Merriman
Curhan Ford & Co.
The date
of this prospectus supplement is March 1, 2010.
TAB
LE OF CONTENTS
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Prospectus
Supplement
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Prospectus
Dated February 9, 2010
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S-1
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S-1
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S-2
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S-2
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S-14
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S-14
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S-15
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S-15
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S-15
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S-16
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S-17
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S-17
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S-17
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No
dealer, salesperson or other person is authorized to give any information or to
represent anything not contained in this prospectus supplement or the
accompanying prospectus. You must not rely on any unauthorized information or
representations. This prospectus supplement and the accompanying prospectus are
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus supplement and the accompanying prospectus is current only as of
their respective dates.
ABO
UT THIS PROSPECTUS SUPPLEMENT
This
document is in two parts. The first part is the prospectus supplement, which
describes the specific terms of the common stock being offered by us, and also
adds to and updates information contained in the accompanying prospectus and the
documents incorporated by reference. The second part, the accompanying
prospectus, including the documents incorporated by reference, provides more
general information, some of which may not apply to this offering of common
stock. Generally, when we refer to this prospectus, we are referring to both
parts of this document combined. To the extent there is a conflict between the
information contained in this prospectus supplement, on the one hand, and the
information contained in the accompanying prospectus or in any document
incorporated by reference that was filed with the Securities and Exchange
Commission, or SEC, before the date of this prospectus supplement, on the other
hand, you should rely on the information in this prospectus supplement. If any
statement in one of these documents is inconsistent with a statement in another
document having a later date—for example, a document incorporated by reference
in the accompanying prospectus—the statement in the document having the later
date modifies or supersedes the earlier statement.
You
should rely only on the information contained or incorporated by reference in
this prospectus supplement, the accompanying prospectus and in any free writing
prospectus that we have authorized for use in connection with this offering. We
have not, and the placement agent has not, authorized anyone to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the placement agent is
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information appearing
in this prospectus supplement, the accompanying prospectus, the documents
incorporated by reference in this prospectus supplement and the accompanying
prospectus, and in any free writing prospectus that we have authorized for use
in connection with this offering is accurate only as of the respective dates of
those documents. Our business, financial condition, results of operations and
prospects may have changed since those dates. You should read this prospectus
supplement, the accompanying prospectus, the documents incorporated by reference
in this prospectus supplement and the accompanying prospectus, and any free
writing prospectus that we have authorized for use in connection with this
offering when making your investment decision. You should also read and consider
the information in the documents we have referred you to in the section of this
prospectus supplement entitled “Where You Can Find More
Information.”
THE
OFFERING
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Common
stock offered by us:
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18,000,000
shares
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Common
stock outstanding before the offering:
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94,082,724
shares
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Common
stock to be outstanding after the offering:
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112,082,724
shares
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Use
of proceeds:
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We
currently intend to use the net proceeds from the sale of our shares of
common stock covered by this prospectus for general working capital,
including, among other purposes, procuring inventory for sale to our
customers, increasing our research and development activities and
increasing our sales and marketing activities. See “Use of Proceeds” on
page S-14 for additional detail.
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NYSE
Amex Equities U.S. Market symbol:
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“PKT”
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The
information above is based on 94,082,724 shares of our common stock outstanding
as of March 1, 2010 and does not include:
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9,080,724 shares of common stock
issuable upon exercise of stock options outstanding as of March 1, 2010,
at a weighted average exercise price of $0.99 per
share;
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4,160,021 shares of common stock
issuable upon the exercise of warrants outstanding as of March 1, 2010, at
a weighted average exercise price of $0.95;
and
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4,140,517
shares of common stock available for grant under our 2003 Stock Option
Plan, 2004 Stock Option Plan and 2007 Equity Incentive
Plan.
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Unless
otherwise stated, outstanding share information throughout this prospectus
supplement excludes such outstanding options or warrants to purchase shares of
common stock.
PRO
SPECTUS SUPPLEMENT SUMMARY
This
summary highlights selected information appearing elsewhere or incorporated by
reference in this prospectus supplement and the accompanying prospectus, and may
not contain all of the information that is important to you. This prospectus
supplement and the accompanying prospectus include information about the shares
of common stock that we are offering as well as information regarding our
business. You should read this prospectus supplement and the accompanying
prospectus, including the information incorporated by reference and any free
writing prospectus that we have authorized for use in connection with this
offering, in their entirety. Investors should carefully consider the information
set forth under “Risk Factors” in this prospectus supplement before making your
investment decision.
Procera
Networks, Inc.
We are a
provider of broadband bandwidth management and control products for broadband
communications networks. Our products enable network congestion management,
network operating intelligence, and subscriber or user service management. Our
products are based upon proprietary network traffic identification technology
based upon deep-packet inspection, or DPI, capabilities, as well as network
reporting functions. Our products are used by entities that have a broadband
network, including communications service providers, universities, enterprises
and government entities. The communications service providers that use our
products include cable, telephone and mobile communications
companies.
Our
products include software applications running on a high performance hardware
platform. The high performance hardware platform is designed to handle broadband
network throughput ranging from 4 megabits per second to 40 gigabits per second
per device. Multiple devices can be deployed in a synchronized cluster, linearly
scaling to 64 devices and through-put of 2.5 terabits per second.
Network
administrators typically use our products to monitor network use or traffic on
an application and user-specific basis in real-time. Our products enable network
administrators to improve network utilization, thereby reducing additional
infrastructure investment. Our software application is branded PacketLogic TM.
The PacketLogic software application has five functional modules: traffic
identification and classification, traffic shaping, traffic filtering, flow
statistics and web-based statistics.
We were
incorporated in 2002, and in October 2003, we merged with Zowcom, Inc., a
publicly-traded Nevada corporation. Our principal executive offices are located
at 100 Cooper Court, Los Gatos, CA 95032. Further information can be found on
our website: www.proceranetworks.com. Information found on our website is not
incorporated by reference into this prospectus. Our telephone number is (408)
890-7100.
RI
SK FACTORS
An
investment in our common stock involves a high degree of risk. Before deciding
whether to invest in our common stock, you should consider carefully the
following risks together with other information in this prospectus supplement,
the accompanying prospectus, the information and documents incorporated by
reference, and in any free writing prospectus that we have authorized for use in
connection with this offering. If any of these risks actually occurs, our
business, financial condition, results of operations or prospects could be
seriously harmed. This could cause the trading price of our common stock to
decline, resulting in a loss of all or part of your investment. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties not presently known to us, or that we currently see as
immaterial, may also harm our business.
Risks
Related to this Offering and Ownership of Our Common Stock
You
will experience immediate dilution in the book value per share of the common
stock you purchase.
Because
the price per share of our common stock being offered is substantially higher
than the book value per share of our common stock, you will suffer substantial
dilution in the net tangible book value of the common stock you purchase in this
offering. Based on the offering price of $0.40 per share, if you purchase shares
of common stock in this offering, you will suffer immediate and substantial
dilution of $0.29 per share in the net tangible book value of the common
stock. See “Dilution” for a more detailed discussion of the dilution
you will incur in this offering.
Management
will have broad discretion as to the use of the proceeds from this offering, and
we may not use the proceeds effectively.
We
currently anticipate using the net proceeds from this offering for general
corporate purposes. We may also use a portion of the net proceeds to acquire or
invest in businesses, products and technologies that are complementary to our
own, although we have no current plans, commitments or agreements with respect
to any acquisitions as of the date of this prospectus supplement. Our management
has broad discretion over how these proceeds are used and could spend the
proceeds in ways with which you may not agree. Pending the use of the proceeds
in this offering, we will invest them. However, the proceeds may not be invested
in a manner that yields a favorable or any return.
Our
common stock price is likely to be highly volatile.
The
market price of our common stock is likely to be highly volatile as is the stock
market in general, and the market for small cap and micro cap technology
companies, such as ours, in particular, has been highly
volatile. Investors may not be able to resell their shares of our
common stock following periods of volatility because of the market’s adverse
reaction to volatility. In addition our stock is thinly traded. We
cannot assure you that our stock will trade at the same levels of other stocks
in our industry or that in general, stocks in our industry will sustain their
current market prices. Factors that could cause such volatility may
include, among other things:
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actual
or anticipated fluctuations in our quarterly operating
results;
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announcements
of technology innovations by our
competitors;
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changes
in financial estimates by securities
analysts;
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conditions
or trends in the network control and management
industry;
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changes
in the market valuations of other such industry related
companies;
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the
acceptance by institutional investors of our
stock;
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rumors,
announcements or press articles regarding our operations, management,
organization, financial condition or financial
statements;
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the
gain or loss of a significant customer;
or
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the
stock market in general, and the market prices of stocks of technology
companies, in particular, have experienced extreme price volatility that
has adversely affected, and may continue to adversely affect, the market
price of our common stock for reasons unrelated to our business or
operating results.
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Shares
eligible for future sale by our current stockholders may adversely affect our
stock price.
Sales of
substantial amounts of common stock, including shares issued upon the exercise
of outstanding options and warrants, could adversely affect the prevailing
market price of our common stock and could impair our ability to raise capital
at that time through the sale of our securities.
Sales of
a substantial number of shares of common stock could adversely affect the market
price of our common stock and could impair our ability to raise capital through
the sale of additional equity securities. If, and to the extent,
outstanding options or warrants are exercised, current stockholders will
experience dilution to their holdings. In addition, shares issuable upon
exercise of our outstanding warrants and stock options may be immediately sold
pursuant to an effective registration statement. If a warrant or option holder
exercises a warrant or an option at an exercise price that is less than the
prevailing market value of our common stock, the holder may be motivated to
immediately sell the resulting shares to realize an immediate gain, which could
cause the trading price of our common stock to decline.
