10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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 000-26785

PACKETEER, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE
(State of incorporation) 77-0420107
(I.R.S. Employer Identification No.)

10201 North De Anza Boulevard, Cupertino, CA 95014
(Address of principal executive offices)

Registrant’s telephone number, including area code: (408) 873-4400

     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 Registrant’s common stock, $0.001 par value, was 33,838,090 at April 25, 2005.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004	3
	Unaudited Condensed Consolidated Income Statements for the Three Months Ended March 31, 2005 and March 31, 2004	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and March 31, 2004	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Factors That May Affect Future Results	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 6.	Exhibits	28
Signatures		28
Exhibits		29
EXHIBIT 10.28
EXHIBIT 10.29
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

     In addition to historical information, this Form 10-Q contains forward-looking statements regarding our strategy, financial performance and revenue sources that involve a number of risks and uncertainties, including those discussed below at “Factors That May Affect Future Results” and in the “Risk Factors” section of Packeteer’s Annual Report on Form 10-K as filed with the Securities Exchange Commission on March 16, 2005. Forward-looking statements in this report include, but are not limited to, those relating to future revenues, revenue growth and profitability, markets for our products, our ability to continue to innovate and obtain patent protection, operating expense targets, liquidity, new product development, the possibility of acquiring complementary businesses, products, services and technologies, our international expansion plans and our development of relationships with providers of leading Internet technologies. While this outlook represents our current judgment on the future direction of the business, such risks and uncertainties could cause actual results to differ materially from any future performance suggested below due to a number of factors, including the perceived need for our products, our ability to convince potential customers of our value proposition, the costs of competitive solutions, our reliance on third party contract manufacturers, continued capital spending by prospective customers and macro economic conditions. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-Q. Packeteer undertakes no obligation to publicly release any revisions to forward-looking statements to reflect events or circumstances arising after the date of this document.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PACKETEER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

	March 31,			December 31,
	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	32,855		$	15,666
Short-term investments		68,381			66,512
Accounts receivable, net of allowance for doubtful accounts of $178 and $229, respectively		17,887			16,828
Other receivables		147			1,888
Inventories		4,002			3,106
Prepaids and other current assets		1,876			1,784
Total current assets		125,148			105,784
Property and equipment, net		2,930			3,066
Long-term investments		720			10,019
Goodwill		9,586			9,527
Other intangibles, net		6,807			7,163
Other non-current assets		2,208			2,233
Total assets	$	147,399		$	137,792
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,495		$	2,802
Accrued compensation		4,878			6,467
Other accrued liabilities		5,788			7,588
Income tax payable		2,854			2,438
Deferred revenue		18,386			13,318
Total current liabilities		35,401			32,613
Long-term liabilities:
Deferred revenue, less current portion		2,870			2,839
Deferred rent and other		406			381
Total liabilities		38,677			35,833
Stockholders’ equity:
Preferred stock, $0.001 par value:
5,000 shares authorized; no shares issued and outstanding as of March 31, 2005 and December 31, 2004, respectively		—			—
Common stock, $0.001 par value:
85,000 shares authorized; 33,838 and 33,418 shares issued and outstanding as of March 31, 2005 and December 31, 2004, respectively		34			33
Additional paid-in capital		184,491			181,625
Deferred stock-based compensation		(1,238	)		(1,610	)
Accumulated other comprehensive loss		(260	)		(207	)
Accumulated deficit		(74,305	)		(77,882	)
Total stockholders’ equity		108,722			101,959
Total liabilities and stockholders’ equity	$	147,399		$	137,792

See accompanying notes to condensed consolidated financial statements.

