Juniper Networks
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K
------------------------
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 77-0422528
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

385 RAVENDALE DRIVE MOUNTAIN VIEW, CA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

(650) 526-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
NONE NONE
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, $.00001 PAR VALUE
(TITLE OF CLASS)
------------------------

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
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]

As of March 7, 2000, there were 156,504,433 shares of the Registrant's
Common Stock outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant (based on the closing price for the Common
Stock on the Nasdaq National Market on March 7, 2000) was approximately
$29,023,901,284.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to
specified portions of the Registrant's definitive Proxy Statement to be issued
in conjunction with the Registrant's 2000 Annual Meeting of Stockholders, which
is expected to be filed not later than 120 days after the Registrant's fiscal
year ended December 31, 1999.

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JUNIPER NETWORKS, INC.
ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

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<S> <C> <C>
PART I
Item 1 Business.................................................... 3
Item 2 Properties.................................................. 25
Item 3 Legal Proceedings........................................... 25
Item 4 Submission of Matters to a Vote of Security Holders......... 25
Executive Officers of the Registrant........................ 26

PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 27
Item 6 Selected Financial Data..................................... 27
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 27
Item 7A Quantitative and Qualitative Disclosures about Market
Risk........................................................ 27
Item 8 Financial Statements and Supplementary Data................. 28
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 28

PART III
Item 10 Directors and Executive Officers of the Registrant.......... 28
Item 11 Executive Compensation...................................... 28
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 28
Item 13 Certain Relationships and Related Transactions.............. 28

PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 29
Signatures.................................................. 31
</TABLE>

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PART I

ITEM 1 BUSINESS

OVERVIEW

We are a leading provider of Internet infrastructure solutions that enable
Internet service providers and other telecommunications service providers, to
meet the demands resulting from the rapid growth of the Internet. We deliver
next generation Internet backbone routers that are specifically designed, or
purpose-built, for service provider networks and offer our customers increased
reliability, performance, scalability, interoperability and flexibility, and
reduced complexity and cost compared to current alternatives. Our flagship
product is the M40 Internet backbone router, and we recently introduced the M20,
an Internet backbone router purpose-built for emerging service providers. Our
Internet backbone routers combine the features of our JUNOS Internet Software,
high performance ASIC-based packet forwarding technology and Internet-optimized
architecture into a purpose-built solution for service providers. Unlike
conventional routers, which were originally developed for enterprise
applications and are increasingly inadequate for service provider use in public
networks, our Internet backbone routers are specifically designed to accommodate
the size and scope of the Internet.

INDUSTRY BACKGROUND

The Internet has evolved from an academic research project into a network
of hundreds of separately administered, public and private networks
interconnected using Internet Protocol (IP). IP traffic is growing
exponentially, driven by increasing numbers of new users, connected devices and
Internet transactions. The result of the widespread use of IP is a ubiquitous
network that today carries a large and growing amount of data traffic enabling
millions of users to share information and conduct electronic commerce. Industry
research firms, forecast continued dramatic growth worldwide in the Internet and
Internet traffic. The importance of IP continues to increase as the number of
users, connected devices and transactions over the Internet grows. This growth
highlights the potential for the Internet to replace the traditional telephone
network and the pervasive public network.

The rapid adoption of the Internet and the tremendous growth of IP traffic
have prompted service providers to construct large scale data networks. These
networks are being optimized to transport data traffic as compared to
traditional telephone networks, which were optimized to transport voice traffic.
The architecture of these next generation networks is being driven by two key
technologies: packet/cell switching and optical networking.

Advantages of Packet/Cell Switching. Packet/cell switching technology,
which divides data traffic into distinct units called packets or cells and
routes each packet or cell independently, provides superior use of available
network capacity compared to traditional circuit switching technology. In a
circuit switched network, each data stream, such as a voice telephone call
between two points, is provided with a dedicated channel, or circuit, for the
duration of the telephone call. This approach leads to inefficient use of
network resources because a channel is fully dedicated to each transaction,
whether or not data is actually flowing at any given moment. As a result, a
circuit switched architecture is highly inefficient for Internet applications
which tend to create large bursts of data traffic followed by long periods of
silence. Packet/cell switching architectures enable greater utilization out of a
fixed capacity circuit by combining traffic that has different capacity demands
of the circuit at different times. Packet/cell switches more efficiently fill
the available network bandwidth with packets of data from many users, thereby
reducing the wasted bandwidth due to silence from any one particular user. The
use of packet/cell switching is driving the architecture of the Internet to be
fundamentally different from traditional circuit switched voice based networks.
In packet/cell switched networks, IP has emerged as the de facto standard for
providing services to end users. Primary packet/cell switching products include
frame relay switches, ATM switches and routers.

Rapid Advances in Optical Networking. Optical networking technology uses
pulses of light, rather than pulses of electricity, to transmit data in a
network, and uses fiber optic connections instead of wires. Optical networking
can be used to transmit much more information over a given connection than
electrical signals can

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convey. Optical networking advances, such as dense wavelength division
multiplexing, or DWDM, which allows transmission of several frequencies of light
over one strand of optical fiber, have enabled still higher data transmission
rates and improved efficiency of bandwidth utilization. Currently available DWDM
technology enables the transmission of up to 128 frequencies which allows a
service provider to multiply the transmission capacity of a fiber optic network
by a factor of up to 128.

Packet/Cell Technologies Have Not Kept Up With Optical Technologies. Many
service providers are installing DWDM equipment and are increasingly focusing on
combining IP and optical networking technologies. However, traditional packet
switching equipment is not capable of forwarding packets at rates sufficient to
keep pace with optical transmission speeds. As affordable fiber optic
transmission capacity becomes widely available, the performance and complexity
of current packet/cell switching architectures is increasingly constraining the
growth of the Internet.

THE NEW REQUIREMENTS OF THE INTERNET

The reliability and performance of current Internet infrastructure
equipment have become critical issues for service providers as they continue to
support dramatic growth in IP traffic and increasingly seek to offer new revenue
generating, mission-critical services, such as Virtual Private Networks, or
(VPNs), and voice-over IP. New requirements for next generation networks are
driving a set of new requirements for Internet infrastructure equipment,
including:

- high reliability;

- high performance;

- high performance under stressful conditions;

- scalability;

- interoperability;

- reduced complexity; and

- cost effectiveness.

High Reliability. As businesses and consumers increasingly rely on the
Internet for mission-critical applications, high network reliability becomes
essential. Service providers are increasingly expected to provide a similar
degree of reliability on the Internet that users have become accustomed to on
the traditional telephone network. The "five nines" (99.999%) reliability
standard of the traditional telephone network is becoming the target to which
suppliers of next-generation Internet platforms are being compared. As service
providers begin to bundle voice and data on their networks, this high degree of
reliability is becoming even more critical.

High Performance. To handle the rapid growth in IP traffic, today's
networks increasingly require routers that can operate at interface speeds as
high as 2.5 billion bits of information per second (Gbps), and in the near
future, 10 Gbps. The processing of data packets at these high speeds requires
sophisticated forwarding technology to inspect each packet and assign it to a
destination based on priority, data type and other considerations. Since a large
number of IP packets, many of which perform critical administrative functions,
are small in size, high performance Internet routers need to achieve their
specified transmission speeds even for small packet sizes. Since smaller packets
increase packet processing demands, routing large numbers of smaller packets
tends to be more resource intensive than routing of larger packets. Routers
based on general-purpose microprocessors traditionally are unable to forward
small packets at maximum rates, and, as a consequence, fail to operate at wire
speed, which results in data loss, packet retransmission and network
instability. A wire speed router, which achieves its specified transmission rate
for any type of traffic passing through it, can accomplish this task. Unlike the
enterprise environment, where network capacity is relatively inexpensive and
service quality requirements are not as demanding, the additional capacity and
related costs of network bandwidth and low service levels resulting from
retransmission of dropped packets are increasingly

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unacceptable to service providers. Thus, provisioning of mission-critical
services increasingly requires the high performance enabled by wire speed
processing.

High Performance Under Stressful Conditions. In a large and complex
network, individual components inevitably fail. However, the failure of an
individual device or link must not compromise the network as a whole. In a
typical network, when a failure occurs, the network loses some degree of
capacity and, in turn, a greater load falls on the remaining network routers,
which must provide alternate routes. Routers must quickly adjust to the new
state of the network to maintain packet forwarding rates and avoid dropping
significant numbers of packets when active routes are lost or when large numbers
of routes change. Routing protocols are used to accomplish this convergence, a
process that places even greater stress on the router. Given the complexity of
Internet infrastructure, particularly compared to enterprise networks, the
convergence process is far more complex and places a far greater load on the
routing software, thereby requiring a much more sophisticated device.

Scalability. Due to the rapid growth in Internet users and IP traffic,
service providers must continuously expand their networks, both in terms of
increased numbers of access points of presence (PoPs), and also greater capacity
per PoP. To facilitate this expansion process, Internet infrastructure equipment
must be highly scalable. Next generation routers therefore need to be
upgradeable and configurable to function within constantly changing networks
while incurring minimal downtime.

Interoperability. Service providers do not have the time or inclination to
change their existing networks to favor introduction of new products; rather,
new products must be compatible with the existing environment. Given the open
and inter-connected nature of the Internet, the complexity of running an
Internet backbone network requires a service provider to control and police
relations with other service providers. For example, service providers must
carefully control what traffic is accepted under what conditions from other
providers. Major service providers connect their respective networks via peering
arrangements, in which service providers agree to exchange traffic with one
another. These arrangements are prone to abuse, such as the illicit use by one
service provider of another service provider's backbone to carry excess traffic.
Service provider relationships are controlled by a set of rules called policies,
implemented through a data protocol called Border Gateway Protocol 4, or BGP4.
The software in each router must offer 100% compatibility with all aspects of
BGP4, as well as 100% compatibility with the interior protocols and standards
used within each service provider's backbone network. The compatibility level
must be maintained despite changes to software equipment configuration and
network architecture and upgrades to the various protocol standards. Thus,
routing software must be flexible and quickly upgradeable to support any
necessary revisions. This level of compatibility, in turn, cannot impact the
performance, scalability or reliability of the equipment. Attaining this
sophisticated level of interoperability is highly challenging and requires
significant testing to ensure compatibility.