In
connection with our acquisition of the Netintact entities in 2006, we entered
into a lock-up agreement with the former Netintact stockholders under which they
agreed not to sell the approximately 19,000,000 shares of our common stock that
were issued to them as consideration for the acquisition or issuable upon
exercise of warrants issued in connection with the
acquisition. Because all of these shares now have been released from
the lock-up restrictions, the shares are freely tradable and may generally be
sold without restriction, which could cause the trading price of our common
stock to decline.
The NYSE Amex Equities
may delist our securities, which
could limit investors’ ability to transact in our securities and subject us to
additional trading restrictions.
Our
shares of common stock are listed on the NYSE Amex Equities. Maintaining our
listing on the NYSE Amex Equities requires that we fulfill certain continuing
listing standards, including maintaining a minimum equity level of $6 million,
maintaining a trading price for our common stock that the NYSE Amex Equities
does not consider unduly low and adhering to specified corporate governance
requirements. If the NYSE Amex Equities delists our securities from trading, we
could face significant consequences, including:
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a
limited availability for market quotations for our
securities;
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reduced
liquidity with respect to our
securities;
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a
determination that our common stock is a “penny stock,” which will require
brokers trading in our ordinary shares to adhere to more stringent rules
and possibly result in a reduced level of trading activity in the
secondary trading market for our ordinary
shares;
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a
limited amount of news and analyst coverage for our company;
and
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a decreased ability
to issue additional securities or obtain additional financing in the
future.
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In
addition, we would no longer be subject to NYSE Amex Equities rules, including
rules requiring us to have a certain number of independent directors and to meet
other corporate governance standards. Our failure to be listed on the NYSE Amex
Equities or another established securities market would have a material adverse
effect on the value of your investment in us.
If our
common stock is not listed on the NYSE Amex Equities or another national
exchange, the trading price of our common stock is below $5.00 per share and we
have net tangible assets of $6,000,000 or less, the open-market trading of our
common stock will be subject to the “penny stock” rules promulgated under the
Securities Exchange Act of 1934, as amended. If our shares become subject to the
“penny stock” rules, broker-dealers may find it difficult to effectuate customer
transactions and trading activity in our securities may be adversely affected.
Under these rules, broker-dealers who recommend such securities to persons other
than institutional accredited investors must:
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make
a special written suitability determination for the
purchaser;
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receive
the purchaser’s written agreement to the transaction prior to
sale;
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provide
the purchaser with risk disclosure documents which identify certain risks
associated with investing in “penny stocks” and which describe the market
for these “penny stocks” as well as a purchaser’s legal remedies;
and
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obtain
a signed and dated acknowledgment from the purchaser demonstrating that
the purchaser has actually received the required risk disclosure document
before a transaction in a “penny stock” can be
completed.
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As a
result of these requirements, the market price of our securities may be
adversely impacted, and current stockholders may find it more difficult to sell
our securities.
Nevada
law and our articles of incorporation and bylaws contain provisions that may
discourage, delay or prevent a change in our management team that our
stockholders may consider favorable or otherwise have the potential to impact
our stockholders’ ability to control our company.
Nevada
law and our articles of incorporation and bylaws contain provisions that may
have the effect of preserving our current management or may impact our
stockholders’ ability to control our company, such as:
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authorizing
the issuance of “blank check” preferred stock without any need for action
by stockholders;
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eliminating
the ability of stockholders to call special meetings of
stockholders;
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restricting
the ability of stockholders to take action by written consent;
and
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establishing
advance notice requirements for nominations for election to the Board of
Directors or for proposing matters that can be acted on by stockholders at
stockholder meetings.
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These
provisions could allow our Board of Directors to affect your rights as a
stockholder since our Board of Directors can make it more difficult for common
stockholders to replace members of the Board. Because our Board of Directors is
responsible for appointing the members of our management team, these provisions
could in turn affect any attempt to replace our current management team. In
addition, the issuance of preferred stock could make it more difficult for a
third party to acquire us and may impact the rights of common stockholders. All
of the foregoing could adversely impact the price of our common stock and your
rights as a stockholder.
We
do not pay and do not expect to pay cash dividends on our common
stock.
To date,
we have not paid any cash dividends and no cash dividends will be paid in the
foreseeable future. We do not anticipate paying cash dividends on our common
stock in the foreseeable future, and we cannot assure an investor that funds
will be legally available to pay dividends, or that, even if the funds are
legally available, the dividends will be paid.
Risks
Related to Our Business
We
expect to incur losses in future periods.
For the
nine months ended September 30, 2009 and the year ended December 31, 2008 we
incurred losses from operations of approximately $7.1 million and $15.0 million,
respectively. We expect to continue to incur losses from operations in future
periods. If we achieve profitability in a subsequent quarter, that may not be
indicative of sustained profitability. Any losses incurred in the
future may result primarily from costs related to continued investments in sales
and marketing, product development and administrative expenses. If our revenue
growth does not occur or is slower than anticipated or our operating expenses
exceed expectations, our losses will be greater. We may never achieve
profitability.
Our
PacketLogic family of products is currently our only suite of products. All of
our current revenues and a significant portion of our future growth depend on
our ability to continue its commercialization.
All of
our current revenues and much of our anticipated future growth depend on our
ability to continue and grow the commercialization of our PacketLogic family of
products. We do not currently have plans or resources to develop additional
product lines, so our future growth will largely be determined by market
acceptance of our PacketLogic products. If customers do not adopt, purchase and
deploy our PacketLogic products, our revenues will not grow and may
decline.
Future
financial performance will depend on the introduction and acceptance of our
PL10000 product line and our future generations of PacketLogic
products.
Our
future financial performance will depend on the development, introduction and
market acceptance of new and enhanced products that address additional market
requirements in a timely and cost-effective manner. In the past, we have
experienced delays in product development and such delays may occur in the
future.
We
introduced our PL10000 product line in early 2008. When we announce new products
or product enhancements that have the potential to replace or shorten the life
cycle of our existing products, customers may defer purchasing our existing
products. These actions could harm our operating results by unexpectedly
decreasing sales and exposing us to greater risk of product
obsolescence.
We
need to increase the functionality of our products and offer additional features
in order to be competitive.
The
market in which we operate is highly competitive and unless we continue to
enhance the functionality of our products and add additional features, our
competitiveness may be harmed and the average selling prices for our products
may decrease over time. Such a decrease would generally result from the
introduction of competing products and from the standardization of DPI
technology. To counter this trend, we endeavor to enhance our products by
offering higher system speeds and additional features, such as additional
protection functionality, supporting additional applications and enhanced
reporting tools. We may also need to reduce our per unit manufacturing costs at
a rate equal to or faster than the rate at which selling prices decline. If we
are unable to reduce these costs or to offer increased functionally and
features, our profitability may be adversely affected.
If
our products contain undetected software or hardware errors or performance
deficiencies, we could incur significant unexpected expenses, experience
purchase order cancellations and lose sales.
Network
products frequently contain undetected software or hardware errors, failures or
bugs when new products or new versions or updates of existing products are first
released to the marketplace. Because we frequently introduce new versions and
updates to our product line, previously unaddressed errors in the accuracy or
reliability of our products, or issues with its performance, may arise. We
expect that such errors or performance deficiencies will be found from time to
time in the future in new or existing products, including the components
incorporated therein, after the commencement of commercial shipments. These
problems may have a material adverse effect on our business by requiring us to
incur significant warranty repair costs and support related replacement costs,
diverting the attention of our engineering personnel from new product
development efforts, delaying the recognition of revenue and causing significant
customer relations problems.
In
addition, if our products are not accepted by customers due to defects or
performance deficiencies, purchase orders contingent upon acceptance may be
cancelled, which could result in a significant lost sales
opportunity or warranty returns exceed the amount we accrued for
defect returns based on our historical experience, our operating results would
be adversely affected.
Our
products must properly interface with products from other vendors. As a result,
when problems occur in a computer or communications network, it may be difficult
to identify the sources of these problems. The occurrence of hardware and
software errors, whether or not caused by our products, could result in the
delay or loss of market acceptance of our products and any necessary revisions
may cause us to incur significant expenses. The occurrence of any such problems
would likely have a material adverse effect on our business, operating results
and financial condition.
We
have a limited operating history on which to evaluate our company.
We were
founded in 2002 and became a public company in October 2003 upon our merger with
Zowcom, Inc., a publicly-traded Nevada corporation having no operations. Prior
to our acquisitions of the Netintact companies, we were a development stage
company, devoting substantially all our efforts and resources to developing and
testing new products and preparing for the introduction of our products into the
marketplace. During this period, we generated insignificant revenues from sales
of our products. We completed our share exchange with Netintact AB on August 18,
2006 and Netintact PTY on September 29, 2006. The products we sell today are
derived primarily from Netintact. While we have the experience of Netintact
operations on a stand-alone basis, we have had limited operating history on a
combined basis upon which we can evaluate our business and prospects. We have
yet to develop sufficient experience regarding actual revenues to be achieved
from our combined operations.
We have
only recently launched many of our products and services on a worldwide basis.
Therefore, investors should consider the risks and uncertainties frequently
encountered by companies in new and rapidly evolving markets, which include the
following:
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successfully
introducing new products;
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successfully
servicing and upgrading new products once
introduced;
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increasing
brand name recognition;
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developing
new, strategic relationships and
alliances;
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managing
expanding operations and sales
channels;
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successfully
responding to competition; and
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attracting,
retaining and motivating qualified
personnel.
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If we are
unable to address these risks and uncertainties, our business, results of
operations and financial condition could be materially and adversely
affected.
Competition
for experienced personnel is intense and our inability to attract and retain
qualified personnel could significantly interrupt our business
operations.