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PACKETEER, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts)

(unaudited)

	Three months ended
	March 31,
	2005		2004
Net revenues:
Product revenues	$	22,299	$	17,711
Service revenues		5,779		3,793
Total net revenues		28,078		21,504
Cost of revenues:
Product costs		4,989		3,557
Service costs		1,825		1,340
Amortization of purchased intangible assets		356		—
Total cost of revenues		7,170		4,897
Gross profit		20,908		16,607
Operating expenses:
Research and development (includes stock-based compensation of $218 and $0 for the three months ended March 31, 2005 and 2004, respectively)		5,188		3,474
Sales and marketing (includes stock-based compensation of $10 and $0 for the three months ended March 31, 2005 and 2004, respectively)		9,909		8,161
General and administrative (includes stock-based compensation of $2 and $0 for the three months ended March 31, 2005 and 2004, respectively)		1,951		1,438
Total operating expenses		17,048		13,073
Income from operations		3,860		3,534
Other income, net		502		193
Income before provision for income taxes		4,362		3,727
Provision for income taxes		785		373
Net income	$	3,577	$	3,354
Basic net income per share	$	0.11	$	0.10
Diluted net income per share	$	0.10	$	0.10
Shares used in computing basic net income per share		33,546		32,673
Shares used in computing diluted net income per share		35,211		34,677

See accompanying notes to condensed consolidated financial statements.

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PACKETEER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three months ended
	March 31,
	2005			2004
Cash flows from operating activities:
Net income	$	3,577		$	3,354
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		665			382
Amortization of purchased intangible assets		356			—
Amortization of stock-based compensation		230			—
Other non-cash charges		10			—
Changes in operating assets and liabilities:
Accounts receivable, net		(1,059	)		(547	)
Other receivables		1,741			(39	)
Inventories		(896	)		(253	)
Prepaids and other current assets		(92	)		(126	)
Accounts payable		693			826
Accrued compensation		(1,589	)		(951	)
Other accrued liabilities		(24	)		773
Income tax payable		416			38
Deferred revenue		5,098			1,109
Net cash provided by operating activities		9,126			4,566
Cash flows from investing activities:
Purchases of property and equipment		(539	)		(385	)
Purchases of investments		(8,381	)		(21,107	)
Proceeds from sales and maturities of investments		15,758			36,725
Acquisition, net of cash acquired		(1,808	)		—
Other assets		24			1
Net cash provided by investing activities		5,054			15,234
Cash flows from financing activities:
Proceeds from issuance of common stock, net of repurchases		1,883			1,039
Sale of stock to employees under the ESPP		1,126			574
Payments of notes payable		—			(51	)
Principal payments of capital lease obligations		—			(113	)
Net cash provided by financing activities		3,009			1,449
Net increase in cash and cash equivalents		17,189			21,249
Cash and cash equivalents at beginning of period		15,666			25,664
Cash and cash equivalents at end of period	$	32,855		$	46,913
Supplemental disclosures of cash flow information:
Cash paid during period for taxes	$	369		$	335
Cash paid during period for interest	$	—		$	17

See accompanying notes to condensed consolidated financial statements.

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PACKETEER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have been prepared by Packeteer, Inc., pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, and include the accounts of Packeteer, Inc. and its wholly-owned subsidiaries (collectively referred to herein as the “Company,” “Packeteer,” “we” and “us”). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations. While in the opinion of the Company’s management, the unaudited condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of interim periods presented, these financial statements and notes should be read in conjunction with our audited consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, filed with the SEC on March 16, 2005.

     The results of operations for the three months ended March 31, 2005 are not necessarily indicative of results that may be expected for any other interim period or for the full year ending December 31, 2005.

2. ACQUISITION OF MENTAT, INC.

     On December 21, 2004, the Company acquired all of the outstanding common stock of Mentat, Inc., or Mentat, a privately held company located in Los Angeles, California. Mentat is a technology leader in protocol acceleration technologies and transparent proxies, providing high performance networking solutions for satellite and high-latency networks. The acquisition deepens and extends Packeteer’s intellectual property and provides advanced acceleration capabilities for new WAN performance solutions for global customers. The aggregate purchase price of Mentat was approximately $19.1 million, including acquisition costs. Of the $19.1 million, $17.3 million was paid in cash upon closing and the remaining $1.8 million was paid to the former shareholders of Mentat upon the collection of a non-trade receivable. The non-trade receivable was collected in January 2005 and was immediately paid to the former shareholders of Mentat per the terms of the purchase agreement. In addition, as of March 31, 2005, Packeteer remains obligated to pay up to $3.1 million in retention bonuses to former Mentat employees including both cash and restricted stock to incent Mentat employees to remain with Packeteer. Mentat’s results of operations and the estimated fair values of the net assets and liabilities assumed and incurred have been included in the results of operations since December 21, 2004.