Reduced Complexity. Today's Internet architectures are highly complex.
Since traditional routers have not fully met service providers' needs, many
service providers have tried to improve Internet backbone performance by adding
additional network devices such as ATM switches in the core of the network. As a
result, service providers have built networks with ATM switches surrounded by an
overlay network of lower capacity routers. These different layers of equipment
lead to higher capital costs and the need to manage distinct network elements.
ATM switches are also poorly suited to carrying IP traffic, which results in
inefficient use of network bandwidth. Moreover, this network design can cause
unpredictable router behavior during periods of stress because the routers are
not aware of the ATM backbone infrastructure and thus cannot quickly converge if
there is a partial network outage.

Cost Effectiveness. Exponential growth in IP traffic and intense price
competition in the telecommunications market is increasingly requiring service
providers to seek solutions that significantly reduce the capital expenditures
required to build and operate their networks. In addition to the basic cost of
equipment such as routers, service providers incur substantial ancillary costs
in terms of space required to deploy the equipment, power consumption and
on-going operations and maintenance. Service providers therefore want to deploy
dense and varied equipment configurations in limited amounts of rack and floor
space. Currently, service providers are moving from OC-3 (155 million bits per
second, or Mbps) and OC-12 (622 Mbps) speed

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networks at the core to higher capacity OC-12 and OC-48 (2.5 gigabits per
second, or Gbps) speed networks. In turn, the connections from each PoP to the
core are evolving from 100 Mbps and OC-3 speeds to gigabit and OC-12
transmission rates. Therefore, in order to continue to scale their networks
toward higher data speeds in a cost effective manner, service providers need the
ability to mix and match easily many different speed connections at appropriate
densities, without significantly increasing the consumption of space or power.

There is a clear need for next generation routers that can support high
speeds and offer new IP-based services. Network operators are eagerly seeking
new solutions that increase the level of scalability and reliability within
their networks and reduce the cost and complexity of their architectures.

THE JUNIPER NETWORKS SOLUTION

We develop, market and sell what we believe is the first commercially
available purpose-built Internet backbone router optimized for the specific high
performance needs of service providers. Our flagship product, the M40 Internet
backbone router, combines the features of our JUNOS Internet Software,
high-performance ASIC-based packet forwarding technology and Internet-optimized
architecture. As the need for core bandwidth has continued to increase, it
created the need for service rich platforms at the edge of the network. In
December 1999 we introduced the M20 backbone router, purpose-built to alleviate
capacity demand on access points in the PoP. The M40 router operates at the
Internet's core while the M20 router extends purpose-built performance
capability to service provider entry points. The M20 router is also a
cost-efficient solution for new and emerging IP carriers (smaller service
providers) capable of enabling a high-bandwidth core and high-speed services for
the service provider edge in one device.

The M40 and M20 platforms share common software and services, and common
ASIC technology for full compatibility and scalability. Critical service
provider applications including high-speed access, peering, and hosting are
served by both platforms. Physical interfaces are interchangeable between
platforms, increasing user flexibility and allowing common sparing.

JUNOS Internet Software. Our Internet software, called JUNOS, is one of our
key competitive differentiators. JUNOS is designed to meet the IP network
routing, operations and control requirements of the world's largest service
providers and is an integral component of our product family system
architecture. The ability of JUNOS to manage the complex network sharing
relationships among service providers allows our products to be placed at
critical points in the core of a service provider's network. The JUNOS Internet
Software allows our products to have widespread network placement due to its
interoperability with Cisco's Internetwork Operating System, or IOS, currently
the most broadly deployed routing operating system. The ability to coexist has
enabled the M40 to achieve successful deployment where other products in the
past have failed.

Unconstrained by legacy routing software, we developed JUNOS using a
modular design, in which distinct functions are implemented as separate modules
with well defined interfaces and interactions, simplifying troubleshooting and
maintenance. JUNOS operates in protected memory mode. These features keep
functionality distinct, and minimize the impact of any failure that may occur to
the specific software application in which the failure occurs. Also, we believe
JUNOS' software modularity will enable the continuous upgrade of new enhanced
capabilities, while protecting reliability and compatibility with existing
networks. The design and development of the JUNOS Internet Software has been
possible due to the significant Internet engineering expertise of our
development team. Our expert engineers have authored or co-authored 22 Requests
for Comments, which are documents by industry experts that define major
standards for Internet protocols.

High Performance ASIC-based Packet Forwarding Technology. The M40 Internet
backbone router contains five major application specific integrated circuits
that we designed and built using the most advanced ASIC technology. These ASICs
contain over five million gates in total, with three of the designs each having
a larger number of transistors than the Intel Pentium II microprocessor. The
result is a system that is substantially faster than today's general purpose
microprocessor based routers in its ability to process and forward IP packets,
allowing our products to deliver high performance at wire speed. The ability to
enhance and implement large scale ASICs will be a long-term differentiator for
us, particularly as the sophistication
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required to forward traffic across higher speed networks increases. As with the
introduction of the M20, we expect to continue to leverage our existing ASIC
technology in future products and continue to capitalize on our advanced ASIC
design capabilities.

Internet Optimized Architecture. As purpose-built Internet backbone
routers, our products employ an architecture designed exclusively for the
Internet. The system architecture provides a clean separation between the
routing and packet-forwarding functions. Separating these two functions enables
us to develop independently a full-featured routing protocol and traffic
engineering functionality through our JUNOS Internet Software and wire speed
packet forwarding performance through high performance ASICs. Furthermore, with
the routing and forwarding functions segregated, the products do not sacrifice
performance, even when there is a failure in the network. When a failure occurs,
JUNOS detects the failure and is able to quickly converge to the new state of
the network while the ASICs continue to forward packets at wire speed until they
receive updated routes from JUNOS.

The key benefits of our solution are:

- carrier class reliability;

- wire speed performance;

- scalability;

- interoperability;

- flexibility;

- reduced complexity; and

- cost effectiveness.

Carrier Class Reliability. Our products' system architecture provides
reliable operation for service providers in large complex networks even under
abnormal conditions. This architecture, combined with JUNOS' modular software
design, limits the impact of a failure to the specific software application. In
addition, the hardware used in our products has been designed with a very high
level of integration to maximize the mean time between failure. Moreover, data
and instructions have appropriate error correction and parity checks in memory
to guarantee their integrity.

Wire Speed Performance. We believe the M40 is the first Internet backbone
router that can forward minimum-sized IP packets over OC-48 links at wire speed.
This maximizes network stability and the capacity utilization of expensive wide
area circuits. In contrast to available solutions, the M40 is able to maintain
packet forwarding rates and to avoid dropping significant numbers of packets
when active routes are lost or when large numbers of routes change.

Scalability. Our JUNOS Internet Software is designed to accommodate service
providers' scale requirements. In addition, the ASIC interface links have been
oversized, enabling the M40 to easily scale with growing levels of data traffic.
We believe our software and ASIC designs represent a competitive advantage,
because it is very difficult for existing vendors to graft these capabilities to
their prior generation designs.

Interoperability. The M40 has demonstrated consistent interoperability with
existing network infrastructures. Our internal test environments confirm
interoperability with Cisco routers, a variety of leading ATM and Gigabit
Ethernet switches and SONET add drop multiplexers. Deployment of the M40 at
several major carriers has demonstrated that JUNOS is interoperable with
installed Cisco routers for both routing and administration. In addition, JUNOS
enables service providers to manage their complex peering relationships with
other service providers despite frequent software, equipment configuration and
network architecture changes.

Flexibility. Our ASICs are programmable and provide the flexibility to add
support for new protocols or changes in existing protocols. Since JUNOS is
modular in architecture and already supports existing and emerging protocols, it
is also a platform for efficiently introducing new interfaces and new services
in the network.
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Reduced Complexity. Our products are purpose-built for service providers
and allow a simple and more structured approach to building Internet backbones
compared to the complex topologies in place today. With the M40 and the M20,
service providers can build more efficient networks with less dependence on
devices like ATM switches, which reduce the operational burdens of running
multiple distinct network layers.

Additionally, our products offer a thorough implementation of traffic
engineering based on MPLS, including the ability to dynamically adapt traffic
flows according to rules adopted by the network operator. Traffic engineering
refers to a set of capabilities for understanding underlying traffic trends in
the network and maximizing the utilization of the network on multiple
dimensions.

Cost Effectiveness. We have integrated these customer benefits into a
system that provides critical routing and forwarding functions at lower overall
cost. Our products' wire speed performance allows service providers to reduce
network operating cost by making more efficient use of their networks. In
addition, we designed the M40 to support a broad variety and density of
interfaces in a unit that occupies half a typical telecommunications rack. As a
result, service providers can cost effectively deploy the M40, which can be
easily upgraded, to connect to a variety of speed and circuit types at the
network core.

THE JUNIPER NETWORKS STRATEGY

Our objective is to become the primary supplier of high performance
Internet backbone infrastructure. The key elements of our strategy include:

- leverage early lead as supplier of purpose-built Internet infrastructure;

- work very closely with key customers;

- increase penetration at major service providers;

- leverage early success to penetrate new customers rapidly;

- expand sales and distribution network;

- maintain and extend technology leadership; and

- enable new IP-based services.

Leverage Early Lead as Supplier of Purpose-Built Internet
Infrastructure. From inception we have focused solely on designing and building
Internet infrastructure for service providers. We have integrated purpose-built
software and hardware into an Internet optimized architecture that specifically
meets service providers' needs and have seen significantly positive initial
responses from our existing and potential customers. We believe that many of
these customers will deploy Internet backbone infrastructure equipment from only
a few vendors. The purpose-built advantages of our products provide us with a
time-to-market lead, which is a critical advantage in gaining rapid penetration
as one of these selected vendors. Once our products are widely deployed in a
service provider's network as the primary or even secondary Internet backbone
infrastructure equipment, we believe we create a significant barrier to entry to
potential competitors who do not currently offer commercially-viable next
generation routing solutions.

