in which event Independent Legal Counsel shall be the Reviewing Party.
(iii) If a Triggering Change in Control has occurred, then the Reviewing Party will be Independent Legal Counsel unless Indemnitee, in its sole discretion, waives the right to have Independent Legal Counsel be the Reviewing Party, in which case the Reviewing Party will be the members of the Company's Board of Directors who are not parties to the Claim.
(iv) If, notwithstanding clauses (i) or (ii) of this subsection 2(c), Indemnitee seeks indemnification for Losses under the Trust, rather than seeking indemnification directly from the Company, the Reviewing Party will be Independent Legal Counsel.
In all circumstances where Independent Legal Counsel is the Reviewing
Party, Grover Brown will serve as Independent Legal Counsel unless he is no
longer meets the definition of Independent Legal Counsel in Section 1(h) or is
no longer willing or able to serve as such. If the named Independent Legal
Counsel resigns, is unable to perform his duties as Independent Legal Counsel or
no longer meets the definition of Independent Legal Counsel in Section 1(h),
another person or firm meeting the definition of Independent Legal Counsel in
Section 1(h) shall be selected as successor Independent Legal Counsel in the
manner contemplated by the Trust Agreement, in which event such successor
Independent Legal Counsel shall be the Independent Legal Counsel for purposes of
this Agreement.
(d) Independent Legal Counsel Opinion. In any case in which Independent Legal Counsel is acting as the Reviewing Party, such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under this Agreement and applicable law and the Company agrees to abide by such opinion. The Company agrees to pay a reasonable retainer fee and the reasonable fees, charges and disbursements of any Independent Legal Counsel selected to act as the Reviewing Party and to indemnify fully such counsel against any and all expenses (including reasonable fees, charges and disbursements of counsel), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay expenses of more than one Independent Legal Counsel in connection with all matters concerning the Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other indemnitees making indemnification claims that relate to the same Claim as the Indemnitee's unless (i) the Company otherwise determines or (ii) any
Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel making any determination with respect to other indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 10, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith.
(f) Action to Compel Payment. If a claim for indemnification for
Losses or any Expense Advance pursuant to this Agreement is not paid in full for
any reason (including, but not limited to, a decision adverse to the Indemnitee
by the Reviewing Party, or the failure of the Reviewing Party to render its
determination) within five (5) Business Days of the date of demand, in the case
of Expense Advance, or thirty (30) days of the date of demand in the case of any
other claim for indemnification of Losses or Expenses, then Indemnitee may file
suit to recover the unpaid amount of such claim in a court specified in Section
15. The provisions of Sections 3(c) and 13 shall be applicable to any such
action.
3. Expenses; Indemnification Procedure.
(a) Expense Advances. Expense Advances to be made hereunder shall be paid by the Company to Indemnitee as soon as practicable but in any event no later than five (5) Business Days after written demand by Indemnitee therefor to the Company. Nothing set forth herein shall prevent the Indemnitee from making a demand upon the Trust for payment of Expense Advances.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitee's right to receive Expense Advances and to be indemnified for Losses under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee relating to an Indemnifiable Event for which a request for Expense Advance or for which indemnification for Losses will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power.
(c) Burden of Proof; No Presumption Against Indemnitee. Indemnitee's right to indemnification shall be enforceable by Indemnitee in the court specified in Section 15 and shall be enforceable notwithstanding any adverse determination by the Reviewing Party. In any action in which Indemnitee seeks to receive Expense Advances or indemnification for Losses, the Company shall be required to make the requested payment unless it satisfies the burden of proving that the Expense Advances or indemnification for Losses are not permitted by applicable law or are not required under this Agreement. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that Expense Advances or indemnification for Losses is not permitted by applicable law or hereunder. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing
Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be entitled to receive Expense Advances or be indemnified for Losses under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim relating to an Indemnifiable Event pursuant to
Section 3(b), the Company has liability insurance in effect which may cover such
Claim, the Company shall give prompt notice of the commencement of such Claim to
the insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action to
cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as
a result of such Claim in accordance with the terms of such policies.
(e) Selection of Counsel. In any Claim made against Indemnitee relating to an Indemnifiable Event for which a request for Expense Advance or for which indemnification for Losses will or could be sought under this Agreement, the Company shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (not to be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be at the expense of the Company.
(f) The Trust.