3. GOODWILL AND OTHER INTANGIBLE ASSETS

     The Company adopted Statement of Financial Accounting Standards, or SFAS, 142 effective January 1, 2002 and, as a result, goodwill is not amortized, but tested for impairment on an annual basis, or between annual tests when indicators of impairment exist, and written down if impaired. The carrying amount of goodwill and other intangible assets associated with the acquisition of Mentat as of March 31, 2005 and December 31, 2004 is as follows (in thousands):

	March 31, 2005							December 31, 2004
	Gross Carrying		Accumulated					Gross Carrying		Accumulated
	Amount		Amortization			Net Amount		Amount		Amortization			Net Amount
Developed technology	$	5,100	$	(282	)	$	4,818	$	5,100	$	(27	)	$	5,073
Customer contracts and relationships		1,900		(93	)		1,807		1,900		(8	)		1,892
Tradename		200		(18	)		182		200		(2	)		198
Purchased intangible assets		7,200		(393	)		6,807		7,200		(37	)	$	7,163
Goodwill		9,586		—			9,586		9,527		—			9,527
	$	16,786	$	(393	)	$	16,393	$	16,727	$	(37	)	$	16,690

     Aggregate amortization expense of $356,000 for the three months ended March 31, 2005 was included in cost of revenues.

     In March 2005, an OEM customer of Mentat exercised its option to buy out its license agreement. The terms of the license were amended to state that, for a total fee of $3.0 million, the customer would receive perpetual, non-transferable and non-exclusive binary

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and source licenses to Mentat’s TCP Protocol software plus support and maintenance for a period of twelve months. The $3.0 million fee was recorded as deferred revenue and is being recognized as revenue over a twelve-month period. For the three months ended March 31, 2005, Packeteer included $81,000 in revenues under this arrangement, with the balance of $2.9 million remaining in deferred revenue. A portion of the purchased intangible asset “Customer Contracts and Relationships” was related to this particular customer contract. The estimated useful life on this portion of the intangible asset was reduced from six years to one year. Based on the intangible assets balance as of March 31, 2005, the estimated future amortization expense of purchased intangible assets as of March 31, 2005 is as follows (in thousands):

Year	Amount
Remainder of 2005	$	1,201
2006		1,415
2007		1,360
2008		1,295
2009		1,268
2010		268
	$	6,807

The change in the carrying amount of goodwill for the three months ended March 31, 2005 is as follows (in thousands):

	Three Months Ended
	March 31, 2005
Balance at December 31, 2004	$	9,527
Subsequent goodwill adjustments related to Mentat income taxes and transactions costs		59
Balance at March 31, 2005	$	9,586

4. STOCK-BASED COMPENSATION

     As permitted under SFAS 123, “Accounting for Stock-Based Compensation”, Packeteer has elected to continue to follow the intrinsic value method in accordance with APB 25 in accounting for its stock-based employee compensation arrangements. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (in thousands, except per share data):

	Three Months Ended
	March 31,
	2005			2004
Net income as reported	$	3,577		$	3,354
Add: Stock-based compensation under APB 25, net of tax		189			—
Deduct: Stock-based compensation expense determined under fair value-based method for all awards, net of tax		(2,987	)		(1,438	)
Net income pro forma	$	779		$	1,916
Net income per share:
Basic – as reported	$	0.11		$	0.10
Diluted – as reported	$	0.10		$	0.10
Basic – pro forma	$	0.02		$	0.06
Diluted – pro forma	$	0.02		$	0.06

     For purposes of the pro forma disclosures provided pursuant to SFAS 123, the expected volatility assumptions used by the Company prior to the three months ended March 31, 2005 had been based solely on the historical volatility of the Company’s common stock. Beginning with the three months ended March 31, 2005, the Company has modified this approach to consider other relevant

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factors including the impact of unusual fluctuations not reasonably expected to recur on the historical volatility of the Company’s common stock. The Company will continue to monitor this and other relevant factors in developing the expected volatility assumption used to value future awards.