Our
future performance will depend, to a significant extent, on the ability of our
management to operate effectively, both individually and as a group. We are
dependent on our ability to attract, retain and motivate high caliber key
personnel. We have recently hired new employees and our plans to expand in all
areas will require experienced personnel to augment our current staff. We expect
to recruit experienced professionals in such areas as software and hardware
development, sales, technical support, product marketing and management. We
currently plan to expand our indirect channel partner program and we need to
attract qualified business partners to broaden these sales channels. Economic
conditions may result in significant competition for qualified personnel and we
may not be able to attract and retain such personnel. Our business will suffer
if it encounters delays in hiring these additional personnel.
Our
performance is substantially dependent on the continued services and on the
performance of our executive officers and other key employees, including our
CEO, James Brear, and our Chief Technical Officer, Alexander Havang. Mr. Brear
joined the Company and became our CEO in February 2008. The loss of the services
of any of our executive officers or other key employees could materially and
adversely affect our business. We believe we will need to attract, retain and
motivate talented management and other highly skilled employees in order to
execute on our business plan. We may be unable to retain our key employees or
attract, assimilate and retain other highly qualified employees in the future.
Competitors and others have in the past, and may in the future, attempt to
recruit our employees. In California, where we are headquartered,
non-competition agreements with employees are generally unenforceable. As a
result, if an employee based in California leaves the Company for any reason, he
or she will generally be able to begin employment with one of our competitors or
otherwise to compete immediately against us.
We
currently do not have key person insurance in place. If we lose one of the key
officers, we must attract, hire, and retain an equally competent person to take
his or her place. There is no assurance that we would be able to find such an
employee in a timely fashion. If we fail to recruit an equally qualified
replacement or incur a significant delay, our business plans may slow down or
stop. We could fail to implement our strategy or lose sales and marketing and
development momentum.
Also, in
early 2008 we reorganized our sales and marketing efforts, including a
significant reduction in workforce in these areas and the announcement of two
new senior sales management personnel. In April 2009, as a result of outsourcing
our hardware engineering and operations functions, we reduced headcount in our
Los Gatos, California and Varberg, Sweden offices, resulting in the reduction of
approximately 25% of our workforce. These reductions in our workforce
may impair our ability to recruit and retain qualified employees in the future,
and there can be no assurance that these personnel additions or our
reorganization efforts will have the positive effect on our business operations
as planned by management.
Failure
to expand our sales teams or educate them about technologies and our product
families may harm our operating results.
The sale
of our products requires a concerted effort that is frequently targeted at
several levels within a prospective customer's organization. We may not be able
to increase net revenue unless we expand our sales teams to address all of the
customer requirements necessary to sell our products. We reorganized our sales
and marketing efforts in 2008, including a significant reduction in workforce in
these areas and the addition of two senior sales management personnel. We expect
to continue hiring in this area, but there can be no assurance that these
personnel additions or our reorganization efforts will have the positive effect
on our business operations as planned by management.
We cannot
assure you that we will be able to integrate our employees into the company or
to educate current and future employees in regard to rapidly evolving
technologies and our product families. Failure to do so may hurt our revenue
growth and operating results.
Increased
customer demands on our technical support services may adversely affect our
relationships with our customers and our financial results.
We offer
technical support services with our products. We may be unable to respond
quickly enough to accommodate short-term increases in customer demand for
support services. We also may be unable to modify the format of our support
services to compete with changes in support services offered by actual or
potential competitors. Further customer demand for these services, without
corresponding revenues, could increase costs and adversely affect our operating
results. If we experience financial difficulties, do not maintain sufficiently
skilled workers and resources to satisfy our contracts, or otherwise fail to
perform at a sufficient level under these contracts, the level of support
services to our customers may be significantly disrupted, which could materially
harm our relationships with these customers and our results of
operations.
We
must continue to develop and increase the productivity of our indirect
distribution channels to increase net revenue and improve our operating
results.
A key
focus of our distribution strategy is developing and increasing the productivity
of our indirect distribution channels through resellers and distributors. If we
fail to develop and cultivate relationships with significant resellers, or if
these resellers are not able to execute on their sales efforts, sales of our
products may decrease and our operating results could suffer. Many of our
resellers also sell products from other vendors that compete with our products.
We cannot assure you that we will be able to enter into additional reseller
and/or distribution agreements or that we will be able to manage our product
sales channels. Our failure to do any of these could limit our ability to grow
or sustain revenue. In addition, our operating results will likely fluctuate
significantly depending on the timing and amount of orders from our resellers.
We cannot assure you that our resellers and/or distributors will continue to
market or sell our products effectively or continue to devote the resources
necessary to provide us with effective sales, marketing and technical support.
Such failure would negatively affect revenue and our potential to achieve
profitability.
We
may be unable to compete effectively with other companies in our market sector
which are substantially larger and more established and have greater
resources.
We
compete in a rapidly evolving and highly competitive sector of the networking
technology market, on the basis of price, service, warranty and the performance
of our products. We expect competition to persist and intensify in
the future from a number of different sources. Increased competition
could result in reduced prices and gross margins for our products and could
require increased spending by us on research and development, sales and
marketing and customer support, any of which could have a negative financial
impact on our business. We compete with Cisco Systems, Allot, Arbor
Networks, Blue Coat, Juniper, Ericsson, Brocade Communications Systems and
Sandvine, as well as other companies which sell products incorporating competing
technologies. In addition, our products and technology compete for
information technology budget allocations with products that offer monitoring
capabilities, such as probes and related software. We also face
indirect competition from companies that offer broadband service providers
increased bandwidth and infrastructure upgrades that increase the capacity of
their networks, which may lessen or delay the need for bandwidth management
solutions.
Most of
our competitors are substantially larger than we are and have significantly
greater name recognition and financial, sales and marketing, technical,
manufacturing and other resources and more established distribution channels
than we do. These competitors may be able to respond more rapidly to
new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products than
we can. We have encountered, and expect to encounter, customers who
are extremely confident in, and committed to, the product offerings of our
competitors. Furthermore, some of our competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties to increase their ability to rapidly gain market share by
addressing the needs of our prospective customers. These competitors
may enter our existing or future markets with solutions that may be less
expensive, provide higher performance or additional features or be introduced
earlier than our solutions. Given the potential opportunity in the bandwidth
management solutions market, we also expect that other companies may enter with
alternative products and technologies, which could reduce the sales or market
acceptance of our products and services, perpetuate intense price competition or
make our products obsolete. If any technology that is competing with
ours is or becomes more reliable, higher performing, less expensive or has other
advantages over our technology, then the demand for our products and services
would decrease, which would harm our business.
If
we are unable to effectively manage our anticipated growth, we may experience
operating inefficiencies and have difficulty meeting demand for our
products.
We seek
to manage our growth so as not to exceed our available capital resources. If our
customer base and market grow rapidly, we would need to expand to meet this
demand. This expansion could place a significant strain on our management,
products and support operations, sales and marketing personnel and other
resources, which could harm our business.
If demand
for our products and services grows rapidly, we may experience difficulties
meeting the demand. For example, the installation and use of our products
requires training. If we are unable to provide training and support for our
products, the implementation process will be longer and customer satisfaction
may be lower. In addition, our management team may not be able to achieve the
rapid execution necessary to fully exploit the market for our products and
services. We cannot assure you that our systems, procedures or controls will be
adequate to support the anticipated growth in our operations. The failure to
meet the challenges presented by rapid customer and market expansion would cause
us to miss sales opportunities and otherwise have a negative impact on our sales
and profitability.
We may
not be able to install management information and control systems in an
efficient and timely manner, and our current or planned personnel, systems,
procedures and controls may not be adequate to support our future
operations.
Unstable
market and economic conditions may have serious adverse consequences on our
business.
Our
general business strategy may be adversely affected by the current global
economic downturn and volatile business environment and continued unpredictable
and unstable market conditions. If the current financial markets continue to
experience volatility or further deterioration, it may make any necessary debt
or equity financing more difficult, more costly, and more
dilutive. In addition, a prolonged or deeper economic downturn may
result in reduced demand for our products, or adversely impact our customers’
ability to pay for our products, which would harm our operating results. There
is also a risk that one or more of our current service providers, manufacturers
and other partners may not survive in the current economic environment, which
would directly affect our ability to attain our operating goals on schedule and
on budget. Failure to secure any necessary financing in a timely manner and on
favorable terms could have a material adverse effect on our financial
performance and stock price and could require us to change our business
plans.
We
have limited ability to protect our intellectual property and defend against
claims which may adversely affect our ability to compete.
For our
primary line of PacketLogic products, we rely primarily on trade secret law,
contractual rights and trademark law to protect our intellectual property
rights. We cannot assure you that the actions we have taken will adequately
protect our intellectual property rights or that other parties will not
independently develop similar or competing products that do not infringe on our
patents. We 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 misappropriate or use our products or technology.
In an
effort to protect our unpatented proprietary technology, processes and know-how,
we require our employees, consultants, collaborators and advisors to execute
confidentiality agreements. These agreements, however, may not provide us with
adequate protection against improper use or disclosure of confidential
information. These agreements may be breached, and we may not become aware of,
or have adequate remedies in the event of, any such breach. In addition, in some
situations, these agreements may conflict with, or be subject to, the rights of
third parties with whom our employees, consultants, collaborators or advisors
have previous employment or consulting relationships. Also, others may
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets.
