10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————
FORM 10-Q
———————

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 000-26041

F5 NETWORKS, INC.

(Exact name of registrant as specified in its charter)

WASHINGTON	91-1714307
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

401 Elliott Avenue West
Seattle, Washington 98119
(Address of principal executive offices and zip code)

(206) 272-5555
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

The number of shares outstanding of the registrant’s common stock as of May 5, 2005 was 37,578,240.

F5 NETWORKS, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2005

Table of Contents

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets		3
Consolidated Income Statements		4
Consolidated Statement of Shareholders’ Equity		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3. Quantitative and Qualitative Disclosures About Market Risk		18
Item 4. Controls and Procedures		18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		19
Item 4. Submission of Matters to a Vote of Security Holders		19
Item 6. Exhibits		20
SIGNATURES		21
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

2

F5 NETWORKS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

	March 31,			September 30,
	2005			2004
ASSETS
Current assets
Cash and cash equivalents	$	21,792		$	24,901
Short-term investments		174,334			115,600
Restricted cash		2,400			—
Accounts receivable, net of allowances of $2,951 and $3,161		34,822			22,665
Inventories		2,095			1,696
Deferred tax assets		4,794			4,494
Other current assets		7,141			5,776
Total current assets		247,378			175,132
Restricted cash		3,816			6,243
Property and equipment, net		13,108			11,954
Long-term investments		97,181			81,792
Deferred tax assets		38,845			26,886
Goodwill		50,067			50,067
Other assets, net		7,475			8,279
Total assets	$	457,870		$	360,353
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	7,207		$	4,840
Accrued liabilities		17,897			17,668
Deferred revenue		32,478			28,064
Total current liabilities		57,582			50,572
Long-term liabilities		2,337			2,136
Commitments and contingencies
Shareholders’ equity
Preferred stock, no par value; 10,000 shares authorized, no shares outstanding
Common stock, no par value; 100,000 shares authorized, 37,445 and 34,772 shares issued and outstanding		376,258			306,655
Accumulated other comprehensive loss		(1,900	)		(498	)
Retained earnings		23,593			1,488
Total shareholders’ equity		397,951			307,645
Total liabilities and shareholders’ equity	$	457,870		$	360,353

The accompanying notes are integral part of these consolidated financial statements.

3

F5 NETWORKS, INC.

CONSOLIDATED INCOME STATEMENTS

(unaudited, in thousands, except per share data)

	Three months ended				Six months ended
	March 31,				March 31,
	2005		2004		2005		2004
Net revenues
Products	$	53,332	$	29,720	$	99,729	$	56,096
Services		14,398		10,927		28,010		20,632
Total		67,730		40,647		127,739		76,728
Cost of net revenues
Products		11,820		6,799		22,348		12,648
Services		3,908		2,626		7,294		5,088
Total		15,728		9,425		29,642		17,736
Gross profit		52,002		31,222		98,097		58,992
Operating expenses
Sales and marketing		20,885		15,920		40,525		30,874
Research and development		7,789		5,900		14,763		11,344
General and administrative		5,854		3,855		10,860		7,202
Amortization of unearned compensation		—		—		—		10
Total		34,528		25,675		66,148		49,430
Income from operations		17,474		5,547		31,949		9,562
Other income, net		1,641		808		3,028		992
Income before income taxes		19,115		6,355		34,977		10,554
Provision for income taxes		7,003		400		12,872		798
Net income	$	12,112	$	5,955	$	22,105	$	9,756
Net income per share – basic	$	0.33	$	0.18	$	0.61	$	0.31
Weighted average shares – basic		36,905		33,768		36,234		31,953
Net income per share – diluted	$	0.31	$	0.16	$	0.58	$	0.28
Weighted average shares – diluted		38,921		36,946		38,394		35,074

The accompanying notes are an integral part of thase consolidated financial statements.

4

F5 NETWORKS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED MARCH 31, 2005

(unaudited, in thousands)

					Accumulated
					Other					Total
	Common Stock				Comprehensive			Retained		Shareholders’
	Shares		Amount		Income / (Loss)			Earnings		Equity
Balance, September 30, 2004		34,772	$	306,655	$	(498	)	$	1,488	$	307,645
Exercise of employee stock options		2,600		43,552		—			—		43,552
Issuance of stock under employee stock purchase plan		73		1,692		—			—		1,692
Tax benefit from employee stock transactions		—		24,359		—			—		24,359
Net income		—		—		—			22,105		—
Foreign currency translation adjustment		—		—		13			—		—
Unrealized loss on investments		—		—		(1,415	)		—		—
Comprehensive income		—		—		—			—		20,703
Balance, March 31, 2005		37,445	$	376,258	$	(1,900	)	$	23,593	$	397,951

The accompanying notes are an integral part of these consolidated financial statements.

5

F5 NETWORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Six months ended
	March 31,
	2005			2004
Operating activities
Net income	$	22,105		$	9,756
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on disposition of assets		38			—
Amortization of unearned compensation		—			10
Provision for doubtful accounts and sales returns		547			1,245
Depreciation and amortization		3,261			2,322
Deferred tax assets		(12,264	)		—
Tax benefit from employee stock option plans		24,359			—
Changes in operating assets and liabilities:
Accounts receivable		(12,703	)		(853	)
Inventories		(398	)		(1,137	)
Other current assets		(1,218	)		(304	)
Other assets		(120	)		(80	)
Accounts payable and accrued liabilities		3,047			2,445
Deferred revenue		4,414			5,221
Net cash provided by operating activities		31,068			18,625
Investing activities
Purchase of investments		(198,264	)		(276,923	)
Sale of investments		122,726			140,745
Investment in restricted cash		29			(183	)
Acquisition of business		(395	)		—
Purchases of property and equipment		(3,491	)		(2,104	)
Net cash used in investing activities		(79,395	)		(138,465	)
Financing activities
Proceeds from public offering, net of issuance costs		—			113,636
Sale of stock to employees under stock option plans and ESPP		45,125			17,767
Net cash provided by financing activities		45,125			131,403
Net (decrease) increase in cash and cash equivalents		(3,202	)		11,563
Effect of exchange rate differences		93			248
Cash and cash equivalents, at beginning of period		24,901			10,351
Cash and cash equivalents, at end of period	$	21,792		$	22,162

The accompanying notes are an integral part of these consolidated financial statements.

6

F5 NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Summary of Significant Accounting Policies

Description of Business

     F5 Networks, Inc. (the Company) provides products and services to help companies efficiently and securely manage their Internet traffic. The Company’s products enhance the delivery, optimization and security of application traffic on Internet-based networks. IP traffic passes through the Company’s products where it is inspected and modified to ensure that it is delivered securely and in a way that optimizes the performance of both the network and the applications. The Company also offers a broad range of services such as consulting, training, installation, maintenance, and other technical support services.

Basis of Presentation

     In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004.

Reclassification

     Certain reclassifications have been made to prior year balances to conform to the current period presentation. Specifically, the Company’s deferred tax liabilities have been reclassified and presented net of deferred tax assets in accordance with the provisions of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” The reclassifications had no impact on previously reported net income or shareholder’s equity.

Revenue Recognition

     The Company recognizes revenue in accordance with the guidance provided under Statement of Position (SOP) No. 97-2, “Software Revenue Recognition,” and SOP No. 98-9 “Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions,” Statement of Financial Accounting Standards (SFAS) No. 48, “Revenue Recognition When Right of Return Exists,” and SEC Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition.”

     The Company sells products through distributors, resellers, and directly to end users. The Company recognizes product revenue upon shipment, net of estimated returns, provided that collection is determined to be probable and no significant obligations remain. In certain regions where the Company does not have the ability to reasonably estimate returns, the Company defers revenue on sales to its distributors until the Company has received information from the channel partner indicating that the distributor has sold the product to its customer. Payment terms to domestic customers are generally net 30 days. Payment terms to international customers range from net 30 to 90 days based on normal and customary trade practices in the individual markets. The Company has offered extended payment terms ranging from three to six months to certain customers, in which case, revenue is recognized when payments are made.

     Whenever a software license, hardware, installation and post-contract customer support, or PCS, elements are sold together, a portion of the sales price is allocated to each element based on their respective fair values as determined when the individual elements are sold separately. Revenues from the license of software are recognized when the software has been shipped and the customer is obligated to pay for the software. When rights of return are present and the Company cannot estimate returns, the Company recognizes revenue when such rights of return lapse. Revenues for PCS are recognized on a straight-line basis over the service contract term. PCS includes rights to upgrades, when and if available, a limited period of telephone support, updates, and bug fixes. Installation revenue is

7

F5 NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

recognized when the product has been installed at the customer’s site. Consulting services are customarily billed at fixed rates, plus out-of-pocket expenses, and revenues are recognized when the consulting has been completed. Training revenue is recognized when the training has been completed.

Goodwill

     Goodwill represents the excess purchase price over the estimated fair value of net assets acquired as of the acquisition date. The Company has adopted the requirements of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). SFAS No. 142 requires goodwill to be tested for impairment on an annual basis and between annual tests in certain circumstances, and written down when impaired. Goodwill of $24.2 million was recorded in connection with the acquisition of uRoam, Inc. in July 2003. Additional goodwill of $25.9 million was recorded as a result of the MagniFire acquisition on May 31, 2004. In March, the Company completed its annual impairment test and concluded that there was no impairment of goodwill during the six months ended March 31, 2005 and 2004, respectively.

Stock-Based Compensation

     The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees,” FASB Interpretation No. 44 (“FIN No. 44”) “Accounting for Certain Transactions Involving Stock Compensation,” and related interpretations and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation.” Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of our stock and the exercise price of the option. Unearned compensation is amortized in accordance with Financial Accounting Standards Board Interpretation No. 28 on an accelerated basis over the vesting period of the individual options.