5. CONTINGENCIES

     In November 2001, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York against the Company, certain officers and directors of the Company, and the underwriters of the Company’s initial public offering. An amended complaint, captioned In re Packeteer, Inc. Initial Public Offering Securities Litigation, 01-CV-10185 (SAS), was filed on April 20, 2002.

     The amended complaint alleges violations of the federal securities laws on behalf of a purported class of those who acquired the Company’s common stock between the date of the Company’s initial public offering, or IPO, and December 6, 2000. The amended complaint alleges that the description in the prospectus for the Company’s IPO was materially false and misleading in describing the compensation to be earned by the underwriters of the Company’s IPO, and in not describing certain alleged arrangements among underwriters and initial purchasers of the Company’s common stock. The amended complaint seeks damages and certification of a plaintiff class consisting of all persons who acquired shares of the Company’s common stock between July 27, 1999 and December 6, 2000.

     A special committee of the board of directors has authorized the Company to negotiate a settlement of the pending claims substantially consistent with a memorandum of understanding negotiated among class plaintiffs, all issuer defendants and their insurers. The parties have negotiated a settlement, which is subject to approval by the Court. On February 15, 2005, the Court issued an Opinion and Order preliminarily approving the settlement, provided that the defendants and plaintiffs agree to a modification narrowing the scope of the bar order set forth in the original settlement agreement. If the settlement is not approved, we intend to vigorously defend ourselves against plaintiff’s allegations. We do not currently believe that the outcome of this proceeding will have a material adverse impact on our financial condition, results of operations or cash flows.

     The Company is routinely involved in legal and administrative proceedings incidental to its normal business activities and believes that these matters will not have a material adverse effect on its financial position, results of operations or cash flows.

6. GUARANTEES

     The Company’s warranty period is typically twelve months from the date of shipment to the end-user customer. We record a liability for estimated warranty obligations at the date products are sold. For existing products, the reserve is estimated based on actual historical experience. For new products, the required reserve is based on historical experience of similar products until such time as sufficient historical data has been collected on the new product. The following provides a reconciliation of the changes in Packeteer’s warranty reserve from December 31, 2004 to March 31, 2005 (in thousands):

Accrued warranty obligations at December 31, 2004	$	315
Provision for current period sales		97
Warranty costs incurred		(86	)
Accrued warranty obligations at March 31, 2005	$	326

     Additionally, our distributor and reseller agreements generally include a provision for indemnifying such parties against certain liabilities if our products are claimed to infringe a third party’s intellectual property rights. To date we have not incurred any costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements.

7. INCOME TAXES

     The effective tax rate for the three months ended March 31, 2005 is approximately 18%, compared to 10% for the three months ended March 31, 2004. The increase was attributable to a shift in the mix of taxable income among the various jurisdictions where the Company does business. Our future effective tax rates could be significantly impacted by lower than anticipated earnings in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws or interpretations thereof. In addition, our income tax

8

returns may be examined by various tax authorities. We regularly assess the likelihood of adverse outcomes that could result from any such examination to determine the adequacy of our income tax provision.

     Additionally, this effective tax rate does not include any one-time impact that may result from the repatriation of permanently reinvested off-shore earnings under the American Jobs Creation Act, or the Jobs Act. Enacted on October 22, 2004, the Jobs Act provides for a temporary 85% dividends received deduction on certain foreign earnings during either 2004 or 2005. We did not elect this provision in 2004 and therefore, can make the qualifying distributions in 2005. If taken, the deduction would result in an approximate 5.25% federal tax rate on the repatriated earnings. To qualify for the deduction, the earnings must be reinvested in the United States pursuant to a domestic reinvestment plan established by our chief executive officer and approved by our board of directors. Certain other criteria in the Jobs Act must be satisfied as well.

8. NET INCOME PER SHARE

     Basic net income per share has been computed using the weighted-average number of common shares outstanding during the period, less the weighted-average number of common shares that are subject to repurchase. Diluted net income per share has been computed using the weighted average number of common and potential common shares outstanding during the period. At March 31, 2005 and 2004, there were 1,395,591 and 1,207,153 shares, respectively, issuable upon exercise of stock options excluded from the computation because the exercise price was greater than the average market price.