Our
industry is characterized by the existence of a large number of patents and
frequent claims and related litigation regarding patent and other intellectual
property rights. If we are found to infringe on the proprietary rights of
others, or if we agree to settle any such claims, we could be compelled to pay
damages or royalties and either obtain a license to those intellectual property
rights or alter our products so that they no longer infringe upon such
proprietary rights. Any license could be very expensive to obtain or may not be
available at all. Similarly, changing our products or processes to avoid any
claims of infringement may be costly or impractical. Litigation resulting from
claims that we are infringing the proprietary rights of others could result in
substantial costs and a diversion of resources, and could have a material
adverse effect on our business, financial condition and results of
operations.
If
we are unable to have our products manufactured quickly enough to keep up with
demand, our operating results could be harmed.
If the
demand for our products grows, we will need to increase our capacity for
material purchases, production, test and quality control functions. Any
disruptions in product flow could limit our revenue growth and adversely affect
our competitive position and reputation, and result in additional costs or
cancellation of orders under agreements with our customers.
While our
PacketLogic products are software based, we rely on independent contractors to
manufacture the hardware components on which are products are installed and
operate. We are reliant on the performance of these contractors to meet business
demand, and may experience delays in product shipments from contract
manufacturers. Contract manufacturer performance problems may arise in the
future, such as inferior quality, insufficient quantity of products, or the
interruption or discontinuance of operations of a manufacturer, any of which
could have a material adverse effect on our business and operating
results.
We do not
know whether we will effectively manage our contract manufacturers or that these
manufacturers will meet our future requirements for timely delivery of product
components of sufficient quality and quantity. We also intend to regularly
introduce new products and product enhancements, which will require that we
rapidly achieve volume production by coordinating our efforts with those of our
suppliers and contract manufacturers. The inability of our contract
manufacturers to provide us with adequate supplies of high-quality product
components may cause a delay in our ability to fulfill orders and may have a
material adverse effect on our business, operating results and financial
condition.
As part
of our cost-reduction efforts, we will endeavor to lower per unit product costs
from our contract manufacturers by means of volume efficiencies and the
utilization of manufacturing sites in lower-cost geographies. However, we cannot
be certain when or if such price reductions will occur. The failure to obtain
such price reductions would adversely affect our gross margins and operating
results.
Most
of our operations and logistics functions are outsourced to a single third party
service provider, and any disruption to the services provided by this third
party could disrupt the availability or quality of our products, which would
negatively impact our business
.
In April
2009, we entered into an agreement to outsource substantially all our operations
and logistics functions to Continuous Computing Corporation of San Diego,
California. These operations and logistics functions were formerly
handled in our Los Gatos, California facility. Continuous Computing
loads Procera’s software into servers and other hardware devices, performs
testing and inspection services and ships directly to Procera’s
customers.
Outsourcing
may not yield the benefits we expect, and instead could result in increased
product costs and product delivery delays. Outsourced operations and
logistics could create disruptions in the availability of our products if the
timeliness or quality of products delivered does not meet our requirements or
our customers’ expectations. Such problems or delays could be caused
by a number of factors including, but not limited to: financial viability of an
outsourced vendor, availability of components to the outsourced vendor, improper
product specifications, and the learning curve to commence operations and
logistics functions at a new outsourced site. If product supply is
adversely affected because of problems in outsourcing we may lose
sales.
If our
agreement with Continuous Computing terminates or if Continuous Computing does
not perform its obligations under our agreement, it could take many months to
find and establish an alternative relationship with another outsource
manufacturer to provide these services, or to re-establish this capability
ourselves. During this time, we may not be able to fulfill our
customers’ orders for most of our products in a timely manner. The cost of
establishing alternative capabilities to replace those offered by Continuous
Computing could be prohibitive.
Any
delays in meeting customer demand or quality problems resulting from product
loaded, tested, inspected and prepared for shipping by Continuous Computing
could result in lost or reduced future sales to key customers and could have a
material negative impact on our net sales and results of
operations.
If
our suppliers fail to adequately supply us with certain original equipment
manufacturer, or OEM, sourced components, our product sales may
suffer.
Reliance
upon OEMs, as well as industry supply conditions generally involves several
additional risks, including the possibility of a shortage of components and
reduced control over delivery schedules (which can adversely affect our
distribution schedules), and increases in component costs (which can adversely
affect our profitability). Most of our hardware products, or the components of
our hardware components, are based on industry standards and are therefore
available from multiple manufacturers. If our supplier were to fail to deliver,
alternative suppliers are available, although qualification of the alternative
manufacturers and establishment of reliable suppliers could result in delays and
a possible loss of sales, which could affect operating results
adversely. However, in some specific cases we have single-sourced
components, because alternative sources are not currently
available. If these components were to become not available, we could
experience more significant, though temporary, supply interruptions, delays, or
inefficiencies, adversely affecting our results of operations.
Sales
of our products to large broadband service providers can involve a lengthy sales
cycle, which may cause our revenues to fluctuate from period to period and could
result in us expending significant resources without making any
sales.
Our sales
cycles are generally lengthy, as our customers undertake significant testing to
assess the performance of our products within their networks. As a result, we
may invest significant time from initial contact with a customer until that
end-customer decides to incorporate our products in its network. We may also
expend significant resources attempting to persuade large broadband service
providers to incorporate our products into their networks without any measure of
success. Even after deciding to purchase our products, initial network
deployment and acceptance testing of our products by a large broadband service
provider may last several years. Carriers, especially in North America, often
require that products they purchase meet Network Equipment Building System, or
NEBS, certification requirements, which relate the reliability of
telecommunications equipment. While our PacketLogic products and future products
are and are expected to be designed to meet NEBS certification requirements,
they may fail to do so.
Due to
our lengthy sales cycle, particularly to larger customers, and our revenue
recognition practices, we expect our revenue may fluctuate dramatically from
period to period. In pursuing sales opportunities with larger enterprises, we
expect that we will make fewer sales to larger entities, but that the magnitude
of individual sales will be greater. We may report substantial revenue growth in
the period that we recognize the revenue from a large sale, which may not be
repeated in an immediately subsequent period. As such, our revenues could
fluctuate materially from period to period, which may cause the price of our
common stock to decline. In addition, even after we have received commitments
from a customer to purchase our products, in accordance with our revenue
recognition practices we may not be able to recognize and report the revenue
from that purchase for months or years. As a result, there could be significant
delays in our receipt and recognition of revenue following sales orders for our
products.
In
addition, if a competitor succeeds in convincing a large broadband service
provider to adopt that competitor's product, it may be difficult for us to
displace the competitor because of the cost, time, effort and perceived risk to
network stability involved in changing solutions. As a result we may incur
significant expense without generating any sales.
Our
operating results could be adversely affected by product sales occurring outside
the United States and fluctuations in the value of the United States Dollar
against foreign currencies.
A
significant percentage of PacketLogic sales are generated outside of the United
States. PacketLogic sales and operating expenses denominated in foreign
currencies could affect our operating results as foreign currency exchange rates
fluctuate. Changes in exchange rates between these foreign currencies and the
U.S. Dollar will affect the recorded levels of our assets and liabilities as
foreign assets and liabilities are translated into U.S. Dollars for presentation
in our financial statements, as well as our net sales, cost of goods sold, and
operating margins. The primary foreign currencies in which we have exchange rate
fluctuation exposure are the European Union Euro, the Swedish Krona and the
Australian Dollar. As we expand, we could be exposed to exchange rate
fluctuations in other currencies. Exchange rates between these currencies and
U.S. Dollars have fluctuated significantly in recent years and may do so in the
future. Hedging foreign currencies can be difficult. We cannot predict the
impact of future exchange rate fluctuations on our operating results. We
currently do not hedge any foreign currencies.
Legislative
actions, higher insurance costs and new accounting pronouncements are likely to
impact our future financial position and results of operations.
Legislative
and regulatory changes and future accounting pronouncements and regulatory
changes have, and will continue to have, an impact on our future financial
position and results of operations. In addition, insurance costs, including
health and workers' compensation insurance premiums, have been increasing on an
historical basis and are likely to continue to increase in the future. Recent
and future pronouncements associated with expensing executive compensation and
employee stock option may also impact operating results. These and other
potential changes could materially increase the expenses we report under
generally accepted accounting principles, and adversely affect our operating
results.
Our
internal controls may be insufficient to ensure timely and reliable financial
information.
Effective
internal controls over financial reporting are necessary for us to provide
reliable financial reports and effectively prevent fraud. A company's internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with Generally
Accepted Accounting Principles. A company's internal control over financial
reporting includes those policies and procedures that:
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pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
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provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with Generally Accepted
Accounting Principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and
directors of the company; and
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provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial
statements.
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A
material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.
We
described a material weakness with our internal controls under Item 9A of our
Annual Report for the year ended December 31, 2007, and also identified other
significant deficiencies in our internal controls. For the year ended December
31, 2008 we did not identify any material weaknesses.
Under the
supervision of our Audit Committee, we are continuing the process of identifying
and implementing corrective actions where required to improve the design and
effectiveness of our internal control over financial reporting, including the
enhancement of systems and procedures. We have a small accounting staff and
limited resources and expect that we will continue to be subject to the risk of
additional material weaknesses and significant deficiencies.
Even
after corrective actions are implemented, the effectiveness of our controls and
procedures may be limited by a variety of risks including:
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faulty
human judgment and simple errors, omissions or
mistakes;
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collusion
of two or more people;
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inappropriate
management override of procedures;
and
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the
risk that enhanced controls and procedures may still not be adequate to
assure timely and reliable financial
information.
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If we
fail to have effective internal controls and procedures for financial reporting
in place, we could be unable to provide timely and reliable financial
information. Additionally, if we fail to have effective internal controls and
procedures for financial reporting in place, it could adversely affect our
financial reporting requirements under future government contracts.
Accounting
charges may cause fluctuations in our annual and quarterly financial results
which could negatively impact the market price of our common stock.