     Pro forma information regarding net income is required by SFAS No. 123 and has been determined as if the Company had accounted for stock options under the fair value method. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options’ vesting period. The net income and net income per share would have been adjusted to the pro forma amounts indicated below (in thousands, except per share data):

	Three months ended				Six months ended
	March 31,				March 31,
	2005		2004		2005		2004
Net income, as reported	$	12,112	$	5,995	$	22,105	$	9,756
Add : Stock-based employee compensation expense under APB No. 25 included in reported net income, net of tax effect		—		—		—		10
Deduct : Total stock-based employee compensation expense determined under the fair value method, net of tax effect		2,391		4,845		5,137		9,812
Pro forma net income (loss)	$	9,721	$	1,150	$	16,968	$	(46	)
Net income (loss) per share :
As reported – basic	$	0.33	$	0.18	$	0.61	$	0.31
Pro forma – basic	$	0.26	$	0.03	$	0.47	$	(0.00	)
As reported – diluted	$	0.31	$	0.16	$	0.58	$	0.28
Pro forma – diluted	$	0.25	$	0.03	$	0.44	$	(0.00	)

Earnings Per Share

     Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the

8

F5 NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

weighted average number of common and dilutive common stock equivalent shares outstanding during the period.

     The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):

	Three months ended				Six months ended
	March 31,				March 31,
	2005		2004		2005		2004
Numerator
Net income	$	12,112	$	5,955	$	22,105	$	9,756
Denominator
Weighted average shares outstanding – basic		36,905		33,768		36,234		31,953
Dilutive effect of common shares from stock options		2,016		3,178		2,160		3,121
Weighted average shares outstanding – diluted		38,921		36,946		38,394		35,074
Basic net income per share	$	0.33	$	0.18	$	0.61	$	0.31
Diluted net income per share	$	0.31	$	0.16	$	0.58	$	0.28

     Approximately 0.3 million and 1.0 million common shares potentially issuable from stock options for the three months ended March 31, 2005 and 2004, respectively, are excluded from the calculation of diluted earnings per share because the exercise price was greater than the market price. Approximately 0.4 million and 1.4 million of common shares potentially issuable from stock options for the six months ended March 31, 2005 and 2004, respectively, are excluded from the calculation of diluted earnings per share because the exercise price was greater than the market price.

Recent Accounting Pronouncements

     In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF 03-1 provides guidance on other-than-temporary impairment models for marketable debt and equity securities accounted for under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,” and non-marketable equity securities accounted for under the cost method. The EITF developed a basic three-step model to evaluate whether an investment is other-than-temporarily impaired. On September 30, 2004, the FASB approved the issuance of FASB Staff Position (FSP) EITF 03-1-1, which delays the effective date until additional guidance is issued for the application of the recognition and measurement provisions of EITF 03-1 to investments in securities that are impaired. The Company does not expect the adoption of EITF 03-1 to have a material effect on the Company’s results of operations or financial condition.

     In December 2004, the FASB issued SFAS 123(R), “Share-Based Payment.” This Statement revises FASB Statement No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) focuses primarily on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123(R) generally requires companies to recognize in the statement of operations the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. This Statement was originally effective for interim periods beginning after June 15, 2005. On April 14, 2005, the Securities and Exchange Commission amended the required compliance date which now allows large companies to implement SFAS 123(R) at the beginning of their next fiscal year. The Company expects that this Statement will have a material impact on its financial statements beginning no later than the first quarter of fiscal 2006. The Company is currently evaluating the impact of this Statement and has not yet determined whether the adoption of SFAS 123(R) will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

9

F5 NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

2. Commitments and Contingencies

Guarantees and Product Warranties

     In the normal course of business to facilitate sales of its products, the Company indemnifies other parties, including customers, resellers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.

     The Company generally offers warranties of 90 days for hardware with the option of purchasing additional warranty coverage in increments of one year. The Company accrues for warranty costs as part of its cost of sales based on associated material product costs and technical support labor costs. The following table summarizes the activity related to product warranties during the three months and six months ended March 31, 2005 and 2004 (in thousands):

	Three months ended						Six months ended
	March 31,						March 31,
	2005			2004			2005			2004
Balance, beginning of period	$	1,062		$	829		$	1,062		$	827
Provision for warranties issued		272			116			538			214
Payments		(271	)		(115	)		(537	)		(211	)
Balance, end of period	$	1,063		$	830		$	1,063		$	830

Purchase Commitments

     The Company currently has arrangements with contract manufacturers and other suppliers for the manufacture of the Company’s products. The arrangement with the primary contract manufacturer allows them to procure component inventory on the Company’s behalf based on a rolling production forecast provided by the Company. The Company is obligated to the purchase of component inventory that the contract manufacturer procures in accordance with the forecast, unless cancellation is given outside of applicable lead times. As of March 31, 2005, the Company was committed to purchase approximately $13.1 million of such inventory over the next two quarters.

Litigation

     The Company is not aware of any pending legal proceedings that, individually or in the aggregate, would have a material adverse effect on the Company’s business, operating results, or financial condition. The Company may in the future be party to litigation arising in the ordinary course of business, including claims that allegedly infringe upon third-party trademarks or other intellectual property rights. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

3. Restructuring Charge

     During the fiscal year 2002, the Company executed on a restructuring plan that included the discontinuation of its cache appliance business. As a result of discontinuing this line of business and other changes in the overall business, the Company incurred restructuring charges of $3.3 million for the fiscal year 2002. The restructuring charges included employee termination benefits, impaired assets, consolidation of excess facilities, and other obligations for which the Company no longer derives an economic benefit. There were no restructuring charges for the three months or six months ended March 31, 2005 and 2004.

10

F5 NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

     The activity of the remaining restructuring liability included as a component of accrued liabilities on the balance sheet for the six months ended March 31, 2005 is presented below (in thousands):

	Balance at				Cash Payments			Balance at
	September 30,		Additional		and			March 31,
	2004		Charges		Write-offs			2005
Excess facilities	$	625	$	—	$	(66	)	$	559

     The excess facilities charge was the result of the Company’s decision to exit its support facility in Washington, D.C. and was estimated based on current comparable rates for leases in the respective market. In April 2003, the excess facilities were subleased at the then current market value. Since then the difference between the lease payments and sublease income has historically been applied against the restructuring liability. During the six months ended March 31, 2005, timely receipts of sublease income were not received and the collectibility of sublease income is uncertain. If we are unable to collect further sublease income throughout the duration of the lease term, expiring in 2007, the actual loss may be increased from the original estimate and an additional restructuring charge may be required.

4. Geographic Sales and Significant Customers

     The following presents revenues by geographic region (in thousands):

	Three months ended				Six months ended
	March 31,				March 31,
	2005		2004		2005		2004
Americas	$	37,479	$	22,347	$	72,676	$	46,139
Europe		10,702		5,409		21,736		10,705
Japan		12,283		8,921		20,882		13,139
Asia Pacific		7,266		3,970		12,445		6,745
	$	67,730	$	40,647	$	127,739	$	76,728

     The Company’s customers are in diverse industries and geographic locations. Net revenues from international customers are primarily denominated in U.S. Dollars and totaled approximately $30.3 million and $18.3 million for the three months ended March 31, 2005 and 2004 respectively, and $55.1 million and $30.6 million for the six months ended March 31, 2005 and 2004, respectively. One domestic distributor accounted for 17.8% and 16.9% of total net revenue for the three months and six months ended March 31, 2005, respectively. This distributor accounted for 24.8% of accounts receivable as of March 31, 2005 and 26.9% as of September 30, 2004.

11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 12, 2004. Our discussion may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, based upon current expectations. These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements that are not historical facts. Because these forward-looking statements involve risks and uncertainties, our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and “Business” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004, and elsewhere in this report.

Overview

     We are a global provider of software and hardware products and services that help companies efficiently and securely manage their Internet traffic. Our products enhance the delivery, optimization and security of application traffic on Internet-based networks. We market and sell our products primarily through indirect sales channels in the Americas, Europe, Japan and the Asia Pacific regions. Enterprise customers (Fortune 1000 or Business Week Global 1000 companies) in financial services, transportation, government and telecommunications industries continue to make up the largest percentage of our customer base.

     Our management monitors and analyzes a number of key performance indicators in order to manage our business and evaluate our financial and operating performance. Those indicators include:

• Revenues. The majority of our revenues are derived from sales of our core products; BIG-IP Local Traffic Manager; BIG-IP Global Traffic Manager; BIG-IP ISP Traffic Manager; and FirePass SSL VPN servers. We also derive revenues from the sales of services including annual maintenance contracts, installation, training and consulting services. We carefully monitor the sales mix of our revenues within each reporting period. We believe customer acceptance rates of our new products and feature enhancements are key indicators of future trends. We also consider overall revenue concentration by customer and by geographic region as additional indicators of current and future trends.

• Cost of revenues and gross margins. We strive to control our cost of revenues and thereby maintain our gross margins. Significant items impacting cost of revenues are hardware costs paid to our contract manufacturers, third-party software license fees, amortization of acquired technology, personnel and overhead expenses. Our margins have remained relatively stable over the past two years; however factors such as sales price, product mix, inventory obsolescence, returns, component price increases, and warranty costs could significantly impact our gross margins from quarter to quarter and represent the significant indicators we monitor on a regular basis.

• Operating expenses. Operating expenses are substantially driven by personnel and related overhead expenses. Existing headcount and future hiring plans are the predominant factors in analyzing and forecasting future operating expense trends. Other significant operating expenses that we monitor include marketing and promotions, travel, professional fees, computer costs related to the development of new products, facilities and depreciation expenses.

• Liquidity and cash flows. Our financial condition remains strong with significant cash and investments and no long term debt. The increase in cash and investments during the first half of fiscal 2005 was primarily due to the proceeds from the exercise of employee stock options and cash from operations. Going forward, we believe the primary driver of our cash flows will be net income from operations. Capital expenditures during the first half of fiscal 2005 were comprised primarily of tenant improvements and information technology infrastructure and equipment to support the growth of our core business activities.

12

• Balance sheet. We view cash, short-term and long-term investments, deferred revenue, accounts receivable balances and day’s sales outstanding as important indicators of our financial health. Deferred revenues continued to increase due to the growth in the amount of annual maintenance contracts purchased on new products and maintenance renewal contracts related to our existing product installation base. Our day’s sales outstanding for the second quarter of fiscal 2005 was 46 which we expect to maintain in the mid-40’s range going forward.

Critical Accounting Policies and Estimates

     Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

     We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements. These critical accounting policies are consistent with those disclosed in our Annual Report on Form 10-K.

     Revenue Recognition. We recognize revenue in accordance with the guidance provided under Statement of Position (SOP) No. 97-2, “Software Revenue Recognition,” and SOP No. 98-9 “Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions.” Statement of Financial Accounting Standards (SFAS) No. 48, “Revenue Recognition When Right of Return Exists,” and SEC Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition.”