Work Very Closely with Key Customers. In developing our products, including
our JUNOS Internet Software, we worked very closely with customers to design and
build a product specifically to meet their complex needs. Since JUNOS has been
available and used by our customers for over a year, we understand clearly the
challenges facing these carriers, enabling us to subsequently design additional
features and capabilities into both our software and hardware. We believe our
close relationships with, and constant feedback from, our customers have been
key elements in our design wins and rapid deployment to date. We plan to
continue to work very closely with our key customers to implement enhancements
to current products as well as to design future products that specifically meet
their evolving needs. We are also actively involved with these customers in
developing key standards, such as MPLS, and are an active participant in
standards organizations such as the Internet Engineering Task Force and the
Optical Internetworking Forum.

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Increase Penetration at Major Service Providers. Our initial focus has been
to penetrate several of the largest service providers, where operators have the
technical sophistication, resources and desire to test and evaluate our solution
against potential alternatives. While we have received initial orders from major
service providers, such as UUNet (MCI Worldcom), Cable & Wireless, AT&T/IBM
Global Services, Frontier GlobalCenter and Verio, we believe that there is a
significant opportunity to further penetrate these large and complex networks
given the advantages of our products. As the growth of the Internet requires
these service providers to continue to build their networks and replace outdated
equipment, we will pursue further opportunities to capture greater market share
within these large accounts.

Leverage Early Successes to Penetrate New Customers Rapidly. We believe
that the Internet infrastructure equipment buying patterns of the medium and
smaller-sized service providers typically lag behind those of the larger service
providers. Since the network challenges that the large service providers face
today are likely to be the problems encountered by smaller service providers in
the near future, we believe smaller service providers are likely to deploy
equipment similar to larger service providers. Furthermore, smaller service
providers often lack the technical resources to thoroughly test different
vendors' products. Therefore, they typically piggyback on larger service
providers' evaluation efforts by purchasing the same platforms deployed by the
larger service providers. Since we have begun to sell to several of the largest
service providers, we intend to leverage this success by allocating our
marketing efforts towards a greater number of medium and smaller-sized service
providers.

Expand Sales and Distribution Network. In order to pursue the large number
of potential customers for our Internet infrastructure solutions, we plan to
continue to aggressively add to our sales and distribution capabilities. We are
adding to our direct sales and support capabilities for our major customers in
North America and adding value-added resellers to sell to and support our other
domestic and international customers. In the quarter ended December 31, 1999, we
added 12 people to the sales organization for a total of 72 people.

Maintain and Extend Technology Leadership. Our Internet software, ASIC
technology and Internet-optimized architecture have been key elements to
establishing our technology leadership. We believe that these elements are
highly leverageable into future products we are currently developing. We intend
to maintain and extend our technological leadership in the Internet
infrastructure market through continued significant investment in JUNOS Internet
Software and ASIC designs to enhance the feature richness of our products and to
develop future differentiated offerings for service providers.

Enable New IP-based Services. Our platform enables service providers to
build networks cost effectively and to offer new differentiated services for
their customers more efficiently than conventional products. While we believe
that current service providers are likely to be the largest and most successful
IP network operators in the near term, many new service providers are likely to
emerge oriented around the delivery of IP-based services. These services, which
include web hosting, outsourced Internet and intranet services, VPNs, outsourced
enterprise applications and voice-over IP, are cost-effectively enabled by our
Internet infrastructure platform. Although the market for our products today is
driven primarily by the need for traditional Internet network capacity, as other
IP-based services and applications continue to grow in importance, the total
potential market for our products will continue to grow commensurately.

TECHNOLOGY

Our core technology consists of our Internet backbone router architecture,
JUNOS Internet Software and ASIC hardware expertise. Our general-purpose
architecture is initially embodied in the M40, but also is designed to serve as
the platform for future generations of products, such as the M20.

M40 Architecture

The architecture of our products is exemplified by the M40. The M40
architecture delivers the forwarding rates and network control necessary to
scale Internet backbones rapidly and reliably. The M40 system includes a Routing
Engine, or RE, and a Packet Forwarding Engine, or PFE. The clean separation of
the routing and forwarding functions ensures that the two functions do not
compete for the same resources.
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The Routing Engine. The RE consists of the JUNOS Internet Software
operating on an Intel-based platform. The JUNOS Internet Software features
Internet-scale protocol support, with flexible policy software that enables
maximum control over the acceptance, modification and advertisement of route
prefixes. In addition, the JUNOS Internet Software offers a range of
configuration management tools that simplify the configuration process and help
protect against operator error. The RE conducts the processing intensive
activity of maintaining the routing table, from which the forwarding table
residing in the PFE is derived. The RE is connected to the PFE through a
dedicated 100 Mbps link. After constructing or updating the forwarding table,
the RE downloads a copy of the table to the PFE. Updates to the forwarding table
are done atomically in small incremental steps so that packet forwarding is not
interrupted by routing changes.

The Packet Forwarding Engine. The M40 delivers wire speed packet forwarding
using our ASIC designs. All links between ASICs are oversized, dedicated
channels, and the PFE architecture is free from the bottlenecks faced by
traditional crossbar switches, which use intelligent agent software to perform
both routing and forwarding functions over multiple connections to either parts
of the network. Bottlenecks can occur in a crossbar switch because the routing
and forwarding functions are not separated. The heart of the PFE is the Internet
Processor ASIC. With over one million gates and a lookup rate of over 40 million
packets per second, or Mpps, the Internet Processor represents the largest and
fastest route lookup ASIC currently available, capable of processing data at
throughput rates in excess of 40 Gbps.

All lookup rates reflect longest-match route table lookups for all packets
and all lookups are performed in hardware. There is no caching mechanism, which
is a mechanism by which critical information, such as destinations for traffic,
is stored in rapidly accessible memory to make the process of looking up traffic
destinations faster. In addition there is no risk of cache misses in the system
which can result in slower storage access and thus considerably slower traffic
delivery. In addition, the forwarding table can be updated without affecting
forwarding rates. The Internet Processor is programmable to support up to four
different forwarding tables (layer 2 and/or layer 3) simultaneously. Supported
forwarding protocols currently include unicast and multicast IPv4 and MPLS.
Finally, the Internet Processor maintains its performance regardless of length
of lookups or table size.

The PFE also features a shared memory system with single-stage buffering,
so packets are written to and read from memory only once. Single-stage buffering
greatly reduces the complexities and throughput delays associated with
multistage buffering systems. The pooled memory is distributed across the
Flexible PIC Concentrator, or FPC, cards, allowing memory to scale as interfaces
are added. The Internet Processor also features prefix accounting mechanisms
that operate at rates in excess of 20 Mpps.

JUNOS Internet Software: Traffic Engineering and Control

JUNOS Internet Software offers a full suite of Internet-scale,
Internet-tested routing protocols. Protocols and software tools, which are used
to control and direct network traffic, are critical to an Internet backbone
routing solution. Software control is made more important by the fact that the
size and complexity of backbone networks are increasing at a time when service
providers are looking to differentiate themselves through value-added service
offerings.

JUNOS Internet Software features implementations of all major Internet
protocols, including BGP4, DVMRP, PIM, IS-IS, Open Shortest Path First. IS-IS
and Open Shortest Path First are algorithms broadly used in enterprise networks
and by service providers to determine and update the running state of the
network and available destinations in the network. These implementations were
developed in-house by our design team which has extensive experience in
addressing the scaling issues of rapidly growing service providers.

JUNOS Internet Software also provides a new level of traffic engineering
capabilities with its implementation of MPLS. Developed in conjunction with the
Internet Engineering Task Force, our MPLS capability offers enhanced visibility
into traffic patterns and the ability to control the path traffic takes through
the network. Path selection enables service providers to engineer traffic for
efficient use of network capacity and avoidance of congestion. We expect MPLS
and its traffic engineering capabilities to become a crucial tool for service
providers as they scale their networks.

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JUNOS Internet Software features a modular design, with separate programs
running in protected memory space in conjunction with an independent operating
system. Unlike monolithic, unprotected operating system designs, which are prone
to system wide failure, the protected, modular approach improves reliability by
ensuring that modifications made to one module have no unwanted side-effects on
other sections of the software. In addition, having clean software interfaces
between modules facilitates software development and maintenance, enabling
faster response to customer needs and delivery of new features.

JUNOS Internet Software has been extensively tested in multiple service
provider networks to ensure compatibility with Cisco's IOS. Since each major
service provider's network is different, this extensive testing is necessary to
ensure seamless introduction into existing service provider environments.

PRODUCTS

M40 Internet Backbone Router

The M40 Internet backbone router is specifically designed for the
specialized needs of service providers. The M40 features leading-edge
packet-forwarding performance, very high port density and flexibility, and
purpose-built Internet software. The M40 delivers higher speed performance for
service providers than current alternatives. The M40 helps solve the critical
problem of managing backbone networks by ensuring greater control over traffic
and better use of network capacity and by providing service providers with the
necessary traffic engineering tools, such as MPLS.

Features of the M40 Internet Backbone Router

Port Density Per Rack-Inch. Our M40 Internet backbone router offers very
high port density per rack-inch, ensuring optimal use of valuable and scarce PoP
rack space. Because the forwarding engine is oversized, all interfaces perform
at wire speed for all packet sizes.

The M40 router features a highly flexible combination of backbone interface
speeds on the market today. In a 35-inch chassis, the M40 router provides 8
OC-48/STM-16, 32 OC-12/STM-4, 128 OC-3/STM-1 or 128 DS3 interfaces. M40
interfaces are located on Physical Interface Cards, or PICs, which plug into FPC
boards. There are eight FPC slots on the M40 and each FPC slot supports up to
four PICs and an aggregate throughput rate of more than 2.5 Gbps. In addition to
supporting wire speed OC-48 interfaces, each FPC supports various combinations
of interfaces, permitting the mixing of interface types and speeds on a single
FPC. Supported PIC interfaces include:

- 1-port OC-48/STM-16 SONET/SDH;

- 1-port OC-12/STM-4 SONET/SDH;

- 1-port OC-12/STM-4 ATM;

- 4-port OC-3/STM-1 SONET/SDH;

- 2-port OC-3/STM-1 ATM;

- 4-port DS3; and

- 1-port Gigabit Ethernet.

The PIC interface cards are sold both as part of the initial product
configuration and also, subsequently, as add-on items. Interfaces are typically
added as the customer's network expands or the capacity of individual links is
upgraded.

Class-of-Service Flexibility. The M40 router is designed for a variety of
class-of-service applications. The M40's queuing mechanism is based on a
weighted round-robin selection among multiple queues on outgoing interfaces.
Queues can be configured with drop profiles to control the rate of packet drops
based on utilization of buffer capacity.