     The following table presents the calculation of basic and diluted net income per share (in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2005			2004
Numerator:
Net income	$	3,577		$	3,354
Denominator:
Basic:
Weighted-average shares of common stock outstanding		33,653			32,673
Less: shares subject to repurchase		(107	)		—
Basic weighted-average common shares outstanding		33,546			32,673
Diluted:
Basic weighted-average common shares outstanding		33,546			32,673
Add: potentially dilutive common shares from stock options and shares subject to repurchase		1,639			1,976
Add: potentially dilutive common shares from warrants		26			28
Diluted weighted-average common shares outstanding		35,211			34,677
Basic net income per share	$	0.11		$	0.10
Diluted net income per share	$	0.10		$	0.10

9. COMPREHENSIVE INCOME

     The Company reports comprehensive income in accordance with the provisions of SFAS 130, “Reporting Comprehensive Income.” SFAS 130 establishes standards for reporting comprehensive income and its components in financial statements. The difference between reported net income and comprehensive income is not considered material for the periods presented.

10. SEGMENT REPORTING

     The Company has adopted the provisions of SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.” The Company’s chief operating decision maker is considered to be the Company’s Chief Executive Officer, or CEO. The CEO reviews financial information presented on a consolidated basis substantially similar to the accompanying condensed consolidated financial statements. Therefore, the Company has concluded that it operates in one segment and accordingly has provided only the required enterprise-wide disclosures.

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     The Company operates in the United States and internationally and derives its revenues from the sale of products and software licenses and maintenance contracts related to these products. During the three months ended March 31, 2005, two customers, Alternative Technology, Inc. and Westcon, Inc. accounted for 20% and 15% of total net revenues, respectively. For the three months ended March 31, 2004, Westcon, Inc., Alternative Technology, Inc. and Macnica Inc., accounted for 25%, 19% and 11% of total net revenues, respectively. Two customers accounted for 30% of accounts receivable at March 31, 2005.

     Geographic information (in thousands):

	Three months ended
	March 31,
	2005		2004
Net revenues:
Americas	$	11,905	$	7,446
Asia Pacific		7,978		6,352
Europe, Middle East, Africa.		8,195		7,706
Total net revenues	$	28,078	$	21,504

     Net revenues reflect the destination of the shipped product.

     Long-lived assets are primarily located in North America. Assets located outside North America are not significant.

11. RECENT ACCOUNTING PRONOUNCEMENTS

     In November 2004, the Emerging Issues Task Force, or EITF, reached a consensus on EITF Issue No. 03-13, “Applying the Conditions in Paragraph 42 of the Financial Accounting Standards Board (FASB) Statement 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” in Determining Whether to Report Discontinued Operations.” The consensus provides guidance in determining: (a) which cash flows should be taken into consideration when assessing whether the cash flows of the disposal component have been or will be eliminated from the ongoing operations of the entity, (b) the types of involvement ongoing between the disposal component and the entity disposing of the component that constitute continuing involvement in the operations of the disposal component, and (c) the appropriate (re) assessment period for purposes of assessing whether the criteria in paragraph 42 have been met. The adoption of EITF 03-13, as of January 1, 2005, did not have a material impact on the Company’s financial statements or results of operations.

     In December 2004, the FASB issued SFAS 123(R), “Share Based Payment,” which the Company will adopt in the first quarter of 2006. SFAS 123(R) will result in the recognition of substantial compensation expense relating to our employee stock option and employee stock purchase plans. The Company currently uses the intrinsic value method to measure compensation expense for stock-based awards to its employees. Under this standard, the Company generally does not recognize any compensation related to stock option grants the Company issues under its stock option plan or related to the discounts the Company provides under its employee stock purchase plan. Under the new rules, the Company is required to adopt a fair-value-based method for measuring the compensation expense related to employee stock awards. This will lead to substantial additional compensation expense. Note 4 entitled STOCK-BASED COMPENSATION included in these Condensed Consolidated Financial Statements provides the pro forma net income and earnings per share as if the Company had used a fair-value-based method similar to the methods required under SFAS 123(R) to measure the compensation expense for employee stock awards during the three months ended March 31, 2005 and 2004.