     We sell products through distributors, resellers, and directly to end users. We recognize product revenue upon shipment, net of estimated returns, provided that collection is determined to be probable and no significant obligations remain. In certain regions where we do not have the ability to reasonably estimate returns, we defer revenue on sales to distributors until we have received information from the channel partner indicating that the distributor has sold the product to its customer. Payment terms to domestic customers are generally net 30 days. Payment terms to international customers range from net 30 to 90 days based on normal and customary trade practices in the individual markets. We have offered extended payment terms to certain customers, in which case, revenue is recognized when payments are made.

     Whenever a software license, hardware, installation and post-contract customer support, or PCS, elements are sold together, a portion of the sales price is allocated to each element based on their respective fair values as determined when the individual elements are sold separately. Revenues from the license of software are recognized when the software has been shipped and the customer is obligated to pay for the software. When rights of return are present and we cannot estimate returns, we recognize revenue when such rights of return lapse. Revenues for PCS are recognized on a straight-line basis over the service contract term. PCS includes rights to upgrades, when and if available, a limited period of telephone support, updates, and bug fixes. Installation revenue is recognized when the product has been installed at the customer’s site. Consulting services are customarily billed at fixed rates, plus out-of-pocket expenses, and revenues are recognized when the consulting has been completed. Training revenue is recognized when the training has been completed.

     Reserve for Doubtful Accounts. Estimates are used in determining our allowance for doubtful accounts and are based upon an assessment of selected accounts and as a percentage of our remaining accounts receivable by aging category. In determining these percentages, we evaluate historical write-offs, current trends in the credit quality of our customer base, as well as changes in the credit policies. We perform ongoing credit evaluations of our customers’ financial condition and generally do not require any collateral. If there is deterioration of a major customer’s credit worthiness or actual defaults are higher than our historical experience, our allowance for doubtful accounts may not be sufficient.

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     Reserve for Product Returns. In some instances, product revenue from distributors is subject to agreements allowing rights of return. Product returns are estimated based on historical experience and are recorded at the time revenues are recognized. Accordingly, we reduce recognized revenue for estimated future returns at the time revenue is recorded. When rights of return are present and we cannot estimate returns, revenue is recognized when such rights lapse. The estimates for returns are adjusted periodically based upon changes in historical rates of returns, inventory in the distribution channel and other related factors. It is possible that these estimates will change in the future or that the actual amounts could vary from our estimates.

     Reserve for Warranties. A warranty reserve is established based on our historical experience and an estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. While we believe that our warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable could differ materially from what will actually transpire in the future.

     Accounting for Income Taxes. We utilize the liability method of accounting for income taxes pursuant to SFAS 109. Accordingly, we are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our consolidated financial statements. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Due to the evolving nature of tax rules combined with the large number of jurisdictions in which we operate, it is possible that our estimates of our tax liability could change in the future, which may result in additional tax liabilities and adversely affect our results of operations, financial condition and cash flows.

Results of Operations

	Three months ended						Six months ended
	March 31,						March 31,
	2005			2004			2005			2004
				(in thousands, except percentages)
Revenues
Net revenues
Products	$	53,332		$	29,720		$	99,729		$	56,096
Services		14,398			10,927			28,010			20,632
Total	$	67,730		$	40,647		$	127,739		$	76,728
Percentage of net revenues
Products		78.7	%		73.1	%		78.1	%		73.1	%
Services		21.3			26.9			21.9			26.9
Total		100.0	%		100.0	%		100.0	%		100.0	%

     Net revenues. Total net revenues increased in excess of 66% for the three and six months ended March 31, 2005, respectively, up from comparable periods in the prior year. The improvements were due to increased demand of our core traffic management products, particularly our recently introduced Version 9 BIG-IP products. Revenues from our new security products, predominantly our FirePass SSL/VPN products, contributed to the overall increase and represented 9.6% and 9.1% of total revenues for the three and six months ended March 31, 2005, respectively. Higher services revenues resulting from our increased installed base of products contributed to the overall increases as compared to each of the prior periods. Revenues increased across each of our geographic regions, particularly in the Americas. As a percentage, international revenues were 44.7% of total net revenues for the three months ended March 31, 2005 compared to 45.0% for the same period in the prior year. International revenues grew to 43.1% of total net revenues for the six months ended March 31, 2005 compared to 39.9% in the prior year. We expect international revenues will continue to represent a significant amount of total net revenues although we cannot provide assurance that international revenues as a percentage of total net revenues will remain at current levels.

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     Net product revenues increased 79.4% and 77.8% for the three and six months ended March 31, 2005, respectively, up from the comparable periods in the prior year. Sales of our BIG-IP family of application traffic management products represented 90.0% and 91.0% of product revenues for the three months ended March 31, 2005 and 2004, respectively, and 89.9% and 92.6% of product revenues for the six months ended March 31, 2005 and 2004, respectively. Net services revenues increased 31.8% and 35.8% for the three and six months ended March 31, 2005, respectively, up from the comparable periods in the prior year. The increase in services revenue was primarily due to increases in the purchase or renewal of service and support contracts as our installed base of products increased.

     Ingram Micro Inc., one of our domestic distributors, accounted for 17.8% and 15.6% of our total net revenues for the three months ended March 31, 2005 and 2004, respectively. For the six months ended March 31, 2005, this distributor accounted for 16.9% of our total net revenues. Ingram Micro Inc. accounted for 24.8% of our accounts receivable as of March 31, 2005.

	Three months ended						Six months ended
	March 31,						March 31,
	2005			2004			2005			2004
				(in thousands, except percentages)
Gross margin
Cost of net revenues
Products	$	11,820		$	6,799		$	22,348		$	12,648
Services		3,908			2,626			7,294			5,088
Total	$	15,728		$	9,425		$	29,642		$	17,736
Gross margin	$	52,002		$	31,222		$	98,097		$	58,992
Cost of net revenues (as a percentage of related revenue)
Products		22.2	%		22.9	%		22.4	%		22.5	%
Services		27.1			24.0			26.0			24.7
Total		23.2			23.2			23.2			23.1
Gross margin		76.8	%		76.8	%		76.8	%		76.9	%

     Cost of Net Product Revenues. Cost of our net product revenues consists of finished products purchased from our contract manufacturers, third-party software license fees, manufacturing overhead, freight, warranty, amortization of acquired technology, and in some cases provisions for excess and obsolete inventory. Our product margins remained stable for all periods presented at just under 78%. In absolute dollars, cost of net product revenues increased 73.8% and 76.7% for the three and six months ended March 31, 2005, respectively, up from the comparable periods in the prior year. The increases were primarily due to an increase in the amount of units shipped.

     Cost of Net Services Revenues. Cost of net service revenues consist of the salaries and related benefits of the majority of our professional services staff, travel, facilities, and depreciation expenses. For the three and six months ended March 31, 2005, cost of net services revenues decreased as a percentage of services revenues and increased in absolute dollars as a result of the recent growth in headcount. Services employee headcount at the end of March 2005 increased to 123 from 81 at the end of March 2004. We expect cost of services revenues to continue at these higher levels to support the growth in revenues.

     We expect to maintain our gross margins in the near term; however, gross margins could be adversely affected by increased material costs, component shortages, excess and obsolete inventory charges and heightened sales price competition.

15

	Three months ended						Six months ended
	March 31,						March 31,
	2005			2004			2005			2004
	(in thousands, except percentages)
Operating expenses
Sales and marketing	$	20,885		$	15,920		$	40,525		$	30,874
Research and development		7,789			5,900			14,763			11,344
General and administrative		5,854			3,855			10,860			7,202
Amortization of unearned compensation		—			—			—			10
Total	$	34,528		$	25,675		$	66,148		$	49,430
Operating expenses (as a percentage of revenue)
Sales and marketing		30.8	%		39.2	%		31.7	%		40.2	%
Research and development		11.5			14.5			11.6			14.8
General and administrative		8.6			9.5			8.5			9.4
Amortization of unearned compensation		—			—			—			—
Total		51.0	%		63.2	%		51.8	%		64.4	%

     Sales and marketing. Sales and marketing expenses consist of salaries, commissions and related expenses of our sales and marketing staff, costs of our marketing programs, including public relations, advertising and trade shows, facilities and depreciation expenses. The decrease in sales and marketing expenses as a percentage of total net revenues is primarily the result of leveraging our existing sales and distribution infrastructure to support the increased net revenues. In absolute dollars, sales and marketing expenses increased 31.2% and 31.3% for the three and six months ended March 31, 2005, respectively, up from the comparable periods in the prior year. The increase in sales and marketing expenses was primarily due to higher commissions and personnel costs of $3.4 million and $6.5 million for the three and six months ended March 31, 2005, respectively. The increased commission and personnel costs were driven by growth in employee headcount and increased revenue for the respective periods. Sales and marketing headcount at the end of March 2005 increased to 293 from 230 at the end of March 2004. In the future, we expect to continue to increase our sales and marketing expenses to grow revenues and increase our market share.

     Research and development. Research and development expenses consist of salaries and benefits for our product development personnel, prototype materials and expenses related to the development of new and improved products, facilities and depreciation expenses. Research and development expenses increased 32.0% and 30.1% for the three and six months ended March 31, 2005, respectively, up from the comparable periods in the prior year. The increase was due to higher personnel costs of $0.9 million and $2.0 million for the three and six months ended March 31, 2005, respectively. Research and development headcount at the end of March 2005 totaled 205 up from 164 at the end of March 2004. Higher prototype expenses of $0.6 million and $0.7 million for the three and six months ended March 31, 2005, respectively, also contributed to the increase. We expect to continue to increase research and development expenses as our future success is dependent on the continued enhancement of our current products and our ability to develop new, technologically-advanced products that meet the changing needs of our customers.