Our
financial results may be materially affected by non-cash and other accounting
charges. Such accounting charges may include:
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amortization
of intangible assets, including acquired product
rights;
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impairment
of goodwill;
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stock-based
compensation expense; and
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impairment
of long-lived assets.
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The
foregoing types of accounting charges may also be incurred in connection with or
as a result of business acquisitions. The price of our common stock could
decline to the extent that our financial results are materially affected by the
foregoing accounting charges. Our effective tax rate may increase, which could
increase our income tax expense and reduce our net income. Our effective tax
rate could be adversely affected by several factors, many of which are outside
of our control, including:
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changes
in the relative proportions of revenues and income before taxes in the
various jurisdictions in which we operate that have differing statutory
tax rates;
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changing
tax laws, regulations and interpretations in multiple jurisdictions in
which we operate, as well as the requirements of certain tax
rulings;
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changes
in accounting and tax treatment of stock-based
compensation;
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the
tax effects of purchase accounting for acquisitions and restructuring
charges that may cause fluctuations between reporting periods;
and
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tax
assessments, or any related tax interest or penalties, which could
significantly affect our income tax expense for the period in which the
settlements take place.
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The price
of our common stock could decline if our financial results are materially
affected by the foregoing.
Our
headquarters are located in Northern California where disasters may occur that
could disrupt our operations and harm our business.
Our
corporate headquarters are located in Silicon Valley in Northern California.
Historically, this region has been vulnerable to natural disasters and other
risks, such as earthquakes, which at times have disrupted the local economy and
posed physical risks to us and our local suppliers. In addition, terrorist acts
or acts of war targeted at the United States, and specifically Silicon Valley,
could cause damage or disruption to us, our employees, facilities, partners,
suppliers, distributors and resellers, and customers, which could have a
material adverse effect on our operations and financial results. Although we
currently have significant redundant capacity in Sweden in the event of a
natural disaster or catastrophic event in Silicon Valley, our business could
nonetheless suffer. The operations in Sweden are subject to disruption by
extreme winter weather.
Acquisitions
may disrupt or otherwise have a negative impact on our business.
We may
seek to acquire or make investments in complementary businesses, products,
services or technologies on an opportunistic basis when we believe they will
assist us in executing our business strategy. Growth through acquisitions has
been a viable strategy used by other network control and management technology
companies. In 2006, we completed acquisitions of the Netintact entities. These
and any future acquisitions could distract our management and employees and
increase our expenses.
In
addition, following any acquisition, including our acquisition of the Netintact
entities, the integration of the acquired business, product, service or
technology is complex, time consuming and expensive, and may disrupt our
business. These challenges include the timely and efficient execution of a
number of post-transaction integration activities, including:
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integrating
the operations and technologies of the two
companies;
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retaining
and assimilating the key personnel of each
company;
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retaining
existing customers of both companies and attracting additional
customers;
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leveraging
our existing sales channels to sell new products into new
markets;
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developing
an appropriate sales and marketing organization and sales channels to sell
new products into new markets;
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retaining
strategic partners of each company and attracting new strategic partners;
and
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implementing
and maintaining uniform standards, internal controls, processes,
procedures, policies and information
systems.
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The
process of integrating operations and technology could cause an interruption of,
or loss of momentum in, our business and the loss of key personnel. The
diversion of management's attention and any delays or difficulties encountered
in connection with an acquisition and the integration of our operations and
technology could have an adverse effect on our business, results of operations
or financial condition. Furthermore, the execution of these post-transaction
integration activities will involve considerable risks and may not come to pass
as we envision. The inability to integrate the operations, technology and
personnel of an acquired business with ours, or any significant delay in
achieving integration, could have a material adverse effect on our business and,
as a result, on the market price of our common stock.
Furthermore,
we issued equity securities to pay for the Netintact acquisitions which had a
dilutive effect on its existing stockholders and we may have to incur debt or
issue equity securities to pay for any future acquisitions, the issuance of
which could be dilutive to our existing stockholders.
Risks
Related to Our Industry
Demand
for our products depends, in part, on the rate of adoption of
bandwidth-intensive broadband applications, such as peer-to-peer, or P2P, and
latency-sensitive applications, such as voice-over-Internet protocol, or VoIP,
Internet video and online video gaming applications.
Our
products are used by broadband service providers and enterprises to provide
awareness, control and protection of Internet traffic by examining and
identifying packets of data as they pass an inspection point in the network,
particularly bandwidth-intensive applications that cause congestion in broadband
networks and impact the quality of experience of users. In addition to the
general increase in applications delivered over broadband networks that require
large amounts of bandwidth, such as P2P applications, demand for our products is
driven particularly by the growth in applications which are highly sensitive to
network delays and therefore require efficient network management. These
applications include VoIP, Internet video and online video gaming applications.
If the rapid growth in adoption of VoIP and in the popularity of Internet video
and online video gaming applications does not continue, the demand for our
products may not grow as anticipated.
If
the bandwidth management solutions market fails to grow, our business will be
adversely affected.
We
believe that the market for bandwidth management solutions is in an early stage
of development. We cannot accurately predict the future size of the market, the
products needed to address the market, the optimal distribution strategy, or the
competitive environment that will develop. In order for us to execute our
strategy, our potential customers must recognize the value of more sophisticated
bandwidth management solutions, decide to invest in the management of their
networks and the performance of important business software applications and, in
particular, adopt our bandwidth management solutions. The growth of the
bandwidth management solutions market also depends upon a number of factors,
including the availability of inexpensive bandwidth, especially in international
markets, and the growth of wide area networks. The failure of the market to
rapidly grow would adversely affect our sales and sales prospects, leading to
sustained financial losses and a decline in the price of our common
stock.
The
market for our products in the network provider market is still emerging and our
growth may be harmed if carriers do not adopt DPI solutions.
The
market for DPI technology is still emerging and the majority of our sales to
date have been to small and midsize broadband service providers and enterprises.
We believe that the Tier 1 carriers, as well as cable and mobile operators,
present a significant market opportunity and are an important element of our
long term strategy, but they are still in the early stages of adopting and
evaluating the benefits and applications of DPI technology. Carriers may decide
that full visibility into their networks or highly granular control over content
based applications is not critical to their business. They may also determine
that certain applications, such as VoIP or Internet video, can be adequately
prioritized in their networks by using router and switch infrastructure products
without the use of DPI technology. They may also, in some instances, face
regulatory constraints that could change the characteristics of the markets.
Carriers may also seek an embedded DPI solution in capital equipment devices
such as routers rather than the stand-alone solution offered by us. Furthermore,
widespread adoption of our products by carriers will require that they migrate
to a new business model based on offering subscriber and application-based
tiered services. If carriers decide not to adopt DPI technology, our market
opportunity would be reduced and our growth rate may be harmed.
The
network equipment market is subject to rapid technological progress and to
compete we must continually introduce new products or upgrades that achieve
broad market acceptance.
The
network equipment market is characterized by rapid technological progress,
frequent new product introductions, changes in customer requirements and
evolving industry standards. If we do not regularly introduce new products or
upgrades in this dynamic environment, our product lines will become obsolete.
Developments in routers and routing software could also significantly reduce
demand for our products. Alternative technologies could achieve widespread
market acceptance and displace the technology on which we have based our product
architecture. We cannot assure you that our technological approach will achieve
broad market acceptance or that other technology or devices will not supplant
our products and technology.
Our
products must comply with evolving industry standards and complex government
regulations or else our products may not be widely accepted, which may prevent
us from growing our net revenue or achieving profitability.
The
market for network equipment products is characterized by the need to support
new standards as they emerge, evolve and achieve acceptance. We will not be
competitive unless we continually introduce new products and product
enhancements that meet these emerging standards. We may not be able to
effectively address the compatibility and interoperability issues that arise as
a result of technological changes and evolving industry standards. Our products
must be compliant with various United States federal government requirements and
regulations and standards defined by agencies such as the Federal Communications
Commission, in addition to standards established by governmental authorities in
various foreign countries and recommendations of the International
Telecommunication Union. If we do not comply with existing or evolving industry
standards or if we fail to obtain timely domestic or foreign regulatory
approvals or certificates, we will not be able to sell our products where these
standards or regulations apply, which may prevent us from sustaining our net
revenue or achieving profitability.
DISCL
OSURE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus supplement and the accompanying prospectus, including the documents
that we incorporate by reference, may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements include those that express plans, anticipation, intent, contingency,
goals, targets or future development and/or otherwise are not statements of
historical fact. Any forward-looking statements are based on our current
expectations and projections about future events and are subject to risks and
uncertainties known and unknown that could cause actual results and developments
to differ materially from those expressed or implied in such
statements.
In some
cases, you can identify forward-looking statements by terminology, such as
“expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” “seeks,”
“may,” “should”, “could” or the negative of such terms or other similar
expressions. Accordingly, these statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially from those
expressed in them. Any forward-looking statements are qualified in their
entirety by reference to the risk factors described herein and those included in
any document incorporated by reference into this prospectus.
You
should read this prospectus supplement and the accompanying prospectus and the
documents that we reference herein and therein and have filed as exhibits to the
registration statement, of which this prospectus is part, completely and with
the understanding that our actual future results may be materially different
from what we concurrently expect. You should assume that the information
appearing in this prospectus supplement and any document incorporated herein by
reference is accurate as of its date only. Because the risk factors referred to
above could cause actual results or outcomes to differ materially from those
expressed in any forward-looking statements made by us or on our behalf, you
should not place undue reliance on any forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is made, and we
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from time to
time, and it is not possible for us to predict which factors will arise. In
addition, we cannot assess the impact of each factor on our business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements. We
qualify all of the information presented in this prospectus supplement, the
accompanying prospectus and any document incorporated herein by reference, and
particularly our forward-looking statements, by these cautionary
statements.