     In December 2004, the FASB issued FASB Statement 153, “Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29.” The amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” The provisions in Statement 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.

     On March 29, 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the Staff’s interpretation of SFAS 123(R). This interpretation expresses the views of the staff regarding the interaction between SFAS 123(R) and certain SEC rules and regulations and provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. In particular, this SAB provides guidance related to share-based payment transactions with nonemployees, the transition from nonpublic to public entity status, valuation methods, the accounting for certain redeemable financial instruments issued under share-based

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payment arrangements, the classification of compensation expense, non-GAAP financial measures, first-time adoption of SFAS 123(R) in an interim period, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123(R), the modification of employee share options prior to adoption of Statement 123(R) and disclosures in Management’s Discussion and Analysis subsequent to adoption of SFAS 123(R). The Company will adopt SAB 107 in connection with its adoption of SFAS 123(R), which could have a material impact on our consolidated financial position, results of operations and cash flows.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     OVERVIEW

     Packeteer is a leading provider of WAN Application Traffic Management systems designed to deliver a broad set of visibility, control, compression and protocol acceleration capabilities to enterprise customers and service providers. For enterprise customers, Packeteer systems are designed to enable Information Technology, or IT, organizations to effectively optimize application and network resources, while providing measurable cost savings in wide area network, or WAN, investments. For service providers, Packeteer systems are designed to provide a platform for delivering application-intelligent network services that control quality of service, or QoS, expand revenue opportunities and offer compelling differentiation from other potential solutions.

     The Packeteer WAN Application Traffic Management system consists of a family of scalable appliances that can be deployed within large data centers as well as smaller remote sites throughout a distributed enterprise. Each appliance can be configured with software modules to deliver a range of WAN Application Traffic Management capabilities. PacketSeeker® provides visibility, PacketShaper® provides control, and PacketShaper Xpressä provides compression. In addition, each appliance can be managed individually or as an integrated policy-based WAN Application Traffic Management system distributed across multiple locations, using our PolicyCenterä software product. Centralized reporting for multiple appliances is also available using our ReportCenterä software product.

     In December 2004, Packeteer acquired Mentat, Inc., or Mentat. This acquisition expands our solution portfolio with technology for accelerating applications over satellite and long-haul networks. The Mentat SkyX® products enhance the performance and efficiency of internet and private network access. With a proprietary connection splitting and protocol–translation system, the SkyX Gateway is designed to improve Transmission Control Protocol/Internet Protocol, or TCP/IP, performance over satellite-based or long haul networks while remaining entirely transparent to end users.

     Packeteer’s products are deployed at more than 7,000 companies worldwide in more than 50 countries. Our sales force and marketing efforts are used to develop brand awareness, drive demand for system solutions and support our indirect channels.

     We believe that our current value proposition, which enables our enterprise customers to get more value out of existing network resources and improved performance of their critical applications, should allow us to grow our business throughout 2005. Our growth rate and net revenues depend significantly on continued growth in the WAN Application Traffic Management market, our ability to develop and maintain strong partnering relationships with our indirect channel partners and our ability to expand or enhance our current product offerings or respond to technological change. Our growth in service revenues is dependent upon increasing the number of units under maintenance, which is dependent on both growing our installed base and renewing existing maintenance contracts. Our future profitability and rate of growth, if any, will be directly affected by the continued acceptance of our product in the marketplace, as well as the timing and size of orders and shipments, product mix, average selling price of our products and general economic conditions. Our failure to successfully convince the market of our value proposition and maintain strong relationships with our indirect channel partners to ensure the success of their selling efforts on our behalf, would adversely impact our net revenues and operating results.