     General and administrative. General and administrative expenses consist of salaries and related expenses of our executive, finance, information technology, human resource and legal personnel, third-party professional service fees, bad debt charges, facilities and depreciation expenses. The decrease in general and administrative expenses as a percentage of total net revenues is primarily the result of leveraging our existing corporate infrastructure to support the increased net revenues. In absolute dollars, general and administrative expenses increased 51.9% and 50.8% for the three and six months ended March 31, 2005, respectively, up from the comparable periods in the prior year. The increase was due to higher salary and benefit costs of $0.7 million and $1.6 million and higher professional service fees of $0.6 million and $1.1 million for the three and six months ended March 31, 2005, respectively. The increase in personnel costs was primarily driven by growth in headcount. General and administrative headcount at the end of March 2005 increased to 89 from 74 at the end of March 2004. The increase in professional service fees, particularly audit and internal controls review in connection with the Sarbanes-Oxley Act of 2002, is expected to remain at these increased levels as the Company continues to build its infrastructure to support the worldwide growth

16

of our business.

     Amortization of unearned compensation. During the current period we did not issue any stock awards below fair market value on the date of the respective grant. Accordingly we recorded no compensation expense related to stock-based incentives during the current period. We are currently evaluating the provisions of the recently revised rules pertaining to stock-based compensation arrangements and expect to incur material stock-based compensation charges related to either restricted stock units or stock options no later than the first quarter of fiscal 2006.

	Three months ended						Six months ended
	March 31,						March 31,
	2005			2004			2005			2004
				(in thousands, except percentages)
Other income and income taxes
Income from operations	$	17,474		$	5,547		$	31,949		$	9,562
Other income, net		1,641			808			3,028			992
Income before income taxes		19,115			6,355			34,977			10,554
Provision for income taxes		7,003			400			12,872			798
Net income	$	12,112		$	5,955		$	22,105		$	9,756
Other income and income taxes (as a percentage of revenue)
Income from operations		25.8	%		13.6	%		25.0	%		12.5	%
Other income, net		2.4			2.0			2.4			1.3
Income before income taxes		28.2			15.6			27.4			13.8
Provision for income taxes		10.3			1.0			10.1			1.0
Net income		17.9	%		14.7	%		17.3	%		12.7	%

     Other income, net. Other income, net, consists of interest income and foreign currency transaction gains and losses. The significant increase was due to a combination of higher yields and increased investment balances.

     Income taxes. We recorded a 36.8% provision for income taxes for the six months ended March 31, 2005. In the prior comparable periods when we had a valuation allowance offsetting our U.S. deferred tax assets, the provision for income taxes consisted primarily of foreign taxes related to our international operations. For the remainder of fiscal 2005, we expect to record a provision for income taxes comparable to the current period; however, our effective tax rate may fluctuate based on a number of factors including variations in estimated taxable income in our geographic locations, unforeseen changes in the valuation of our net deferred tax assets or changes in tax laws or interpretations thereof.

Financial Condition

     Cash and cash equivalents, short-term investments and long-term investments were $293.3 million as of March 31, 2005 compared to $222.3 million as of September 30, 2003. The increase was due to cash provided by operations of $31.1 million and cash received from employee stock option exercises and ESPP activity of $45.1 million.

     Cash provided by operating activities was $31.1 million for the six months ended March 31, 2005 compared to $18.6 million for the same period in the prior year. Cash flow from operations in the six months ended March 31, 2005 resulted from increased net income combined with changes in operating assets and liabilities, as adjusted for various non-cash items including corporate tax deductions on certain employee stock option exercises and depreciation and amortization charges. Due to the significant amount of cumulative net operating losses for tax purposes we do not expect to incur or remit U.S. federal income taxes for the remainder of fiscal 2005.

     Cash used in investing activities was $79.4 million for the six months ended March 31, 2005 compared to $138.5 million for the same period in the prior year. The significant amount of cash used in investing activities in

17

the prior period was primarily due to investing the proceeds from our public offering in November 2003. Cash provided by financing activities for the six months ended March 31, 2005 was $45.1 million compared to $131.4 million for the same period in the prior year. Our financing activities in the current period consisted of cash received from the exercise of employee stock options and purchases under our employee stock purchase plan. Financing activities in the prior period was primarily attributed to the $113.6 million net proceeds received from the November 2003 public stock offering. Based on our current operating and capital expenditure forecasts, we believe that our existing cash and investment balances together with cash generated from operations should be sufficient to meet our operating requirements for the foreseeable future.

     As of March 31, 2005, our principal commitments consisted of obligations outstanding under operating leases. We lease our facilities under operating leases that expire at various dates through 2012. There have been no material changes in our principal lease commitments compared to those discussed in our Annual Report on Form 10-K for the year ended September 30, 2004. In connection with the lease agreement for our corporate headquarters we established a restricted escrow account collateralized by a $6.0 million certificate of deposit that has been included on our balance sheet as a component of restricted cash. The total amount required in escrow reduces at various dates as set forth by the lease agreement.

     We outsource the manufacturing of our pre-configured hardware platforms to contract manufacturers who assemble each product to our specifications. Our agreement with our largest contract manufacturer allows them to procure component inventory on our behalf based upon a rolling production forecast. We are contractually obligated to purchase the component inventory in accordance with the forecast, unless we give notice of order cancellation in advance of applicable lead times. As of March 31, 2005, we were committed to purchase approximately $13.1 million of such inventory over the next two quarters.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Management believes there have been no material changes to our quantitative and qualitative disclosures about market risk during the three month period ended March 31, 2005, compared to those discussed in our Annual Report on Form 10-K for the year ended September 30, 2004.

Item 4. Controls and Procedures

     As of March 31, 2005, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective to timely alert them to any material information relating to the Company (including its consolidated subsidiaries) that must be included in our periodic SEC filings. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation.

     We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to modify our disclosure controls and procedures.

     We are in the process of implementing the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 which requires our management to assess the effectiveness of our internal controls over financial reporting and include an assertion in our annual report as to the effectiveness of our controls. Subsequently, our independent registered public accounting firm, PricewaterhouseCoopers LLP, will be required to attest to whether our assessment of the effectiveness of our internal controls over financial reporting is fairly stated in all material respects and separately report on whether it believes we maintained, in all material respects, effective internal controls over financial

18

reporting as of September 30, 2005. We are in the process of performing the system and process documentation, evaluation and testing required for management to make this assessment and for PricewaterhouseCoopers LLP to provide its attestation report. We have not completed this process or its assessment, and this process will require significant amounts of management time and resources. In the course of evaluation and testing, management may identify deficiencies that will need to be addressed and remediated.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

     The Company is not aware of any pending legal proceedings that, individually or in the aggregate, would have a material adverse effect on the Company’s business, operating results, or financial condition. The Company may in the future be party to litigation arising in the ordinary course of business, including claims that allegedly infringe upon third-party trademarks or other intellectual property rights. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

     On July 20, 2004, Radware, Inc. and Radware, Ltd. sued us in the United States District Court for the District of New Jersey, asserting that F5 Networks has infringed and is infringing upon Radware’s U.S. Patent No. 6,718,359, which issued on April 6, 2004. The lawsuit was settled, and the litigation was dismissed, in March 2005.

     Reference is made to Item 3, Legal Proceedings in our Annual Report on Form 10-K for the year ended September 30, 2004, filed December 7, 2004 for descriptions of our legal proceedings. We continue to believe that the resolution of these legal proceedings will not have a material adverse effect on us and other than the aforementioned settlement with Radware there have been no other material developments since our 10-K filing.

Item 4. Submission of Matters to a Vote of Security Holders

     We held our Annual Meeting of Shareholders on February 24, 2005, to elect two Class III directors and to approve the F5 Networks, Inc. 2005 Equity Incentive Plan and the number of shares reserved for issuance under the 2005 Equity Incentive Plan. At the Annual Meeting, the following nominees were elected as follows:

	Votes
	For		Withheld
Rich Malone		27,027,895		6,187,715
A. Gary Ames		30,958,201		2,257,409

     The shareholders approved the 2005 Equity Incentive Plan, with voting as follows: 15,285,816 for, 13,001,366 against, and 20,713 abstain.

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Item 6. Exhibits

Exhibit
Number	Exhibit Description
3.1	—   Second Amended and Restated Articles of Incorporation of the Registration (1)
3.2	—   Amended and Restated Bylaws of the Registrant (1)
4.1	—   Specimen Common Stock Certificate (1)
10.1*	—   2005 Equity Incentive Plan
10.2*	—   Notice of grant and form of option agreement under the 2005 Equity Incentive Plan (with acceleration upon change of control)
10.3*	—   Notice of grant and form of option agreement under the 2005 Equity Incentive Plan (no acceleration upon change of control)
31.1*	—   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	—   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	—   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Filed herewith.
(1)	Incorporated by reference from Registration Statement on Form S-1, File No. 333-75817.

20

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 9th day of May, 2005.

F5 NETWORKS, INC.
By:	/s/ STEVEN B. COBURN
	Steven B. Coburn
	Chief Financial Officer
	(Duly Authorized Officer and
	Principal Financial and Accounting Officer)

21

EXHIBIT INDEX

Exhibit
Number	Exhibit Description
3.1	—   Second Amended and Restated Articles of Incorporation of the Registration (1)
3.2	—   Amended and Restated Bylaws of the Registrant (1)
4.1	—   Specimen Common Stock Certificate (1)
10.1*	—   2005 Equity Incentive Plan
10.2*	—   Notice of grant and form of option agreement under the 2005 Equity Incentive Plan (with acceleration upon change of control)
10.3*	—   Notice of grant and form of option agreement under the 2005 Equity Incentive Plan (no acceleration upon change of control)
31.1*	—   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	—   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	—   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Filed herewith.
(1)	Incorporated by reference from Registration Statement on Form S-1, File No. 333-75817.

22

EX-10.1

                                                                    EXHIBIT 10.1

                                F5 NETWORKS, INC.

                           2005 EQUITY INCENTIVE PLAN

                            ADOPTED DECEMBER 31, 2004
                   APPROVED BY SHAREHOLDERS FEBRUARY 24, 2005
                       TERMINATION DATE: DECEMBER 30, 2014

1.    PURPOSES.

      (a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.

      (b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Options and (ii) Stock Units.

      (c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2.    DEFINITIONS.

      (a) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

      (b) "APPLICABLE LAWS" means the legal requirements relating to the
administration of equity compensation plans, including under applicable U.S.
state corporate laws, U.S. federal and applicable state securities laws, other
U.S. federal and state laws, the Code, any stock exchange rules or regulations
and the applicable laws, rules and regulations of any other country or
jurisdiction where Stock Awards are granted under the Plan, as such laws, rules,
regulations and requirements shall be in place from time to time.