(i) The Company has established a trust for the benefit of the Indemnitee and certain other beneficiaries (the "Trust") pursuant to an Indemnification Trust Agreement dated June 23, 2003 (the "Trust Agreement"), among the Company, Bank of New York (Delaware), as trustee, and Lisa Berry, as the initial Beneficiaries' Representative. In addition to Indemnitee's other rights under this Agreement, the Company's Certificate of Incorporation and Bylaws and any insurance policies, Indemnitee shall have the right to receive payments in respect of Expense Advances and indemnification for Losses in the manner provided in this Agreement and the Trust Agreement. Indemnitee hereby confirms that the beneficiaries' representative acting from time to time under the Trust Agreement, including all replacement representatives (each, the "Beneficiaries' Representative"), shall be Indemnitee's agent and attorney-in-fact to pursue demands for payment of Expense Advances or indemnification for Losses as provided in the Trust Agreement.
(ii) Indemnitee may request payment of Expense Advances or indemnification for Losses either under the Trust Agreement out of the trust funds under the Trust (the "Trust Fund") or from the Company, or both, under this Agreement, in its discretion. Any such request by the Indemnitee shall be made to the Beneficiaries' Representative with a copy to the Company under the notice procedures specified in the Trust Agreement.
(iii) Upon receipt by the Company of a copy of notice from Indemnitee to the Beneficiaries' Representative requesting payment of any Expense Advance, the Company shall have the right promptly to make any such payment in its discretion in lieu of having such payment made out of the Trust Fund.
(iv) From and after receipt by the Company of a copy of notice from Indemnitee to the Beneficiaries' Representative requesting payment of indemnification for Losses out of the Trust Fund, the Company will cooperate reasonably to facilitate a determination by Independent Legal Counsel as Reviewing Party with respect thereto.
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to make Expense Advances to, and indemnify, the Indemnitee to the fullest extent permitted by law, notwithstanding that such Expense Advances and indemnification are not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 9(a).
(b) Nonexclusivity. The rights to Expense Advances and indemnification provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, the Trust Agreement, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity.
5. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment of the amounts otherwise indemnifiable hereunder under the Trust, any insurance policy, provision of the Company's Certificate of Incorporation, Bylaw or otherwise.
6. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses or Losses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses or Losses to which Indemnitee is entitled.
7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee.
8. Liability Insurance. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary.
9. Exceptions. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts, omissions or transactions from which Indemnitee may not be indemnified under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify for Losses or make Expense Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to receive Expense Advances or indemnification for Losses under this Agreement, the Trust Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Delaware Law.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.
10. Period of Limitations. No legal action relating to the entitlement of Indemnitee to Expense Advances or indemnification for Losses shall be brought and no such cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.
11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place, provided that if the Company continues to exist it shall remain jointly and severally liable with such successor for the obligations hereunder. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request.
13. Attorneys' Fees. If any action is instituted by Indemnitee under this Agreement or under the Trust Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless as a part of such action a court of competent jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the right of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless as a part of such action a court having jurisdiction over such action determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third Business Day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. So long as this Agreement and the Trust Agreement remain in effect, the Company agrees to provide prompt written notice of the name and address of the Beneficiaries' Representative and each change of address or of the Beneficiaries' Representative from time to time under the Trust Agreement.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement, and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim. The Company and Indemnitee irrevocably waive any right to object that any action brought in such court is in an inconvenient forum.
16. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within the State of Delaware.
18. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.
20. Integration and Entire Agreement. This Agreement and the Trust Agreement set forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written.
COMPANY
JUNIPER NETWORKS, INC.
Address: Juniper Networks, Inc. 1194 N. Mathilda Avenue Sunnyvale, CA 94089-1206 Attention: General Counsel & Secretary Facsimile: 408-745-8910
INDEMNITEE
EXHIBIT 31.1
CERTIFICATION
I, Scott Kriens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Juniper Networks, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
By: /s/ Scott Kriens
------------------------------------
Name: Scott Kriens
Title: Chairman and Chief Executive Officer
Date: November 14, 2003
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EXHIBIT 31.2
CERTIFICATION
I, Marcel Gani, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Juniper Networks, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
By: /s/ Marcel Gani
-------------------------------
Name: Marcel Gani
Title: Chief Financial Officer
Date: November 14, 2003
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EXHIBIT 32.1
SECTION 1350 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
I, Scott Kriens, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Juniper Networks, Inc. on Form 10-Q for the quarter ended September 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Juniper Networks, Inc.
By: /s/ Scott Kriens
------------------------------------
Name: Scott Kriens
Title: Chairman and Chief Executive Officer
Date: November 14, 2003
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I, Marcel Gani, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Juniper Networks, Inc. on Form 10-Q for the quarter ended September 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Juniper Networks, Inc.
By: /s/ Marcel Gani
-------------------------------------
Name: Marcel Gani
Title: Chief Financial Officer
Date: November 14, 2003
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A signed original of these written statements have been provided to Juniper Networks, Inc. and will be retained by Juniper Networks and furnished to the Securities and Exchange Commission or its staff upon request.