US
E OF PROCEEDS
We
estimate that the net proceeds from the sale of the 18,000,000 shares of common
stock that we are offering will be approximately $6.5 million, based on the
offering price of $0.40 per share and after deducting the estimated placement
agent fees and estimated offering expenses payable by us.
We
currently intend to use the net proceeds from the sale of our shares of common
stock offered by this prospectus for general working capital purposes,
including:
|
|
·
|
Procuring
inventory for sale to our
customers;
|
|
|
·
|
Increasing
our research and development activities, including hiring additional
software engineers; and
|
|
|
·
|
Increasing
our sales and marketing activities, including hiring additional sales and
marketing employees.
|
We may
also use a portion of the net proceeds to pay down debt, or to invest in or
acquire businesses or technologies that we believe are complementary to our own,
although we have no current plans, commitments or agreements with respect to the
repayment of any debt or any acquisitions as of the date of this prospectus
supplement. Pending these uses, we intend to invest the net proceeds in demand
deposits, money market accounts or in investment-grade, interest-bearing
securities.
CA
PITALIZATION
The
following table sets forth our cash and cash equivalents and capitalization as
of September 30, 2009:
|
|
—
|
on
an actual basis; and
|
|
|
—
|
on
an as adjusted basis to effect our sale of 18,000,000 shares of our common
stock in this offering, based on the offering price of $0.40 per share,
and after deducting the estimated placement agent fees and estimated
offering expenses payable by
us.
|
This
table should be read in conjunction with our financial statements and the
related notes, which are incorporated by reference in this prospectus supplement
and the accompanying prospectus.
|
|
|
September
30, 2009
|
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,389,449
|
|
|
$
|
8,935,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
:
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 130,000,000 shares authorized, 94,082,724 shares
of common stock issued and outstanding actual; and 112,082,724 shares
issued and outstanding, as adjusted
|
|
|
94,083
|
|
|
|
112,083
|
|
|
Additional
paid-in capital
|
|
|
67,356,581
|
|
|
|
74,034,581
|
|
|
Accumulated
other comprehensive loss
|
|
|
(281,086
|
)
|
|
|
(281,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(60,002,015
|
)
|
|
|
(60,152,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
7,167,563
|
|
|
|
13,713,563
|
|
|
Total
Capitalization
|
|
$
|
7,167,563
|
|
|
$
|
13,713,563
|
|
The
outstanding share information above is based on 94,082,724 shares of our common
stock outstanding as of September 30, 2009 and does not include:
|
|
|
7,650,531
shares of our common stock issuable upon the exercise of stock options
outstanding as of September 30, 2009, at a weighted-average exercise price
of $1.13 per share;
|
|
|
|
3,660,021
shares of our common stock issuable upon the exercise of warrants
outstanding as of September 30, 2009, at a weighted-average exercise price
of $1.04 per share; and
|
|
|
|
an
aggregate of 3,566,541 shares of our common stock available for grant
under our 2003 Stock Option Plan, 2004 Stock Option Plan and 2007
Equity Incentive Plan.
|
DET
ERMINATION OF OFFERING PRICE
We
established the price following negotiations with prospective investors and with
reference to the prevailing market price of our common stock, recent trends in
such price, daily average trading volume of our common stock, our current stage
of development, future capital needs and other factors.
DIL
UTION
If you
purchase our common stock in this offering, your interest will be diluted to the
extent of the difference between the offering price per share and the net
tangible book value per share of our common stock after this offering. We
calculate net tangible book value per share by dividing the net tangible book
value, tangible assets less total liabilities, by the number of outstanding
shares of our common stock.
Our net
tangible book value (unaudited) at September 30, 2009, was approximately
$6.2 million, or $0.07 per share, based on 94,082,724 shares of our common
stock outstanding as of September 30, 2009. After giving effect to the sale of
18,000,000 shares of common stock by us at an offering price of $0.40 per share,
less the estimated placement agent fees due and estimated offering expenses
payable by us, our as adjusted net tangible book value (unaudited) at September
30, 2009, would have been approximately $12.7 million, or $0.11 per share. This
represents an immediate increase in the net tangible book value of $0.04 per
share to existing stockholders and an immediate dilution of $0.29 per share to
investors in this offering. The following table illustrates this per share
dilution:
|
Offering
price per share
|
|
|
|
|
|
$
|
0.40
|
|
|
Historical
net tangible book value per share as of September 30, 2009
|
|
$
|
0.07
|
|
|
|
|
|
Increase
in historical net tangible book value per share attributable to investors
in this offering
|
|
$
|
0.04
|
|
|
|
|
|
As
adjusted net tangible book value per share after giving effect to this
offering
|
|
|
|
|
|
$
|
0.11
|
|
|
Dilution
per share to investors in this offering
|
|
|
|
|
|
$
|
0.29
|
|
The
information above is based on 94,082,724 shares of our common stock outstanding
as of September 30, 2009 and does not include:
|
|
|
7,650,531
shares of our common stock issuable upon the exercise of stock options
outstanding as of September 30, 2009, at a weighted-average exercise price
of $1.13 per share;
|
|
|
|
3,660,021
shares of our common stock issuable upon the exercise of warrants
outstanding as of September 30, 2009, at a weighted-average exercise price
of $1.04 per share; and
|
|
|
|
an
aggregate of 3,566,541 shares of our common stock available for grant
under our 2003 Stock Option Plan, 2004 Stock Option Plan and 2007
Equity Incentive Plan.
|
PL
AN OF DISTRIBUTION
We are
offering the shares of our common stock through Merriman Curhan Ford & Co.,
as our placement agent (“Placement Agent”). Subject to the terms and
conditions contained in the placement agent agreement, dated March 1, 2010 (the
“Placement Agent Agreement”), Merriman Curhan Ford & Co. has agreed to act
as the Placement Agent for the sale of up to 18,000,000 shares of our common
stock. The Placement Agent is not purchasing or selling any shares by this
prospectus supplement, nor are they required to arrange for the purchase or sale
of any specific number or dollar amount of shares, but have agreed to use
commercially reasonable efforts to arrange for the sale of all 18,000,000
shares.
The terms
of any such offering will be subject to market conditions and private
negotiations between us and prospective purchasers. The placement
agent agreement does not give rise to any commitment by the placement agent to
purchase any of our shares, and the placement agent will have no authority to
bind us by virtue of the placement agent agreement. Further, the placement agent
does not guarantee that it will be able to raise new capital in any prospective
offering.
We will
enter into subscription agreements directly with the purchasers in connection
with this offering, and we will only sell to purchasers who have entered into
subscription agreements.
The
Placement Agent Agreement provides that the obligations of the Placement Agent
and the investors are subject to certain conditions precedent, including the
absence of any material adverse change in our business and the receipt of
certain opinions, letters and certificates from our counsel and us.
Confirmations
and definitive prospectuses will be distributed to all investors who agree to
purchase the common stock, informing investors of the closing date as to such
shares. We currently anticipate that closing of the sale of 18,000,000 shares of
common stock will take place on or about March 4, 2010. Investors will also be
informed of the date and manner in which they must transmit the purchase price
for their shares. A portion of the funds received in payment for the shares sold
in this offering will be deposited into an escrow account pursuant to an escrow
agreement between us, the Placement Agent and an escrow agent, and held until we
and the Placement Agent notify the escrow agent that the offering has closed.
The escrow agent will not accept any investor funds until the date of this
prospectus supplement.
On the
scheduled closing date, we will receive funds in the amount of the aggregate
purchase price, and Merriman Curhan Ford & Co. will receive a commission in
accordance with the terms of the Placement Agent Agreement. We will
pay the Placement Agent a commission equal to seven percent (7.0%) of the gross
proceeds of the sale of shares of common stock in the offering and issue to the
Placement Agent a warrant to purchase a number of shares of common stock equal
to one percent (1.0%) of the number of shares purchased in the offering (the
“Placement Warrant”), or 180,000 shares of common stock. The
Placement Warrant shall have a term of three (3) years and be immediately
exercisable at a price of $0.40 per share. The estimated offering
expenses payable by us, in addition to the Placement Agent’s commission of
$504,000, are approximately $150,000, which includes legal, accounting and
printing costs and various other fees associated with registering and listing
the common stock. After deducting the estimated placement agent fees and our
estimated offering expenses, we expect the net proceeds from this offering to be
approximately $6.5 million.
Pursuant
to the Placement Agent Agreement, we have agreed that we will not,
for a period of ninety (90) days from the date of the Prospectus, (the “Lock-Up
Period”) without the prior written consent of the Placement Agent, directly or
indirectly offer, sell, assign, transfer, pledge, contract to sell, or otherwise
dispose of, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock, other than (i) our sale of the
shares pursuant to this Prospectus and (ii) the issuance of restricted common
stock or options to acquire common stock pursuant to our employee benefit plans,
qualified stock option plans or other employee compensation plans as such plans
are in existence on the date hereof and described in the Prospectus and the
issuance of common stock pursuant to the valid exercises of options, warrants or
rights outstanding on the closing date. In addition, certain of our
directors and officers have agreed not to directly or indirectly offer, sell,
assign, transfer, pledge, contract to sell, or otherwise dispose of, any shares
of common stock or any securities convertible into or exercisable or
exchangeable for common stock, not to engage in any swap or other agreement or
arrangement that transfers, in whole or in part, directly or indirectly, the
economic risk of ownership of common stock or any such securities and not to
engage in any short selling of any common stock or any such securities, during
the Lock-Up Period, without the prior written consent of the Placement
Agent. We have also agreed that during the Lock-Up Period, we will
not file any registration statement, preliminary prospectus or prospectus, or
any amendment or supplement thereto, under the Securities Act for any such
transaction or which registers, or offers for sale, common stock or any
securities convertible into or exercisable or exchangeable for common stock,
except for a registration statement on Form S−8 relating to employee benefit
plans. We have agreed that (i) if we issue an earnings release or
material news, or if a material event relating to our company occurs, during the
last seventeen (17) days of the Lock-Up Period, or (ii) if prior to the
expiration of the Lock-Up Period, we announce that we will release earnings
results during the sixteen (16)-day period beginning on the last day of the
Lock-Up Period, the foregoing restrictions shall continue to apply until the
expiration of the eighteen (18)-day period beginning on the issuance of the
earnings release or the occurrence of the material news or material
event.