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Low Power Consumption. As provider PoPs have grown and become more fully
populated with systems, power consumption has become a significant concern.
Access to sufficient power can be a constraint on the ability of a facility to
support a larger network. Because of its low part count and efficient design,
our M40 Internet backbone router draws less than 1700 watts of power (35A at
48V) in a fully loaded configuration, enabling it to offer very high performance
and port density per watt.

Engineered for Stressful Conditions. The M40 architecture is designed to
reliably handle stressful network conditions. For example, the route lookup
capacity of our Internet Processor has been oversized with respect to interface
speeds. In addition, the separation of routing and processing enables the M40 to
converge quickly while maintaining wire speed.

Built for Reliability. In addition to preserving network reliability, the
M40 router is designed to ensure system reliability. The M40's cooling system is
fully redundant to protect against individual fan failure. Similarly, the M40's
dual power supplies are fully redundant, each capable of supporting the full
power load of the system. The M40 can boot off of any one of multiple redundant
storage media, ensuring that the system remains operational in the event of a
disk failure. For software reliability, JUNOS Internet Software features a
protected, modular design with separate processes running in protected memory
space on top of an independent operating system. A modular design protects
against system wide failures, ensuring that modifications made to one module
have no unwanted side-effects on other portions of the code base. Finally, a low
component count and an efficient design combine to give the M40 system superior
reliability.

M20 Internet Backbone Router

The M20 is purpose-built for new emerging carriers and smaller service
providers. It can serve a variety of high speed uses, starting at the core. As
new carriers build out the core, they determine that there is a need for high
speed connectivity to end customers, other carriers and hosting environments.
The M20, with its services and configuration flexibility can provide the
solution in one chassis, which is both cost and space effective.

The M20's small size, high performance and high port density make it an
optimum platform for high-speed access applications. Its Gigabit Ethernet port
density and 802.1q VLAN support makes it attractive for hosting applications.
The M20 also provides forwarding performance and the rich BGP4 and policy
implementations (with JUNOS Internet Software) needed for peering applications.

Although the M20 measures only 14 inches (35.56 cm) in height, it brings
new levels of port density and performance to provider edge applications,
supporting nearly 200 DS-3s in a single chassis and 1000 DS-3s in a standard
seven-foot (2.13 m) rack. The M20 supports a wide range of interfaces including:

- 1-port OC-48/STM-16 SONET/SDH;

- 1-port OC-12/STM-4 SONET/SDH;

- 1-port OC-12/STM-4 ATM;

- 4-port OC-3/STM-1 SONET/SDH;

- 2-port OC-3/STM-1 ATM;

- 4-port DS3;

- 1-port Gigabit Ethernet; and

- Channelized OC-12/STM-4 to DS-3.

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CUSTOMERS

The following is a representative list of our customers as of December 31,
1999:

<TABLE>
<CAPTION>
END USERS: DISTRIBUTORS:
---------- -------------
<S> <C>
AboveNet Communications Alcatel
AT&T Ericsson
AT&T/IBM Global Services 3Com
Broadband Office K-Net Ltd.
Cable & Wireless Nissho Electronics
Frontier GlobalCenter NTT PC Communications
Globix OKI Electronics
GST Network Funding Samsung America
Level 3 Communications Softway
MCI WorldCom-vBNS Solunet
MIBH
PSINet
Qwest Communications International
TCG CERFnet
University of Washington
UUNet
Verio
</TABLE>

We recognize revenue from the shipment of products at the time of shipment
unless we have future obligations for network interoperability or if we have to
obtain customer acceptance. In those cases, we defer recognition of the revenue
until we have met our obligations.

Two customers, UUNet and Cable & Wireless, comprised approximately 58% of
our recognized revenues for the year ended December 31, 1999.

SALES AND MARKETING

We sell and market our products primarily through our direct sales
organization, value-added resellers and an original equipment manufacturer.

Direct Sales. Our North American direct sales organization is divided into
Western and Eastern regional operations. Our direct sales efforts are focused on
the largest service providers. The direct sales account managers cover the
market on an assigned account basis and work as a team with account oriented
systems engineers. They are directed by a regional operations manager who
reports to the North American Director of Sales. We also have technical
engineers that consult with and provide our customers with guidance and
assistance on the evolution of their networks as it relates to the deployment of
our products. These consulting engineers also help in defining the features that
are required for our products to be successful in specific applications. A key
feature of our sales effort is the relationship we establish at various levels
in our customers' organization. Our sales team maintains contact with key
individuals who have service planning and infrastructure buildout
responsibility.

Value Added Resellers. We have complemented our direct sales effort in the
United States through the addition of several highly focused value added
resellers. Our arrangements with value added resellers typically have been
non-exclusive and provide the value added reseller with discounts based upon the
volume of their orders.

Original Equipment Manufacturer Partner. We have established a strategic
distribution relationship with Ericsson. We believe that Ericsson has
significant customer relationships in place and offers products which complement
ours. Ericsson will provide the first level of support to its customers. Our
agreement with Ericsson allows it to distribute our products on a worldwide,
non-exclusive basis with discounts based upon the volume of orders it receives.

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International Resellers. In order to further our international sales
objectives, we have established a number of country specific value added
resellers such as Alcatel. These resellers have expertise in deploying complex
Internet infrastructure equipment in their respective markets and provide the
first level of support required by our international customers.

As of December 31, 1999, we employed 72 people in our sales support and
marketing organizations.

CUSTOMER SERVICE AND SUPPORT

We believe that a broad range of support services is essential to the
successful installation and ongoing support of our products. We have hired
support engineers with proven Internet experience. We offer the following
services: 24 hours a day, seven days a week technical assistance (on-line,
telephone and on-site), professional services, educational services, logistics
services and web-based information.

We offer a variety of flexible and comprehensive support programs,
including basic hardware and software warranty services, next day onsite parts
and labor, 24 hours a day, seven days a week same day parts and labor and
on-site resident engineers. We deliver these services directly to major end
users and also utilize a two-tiered support model, leveraging the capabilities
of our partners and third party organizations. We also train our partners in the
delivery of education and support services.

Customer service and support provide front line product support and is the
problem resolution interface to our partners and direct end users. If customer
service and support are unable to resolve an issue themselves, they duplicate
the problem scenario and provide the failure information, such as logs, dumps,
traces and system configuration to appropriate subject matter experts in our
engineering department.

Based on the severity of the problem and the impact to our customers'
network, there are strict escalation guidelines to ensure that the appropriate
technical resource and management attention is brought to bear on the problem in
a timeframe commensurate with problem priority. The overall goal is to fix the
problem, at the appropriate level, in the right timeframe in order to ensure our
customers' satisfaction.

As of December 31, 1999, we employed 31 people in our customer service and
support organization, with the majority located in our Mountain View, California
corporate headquarters.

RESEARCH AND DEVELOPMENT

We have assembled a team of skilled engineers with extensive experience in
the fields of high end computing, network system design, Internet routing
protocols and embedded software. These individuals have been drawn from leading
computer data networking and telecommunications companies. In addition to
building complex hardware and software systems, the engineering team has
experience in delivering very large, highly integrated ASICs and extremely
scalable Internet software.

Our research and development department is organized into teams that work
in parallel on several projects in a way similar to the development of
successive generations of complex microprocessors. As a result, we will seek to
offer our customers next generation products as they are needed.

We believe that strong product development capabilities are essential to
our strategy of enhancing our core technology, developing additional
applications, incorporating that technology and maintaining the competitiveness
of our product and service offerings. We are leveraging our first generation
ASICs, developing additional network interfaces targeted to our customer
applications and continuing to develop next generation technology to support the
anticipated growth in network bandwidth requirements. We continue to expand the
functionality of our JUNOS Internet Software to improve performance and
scalability, and to provide an enhanced user interface.

Our research and development process is driven by the availability of new
technology, market demand and customer feedback. We have invested significant
time and resources in creating a structured process for undertaking all product
development projects. This process involves all functional groups and all levels
within our company. Following an assessment of market demand, our research and
development team develops a full set of comprehensive functional product
specifications based on inputs from the product management and
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sales organizations. This process is designed to provide a framework for
defining and addressing the steps, tasks and activities required to bring
product concepts and development projects to market.

As of December 31, 1999, we employed 170 people in our research and
development organization.

Our research and development expenses totaled $41.5 million for the year
ended December 31, 1999, $24.0 million for the year ended December 31, 1998,
$9.4 million for the year ended December 31, 1997 and $1.9 million for the
period from February 2, 1996, the date of our inception, to December 31, 1996.

MANUFACTURING

Our manufacturing operation is entirely outsourced. We have developed a
strategic relationship with Solectron, under which we have subcontracted our
manufacturing activity. This subcontracting activity extends from prototypes to
full production and includes activities such as material procurement, final
assembly, test, control and shipment to our customers. We design, specify and
monitor all of the tests that are required to meet internal and external quality
standards. We have recently established a relationship with an additional third
party to manufacture certain of our products. These arrangements provide us with
the following benefits:

- we operate without dedicating any space to manufacturing operations;

- we conserve the working capital that would be required for funding
inventory;

- we can adjust manufacturing volumes quickly to meet changes in demand;
and

- we can quickly deliver products to customers through Solectron's turnkey
manufacturing and drop shipment capabilities.

Our ASICs are manufactured by IBM using its 0.25 micron process. IBM is
responsible for all aspects of the production of the ASICs using our proprietary
designs.

COMPETITION

Competition in the Internet infrastructure market is intense. The market
historically has been dominated by Cisco Systems, Inc., with other companies
such as Nortel Networks and Lucent Technologies Inc. providing products to a
smaller segment of the market. In addition, a number of private companies have
announced plans for new products to address the same problems which our products
address.

Cisco traditionally has been the dominant supplier of solutions to this
market. We believe this is the result of its early leadership position in the
enterprise router market. As the Internet has grown rapidly, Cisco has leveraged
this position and has developed a broad product line of routers which support
all major local area and wide area interfaces. We believe that our ability to
compete with Cisco depends upon our ability to demonstrate that our products are
superior in meeting the needs of service providers and are extremely compatible
with Cisco's current and future products. Although we believe that we are
currently among the top providers of Internet infrastructure solutions
worldwide, we cannot assure you that we will be able to compete successfully
with Cisco, currently the leading provider in this market.