      (c) "BOARD" means the Board of Directors of the Company.

      (d) "CODE" means the Internal Revenue Code of 1986, as amended.

      (e) "COMMITTEE" means a committee appointed by the Board in accordance
with subsection 3(c).

                                       1



      (f) "COMMON STOCK" means the common stock of the Company.

      (g) "COMPANY" means F5 Networks, Inc., a Washington corporation.

      (h) "CONSULTANT" means any person, including an advisor, (i) who is
engaged by the Company or an Affiliate to render services other than as an
Employee or as a Director or (ii) who is a member of the Board of Directors of
an Affiliate.

      (i) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity among the Company or an
Affiliate for which the Participant renders such service, provided that there is
no interruption or termination of the Participant's Continuous Service. For
example, a change in status from an Employee of the Company to a Consultant of
an Affiliate or a Director of the Company will not constitute an interruption of
Continuous Service. Subject to Section 6(e)(ii), the Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.

      (j) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.

      (k) "DIRECTOR" means a member of the Board of Directors of the Company.

      (l) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

      (m) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Subject to the Applicable Laws, the determination of whether an individual
(including a leased and temporary employees) is an Employee hereunder shall be
made by the Board (or its Committee), in its sole discretion. Mere service as a
Director or payment of a director's fee by the Company or an Affiliate shall not
be sufficient to constitute "employment" by the Company or an Affiliate.

      (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

      (o) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

            (i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market, the Fair Market Value of a Share shall
be the closing sales price

                                       2



for such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or such other exchange or market with the greatest volume of
trading in the Common Stock) on the day of determination or, if the day of
determination is not a market trading day, then on the last market trading day
prior to the day of determination, as reported in such source or sources as the
Board deems reliable, or

            (ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

      (p) "INDEPENDENT DIRECTOR" means a Director who qualifies as an
"independent" director under applicable Nasdaq rules (or the rules of any
exchange on which the Common Stock is then listed or approved for listing).

      (q) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either (i)
is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.

      (r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

      (s) "OPTION" means a nonstatutory stock option (meaning, an option not
intended to qualify as an incentive stock option under Code Section 422) granted
pursuant to the Plan.

      (t) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current Employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former Employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

      (u) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.

      (v) "PLAN" means this F5 Networks, Inc. 2005 Equity Incentive Plan.

                                       3



      (w) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

      (x) "SECURITIES ACT" means the Securities Act of 1933, as amended.

      (y) "SHARE" means a share of the Common Stock, as adjusted in accordance
with Section 11 below.

      (z) "STOCK AWARD" means any right involving Shares granted under the Plan,
including an Option or Stock Unit.

      (aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

      (bb) "STOCK UNIT" means an award giving the right to receive Shares
granted under Section 7 below.

3.    ADMINISTRATION.

      (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee or an administrator,
as provided in subsection 3(c).

      (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Awards shall be
granted; the provisions, terms and conditions of each Stock Award granted (which
need not be identical as among Participants or as among types of Stock Awards),
including, without limitation: the time or times when a person shall be
permitted to receive Shares pursuant to a Stock Award, the number of Shares with
respect to which a Stock Award shall be granted to each such person, the
exercise or purchase price (if any) of a Stock Award, the time or times when
Stock Awards may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, any pro rata
adjustment to vesting as a result of a Participant's transitioning from full- to
part-time service (or vice versa), and any other restriction (including
forfeiture restriction), limitation or term of any Stock Award, based in each
case on such factors as the Board, in its sole discretion, shall determine;
provided, however, that such provisions, terms and conditions are not
inconsistent with the terms of the Plan.

            (ii) In order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Stock Awards to Participants who are
foreign nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.

                                       4



            (iii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

            (iv) To amend the Plan or a Stock Award as provided in Section 12.

            (v) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

      (c) DELEGATION TO COMMITTEE. The Board may delegate administration of the
Plan to a Committee or Committees of one or more members of the Board, and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. In the discretion of the Board, the Committee may consist solely
of two or more Outside Directors, in accordance with Section 162(m) of the Code,
and/or solely of two or more Non-Employee Directors, in accordance with Rule
16b-3, and/or solely of two or more Independent Directors under applicable
Nasdaq (or other exchange) rules. The Board or the Committee may further
delegate its authority and responsibilities under the Plan to an Officer.
However, if administration is delegated to an Officer, such Officer may grant
Stock Awards only within guidelines established by the Board or the Committee,
and only the Board or the Committee may make a Stock Award to an Officer or
Director. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee, or an Officer to whom authority has been delegated), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan,
and unless otherwise specified by the Board shall retain any authority granted
to a committee or individual hereunder unto itself.

4.    SHARES SUBJECT TO THE PLAN.

      (a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate One Million Seven Hundred
Thousand (1,700,000) Shares of Common Stock.

      (b) SECTION 162(m) LIMITATION ON SHARE NUMBERS. No Employee shall be
eligible to be granted Stock Awards covering more than One Million (1,000,000)
Shares during any fiscal year of the Company.

      (c) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full,

                                       5



the Shares not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. Further, if any previously-issued Shares
are forfeited under the terms and conditions of the Stock Award, then any Shares
so forfeited shall revert to and again become available for issuance under the
Plan. The provisions of this Section 4(c) are qualified by Section 4(a) such
that the total number of Shares issued and outstanding under the Plan at any
time may not exceed the number set forth in Section 4(a) (as adjusted under
Section 11).

      (d) SOURCE OF SHARES. The stock subject to the Plan may be unissued Shares
or reacquired Shares, bought on the market or otherwise.

5.    ELIGIBILITY. Stock Awards may be granted to Employees, Directors and
Consultants.

6.    OPTION PROVISIONS.

      Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

      (a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.

      (b) EXERCISE PRICE OF AN OPTION. The exercise price of each Option shall
be at least equal to the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.

      (c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash, check or wire transfer at the time the Option
is exercised or (ii) at the discretion of the Board at the time of the grant of
the Option or subsequently by (1) by delivery to the Company of other Shares
that have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which the Option is exercised, provided that
in the case of Shares acquired, directly or indirectly, from the Company, such
Shares must have been owned by the Partcipant for more than six (6) months on
the date of surrender (or such other period as may be required to avoid the
Company's incurring an adverse accounting charge), (2) if, as of the date of
exercise of an Option the Company then is permitting Employees to engage in a
"same-day sale" cashless brokered exercise program involving one or more
brokers, through such a program that complies with the Applicable Laws
(including without limitation the requirements of Regulation T and other
applicable regulations promulgated by the Federal Reserve Board) and that
ensures prompt delivery to the Company of the amount required to pay the
exercise price and any applicable withholding taxes, (3) in any other form of
legal consideration that may be acceptable to the

                                       6



Board, or (4) any combination of the foregoing methods. In making its
determination as to the type of consideration to accept, the Board shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company and the Board may, in its sole discretion, refuse to accept
a particular form of consideration at the time of any Option exercise.

      (d) TRANSFERABILITY OF AN OPTION. The Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Participant only by the Participant.
Notwithstanding the foregoing provisions of this subsection 6(d), the
Participant may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Participant, shall thereafter be entitled to exercise the Option.

      (e)   VESTING.

            (i) GENERALLY. The total number of Shares of Common Stock subject to
an Option may, but need not, vest and therefore become exercisable in periodic
installments which may, but need not, be equal. The Option may be subject to
such other terms and conditions on the time or times when it may be exercised
(which may be based on performance or other criteria) as the Board may deem
appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of Shares as to which an Option may be exercised.

            (ii) LEAVE OF ABSENCE. The Board (or any other party to whom such
authority has been delegated, including under this Plan) shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such unpaid leave (unless otherwise required by the Applicable Laws). In the
event of military leave, vesting shall toll during any unpaid portion of such
leave, provided that, upon a Participant's returning from military leave (under
conditions that would entitle him or her to protection upon such return under
the Uniform Services Employment and Reemployment Rights Act), he or she shall be
given vesting credit with respect to Options to the same extent as would have
applied had the Participant continued to provide services to the Company
throughout the leave on the same terms as he or she was providing services
immediately prior to such leave.

      (f) TERMINATION OF CONTINUOUS SERVICE. In the event a Participant's
Continuous Service terminates (other than upon the Participant's death or
Disability), the Participant may exercise his or her Option (to the extent that
the Participant was vested in the Option Shares and entitled to exercise such
Option as of the date of termination) but only within such period of time ending
on the earlier of (i) the date three (3) months following the termination of the
Participant's Continuous Service (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Participant does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate.

                                       7



      (g) EXTENSION OF TERMINATION DATE. Following the termination of the
Participant's Continuous Service (other than upon the Participant's death or
Disability), if the Participant would be prohibited at any time solely because
the issuance of Shares would violate the registration requirements under the
Securities Act or violate any prohibition on trading on the basis of possession
of material nonpublic information involving the Company and its business, then
the Option shall terminate on the earlier of (i) the expiration of the term of
the Option set forth in subsection 6(a), or (ii) the expiration of a period of
three (3) months after the termination of the Participant's Continuous Service
during which the exercise of the Option would not be in violation of such
requirements.

      (h) DISABILITY OF PARTICIPANT. In the event a Participant's Continuous
Service terminates as a result of the Participant's Disability, the Participant
may exercise his or her Option (to the extent that the Participant was vested in
the Option Shares and entitled to exercise the Option as of the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement) or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, after termination,
the Participant does not exercise his or her Option within the time specified
herein, the Option shall terminate.

      (i) DEATH OF PARTICIPANT. In the event (i) an Participant's Continuous
Service terminates as a result of the Participant's death or (ii) the
Participant dies within the period (if any) specified in the Option Agreement
after the termination of the Participant's Continuous Service for a reason other
than death, then the Option may be exercised (to the extent the Participant was
vested in the Option Shares and entitled to exercise the Option as of the date
of death) by the Participant's estate, by a person who acquired the right to
exercise the Option by bequest or inheritance or by a person designated to
exercise the Option upon the Participant's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.