We have
agreed to indemnify the Placement Agent against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, and liabilities
arising from breaches of representations and warranties contained in the
Placement Agent Agreement. We have also agreed to contribute to payments the
Placement Agent may be required to make in respect of such
liabilities.
The
Placement Agent Agreement and Placement Warrant will be included as exhibits to
our Current Report on Form 8-K that we will file with the SEC in connection with
the consummation of this offering. The transfer agent for our common
stock to be issued in this offering is Pacific Stock Transfer
Company.
LEG
AL MATTERS
McDonald
Carano Wilson LLP will pass upon the validity of the common stock being offered
by this prospectus.
The Placement Agent is
being represented by Loeb and Loeb LLP.
WH
ERE YOU CAN FIND MORE INFORMATION
We are a
reporting company and file annual, quarterly and current reports, proxy
statements and other information with the SEC. We have filed with the SEC a
registration statement on Form S-3 under the Securities Act of 1933, as amended,
with respect to the securities we are offering under this prospectus. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits to the registration statement. For further
information with respect to us and the shares of common stock we are offering
under this prospectus, we refer you to the registration statement and the
exhibits and schedules filed as a part of the registration statement. You may
read and copy the registration statement, as well as our reports, proxy
statements and other information, at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the Public Reference Room. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC, including Procera Networks, Inc. The SEC’s
Internet site can be found at
http://www.sec.gov
.
IM
PORTANT INFORMATION INCORPORATED BY REFERENCE
The SEC
allows us to “incorporate by reference” information into this prospectus, which
means that we can disclose important information to you by referring you to
another document filed separately with the SEC. The documents incorporated by
reference into this prospectus contain important information that you should
read about us.
The
following documents are incorporated by reference into this prospectus
(File No.
001-33691)
:
|
|
—
|
our
Form 10-K Annual Report for the fiscal year ended December 31, 2008
and filed on March 16, 2009;
|
|
|
—
|
our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009,
December 31, 2009 and September 30, 2009, filed with the SEC on May 18,
2009, August 12, 2009, November 9, 2009,
respectively;
|
|
|
—
|
our
Current Reports on Form 8-K filed March 19, 2009, April 13, 2009, April
30, 2009, May 8, 2009, July 17, 2009, November 4, 2009, November 17, 2009,
December 11, 2009 and January 20, 2010 and on Form 8-K/A on February 11,
2009; and
|
|
|
—
|
the
description of our common stock set forth in the Registration Statement on
Form 8-A filed with the SEC on September 19, 2007, including any
amendments or reports filed for the purpose of updating such
description.
|
All
documents subsequently filed with the SEC by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended, after
the date of this prospectus and prior to the filing of a post-effective
amendment which indicates that all securities offered herein have been sold or
which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference herein and to be part of this prospectus from the
respective dates of filing of such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof or of the
related prospectus supplement to the extent that a statement contained herein or
in any other subsequently filed document which is also incorporated or deemed to
be incorporated herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus.
Documents
incorporated by reference are available from us, without charge. You may obtain
documents incorporated by reference in this prospectus by requesting them in
writing or by telephone at the following address:
Procera
Networks, Inc.
100-C
Cooper Court.
Los
Gatos, California 95032
(408) 890-7100
Attn:
Corporate Secretary
18,000,000
Shares of Common Stock
From time
to time, we may offer and sell shares of common stock in amounts, at prices and
on terms described in one or more supplements to this prospectus, to be
determined at or prior to the time of sale, up to 18,000,000 shares. We will
specify in an accompanying prospectus supplement the terms of any
offering. We may also authorize one or more free writing prospectuses to
be provided to you in connection with a specific offering. We may
sell these shares to or through underwriters and also to other purchasers or
through agents. We will set forth the names of any underwriters or agents
in the accompanying prospectus supplement.
You
should read this prospectus and any prospectus supplement and/or free writing
prospectus carefully before you invest.
Investing
in our common stock involves a high degree of risk. See the section entitled
“Risk Factors” on page 1 of this prospectus and under similar headings in the
other documents that are incorporated by reference into this
prospectus.
This
prospectus may not be used to consummate a sale of any securities unless
accompanied by a prospectus supplement.
The
shares of our common stock may be sold directly by us to investors, through
agents designated from time to time or to or through underwriters or dealers.
For additional information on the methods of sale, you should refer to the
section entitled “Plan of Distribution.” The net proceeds we expect to receive
from such sale will also be set forth in a prospectus supplement.
Our
common stock is currently listed on the NYSE Amex Equities U.S. Market under the
symbol “PKT.” On January 12, 2010, the last reported sales price for our common
stock was $0.61 per share. As of January 12, 2010, the aggregate market value of
our outstanding common stock held by non-affiliates, or the public float, was
approximately $55,782,932, which was calculated based on 91,447,429 shares of
outstanding common stock held by non-affiliates and on a price of $0.61 per
share, the closing price of our common stock on January 12, 2010. Pursuant to
General Instruction I.B.6 of Form S-3, in no event will we sell our common stock
in a public primary offering with a value exceeding more than one-third of our
public float in any 12-month period so long as our public float remains below
$75.0 million. We have not offered any securities pursuant to General
Instruction I.B.6 of Form S-3 during the 12 calendar months prior to and
including the date of this prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is February 9, 2010.
TABLE
OF CONTENTS
|
|
Page
|
|
Summary
|
1
|
|
Risk
Factors
|
1
|
|
Disclosure
Regarding Forward-Looking Statements
|
1
|
|
Use
of Proceeds
|
2
|
|
Plan
of Distribution
|
2
|
|
Legal
Matters
|
3
|
|
Experts
|
3
|
|
Where
You Can Find More Information
|
3
|
|
Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
|
3
|
|
Important
Information Incorporated by Reference
|
4
|
ABO
UT THIS PROSPECTUS
This
prospectus is part of a registration statement we filed with the Securities and
Exchange Commission, or the SEC. You should rely only on the information we have
provided or incorporated by reference in this prospectus or any prospectus
supplement. We have not authorized anyone to provide you with information
different from that contained in this prospectus. No dealer, salesperson or
other person is authorized to give any information or to represent anything not
contained in this prospectus. You must not rely on any unauthorized information
or representation. This prospectus is an offer to sell only the shares of common
stock offered hereby, but only under circumstances and in jurisdictions where it
is lawful to do so. You should assume that the information in this prospectus or
any prospectus supplement is accurate only as of the date on the front of the
document and that any information we have incorporated by reference is accurate
only as of the date of the document incorporated by reference, regardless of the
time of delivery of this prospectus or any sale of a
security.
This
prospectus is part of a registration statement that we filed with the SEC using
a “shelf” registration process. Under this shelf registration process, we may
sell up to 18,000,000 shares of our common stock in one or more offerings. Each
time we sell any of our common stock under this prospectus, we will provide a
prospectus supplement that will contain more specific information about the
terms of that offering. We may also use the prospectus supplement to add, update
or change any of the information contained in this prospectus or in documents we
have incorporated by reference. This prospectus, together with any applicable
prospectus supplements and the documents incorporated by reference into this
prospectus, includes all material information relating to this offering. Please
carefully read both this prospectus and any prospectus supplement together with
the additional information described below under “Where You Can Find More
Information.”
We may
sell shares of our common stock through underwriters or dealers, through agents,
directly to purchasers or through a combination of these methods. We and our
agents reserve the sole right to accept or reject in whole or in part any
proposed purchase of common stock. The prospectus supplement, which we will
prepare and file with the SEC each time we offer shares of common stock, will
set forth the names of any underwriters, agents or others involved in the sale
of common stock, and any applicable fee, commission or discount arrangements
with them. See “Plan of Distribution.”
THIS
PROSPECTUS MAY NOT BE USED TO CONSUMMATE A SALE OF SECURITIES UNLESS IT IS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
SU
MMARY
Procera
Networks, Inc.
We
are a provider of broadband bandwidth management and control products for
broadband communications networks. Our products enable network congestion
management, network operating intelligence, and subscriber or user service
management. Our products are based upon proprietary network traffic
identification technology based upon deep-packet inspection, or DPI,
capabilities, as well as network reporting functions. Our products are used by
entities that have a broadband network, including communications service
providers, universities, enterprises and government entities. The communications
service providers that use our products include cable, telephone and mobile
communications companies.
Our
products include software applications running on a high performance hardware
platform. The high performance hardware platform is designed to handle broadband
network throughput ranging from 4 megabytes per second to 40 gigabytes per
second per device. Multiple devices can be deployed in a synchronized cluster,
linearly scaling to 64 devices and through-put of 2.5 terabytes per
second.
Network
administrators typically use our products to monitor network use or traffic on
an application and user-specific basis in real-time. Our products enable network
administrators to improve network utilization, thereby reducing additional
infrastructure investment. Our software application is branded PacketLogic TM.
The PacketLogic software application has five functional modules: traffic
identification and classification, traffic shaping, traffic filtering, flow
statistics and web-based statistics.