We expect that, over time, large companies with significant resources,
technical expertise, market experience, customer relationships and broad product
lines, such as Lucent and Nortel, will introduce new products which are designed
to compete more effectively in this market. As a result, we expect to face
increased competition in the future from larger companies with significantly
more resources than we have. Although we believe that our technology and the
purpose-built features of our products make them unique and will enable us to
compete effectively with these companies, we cannot assure you that we will be
successful.

Many of our current and potential competitors, such as Cisco, Lucent and
Nortel, have significantly broader product lines than we do and may bundle their
products with other networking products in a manner that may discourage
customers from purchasing our products. Also, many of our current and potential
competitors have greater name recognition and more extensive customer bases that
could be leveraged.

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16

Increased competition could result in price reduction, fewer customer orders,
reduced gross margins and loss of market share, any of which could seriously
harm our operating results.

There are also many small private companies which claim to have products
with greater capabilities than our products. Consolidation in this industry has
begun, with one or more of these smaller private companies being acquired by
large, established suppliers of Internet infrastructure products, and we believe
it is likely to continue. As a result, we expect to face increased competition
in the future from larger companies with significantly more resources than we
have.

Several companies also provide solutions which can substitute for some uses
of routers. For example, high bandwidth asynchronous transfer mode, or ATM,
switches, are used in the core of certain major backbone service providers. ATM
switches can carry a variety of traffic types, including voice, video and data,
using fixed, 53 byte cells. Companies that use ATM switches are enhancing their
products with new software technologies such as multi-protocol label switching,
or MPLS, which can potentially simplify the task of mixing routers and switches
in the same network. These substitutes can reduce the need for large numbers of
routers.

INTELLECTUAL PROPERTY

Our success and ability to compete are substantially dependent upon our
internally developed technology and know how. We have two patents issued
relating to high speed switching devices. These patents will expire in 2017 and
2016, respectively. In addition we have seven patent applications pending in the
United States relating to the design of our products. Our engineering teams have
significant expertise in ASIC design and we own all rights to the design of the
ASICs which form the core of the M40. Our JUNOS Internet Software was developed
internally and is protected by United States and other copyright laws.

While we rely on patent, copyright, trade secret and trademark law to
protect our technology, we also believe that factors such as the technological
and creative skills of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are essential to establishing and
maintaining a technology leadership position. There can be no assurance that
others will not develop technologies that are similar or superior to our
technology.

Our success will depend upon our ability to obtain necessary intellectual
property rights and protect our intellectual property rights. We cannot be
certain that we will be able to obtain the necessary intellectual property
rights or that other parties will not contest our intellectual property rights.

EMPLOYEES

As of December 31, 1999, we had 335 full-time employees, 170 of whom were
engaged in research and development, 72 in sales and marketing, 31 in customer
support and 62 in finance, administration and operations. None of our employees
are represented by a labor union. We have not experienced any work stoppages and
we consider our relations with our employees to be good.

Our future performance depends in significant part upon the continued
service of our key technical, sales and senior management personnel, none of
whom is bound by an employment agreement requiring service for any defined
period of time. The loss of the services of one or more of our key employees
could have a material adverse effect on our business, financial condition and
results of operations. Our future success also depends on our continuing ability
to attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that we can retain our key personnel in the future.

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RISK FACTORS

OUR FAILURE TO INCREASE OUR REVENUES WOULD PREVENT US FROM MAINTAINING
PROFITABILITY.

We have incurred significant losses since inception. As of December 31,
1999, we had an accumulated deficit of $52.2 million. Although our net revenues
have grown from zero in the quarter ended September 30, 1998 to $45.4 million in
the quarter ended December 31, 1999, we cannot be certain that our revenues will
continue to grow. We have large fixed expenses and we expect to continue to
incur significant and increasing sales and marketing, product development and
administrative expenses. As a result, we will need to generate significantly
higher revenues to maintain profitability.

OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT.

As a result of our limited operating history, it is difficult to forecast
accurately our revenues, and we have limited meaningful historical financial
data upon which to base planned operating expenses. Specifically, we began
operations in February 1996, introduced our M40 Internet backbone router product
in September 1998, began shipping the M40 in volume in October 1998 and
introduced the M20 in December 1999. In addition, our operating expenses are
largely based on anticipated revenue trends and a high percentage of our
expenses are and will continue to be fixed in the short-term. The revenue and
income potential of our products and business are unproven and the market that
we are addressing is rapidly evolving. If we do not achieve our expected
revenues, our operating results will be below our expectations and the
expectations of investors and market analysts, which could cause the price of
our convertible notes and common stock to decline.

OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP PRODUCTS AND PRODUCT ENHANCEMENTS
THAT WILL ACHIEVE MARKET ACCEPTANCE.

We cannot assure you that we will be able to develop new products or
product enhancements in a timely manner, or at all. Any failure to develop new
products or product enhancements will substantially decrease market acceptance
and sales of our present and future products which will significantly harm our
business and financial results. Even if we are able to develop and commercially
introduce new products and enhancements, we cannot assure you that the new
products or enhancements will achieve widespread market acceptance. Any failure
of our future products to achieve market acceptance could harm our business and
financial results.

THE LONG SALES AND IMPLEMENTATION CYCLES FOR OUR PRODUCTS, AS WELL AS OUR
EXPECTATION THAT CUSTOMERS WILL SPORADICALLY PLACE LARGE ORDERS WITH SHORT LEAD
TIMES MAY CAUSE REVENUES AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM
QUARTER TO QUARTER.

A customer's decision to purchase our products involves a significant
commitment of its resources and a lengthy evaluation and product qualification
process. As a result, our sales cycle may be lengthy. Throughout the sales
cycle, we often spend considerable time educating and providing information to
prospective customers regarding the use and benefits of the products. Even after
making the decision to purchase, our customers tend to deploy the products
slowly and deliberately. Timing of deployment can vary widely and depends on the
skill set of the customer, the size of the network deployment, the complexity of
the customer's network environment and the degree of hardware and software
configuration necessary to deploy the products. Customers with large networks
usually expand their networks in large increments on a periodic basis.
Accordingly, we expect to receive purchase orders for significant dollar amounts
on an irregular basis. Because of our limited operating history, we cannot
predict these sales and development cycles. These long cycles, as well as our
expectation that customers will tend to sporadically place large orders with
short lead times, may cause our revenues and operating results to vary
significantly and unexpectedly from quarter to quarter.

WE HAVE A LIMITED NUMBER OF CUSTOMERS UPON WHOM WE RELY, AND ANY DECREASE IN
REVENUE FROM THESE CUSTOMERS COULD HAVE AN ADVERSE EFFECT ON US.

We began recognizing revenues from sales of the M40 in the quarter ended
December 31, 1998. A significant portion of our revenues to date have been
recognized from a limited number of customers, with two

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customers, UUNet and Cable & Wireless, representing 58% of our revenues for the
year ended December 31, 1999. We expect that the majority of our revenues will
continue to depend on sales of our products to a small number of customers. Any
downturn in the business of these customers or potential new customers could
significantly decrease the sales of our products to these customers which could
seriously harm our revenues and results of operations.

IF THE INTERNET DOES NOT CONTINUE TO EXPAND AS A WIDESPREAD COMMUNICATIONS
MEDIUM, DEMAND FOR OUR PRODUCTS MAY DECLINE SIGNIFICANTLY.

Our future success depends on the continued growth of the Internet as a
widely used medium for commerce and communication. If the Internet does not
continue to expand as a widespread communications medium and commercial
marketplace, the growth of the market for Internet infrastructure equipment may
not continue and the demand for our products could decline significantly.

WE FACE INTENSE COMPETITION THAT COULD REDUCE OUR MARKET SHARE.

Competition in the Internet infrastructure market is intense. This market
has historically been dominated by Cisco Systems with other companies such as
Nortel Networks and Lucent Technologies providing products to a smaller segment
of the market. In addition, a number of private companies have announced plans
for new products to address the same problems which our products address.

In order to compete effectively in the Internet router market we must
deliver products which:

- provide extremely high network reliability;

- provide high performance interfaces and packet processing capabilities;

- scale easily and efficiently with minimum disruption to the network;

- interoperate with existing network designs and equipment vendors;

- reduce the complexity of the network by decreasing the need for
overlapping equipment; and

- provide a cost-effective solution for service providers.

If we are unable to compete successfully against our current and future
competitors, we could experience price reductions, reduced gross margins and
loss of market share, any one of which could materially and adversely affect our
business, operating results and financial condition.

WE MUST EXPAND SUBSTANTIALLY OUR DIRECT AND INDIRECT SALES OPERATIONS IN ORDER
TO INCREASE MARKET AWARENESS AND SALES OF OUR PRODUCTS.

Our products and services require a sophisticated sales effort targeted at
several key people within each of our prospective customers' organizations. This
sales effort requires the efforts of select personnel as well as specialized
system and consulting engineers. We have recently expanded our direct sales
force and plan to hire additional qualified sales personnel and system and
consulting engineers. Competition for these individuals is intense, and we might
not be able to hire the kind and number of sales personnel and system and
consulting engineers we need. In addition, we believe that our future success is
dependent upon establishing successful relationships with a variety of
distribution partners. We have entered into agreements with several value added
resellers, some of whom also sell products that compete with our products. We
cannot be certain that we will be able to reach agreement with additional
resellers on a timely basis or at all, or that they will devote adequate
resources to selling our products.

If we are unable to expand our direct and indirect sales operations, we may
not be able to increase market awareness or sales of our products, which may
prevent us from maintaining profitability.

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IF WE DO NOT EXPAND OUR CUSTOMER SERVICE AND SUPPORT ORGANIZATION SUBSTANTIALLY,
SALES OF OUR PRODUCTS MAY BE SIGNIFICANTLY REDUCED.

The complexity of our products and the difficulty of installing them
require highly trained customer service and support personnel. We currently have
a small customer service and support organization and will need to increase our
staff to support new customers and the expanding needs of existing customers.
Hiring customer service and support personnel is very competitive in our
industry due to the limited number of people available with the necessary
technical skills and understanding of the Internet. If we are unable to expand
our customer service and support organization, we may not be able to increase
sales of our products, which would seriously harm our business.