      (j) EXERCISE GENERALLY. Options shall be considered exercised when the
Company (or its authorized agent) receives (i) written or electronic notice from
the person entitled to exercise the Option of intent to exercise a specific
number of Shares, (ii) full payment or appropriate provision for payment in a
form and method acceptable to the Board or Committee, for the Shares being
exercised, and (iii) if applicable, payment or appropriate provision for payment
of any withholding taxes due on exercise. An Option may not be exercised for a
fraction of a Share. The Option may, at the discretion of the Board or
Committee, include a provision whereby the Participant may elect to exercise the
Option as to Shares that are not yet vested. Unvested Shares exercised in such
manner may be subject to a Company repurchase right under Section 10(f) or such
other restrictions or conditions as the Board or Committee may determine.

                                       8



      (k) ADMINISTRATOR DISCRETION. Notwithstanding the provisions of this
Section 6, the Board or the Committee shall have complete discretion exercisable
at any time to (i) extend the period of time for which an Option is to remain
exercisable, following the Participant's termination of Continuous Service, but
in no event beyond the expiration date for the Option, and (ii) permit the
Option to be exercised, during the applicable post-termination exercise period,
not only with respect to the number of Shares that were vested on the date of
termination, cut also with respect to additional Shares on such terms and
conditions as the Board or Committee may determine.

7.    PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

      Each Stock Award Agreement reflecting the issuance of a Stock Unit shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. The terms and conditions of such agreements may change from
time to time, and the terms and conditions of separate agreements need not be
identical, but each such agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:

            (a) CONSIDERATION. A Stock Unit may be awarded in consideration for
such property or services as is permitted under Applicable Law, including for
past services actually rendered to the Company or an Affiliate for its benefit.

            (b) VESTING; RESTRICTIONS. Shares of Common Stock awarded under the
agreement reflecting a Stock Unit award may, but need not, be subject to a Share
repurchase option, forfeiture restriction or other conditions in favor of the
Company in accordance with a vesting or lapse schedule to be determined by the
Board.

            (c) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the Shares of Common Stock held by the Participant which have not vested
or which are otherwise subject to forfeiture or other conditions as of the date
of termination under the terms of the agreement.

            (d) TRANSFERABILITY. Rights to acquire Shares of Common Stock under
a Stock Unit agreement shall not be transferable except by will or by the laws
of descent and distribution, and Shares of Common Stock issued upon vesting of a
Stock Unit shall be issuable during the lifetime of the Participant only to the
Participant. Notwithstanding the foregoing provisions of this subsection 7(d),
the Participant may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Participant, shall thereafter be entitled to receive Shares of
Common Stock issued upon vesting of a Stock Unit.

                                       9



8.    COVENANTS OF THE COMPANY.

      (a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of Shares of Common Stock
required to satisfy such Stock Awards.

      (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell Shares upon
exercise of the Stock Awards; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Stock
Award or any stock issued or issuable pursuant to any such Stock Award. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.

9.    USE OF PROCEEDS FROM STOCK; UNFUNDED PLAN.

      Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company. The Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are granted Stock
Awards hereunder, any such accounts will be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any asset which may
at any time be represented by Stock Awards, nor shall this Plan be construed as
providing for such segregation, nor shall the Company nor any party authorized
to administer the Plan be deemed to be a trustee of stock or cash to be awarded
under the Plan. Any liability of the Company to any Participant with respect to
a Stock Award shall be based solely upon any contractual obligations which may
be created by the Plan; no such obligation of the Company shall be deemed to be
secured by any pledge or other encumbrance on any property of the Company.
Neither the Company nor any party authorized to administer the Plan shall be
required to give any security or bond for the performance of any obligation
which may be created by this Plan.

10.   MISCELLANEOUS.

      (a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest, become
exercisable or be settled in accordance with the Plan, notwithstanding the
provisions in the Stock Award stating the time at which it may first vest, be
exercised or be settled.

      (b) SHAREHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any Shares subject
to such Stock Award unless

                                       10



and until such Participant has satisfied all requirements for exercise of the
Stock Award pursuant to its terms.

      (c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or any Stock Award granted pursuant thereto shall confer
upon any Participant or other holder of Stock Awards any right to continue to
serve the Company or an Affiliate in the capacity in effect at the time the
Stock Award was granted or shall affect the right of the Company or an Affiliate
to terminate (i) the employment of an Employee with or without notice and with
or without cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.

      (d) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Shares under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the stock
subject to the Stock Award for the Participant's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (iii) the issuance of the Shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.

      (e) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Shares
under a Stock Award by any of the following means (in addition to the Company's
right to withhold from any compensation paid to the Participant by the Company)
or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold Shares from the Shares otherwise issuable to
the Participant as a result of the exercise or acquisition of stock under the
Stock Award; or (iii) delivering to the Company owned and unencumbered Shares.

      (f) REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Stock Award and may be at Fair Market Value at the time of
repurchase, at the original

                                       11



purchase price or on such other terms and conditions as the Board may determine
(and as shall be reflected in the Stock Award Agreement).

      (g) CANCELLATION AND RE-GRANT OF OPTIONS. The Company may not reprice any
outstanding Stock Awards under the Plan, including implement any program whereby
outstanding Stock Awards will be cancelled and replaced with Stock Awards
bearing a lower purchase or exercise price, without first obtaining the approval
of the shareholders of the Company; provided however that this Section 10(g)
shall in no way limit the Company's ability to adjust Stock Awards as provided
under Section 11 below.

      (h) INTERPRETATION OF PLAN AND STOCK AWARDS. In the event that any
provision of the Plan or any Stock Award granted under the Plan is declared to
be illegal, invalid or otherwise unenforceable by a court of competent
jurisdiction, such provision shall be reformed, if possible, to the extent
necessary to render it legal, valid and enforceable, or otherwise deleted, and
the remainder of the terms of the Plan and/or Stock Award shall not be affected
to the extent necessary to reform or delete such illegal, invalid or
unenforceable provision. All questions arising under the Plan or under any Stock
Award shall be decided by the Board or the Committee in its or their total and
absolute discretion and such decisions shall be final and binding on all
parties.

      (i) ELECTRONIC COMMUNICATION. Any document required to be delivered under
the Plan, including under the Applicable Laws, may be delivered in writing or
electronically. Signature may also be electronic if permitted by the Board or
the Committee, and if permitted by Applicable Law.

      (j) ESCROW OF SHARES. To enforce any restriction applicable to Shares
issued under the Plan, the Board or the Committee may require a Participant or
other holder of such Shares to deposit the certificates representing such
Shares, with approved stock powers or other transfer instruments endorsed in
blank, with the Company or an agent of the Company until the restrictions have
lapsed. Such certificates (or other notations representing the Shares) may bear
a legend or legends referencing the applicable restrictions.

11.   ADJUSTMENTS UPON CHANGES IN STOCK.

      (a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject
to the Plan, or subject to any Stock Award, without the receipt of consideration
by the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 4(a) and the maximum number of securities subject to award to any
person pursuant to subsection 4(b), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of securities and price per
Share of stock subject to such outstanding Stock Awards. The Board, the

                                       12



determination of which shall be final, binding and conclusive, shall make such
adjustments. (The conversion of any convertible securities of the Company shall
not be treated as a transaction "without receipt of consideration" by the
Company.)

      (b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.

      (c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER
OR ACQUISITION OF STOCK.

            (i) In the event of (1) a sale of substantially all of the assets of
the Company, or (2) a merger or consolidation in which the Company is not the
surviving corporation or (3) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, or (4) the direct or
indirect acquisition (including by way of a tender or exchange offer) by any
person, or persons acting as a group, of beneficial ownership or a right to
acquire beneficial ownership of shares representing a majority of the voting
power of the then outstanding shares of capital stock of the Company, then any
surviving corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar awards (including with
respect to a Stock Award an award to acquire the same consideration paid to the
shareholders in the transaction described in this subsection 11(c) for those
outstanding under the Plan).

            (ii) For purposes of subsection 11(c) a Stock Award shall be deemed
assumed if, following the change in control, the Stock Award confers the right
to purchase in accordance with its terms and conditions, for each share of
Common Stock subject to the Stock Award immediately prior to the change in
control, the consideration (whether stock, cash or other securities or property)
to which a holder of a share of Common Stock on the effective date of the change
in control was entitled.

            (iii) Subject to the provisions of any Stock Award Agreement, in the
event any surviving corporation or acquiring corporation refuses to assume such
Stock Awards or to substitute similar stock awards for those outstanding under
the Plan, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of 50% of such Stock Awards
(and, if applicable, the time during which such Stock Awards may be exercised or
settled) shall be accelerated in full, and the Stock Awards shall terminate if
not exercised or settled (if applicable) at or prior to such event. With respect
to any other Stock Awards outstanding under the Plan, such Stock Awards shall
terminate if not exercised (if applicable) prior to such event.

            (iv) The Board shall at all times have the authority, in its sole
discretion, to provide for additional or different vesting, exercisability,
settlement or forfeiture conditions with respect to Stock Awards than that
reflected in this Section 11(c), provided that its determinations

                                       13



in this regard shall be reflected in the Stock Award Agreement (including in
amendments thereto) issued to the affected Participant.

12.   AMENDMENT OF THE PLAN AND STOCK AWARDS.

      (a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.

      (b) SHAREHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for shareholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.

      (c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code or any other Applicable Law.

      (d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be materially impaired by any amendment of the
Plan unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.

      (e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be materially impaired by any
such amendment unless (i) the Company requests the consent of the Participant
and (ii) the Participant consents in writing.

13.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the shareholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

      (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not materially impair rights and obligations under any Stock Award granted while
the Plan is in effect except with the written consent of the Participant.

                                       14



14.   EFFECTIVE DATE OF PLAN.

      The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised unless and until the Plan has been approved by the
shareholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.

15.   GOVERNING LAW. All questions concerning the construction, validity and
interpretation of this Plan shall be governed by the law of the State of
Washington, without regard to such states conflict of laws rules.

                                       15

EX-10.2

                                                                    EXHIBIT 10.2


                                        F5 NETWORKS, INC.
NOTICE OF GRANT OF STOCK                ID: 91-1714307
OPTIONS                                 c/o F5 Networks, Inc.
AND OPTION AGREEMENT                    401 Elliott Avenue West
                                        Seattle, WA 98119

                                                        OPTION NUMBER:
                                                        PLAN:

________________________________________________________________________________

Effective     , you have been granted a(n) Non-Qualified Stock Option to buy
     shares Networks, Inc.(the Company) stock at $     per share.

The total option price of the shares granted is $

Shares in each period will become fully vested on the date shown.