We were
incorporated in 2002, and in October 2003, we merged with Zowcom, Inc., a
publicly-traded Nevada corporation. Our principal executive offices are located
at 100 Cooper Court, Los Gatos, CA 95032. Further information can be found on
our website: www.proceranetworks.com. Information found on our website is not
incorporated by reference into this prospectus. Our telephone number is (408)
890-7100.
RIS
K FACTORS
Investing
in shares of our common stock involves a high degree of risk. The prospectus
supplement applicable to a particular offering of common stock will contain a
discussion of the risks applicable to an investment in Procera and to the shares
of common stock that we are offering under that prospectus supplement. Before
making an investment decision, you should carefully consider the risks described
under “Risk Factors” in the applicable prospectus supplement and in our most
recent Annual Report on Form 10-K, or any updates in our Quarterly Reports on
Form 10-Q, together with all of the other information appearing in or
incorporated by reference into this prospectus and any applicable prospectus
supplement, in light of your particular investment objectives and financial
circumstances. Our business, financial condition or results of operations could
be materially adversely affected by any of these risks. The trading price of our
shares of common stock could decline due to any of these risks, and you may lose
all or part of your investment.
DIS
CLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus or any accompanying prospectus supplement, including the documents
that we incorporate by reference, may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Forward-looking statements include those that
express plans, anticipation, intent, contingency, goals, targets or future
development and/or otherwise are not statements of historical fact. Any
forward-looking statements are based on our current expectations and projections
about future events and are subject to risks and uncertainties known and unknown
that could cause actual results and developments to differ materially from those
expressed or implied in such statements.
In some
cases, you can identify forward-looking statements by terminology, such as
“expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” “seeks,”
“may,” “should”, “could” or the negative of such terms or other similar
expressions. Accordingly, these statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially from those
expressed in them. Any forward-looking statements are qualified in their
entirety by reference to the risk factors described herein and those included in
any accompanying prospectus supplement or in any document incorporated by
reference into this prospectus.
You
should read this prospectus and any accompanying prospectus supplement and the
documents that we reference herein and therein and have filed as exhibits to the
registration statement, of which this prospectus is part, completely and with
the understanding that our actual future results may be materially different
from what we concurrently expect. You should assume that the information
appearing in this prospectus, any accompanying prospectus supplement and any
document incorporated herein by reference is accurate as of its date only.
Because the risk factors referred to above, as well as the risk factors referred
to on page 1 of this prospectus and incorporated herein by reference, could
cause actual results or outcomes to differ materially from those expressed in
any forward-looking statements made by us or on our behalf, you should not place
undue reliance on any forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which it is made, and we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for us to predict which factors will arise. In addition, we
cannot assess the impact of each factor on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. We qualify
all of the information presented in this prospectus, any accompanying prospectus
supplement and any document incorporated herein by reference, and particularly
our forward-looking statements, by these cautionary statements.
US
E OF PROCEEDS
Except as
described in any prospectus supplement, we currently intend to use the net
proceeds from the sale of our shares of common stock covered by this prospectus
for general working capital purposes, including:
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Procuring
inventory for sale to our customers;
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Increasing
our research and development activities, including hiring additional software
engineers; and
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Increasing
our sales and marketing activities, including hiring additional sales and
marketing employees.
We may
also use a portion of the net proceeds to pay down debt, or to invest in or
acquire businesses or technologies that we believe are complementary to our own,
although we have no current plans, commitments or agreements with respect to any
acquisitions as of the date of this prospectus. Pending these uses, we intend to
invest the net proceeds in demand deposits, money market accounts or in
investment-grade, interest-bearing securities.
PL
AN OF DISTRIBUTION
We may
sell shares of our common stock through underwriters or dealers, through agents,
or directly to one or more purchasers. A prospectus supplement or supplements
will describe the terms of the offering of the securities, including, to the
extent applicable:
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the
name or names of any underwriters;
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the
purchase price of the shares of our common stock and the proceeds we will
receive from the sale;
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any
over-allotment options under which underwriters may purchase additional
shares of our common stock from us;
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any
agency fees or underwriting discounts and other items constituting agents’
or underwriters’ compensation;
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any
public offering price;
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any
discounts or concessions allowed or reallowed or paid to dealers;
and
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any
securities exchange or market on which the shares of our common stock may
be listed.
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Only
underwriters named in the prospectus supplement are underwriters of the
securities offered by the prospectus supplement.
If
underwriters are used in the sale, they will acquire the shares of our common
stock for their own account and may resell the shares of our common stock from
time to time in one or more transactions at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of the
underwriters to our purchase shares of our common stock will be subject to the
conditions set forth in the applicable underwriting agreement. We may offer
shares of our common stock to the public through underwriting syndicates
represented by managing underwriters or by underwriters without a syndicate.
Subject to certain conditions, the underwriters will be obligated to purchase
all of the shares of our common stock offered by the prospectus supplement. Any
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may change from time to time. We may use underwriters with whom
we have a material relationship. We will describe in the prospectus supplement,
naming the underwriter, the nature of any such relationship.
We may
sell shares of our common stock directly or through agents we designate from
time to time. We will name any agent involved in the offering and sale of shares
of our common stock and we will describe any commissions we will pay the agent
in the prospectus supplement. Unless the prospectus supplement states otherwise,
our agent will act on a best-efforts basis for the period of its
appointment.
We may
authorize agents or underwriters to solicit offers by certain types of
institutional investors to purchase shares of our common stock from us at the
public offering price set forth in the prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. We will describe the conditions to these contracts and the commissions
we must pay for solicitation of these contracts in the prospectus
supplement.
We may
provide agents and underwriters with indemnification against civil liabilities
related to this offering, including liabilities under the Securities Act, or
contribution with respect to payments that the agents or underwriters may make
with respect to these liabilities. Agents and underwriters may engage in
transactions with, or perform services for, us in the ordinary course of
business.
Any
underwriter may engage in overallotment, stabilizing transactions, short
covering transactions and penalty bids in accordance with Regulation M under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Overallotment
involves sales in excess of the offering size, which create a short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Short covering
transactions involve purchases of the securities in the open market after the
distribution is completed to cover short positions. Penalty bids permit the
underwriters to reclaim a selling concession from a dealer when the securities
originally sold by the dealer are purchased in a covering transaction to cover
short positions. Those activities may cause the price of the securities to be
higher than it would otherwise be. If commenced, the underwriters may
discontinue any of the activities at any time.
LEG
AL MATTERS
McDonald
Carano Wilson LLP will pass upon the validity of the common stock being offered
by this prospectus.
EXP
ERTS
The
financial statements and management’s assessment of the effectiveness of
internal control over financial reporting (which is included in Management’s
Report on Internal Control over Financial Reporting) incorporated in this
prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 2008 have been so incorporated in reliance on the report of PMB
Helin Donovan LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
WHE
RE YOU CAN FIND MORE INFORMATION
We are a
reporting company and file annual, quarterly and current reports, proxy
statements and other information with the SEC. We have filed with the SEC a
registration statement on Form S-3 under the Securities Act with respect to the
securities we are offering under this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits to the registration statement. For further information with respect to
us and the shares of common stock we are offering under this prospectus, we
refer you to the registration statement and the exhibits and schedules filed as
a part of the registration statement. You may read and copy the registration
statement, as well as our reports, proxy statements and other information, at
the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the Public Reference Room.
The SEC maintains an Internet
site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC, including
Procera Networks, Inc. The SEC’s Internet site can be found at
http://www.sec.gov
.
DISC
LOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and persons controlling the registrant
pursuant to the provisions described in Item 15 of the registration
statement or otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than our payment of expenses incurred or paid by
our directors, officers, or controlling persons in the successful defense of any
action, suit, or proceeding) is asserted by our director, officer, or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of the
issue.
IM
PORTANT INFORMATION INCORPORATED BY REFERENCE
The SEC
allows us to “incorporate by reference” information into this prospectus, which
means that we can disclose important information to you by referring you to
another document filed separately with the Securities and Exchange Commission.
The documents incorporated by reference into this prospectus contain important
information that you should read about us.
The
following documents are incorporated by reference into this
prospectus:
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our
Form 10-K Annual Report for the fiscal year ended December 31, 2008
and filed on March 16, 2009 (File No.
001-33691);
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our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009,
December 31, 2009 and September 30, 2009, filed with the SEC on May 18,
2009, August 12, 2009, November 9, 2009,
respectively;
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our
Current Reports on Form 8-K filed March 19, 2009, April 13, 2009, April
30, 2009, May 8, 2009, July 17, 2009, November 4, 2009, November 17, 2009,
December 11, 2009 and January 20, 2010 and on Form 8-K/A on February 11,
2009; and
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the
description of our common stock set forth in the Registration Statement on
Form 8-A filed with the SEC on September 19, 2007 (File No. 001-33691),
including any amendments or reports filed for the purpose of updating such
description.
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All
documents subsequently filed with the Securities and Exchange Commission by us
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, after the
date of the initial registration statement and prior to the filing of a
post-effective amendment which indicates that all securities offered herein have
been sold or which deregisters all securities then remaining unsold, shall be
deemed to be incorporated by reference herein and to be part of this prospectus
from the respective dates of filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes hereof or of
the related prospectus supplement to the extent that a statement contained
herein or in any other subsequently filed document which is also incorporated or
deemed to be incorporated herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
Documents
incorporated by reference are available from us, without charge. You may obtain
documents incorporated by reference in this prospectus by requesting them in
writing or by telephone at the following address:
Procera
Networks, Inc.
100-C
Cooper Court.
Los
Gatos, California 95032
(408) 890-7100
Attn:
Corporate Secretary