WE ARE DEPENDENT ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR SEVERAL KEY
COMPONENTS, AND IF WE ARE UNABLE TO BUY THESE COMPONENTS ON A TIMELY BASIS, WE
WILL NOT BE ABLE TO DELIVER OUR PRODUCTS TO OUR CUSTOMERS.

We currently purchase several key components, including ASICs and power
supplies, from single or limited sources. We worked with IBM for over three
years to develop several of our key proprietary application specific integrated
circuits, or ASICs, which are custom designed integrated circuits built to
perform a specific function more rapidly than a general purpose microprocessor.
IBM is currently our sole source supplier of these ASICs. These ASICs are very
complex, and we may not be able to develop an alternate source to IBM in a
timely manner, which could hurt our ability to deliver our products to our
customers. We also purchase power supplies from a single source and purchase
other custom components from other sole or limited sources. If we are unable to
buy these components on a timely basis, we will not be able to deliver the
products to our customers, which would negatively impact present and future
sales and revenue which would, in turn, seriously harm our business.

WE CURRENTLY DEPEND PRIMARILY ON ONE CONTRACT MANUFACTURER, AND IF WE HAVE TO
QUALIFY A NEW CONTRACT MANUFACTURER WE MAY LOSE REVENUE AND DAMAGE OUR CUSTOMER
RELATIONSHIPS.

Solectron, a third party manufacturer for numerous companies, manufactures
the M40 and M20 at its Milpitas, California facility on a purchase order basis
and is our primary manufacturer. We currently do not have a long-term supply
contract with Solectron. If we should fail to effectively manage our
relationship with Solectron, or if Solectron experiences delays, disruptions or
quality control problems in its manufacturing operations, our ability to ship
products to our customers could be delayed. We have begun the process to qualify
a new third party contract manufacturer. Qualifying a new contract manufacturer
and commencing volume production is expensive and time consuming. If we are
required or choose to change contract manufacturers, we may lose revenue and
damage our customer relationships.

IF WE FAIL TO ACCURATELY PREDICT OUR MANUFACTURING REQUIREMENTS, WE COULD INCUR
ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS.

Because we currently do not have a long-term supply contract with
Solectron, it is not obligated to supply products to us for any specific period,
in any specific quantity or at any certain price, except as may be provided in a
particular purchase order. We provide forecasts of our demand to Solectron up to
six months prior to scheduled delivery of products to our customers. If we
overestimate our requirements, Solectron may have excess inventory, which would
increase our costs. If we underestimate our requirements, Solectron may have an
inadequate inventory, which could interrupt manufacturing of our products and
result in delays in shipments and revenues. In addition, lead times for
materials and components we order vary significantly and depend on factors such
as the specific supplier, contract terms and demand for each component at a
given time. We also may experience shortages of certain components from time to
time, which also could delay the manufacturing of our products.

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20

THE UNPREDICTABILITY AND SEASONALITY OF OUR QUARTERLY RESULTS MAY 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, many of which are outside of our control and
any of which may cause our stock price to fluctuate. The primary factors that
may affect us include the following:

- demand for our products;

- the timing of sales of our products;

- the timing of recognizing revenue and deferred revenue;

- new product introductions by our competitors;

- changes in our pricing policies or the pricing policies of our
competitors;

- our ability to develop, introduce and ship new products and product
enhancements that meet customer requirements in a timely manner;

- our ability to obtain sufficient supplies of the sole or limited source
components, including ASICs and power supplies for our products;

- increases in the prices of the components we purchase;

- our ability to attain and maintain production volumes and quality levels
for our products;

- Internet growth and demand for Internet infrastructure;

- prototype expenses;

- costs related to acquisitions of technology or businesses; and

- general economic conditions as well as those specific to the Internet and
related industries.

In addition, we are dependent on decisions by customers to build their
Internet infrastructure, which decisions are in turn dependent upon the success
and expected demand for the services offered by those customers. Furthermore,
the long sales and implementation cycles for our products, as well as the degree
to which customers will sporadically place large orders with short lead times,
may cause revenues and operating results to vary significantly from quarter to
quarter.

We plan to increase significantly our operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
We also plan to expand our general and administrative functions to address the
increased reporting and other administrative demands, that have resulted from
being a publicly traded company and the increasing size of our business. Our
operating expenses are largely based on anticipated revenue trends and a high
percentage of our expenses are, and will continue to be, fixed in the short
term. As a result, a delay in generating or recognizing revenue for the reasons
set forth above, or for any other reason, could cause significant variations in
our operating results from quarter to quarter and could result in substantial
operating losses.

Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. It is likely that in some future quarters, our operating results
may be below the expectations of public market analysts and investors. In this
event, the price of our common stock and the convertible notes may fall.

IF OUR PRODUCTS DO NOT INTEROPERATE WITH OUR CUSTOMERS' NETWORKS, INSTALLATIONS
WILL BE DELAYED OR CANCELLED AND COULD RESULT IN SUBSTANTIAL PRODUCT RETURNS
WHICH COULD HARM OUR BUSINESS.

Our products are designed to interface with our customers' existing
networks, each of which has different specifications and utilizes multiple
protocol standards. Many of our customers' networks contain multiple generations
of products that have been added over time as these networks have grown and
evolved. Our
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21

products must interoperate with all of the products within these networks as
well as future products in order to meet our customers' requirements. If we find
errors in the existing software used in our customers' networks, we must modify
our JUNOS Internet Software to fix or overcome these errors so that our products
will interoperate and scale with the existing software and hardware. If our
products do not interoperate with those of our customers' networks,
installations could be delayed, orders for our products could be cancelled or
our products could be returned. This would also seriously harm our reputation,
which could seriously harm our business and prospects.

BECAUSE OUR PRODUCTS ARE COMPLEX AND ARE DEPLOYED IN COMPLEX ENVIRONMENTS, THEY
MAY HAVE ERRORS OR DEFECTS THAT WE FIND ONLY AFTER FULL DEPLOYMENT, WHICH COULD
SERIOUSLY HARM OUR BUSINESS.

Our products are highly complex and designed to be deployed in very large
and complex networks. Although we have thoroughly tested our products, because
of the nature of the product, it can only be fully tested when deployed in very
large networks with high amounts of traffic. To date, our products have been
deployed only on a limited basis. Consequently, our customers may discover
errors or defects in the hardware or the software after it has been fully
deployed. If we are unable to fix errors or other problems that may be
identified in full deployment, we could experience:

- loss of or delay in revenues and loss of market share;

- loss of customers;

- failure to achieve market acceptance;

- diversion of development resources;

- increased service and warranty costs;

- legal actions by our customers; and

- increased insurance costs.

CUSTOMER PRODUCT LIABILITY CLAIMS BASED ON ERRORS IN OUR SOFTWARE OR MISTAKES IN
PERFORMING OUR SERVICES COULD RESULT IN COSTLY LITIGATION AGAINST US.

We may be subject to claims based on errors in our software or mistakes in
performing our services, including claims relating to damages to our customers'
internal systems. Our contracts with our customers generally contain provisions
designed to limit our exposure to potential product liability claims, such as
disclaimers of warranties and limitations on liability for special,
consequential and incidental damages. We believe our product liability insurance
is adequate to cover potential product liability claims. However, a product
liability claim, whether successful or not, could seriously impact our capital
reserves, harm our reputation, and direct the attention of key personnel away
from our business, any of which could harm our business.

PROBLEMS ARISING FROM USE OF OUR PRODUCTS IN CONJUNCTION WITH OTHER VENDORS'
PRODUCTS COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION.

Service providers typically use our products in conjunction with products
from other vendors. As a result, when problems occur, it may be difficult to
identify the source of the problem. These problems may cause us to incur
significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer
relations problems.

OUR PRODUCTS ARE NEW AND FACE RAPID TECHNOLOGICAL CHANGES AND EVOLVING STANDARDS
AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR BUSINESS COULD BE HARMED.

The Internet infrastructure market is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. In developing our products, we have made, and will
continue to make, assumptions with respect to which standards will be adopted by
our

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customers and competitors. If the standards adopted are different from those
which we have chosen to support, market acceptance of our products may be
significantly reduced or delayed and our business will be seriously harmed. In
addition, the introduction of products embodying new technologies and the
emergence of new industry standards could render our existing products obsolete.

In addition, in order to introduce products embodying new technologies and
new industry standards, we must be able to gain access to the latest
technologies of our suppliers such as IBM. Any failure to gain access to the
latest technologies could harm our business and operating results.

OUR FAILURE TO ESTABLISH AND MAINTAIN KEY CUSTOMER RELATIONSHIPS MAY RESULT IN
DELAYS IN INTRODUCING NEW PRODUCTS OR CAUSE CUSTOMERS TO FOREGO PURCHASING OUR
PRODUCTS.

Our future success will also depend upon our ability to develop and manage
key customer relationships in order to introduce a variety of new products and
product enhancements that address the increasingly sophisticated needs of our
customers. Our failure to establish and maintain these customer relationships
may adversely affect our ability to develop new products and product
enhancements. In addition, we may experience delays in releasing new products
and product enhancements in the future. Material delays in introducing new
products and enhancements or our inability to introduce competitive new products
may cause customers to forego purchases of our products and purchase those of
our competitors, which could seriously harm our business.

IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR BUSINESS, FINANCIAL CONDITION
AND PROSPECTS COULD BE SERIOUSLY HARMED.

Our ability to successfully offer our products and implement our business
plan in a rapidly evolving market requires an effective planning and management
process. We continue to increase the scope of our operations domestically and
internationally and have grown our headcount substantially. At December 31,
1998, we had a total of 156 employees and at December 31, 1999, we had a total
of 335 employees. In addition, we plan to continue to hire a significant number
of employees this year. This growth has placed, and our anticipated growth in
future operations will continue to place, a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls, reporting systems and procedures, and will
need to continue to expand, train and manage our work force worldwide.
Furthermore, we expect that we will be required to manage multiple relationships
with various customers and other third parties.

WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET AND IF WE ARE UNABLE TO HIRE ADDITIONAL PERSONNEL, OUR ABILITY
TO SELL OUR PRODUCTS COULD BE HARMED.