Shares       Vest Type            Full Vest            Expiration

________________________________________________________________________________

By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan and the Option Agreement, all of which are
attached and made a part of this document.

________________________________________________________________________________

___________________________________             ________________________________

F5 Networks, Inc.                               Date

___________________________________             ________________________________

                                                Date

                                                                        Date:
                                                                        Time:


                                F5 NETWORKS, INC.
                           2005 EQUITY INCENTIVE PLAN
                                 AWARD AGREEMENT

      Pursuant to the terms of its 2005 Equity Incentive Plan (the "Plan"), F5
Networks, Inc., a Washington corporation (the "Company"), has granted you an
award (the "Award") (either a non-statutory stock option to purchase shares of
the Company's Common Stock (an "Option") or stock units representing the right
to receive shares of the Company's Common Stock ("Stock Units") as set forth in
the Notice of Grant of Stock Options or Stock Units (the "Grant Notice")) on the
terms and conditions as set forth in this 2005 Equity Incentive Plan Award
Agreement (this "Agreement"), the Grant Notice (which is incorporated herein by
reference) and the Plan (which is incorporated herein by reference). Capitalized
terms used but not defined in this Agreement shall have the meanings specified
in the Plan.

      IN CONSIDERATION OF THE MUTUAL PROMISES SET FORTH BELOW, THE PARTIES AGREE
AS FOLLOWS:

      1. GRANT OF AWARD; GRANT DATE. The Company has granted you an Award to
purchase (in the case of an Option) or to be issued (in the case of Stock Units)
the total number of shares of Common Stock of the Company as set forth in the
Grant Notice (the "Award Shares") on the terms and conditions set forth in this
Agreement, the Grant Notice and the Plan, including in the case of an Option at
the exercise price per share of Common Stock set forth in the Grant Notice (the
"Award Price"). The number and kind of Award Shares and the Award Price may be
adjusted in certain circumstances in accordance with Section 11 of the Plan.

      2. VESTING AND EXERCISE OR SETTLEMENT OF STOCK.

            2.1. Options.

            (a) The Option will vest and become exercisable during its term in
accordance with the vesting schedule set forth in the Grant Notice and with the
applicable provisions of the Plan and this Agreement. Vesting will cease upon
the termination of your Continuous Service except as otherwise set forth in the
Plan or this Agreement.

            (b) The vested and exercisable portion of the Option may be
exercised during its term (as set forth in Section 6) electronically as directed
by the Company or by delivering a Notice of Exercise (in a form designated by
the Company), together with the Award Price (payable in the manner set forth in
Section 3) to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.

            (c) By exercising the Option, you agree that, as a condition to any
exercise of the Option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of the Option or
(2) the disposition of shares acquired upon such exercise.

                                       1



            2.2. Stock Units. On each date that Stock Units vest (a "Vesting
Date"), the Stock Units will be settled as to the number of shares vesting on
such Vesting Date, meaning that the Company will (subject to your obligations to
satisfy the requirements of Sections 5 and 9) issue to you the number of shares
vesting on such Vesting Date and the Award will thereafter remain in effect only
as to the number of unvested shares of Common Stock remaining subject thereto.
The shares of Common Stock issued upon conversion of Stock Units will be
registered in your name as of each Vesting Date on the register of shareholders
of the Company (through its transfer agent).

            2.3. Accelerated Vesting. Notwithstanding the vesting provisions set
forth in the Grant Notice and Section 11 of the Plan, in the event of a change
in control transaction as described in Section 11 of the Plan, the vesting of
100% of the shares of Common Stock subject to the Award (and if applicable, the
time during which the Award may be exercised or settled) shall be accelerated in
full, and the Award shall terminate if not exercised or settled at or prior to
the closing of the change in control transaction.

      3. METHOD OF PAYMENT OF THE OPTION AWARD PRICE. Payment of the Award Price
is due in full upon exercise of all or any part of the Option. You may elect to
make payment of the Award Price by any of the methods, or combination thereof,
described in the Plan, provided that the Board may, in its sole discretion,
refuse to accept a particular form of consideration at the time of exercise of
any Option, or agree to accept any other form of legal consideration.

      4. WHOLE SHARES. The Award may only be exercised or settled for whole
shares.

      5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, the Award may not be exercised or settled unless the shares
issuable upon exercise or settlement of the Award are then registered under the
Securities Act or, if such shares are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise or settlement of the Award must
also comply with other applicable laws and regulations governing the Award, and
the Award may not be exercised or settled, and the Company will have no
liability for failure to issue shares of Common Stock upon exercise of
settlement of the Award, if the Company determines that the exercise or
settlement would not be in material compliance with such laws and regulations.

      6. TERM AND TERMINATION OF AWARD.

            6.1. Options. Subject to earlier termination as required under
Section 11 of the Plan, the term of the Option commences on the Grant Date and
expires upon the earliest of the following:

            (a) three (3) months after the termination of your Continuous
Service for any reason other than death or Disability, provided that if during
any part of such three-month period the Option is not exercisable solely because
of the condition set forth in Section 5, the Option shall not expire until the
earlier of the Expiration Date or until it shall have been exercisable for an
aggregate period of three (3) months after the termination of your Continuous
Service;

                                       2



            (b) twelve (12) months after the termination of your Continuous
Service due to Disability;

            (c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates for reason other than Cause;

            (d) the Expiration Date indicated in the Grant Notice; or

            (e) the tenth (10th) anniversary of the Grant Date.

            6.2. Stock Units. In the event your Continuous Service terminates,
any Stock Units and the shares of Common Stock subject thereto (that have not
been issued upon settlement) shall be forfeited.

      7. TRANSFERABILITY. The Award is not transferable, except by will or by
the laws of descent and distribution. Options are exercisable during your life
only by you. Shares of Common Stock issued upon vesting of a Stock Unit are
issuable during your life only to you. Notwithstanding the foregoing, by
delivering written notice to the Company, in a form satisfactory to the Company,
you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise the Option or receive shares of Common Stock
issued upon vesting of a Stock Unit.

      8. NOT A SERVICE CONTRACT. This Agreement is not an employment or service
contract, and nothing in this Agreement shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company
or an Affiliate, or of the Company or an Affiliate to continue your employment.
In addition, nothing in this Agreement shall obligate the Company or an
Affiliate, their respective shareholders, Board, officers or employees to
continue any relationship that you might have as a director or consultant for
the Company or an Affiliate.

      9. WITHHOLDING OBLIGATIONS.

            9.1. At the time the Option is exercised, in whole or in part, or
shares of Common Stock are issued upon settlement of Stock Units or at any time
thereafter as requested by the Company, you hereby authorize withholding from
payroll and any other amounts payable to you, or otherwise agree to make
adequate provision for (including by means of a "cashless exercise" pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board to the extent permitted by the Company), any sums required to satisfy the
federal, state, local and foreign tax withholding obligations of the Company or
an Affiliate, which arise in connection with the Award.

            9.2. The Option is not exercisable and shares of Common Stock are
not issuable upon settlement of Stock Units unless the tax withholding
obligations of the Company are satisfied. Accordingly, you may not be able to
exercise the Option or receive shares of Common Stock upon settlement of Stock
Units when desired even though the Award is vested.

                                       3



      10. PROFESSIONAL ADVICE. The acceptance and exercise or settlement of the
Award and the sale of Award Shares has consequences under federal and state tax
and securities laws which may vary depending upon your individual circumstances.
Accordingly, you acknowledge that you have been advised to consult your personal
legal and tax advisor in connection with this Agreement and your dealings with
respect to the Award and the Award Shares. You further acknowledge that the
Company has made no warranties or representations to you with respect to the
income tax consequences of the grant and exercise or settlement of the Award or
the sale of the Award Shares and you are in no manner relying on the Company or
its representatives for an assessment of such consequences.

      11. GOVERNING PLAN DOCUMENT. Your Award is subject to all applicable
provisions of the Plan, which are hereby made a part of your Award, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of your Award and those of the
Plan, the provisions of the Plan shall control.

      12. DAMAGES. You shall be liable to the Company for all costs and damages,
including incidental and consequential damages, resulting from a disposition of
Award Shares which is not in conformity with the provisions of this Agreement.

      13. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Washington excluding those laws that
direct the application of the laws of another jurisdiction.

      14. NOTICES. All notices and other communications under this Agreement
shall be in writing. Unless and until you are notified in writing to the
contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:

                           F5 Networks, Inc.
                           401 Elliott Ave West
                           Seattle, WA  98119

Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for you and related to this
Agreement, if not delivered by hand, shall be mailed to your last known address
as shown on the Company's books. Notices and communications shall be mailed by
first class mail, postage prepaid. All mailings and deliveries related to this
Agreement shall be deemed received when actually received, if by hand delivery,
and five (5) business days after mailing, if by mail.

      15. AMENDMENT OF THIS AGREEMENT. The Board at any time, and from time to
time, may amend the terms of this Agreement; provided, however, that the rights
under this Agreement shall not be impaired by any such amendment unless (i) the
Company requests your consent and (ii) you consent in writing.

                                       4

EX-10.3

                                                                    EXHIBIT 10.3

                                        F5 NETWORKS, INC.
NOTICE OF GRANT OF STOCK                ID: 91-1714307
OPTIONS                                 c/o F5 Networks, Inc.
AND OPTION AGREEMENT                    401 Elliott Avenue West
                                        Seattle, WA 98119

                                                        OPTION NUMBER:
                                                        PLAN:

________________________________________________________________________________

Effective     , you have been granted a(n) Non-Qualified Stock Option to buy
     shares Networks, Inc.(the Company) stock at $     per share.

The total option price of the shares granted is $

Shares in each period will become fully vested on the date shown.

Shares       Vest Type            Full Vest            Expiration

________________________________________________________________________________

By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan and the Option Agreement, all of which are
attached and made a part of this document.