Our future success depends upon the continued services of our executive
officers and other key engineering, sales, marketing and support personnel. None
of our officers or key employees is bound by an employment agreement for any
specific term and we do not have "key person" life insurance policies covering
any of our employees.

We also intend to hire a significant number of engineering, sales,
marketing and support personnel in the future, and we believe our success
depends, in large part, upon our ability to attract and retain these key
employees. Competition for this personnel is intense, especially in the San
Francisco Bay area. In particular, we have experienced difficulty in hiring
qualified ASIC, software, system and test and customer support engineers and
there can be no assurance that we will be successful in attracting and retaining
these individuals. The loss of the services of any of our key employees, the
inability to attract or retain qualified personnel in the future, or delays in
hiring required personnel, particularly engineers and sales personnel, could
delay the development and introduction of and negatively impact our ability to
sell our products.

IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS WE COULD INCUR SUBSTANTIAL COSTS IN
DEFENDING OURSELVES.

Companies in our industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair hiring practices.
We have received claims of this kind in the past and we
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23

cannot assure you that we will not receive claims of this kind in the future as
we seek to hire qualified personnel or that those claims will not result in
material litigation. We could incur substantial costs in defending ourselves
against these claims, regardless of their merits.

OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS FROM THIRD-PARTY CHALLENGES.

We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise obtain and use our products or technology. Monitoring
unauthorized use of our products is difficult and we cannot be certain that the
steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.

NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE TO US OR MAY
BE VERY EXPENSIVE.

From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that third party licenses will be available to us on commercially reasonable
terms, if at all. The inability to obtain any third-party license required to
develop new products and product enhancements could require us to obtain
substitute technology of lower quality or performance standards or at greater
cost either of which could seriously harm our business, financial condition and
results of operations.

WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS
WHICH COULD SERIOUSLY HARM OUR BUSINESS.

In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. Although we have never
been involved in any intellectual property litigation, we may be a party to
litigation in the future to protect our intellectual property or as a result of
an alleged infringement of others' intellectual property. Claims for alleged
infringement and any resulting lawsuit, if successful, could subject us to
significant liability for damages and invalidation of our proprietary rights.
These lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and would divert management time and attention. Any
potential intellectual property litigation could also force us to do one or more
of the following:

- stop selling, incorporating or using our products that use the challenged
intellectual property;

- obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or

- redesign those products that use such technology.

If we are forced to take any of the foregoing actions, our business may be
seriously harmed. Although we carry general liability insurance, our insurance
may not cover potential claims of this type or may not be adequate to indemnify
us for all liability that may be imposed. For more information concerning our
intellectual property rights, see "Business -- Intellectual Property."

WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS THAT COULD HARM OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We market, sell and service our products in the United States and
internationally. We have established offices in England, The Netherlands, France
and Germany to market, sell and service our products in Europe and in Japan,
Hong Kong and Australia to market, sell and service our products in the Asia
Pacific region.

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We intend to expand substantially our international operations and enter
new international markets. This expansion will require significant management
attention and financial resources to develop successfully direct and indirect
international sales and support channels. We may not be able to maintain or
increase international market demand for our products.

We currently have limited experience in marketing and distributing our
products internationally and in developing versions of our products that comply
with local standards. In addition, international operations are subject to other
inherent risks, including:

- greater difficulty in accounts receivable collection and longer
collection periods;

- difficulties and costs of staffing and managing foreign operations;

- the impact of recessions in economies outside the United States;

- unexpected changes in regulatory requirements;

- certification requirements;

- reduced protection for intellectual property rights in some countries;

- potentially adverse tax consequences; and

- political and economic instability.

Our export revenues were $22,500,000 for the year ended December 31, 1999
and are generally denominated in U.S. dollars. Consequently, we do not currently
engage in currency hedging activities. However, a portion of our international
revenues may be denominated in foreign currencies in the future.

ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.

We intend to make investments in complementary companies, products or
technologies. In the event of any such investments or acquisitions, we could:

- issue stock that would dilute our current stockholders' percentage
ownership;

- incur debt;

- assume liabilities;

- incur amortization expenses related to goodwill and other intangible
assets; or

- incur large and immediate write-offs.

These acquisitions also involve numerous risks, including:

- problems combining the purchased operations, technologies or products;

- unanticipated costs;

- diversion of management's attention from our core business;

- adverse effects on existing business relationships with suppliers and
customers;

- risks associated with entering markets in which we have no or limited
prior experience; and

- potential loss of key employees, particularly those of the acquired
organizations.

We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future.

RISKS RELATED TO THE 4.75% SUBORDINATED CONVERTIBLE NOTES DUE MARCH 15, 2007

The Company recently completed an offering (the "Debt Offering") of 4.75%
Subordinated Convertible Notes Due March 15, 2007 (the "Convertible Notes"). As
a result of the Debt Offering we have substantial

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25

amounts of outstanding indebtedness, primarily the Convertible Notes. As a
result of this indebtedness, our principal and interest payment obligations will
increase substantially. There is the possibility that we may be unable to
generate cash sufficient to pay the principal of, interest on and other amounts
due in respect of our indebtedness when due. We may also add additional
equipment loans and lease lines to finance capital expenditures and may obtain
additional long-term debt, working capital lines of credit and lease lines.

Our substantial leverage could have significant negative consequences,
including:

- increasing our vulnerability to general adverse economic and industry
conditions;

- limiting our ability to obtain additional financing;

- requiring the dedication of a substantial portion of our expected cash
flow from operations to service our indebtedness, thereby reducing the
amount of our expected cash flow available for other purposes, including
capital expenditures;

- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and

- placing us at a possible competitive disadvantage relative to less
leveraged competitors and competitors that have better access to capital
resources.

ITEM 2 PROPERTIES

We sublease approximately 60,000 square feet in two buildings located in
Mountain View, California. Approximately 33,000 square feet are subleased
pursuant to a sublease that expires December 31, 2001, and approximately 27,000
square feet are subleased pursuant to a lease that expires June 30, 2000.

We have entered into leases for approximately 25,000, 144,000 and 122,000
square feet of office space in Sunnyvale, California. The lease on the office
space for 25,000 square feet commenced on October 1, 1999, and it will expire
two months after the later of May 1, 2000 or the completion of the improvements
on the 144,000 square foot facility. The lease on the office space for 144,000
square feet will commence on July 1, 2000 and it will expire on the later of
June 30, 2012, with certain options for extension and expansion. In addition, we
have exercised our option to lease an approximately 122,000 square feet facility
adjacent to the 144,000 square foot facility in Sunnyvale. That lease commences
on August 1, 2001.

The commercial real estate market in the San Francisco Bay area is volatile
and unpredictable in terms of available space, rental fees, occupancy rates and
preferred locations. We cannot be certain that additional space will be
available when we require it, or that it will be affordable or in a preferred
location. See Note 7 of the Notes to the Consolidated Financial Statements in
Exhibit 13.1 hereto.

ITEM 3 LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security-holders during the fourth
quarter of the fiscal year covered by this report.

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EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers and their ages, as of December 31, 1999, are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Scott Kriens............................... 42 President, Chief Executive Officer and
Chairman of the Board
Pradeep Sindhu............................. 47 Chief Technical Officer and Vice Chairman
of the Board
Marcel Gani................................ 47 Chief Financial Officer
Steven Haley............................... 45 Vice President of Worldwide Sales and
Service
Gary Heidenreich........................... 51 Vice President of Operations
Peter L. Wexler............................ 44 Vice President of Engineering
</TABLE>

Scott Kriens has served as President, Chief Executive Officer and Chairman
of the board of directors of Juniper Networks since October 1996. From April
1986 to January 1996, Mr. Kriens served as Vice President of Sales and Vice
President of Operations at StrataCom, Inc., a telecommunications equipment
company, which he co-founded in 1986. Mr. Kriens received a B.A. in Economics
from California State University, Hayward.

Pradeep Sindhu co-founded Juniper Networks in February 1996 and served as
Chief Executive Officer and Chairman of the board of directors until September
1996. Since then, Dr. Sindhu has served as Vice Chairman of the board of
directors and Chief Technical Officer of Juniper Networks. From September 1984
to February 1991, Dr. Sindhu worked as a Member of the Research Staff, and from
March 1987 to February 1996, as the Principal Scientist, and from February 1994
to February 1996, as Distinguished Engineer at the Computer Science Lab, Xerox
Corporation, Palo Alto Research Center, a technology research center. Dr. Sindhu
holds a B.S.E.E. from the Indian Institute of Technology in Kanpur, an M.S.E.E.
from the University of Hawaii and a Masters in Computer Science and Ph.D. in
Computer Science from Carnegie-Mellon University.

Marcel Gani joined Juniper Networks as Chief Financial Officer in February
1997. From January 1996 to January 1997, Mr. Gani served as Vice President and
Chief Financial Officer of NVIDIA Corporation, a 3D graphic processor company.
Mr. Gani also held the positions of Vice President and Chief Financial Officer
at Grand Junction Networks, a data networking company acquired by Cisco Systems,
Inc., from March 1995 to January 1996, and at Primary Access Corporation, a data
networking company acquired by 3Com Corporation, from March 1993 to March 1995.
Mr. Gani holds an M.B.A. from the University of Michigan.

Steven Haley joined Juniper Networks as Vice President of Worldwide Sales
and Service in August 1997. Prior to joining Juniper Networks, Mr. Haley served
as Vice President of Sales at Cisco Systems, Inc., a data networking company,
from July 1996 to August 1997. From February 1990 to July 1996, he worked for
StrataCom, Inc., serving in a variety of management roles from Managing
Director, Europe to Vice President of Sales, Americas. He holds a B.S. in
Marketing from the University of Massachusetts, Amherst.

Gary Heidenreich joined Juniper Networks in July 1997 as Vice President of
Operations. From August 1993 to July 1997, Mr. Heidenreich served as Vice
President of Systems Manufacturing at 3Com Corporation. Mr. Heidenreich holds a
B.S.I.E. from New Mexico State University and an M.B.A. from the University of
Dallas.

Peter L. Wexler joined Juniper Networks as Vice President of Engineering in
January 1997. From April 1995 to January 1997, Mr. Wexler served as Vice
President of Engineering at Bay Networks, a data networking company. From April
1993 to April 1995, Mr. Wexler served as Director of High-End Platform
Development at Wellfleet Communications, a predecessor to Bay Networks and a
manufacturer of high-performance routers. He holds a B.S.E. from State
University of New York at Stony Brook, an M.S.E. from the University of Illinois
and an M.B.A. from Boston University.