________________________________________________________________________________

___________________________________             ________________________________

F5 Networks, Inc.                               Date

___________________________________             ________________________________

                                                Date

                                                                        Date:
                                                                        Time:


                                F5 NETWORKS, INC.
                           2005 EQUITY INCENTIVE PLAN
                                 AWARD AGREEMENT

      Pursuant to the terms of its 2005 Equity Incentive Plan (the "Plan"), F5
Networks, Inc., a Washington corporation (the "Company"), has granted you an
award (the "Award") (either a non-statutory stock option to purchase shares of
the Company's Common Stock (an "Option") or stock units representing the right
to receive shares of the Company's Common Stock ("Stock Units") as set forth in
the Notice of Grant of Stock Options or Stock Units (the "Grant Notice")) on the
terms and conditions as set forth in this 2005 Equity Incentive Plan Award
Agreement (this "Agreement"), the Grant Notice (which is incorporated herein by
reference) and the Plan (which is incorporated herein by reference). Capitalized
terms used but not defined in this Agreement shall have the meanings specified
in the Plan.

      IN CONSIDERATION OF THE MUTUAL PROMISES SET FORTH BELOW, THE PARTIES AGREE
AS FOLLOWS:

      1. GRANT OF AWARD; GRANT DATE. The Company has granted you an Award to
purchase (in the case of an Option) or to be issued (in the case of Stock Units)
the total number of shares of Common Stock of the Company as set forth in the
Grant Notice (the "Award Shares") on the terms and conditions set forth in this
Agreement, the Grant Notice and the Plan, including in the case of an Option at
the exercise price per share of Common Stock set forth in the Grant Notice (the
"Award Price"). The number and kind of Award Shares and the Award Price may be
adjusted in certain circumstances in accordance with Section 11 of the Plan.

      2. VESTING AND EXERCISE OR SETTLEMENT OF STOCK.

            2.1. Options.

            (a) The Option will vest and become exercisable during its term in
accordance with the vesting schedule set forth in the Grant Notice and with the
applicable provisions of the Plan and this Agreement. Vesting will cease upon
the termination of your Continuous Service except as otherwise set forth in the
Plan or this Agreement.

            (b) The vested and exercisable portion of the Option may be
exercised during its term (as set forth in Section 6) electronically as directed
by the Company or by delivering a Notice of Exercise (in a form designated by
the Company), together with the Award Price (payable in the manner set forth in
Section 3) to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.

            (c) By exercising the Option, you agree that, as a condition to any
exercise of the Option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of the Option or
(2) the disposition of shares acquired upon such exercise.

                                       1



            2.2. Stock Units. On each date that Stock Units vest (a "Vesting
Date"), the Stock Units will be settled as to the number of shares vesting on
such Vesting Date, meaning that the Company will (subject to your obligations to
satisfy the requirements of Sections 5 and 9) issue to you the number of shares
vesting on such Vesting Date and the Award will thereafter remain in effect only
as to the number of unvested shares of Common Stock remaining subject thereto.
The shares of Common Stock issued upon conversion of Stock Units will be
registered in your name as of each Vesting Date on the register of shareholders
of the Company (through its transfer agent).

      3. METHOD OF PAYMENT OF THE OPTION AWARD PRICE. Payment of the Award Price
is due in full upon exercise of all or any part of the Option. You may elect to
make payment of the Award Price by any of the methods, or combination thereof,
described in the Plan, provided that the Board may, in its sole discretion,
refuse to accept a particular form of consideration at the time of exercise of
any Option, or agree to accept any other form of legal consideration.

      4. WHOLE SHARES. The Award may only be exercised or settled for whole
shares.

      5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, the Award may not be exercised or settled unless the shares
issuable upon exercise or settlement of the Award are then registered under the
Securities Act or, if such shares are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise or settlement of the Award must
also comply with other applicable laws and regulations governing the Award, and
the Award may not be exercised or settled, and the Company will have no
liability for failure to issue shares of Common Stock upon exercise of
settlement of the Award, if the Company determines that the exercise or
settlement would not be in material compliance with such laws and regulations.

      6. TERM AND TERMINATION OF AWARD.

            6.1. Options. Subject to earlier termination as required under
Section 11 of the Plan, the term of the Option commences on the Grant Date and
expires upon the earliest of the following:

            (a) three (3) months after the termination of your Continuous
Service for any reason other than death or Disability, provided that if during
any part of such three-month period the Option is not exercisable solely because
of the condition set forth in Section 5, the Option shall not expire until the
earlier of the Expiration Date or until it shall have been exercisable for an
aggregate period of three (3) months after the termination of your Continuous
Service;

            (b) twelve (12) months after the termination of your Continuous
Service due to Disability;

            (c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates for reason other than Cause;

                                       2



            (d) the Expiration Date indicated in the Grant Notice; or

            (e) the tenth (10th) anniversary of the Grant Date.

            6.2. Stock Units. In the event your Continuous Service terminates,
any Stock Units and the shares of Common Stock subject thereto (that have not
been issued upon settlement) shall be forfeited.

      7. TRANSFERABILITY. The Award is not transferable, except by will or by
the laws of descent and distribution. Options are exercisable during your life
only by you. Shares of Common Stock issued upon vesting of a Stock Unit are
issuable during your life only to you. Notwithstanding the foregoing, by
delivering written notice to the Company, in a form satisfactory to the Company,
you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise the Option or receive shares of Common Stock
issued upon vesting of a Stock Unit.

      8. NOT A SERVICE CONTRACT. This Agreement is not an employment or service
contract, and nothing in this Agreement shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company
or an Affiliate, or of the Company or an Affiliate to continue your employment.
In addition, nothing in this Agreement shall obligate the Company or an
Affiliate, their respective shareholders, Board, officers or employees to
continue any relationship that you might have as a director or consultant for
the Company or an Affiliate.

      9. WITHHOLDING OBLIGATIONS.

            9.1. At the time the Option is exercised, in whole or in part, or
shares of Common Stock are issued upon settlement of Stock Units or at any time
thereafter as requested by the Company, you hereby authorize withholding from
payroll and any other amounts payable to you, or otherwise agree to make
adequate provision for (including by means of a "cashless exercise" pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board to the extent permitted by the Company), any sums required to satisfy the
federal, state, local and foreign tax withholding obligations of the Company or
an Affiliate, which arise in connection with the Award.

            9.2. The Option is not exercisable and shares of Common Stock are
not issuable upon settlement of Stock Units unless the tax withholding
obligations of the Company are satisfied. Accordingly, you may not be able to
exercise the Option or receive shares of Common Stock upon settlement of Stock
Units when desired even though the Award is vested.

      10. PROFESSIONAL ADVICE. The acceptance and exercise or settlement of the
Award and the sale of Award Shares has consequences under federal and state tax
and securities laws which may vary depending upon your individual circumstances.
Accordingly, you acknowledge that you have been advised to consult your personal
legal and tax advisor in connection with this Agreement and your dealings with
respect to the Award and the Award Shares. You further acknowledge that the
Company has made no warranties or representations to you with respect to

                                       3



the income tax consequences of the grant and exercise or settlement of the Award
or the sale of the Award Shares and you are in no manner relying on the Company
or its representatives for an assessment of such consequences.

      11. GOVERNING PLAN DOCUMENT. Your Award is subject to all applicable
provisions of the Plan, which are hereby made a part of your Award, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of your Award and those of the
Plan, the provisions of the Plan shall control.

      12. DAMAGES. You shall be liable to the Company for all costs and damages,
including incidental and consequential damages, resulting from a disposition of
Award Shares which is not in conformity with the provisions of this Agreement.

      13. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Washington excluding those laws that
direct the application of the laws of another jurisdiction.

      14. NOTICES. All notices and other communications under this Agreement
shall be in writing. Unless and until you are notified in writing to the
contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:

                           F5 Networks, Inc.
                           401 Elliott Ave West
                           Seattle, WA  98119

Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for you and related to this
Agreement, if not delivered by hand, shall be mailed to your last known address
as shown on the Company's books. Notices and communications shall be mailed by
first class mail, postage prepaid. All mailings and deliveries related to this
Agreement shall be deemed received when actually received, if by hand delivery,
and five (5) business days after mailing, if by mail.

      15. AMENDMENT OF THIS AGREEMENT. The Board at any time, and from time to
time, may amend the terms of this Agreement; provided, however, that the rights
under this Agreement shall not be impaired by any such amendment unless (i) the
Company requests your consent and (ii) you consent in writing.

                                       4

EX-31.1

Exhibit 31.1

                                 CERTIFICATIONS

I, John McAdam, certify that:

      1)    I have reviewed this quarterly report on Form 10-Q of F5 Networks,
            Inc.;

      2)    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3)    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4)    The registrant's other certifying officer and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

            a.    designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            b.    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            c.    disclosed in this report any change in the registrant's
                  internal controls over financial reporting that occurred
                  during our most recent fiscal quarter that has materially
                  affected, or is reasonably likely to materially affect, the
                  registrant's internal controls over financial reporting; and

      5)    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent functions):

            a.    all significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b.    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

      Date: May 9, 2005

         /s/ JOHN MCADAM
      ------------------
         John McAdam
         Chief Executive Officer and President

EX-31.2

Exhibit 31.2

                                 CERTIFICATIONS

I, Steven B. Coburn, certify that:

      1)    I have reviewed this quarterly report on Form 10-Q of F5 Networks,
            Inc.;

      2)    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3)    Based on my knowledge, the financial statements, and other financial
            information included in this quarterly report, fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the registrant as of, and for, the periods presented
            in this report;

      4)    The registrant's other certifying officer and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

            a.    designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this report is being prepared;

            b.    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

            c.    disclosed in this report any change in the registrant's
                  internal controls over financial reporting that occurred
                  during our most recent fiscal quarter that has materially
                  affected, or is reasonably likely to materially affect, the
                  registrant's internal controls over financial reporting; and

      5)    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent functions):

            a.    all significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b.    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

      Date: May 9, 2005

         /s/ STEVEN B. COBURN
      -----------------------
         Steven B. Coburn
         Senior Vice President, Chief Financial Officer

EX-32.1

Exhibit 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Quarterly Report of F5 Networks, Inc. (the
"Company") on Form 10-Q for the period ending March 31, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), we, John
McAdam, President and Chief Executive Officer and Steven Coburn, Senior Vice
President and Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

      (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.

Date: May 9, 2005

        /s/ JOHN MCADAM
   ---------------------
        John McAdam

        /s/ STEVEN B. COBURN
   -------------------------
        Steven B. Coburn

      A signed original of this written statement required by Section 906, or
other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this
written statement required by Section 906, has been provided to F5 Networks,
Inc., and will be retained by F5 Networks, Inc., and furnished to the Securities
and Exchange Commission or its staff upon request.