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PART II

ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS

Our common stock has been quoted on the Nasdaq National Market under the
symbol "JNPR" since June 25, 1999. Prior to that time, there was no public
market for the common stock. The following table sets forth, for the periods
indicated, the high and low closing prices per share of the common stock as
reported on the Nasdaq National Market. Our present policy is to retain
earnings, if any, to finance future growth. We have never paid cash dividends
and have no present intention to pay cash dividends. At March 7, 2000, there
were approximately 488 stockholders of record and the price per share of our
common stock was $278.69.

<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1998
Second Quarter (since June 25, 1999)...................... $ 49.66 $32.96
Third Quarter............................................. $ 75.67 $41.67
Fourth Quarter............................................ $118.17 $60.71
</TABLE>

All stock information has been adjusted to reflect the three-for-one split,
effected in the form of a stock dividend to each stockholder of record as of
December 31, 1999.

On June 24, 1999, Juniper Networks commenced its initial public offering
(the "IPO") pursuant to a Registration Statement on Form S-1 (File No.
333-76681). In the IPO, Juniper Networks sold an aggregate of 16,560,000 shares
of common stock (including an over-allotment option of 2,160,000 shares) at
$11.33 per share, of which approximately 10,266,000 shares were sold by selling
stockholders. The IPO generated aggregate gross proceeds of approximately
$71,300,000 for the Company and approximately $116,400,000 for the selling
stockholders. The aggregate net proceeds to the Company were approximately
$65,200,000, after deducting underwriting discounts and commissions of
approximately $5,000,000 and expenses of the offering of approximately
$1,100,000. Of the net proceeds, the Company used approximately $53,500,000 for
general corporate purposes, including working capital and capital expenditures.
Additionally, $3,700,000 of the proceeds were used to repay capital lease
obligations and $8,000,000 of the proceeds were used to finance two equity
investments.

On October 5, 1999, the Company completed a secondary public offering in
which it sold 17,250,000 shares of common stock (including an over-allotment
option of 2,250,000 shares which was completed on October 12, 1999) at $63.33
per share, of which approximately 11,931,000 shares were sold by selling
stockholders. Proceeds to the Company from this offering, net of issuance costs,
were approximately $324,200,000.

On November 18, 1999, the Company issued an aggregate of 44,336
unregistered shares of common stock to the shareholders of Layer 5 in connection
with the merger of Layer 5 with a wholly-owned subsidiary of the Company. The
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933.

ITEM 6 SELECTED FINANCIAL DATA

For the information required by this Item, see "Selected Financial Data" in
the 1999 Annual Report to Stockholders in Exhibit 13.1 hereto.

ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS

For the information required by this Item, see "Management's Discussions
and Analysis of Financial Condition and Results of Operations" in the 1999
Annual Report to Stockholders in Exhibit 13.1 hereto.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

For the information required by this Item, see "Management's Discussions
and Analysis of Financial Condition and Results of Operations" in the 1999
Annual Report to Stockholders, in Exhibit 13.1 hereto.

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28

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

For the information required by this Item, see the Consolidated Financial
Statements and Notes thereto in the 1999 Annual Report to Stockholders in
Exhibit 13.1 hereto.

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 10 DIRECTORS AND OFFICERS OF THE REGISTRANT

The information required by this Item 10 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.

ITEM 11 EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.

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29

PART IV

ITEM 14 EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

a) Financial Statements and Financial Statement Schedules

1. FINANCIAL STATEMENTS

Consolidated Balance Sheets -- As of December 31, 1999 and 1998

Consolidated Statements of Operations -- For the Three Years Ended
December 31, 1999

Consolidated Statement of Stockholders' Equity -- For the Three Years
Ended

December 31, 1999

Consolidated Statements of Cash Flows -- For the Three Years Ended
December 31, 1999

Notes to Consolidated Financial Statements

Report of Independent Auditors

2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule of Juniper Networks is filed as
part of this Report and should be read in conjunction with the Financial
Statements of Juniper Networks.

<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts and
Reserves
</TABLE>

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

b) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form S-1 No.
333-76681)
3.2 Amended and Restated Bylaws of the Registrant (incorporated
herein by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1 No. 333-96171)
4.1 Third Amended and Restated Registration Rights Agreement
dated March 9, 1999 (incorporated herein by reference to
Exhibit 4.6 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors, officers and certain
employees (incorporated herein by reference to Exhibit 10.1
to the Registrant's Registration Statement on Form S-1 No.
333-76681)
10.2 Amended and Restated 1996 Stock Plan (incorporated herein by
reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.3 1999 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.4 Sublease between Trident Microsystems, Inc. and the
Registrant dated July 1, 1998 (incorporated herein by
reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.5 Sublease between At Home Corporation and the Registrant
dated June 4, 1998 (incorporated herein by reference to
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.6 Change of Control Agreement between Scott Kriens and the
Registrant dated October 1, 1996 (incorporated herein by
reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.7 Change of Control Agreement between Marcel Gani and the
Registrant dated February 18, 1997 (incorporated herein by
reference to Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
</TABLE>

29
30

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.8* Agreement for ASIC Design and Purchase of Products between
IBM Microelectronics and the Registrant dated August 26,
1997 and Amendments One and Two to the agreement dated
January 5, 1998 and March 2, 1998, respectively
(incorporated herein by reference to Exhibit 10.8, 10.8.1
and 10.8.2, respectively, to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.9* Standard Manufacturing Agreement between Solectron
California Corporation, Fine Pitch Technology Inc. and the
Registrant dated June 10, 1998 (incorporated herein by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.10 Lease between Mathilda Associates LLC and the Registrant
dated June 18, 1999 (incorporated herein by reference to
Exhibit 10.10 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.11 Lease between Mathilda Associates LLC and the Registrant
dated February 28, 2000.
13.1 1999 Annual Report to Stockholders (deemed to be filed to
the extent that information is specifically incorporated by
reference)
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see page 31)
27.1 Financial Data Schedule
</TABLE>

- ---------------
* Confidential treatment requested and received as to certain portions.

c) Reports on Form 8-K

We filed a Current Report on Form 8-K dated November 15, 1999 to report
under Item 2 thereof the acquisition of Layer 5. The Current Report of Form 8-K
dated November 15, 1999 also reported, under Item 5 thereof, the announcement of
the approval by our Board of Directors of a three-for-one split of our common
stock.

30
31

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 27th day of
March, 2000.

JUNIPER NETWORKS, INC.

By: /s/ MARCEL GANI
------------------------------------
Marcel Gani
Chief Financial Officer
(Duly Authorized Officer and
Principal
Financial and Accounting Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Lisa C. Berry and Marcel Gani, and
each of them individually, as his attorney-in-fact, each with full power of
substitution, for him in any and all capacities to sign any and all amendments
to this Report on Form 10-K, and to file the same with, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his or her substitute, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SCOTT KRIENS President, Chief Executive Officer March 27, 2000
- ------------------------------------- and Chairman of the Board (Principal
Scott Kriens Executive Officer)

/s/ MARCEL GANI Chief Financial Officer March 27, 2000
- ------------------------------------- (Principal Financial and Accounting
Marcel Gani Officer)

/s/ PRADEEP SINDHU Chief Technical Officer and Vice March 27, 2000
- ------------------------------------- Chairman of Board
Pradeep Sindhu

/s/ WILLIAM R. HEARST III Director March 27, 2000
- -------------------------------------
William R. Hearst III

/s/ VINOD KHOSLA Director March 27, 2000
- -------------------------------------
Vinod Khosla

/s/ C. RICHARD KRAMLICH Director March 27, 2000
- -------------------------------------
C. Richard Kramlich

/s/ WILLIAM STENSRUD Director March 27, 2000
- -------------------------------------
William Stensrud
</TABLE>

31
32

JUNIPER NETWORKS, INC.

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful accounts.............. $ -- $632 $ -- $632
Year ended December 31, 1998
Allowance for doubtful accounts.............. $ -- $ -- $ -- $ --
Year ended December 31, 1997
Allowance for doubtful accounts.............. $ -- $ -- $ -- $ --
</TABLE>

32
33

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form S-1 No.
333-76681)
3.2 Amended and Restated Bylaws of the Registrant (incorporated
herein by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1 No. 333-96171)
4.1 Third Amended and Restated Registration Rights Agreement
dated March 9, 1999 (incorporated herein by reference to
Exhibit 4.6 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors, officers and certain
employees (incorporated herein by reference to Exhibit 10.1
to the Registrant's Registration Statement on Form S-1 No.
333-76681)
10.2 Amended and Restated 1996 Stock Plan (incorporated herein by
reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.3 1999 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.4 Sublease between Trident Microsystems, Inc. and the
Registrant dated July 1, 1998 (incorporated herein by
reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.5 Sublease between At Home Corporation and the Registrant
dated June 4, 1998 (incorporated herein by reference to
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.6 Change of Control Agreement between Scott Kriens and the
Registrant dated October 1, 1996 (incorporated herein by
reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.7 Change of Control Agreement between Marcel Gani and the
Registrant dated February 18, 1997 (incorporated herein by
reference to Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.8* Agreement for ASIC Design and Purchase of Products between
IBM Microelectronics and the Registrant dated August 26,
1997 and Amendments One and Two to the agreement dated
January 5, 1998 and March 2, 1998, respectively
(incorporated herein by reference to Exhibit 10.8, 10.8.1
and 10.8.2, respectively, to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.9* Standard Manufacturing Agreement between Solectron
California Corporation, Fine Pitch Technology Inc. and the
Registrant dated June 10, 1998 (incorporated herein by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.10 Lease between Mathilda Associates LLC and the Registrant
dated June 18, 1999 (incorporated herein by reference to
Exhibit 10.10 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.11 Lease between Mathilda Associates LLC and the Registrant
dated February 28, 2000.
13.1 1999 Annual Report to Stockholders (deemed to be filed to
the extent that information is specifically incorporated by
reference)
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see page 31)
27.1 Financial Data Schedule
</TABLE>

- ---------------
* Confidential treatment requested and received as to certain portions.