SOURCES OF REVENUE

     We derive our revenue from two sources, product revenues and service revenues. Product revenues consist primarily of sales of our WAN Application Traffic Management systems. Service revenues consist primarily of maintenance revenues and, to a lesser extent, training revenues. Product revenues accounted for 79% and 82% of our net revenues for the three months ended March 31, 2005 and 2004, respectively. Service revenues continue to increase as our installed base grows, accounting for 21% and 18% of net revenues for

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the three months ended March 31, 2005 and 2004, respectively. Maintenance revenues are recognized on a monthly basis, over the life of the contract. The typical subscription and support term is twelve months, although multi-year contracts of up to three years are sold.

COST OF REVENUES AND OPERATING EXPENSES

     Cost of Revenues. Our cost of revenues consists of the cost of finished products purchased from our contract manufacturers, overhead costs, service support costs and amortization of purchased intangible assets.

     We outsource all of our manufacturing. We design and develop a majority of the key components of our products, including printed circuit boards and software. In addition, we determine the components that are incorporated into our products and select the appropriate suppliers of these components. Our overhead costs consist primarily of personnel related costs for our product operations and order fulfillment groups and other product costs such as warranty and fulfillment charges. Service support costs consist primarily of personnel related costs for our customer support and training groups, as well as fees paid to third-party service providers to facilitate next business day replacement for end user customers located outside the United States. Additionally, we allocate overhead such as facilities, depreciation and IT costs to all departments based on headcount and usage. As such, general overhead costs are reflected in each cost of revenue and operating expense category. We must continue to work closely with our contract manufacturers as we develop and introduce new products and try to reduce production costs for existing products. To the extent our customer base continues to grow, we intend to continue to invest additional resources in our customer support and training groups and expect that our fees to third-party service providers will continue to increase as our international installed base grows.

     Research and Development. Research and development expenses consist primarily of salaries and related personnel expenses, allocated overhead, consultant fees and prototype expenses related to the design, development, testing and enhancement of our products and software. We have historically focused our research and development efforts on developing and enhancing our WAN Application Traffic Management solutions. We expect that in the future, our research and development spending will increase in absolute dollars as we continue to develop and maintain competitive products and enhance our current products by adding innovative features that differentiate our products from those of our competitors. We believe that continued investment in research and development is critical to attaining our strategic product and cost control objectives. Excluding the impact of stock-based compensation, we expect that research and development expenses will approximate our long-term business model target of 18% of net revenues going forward.

     Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and related personnel expenses for those engaged in the sales, marketing and support of the product, as well as related trade show, promotional and public relations expenses and allocated overhead. Although continuing to decrease as a percentage of net revenues, sales and marketing is our largest cost, accounting for 35% and 38% of net revenues for the three months ended March 31, 2005 and 2004, respectively. We plan to increase sales and marketing headcount modestly in the remainder of 2005, as we continue to expand our global presence. We intend to continue to invest in appropriate sales and marketing campaigns and expect expenses in absolute dollars to increase in the second half of 2005. Excluding the impact of stock-based compensation, we expect sales and marketing expenses will continue to exceed our long-term business model target of 30% to 32% of net revenues for the next few quarters, but begin to approach the higher end of this target by the fourth quarter of 2005.

     General and Administrative. General and administrative expenses consist primarily of salaries and related personnel expenses for administrative personnel, professional fees, allocated overhead and other general corporate expenses. We expect general and administrative expenses to continue to be in line with our long-term targets of 6% to 7% of net revenues.

CRITICAL ACCOUNTING POLICIES

     Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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 disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to inventory valuation, valuation allowances including sales return reserves and rebate reserves, and other liabilities, specifically warranty reserves and income taxes payable. 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.

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     We believe that of our significant accounting policies, which are described in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2004, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, we believe the accounting policies below are the most critical to aid in fully understanding and evaluating our consolidated results of operations and financial condition.

     Revenue recognition. We apply the provisions of Statement of Position, or SOP, 97-2, “Software Revenue Recognition,” as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,” to all transactions involving the sale of hardware and software products. Revenue is generally recognized when all of the following criteria are met as set forth in paragraph 8 of SOP 97-2:

•   persuasive evidence of an arrangement exists,

•   delivery has occurred,

•   the fee is fixed or determinable, and

•   collectibility is probable.

     Receipt of a customer purchase order is persuasive evidence of an arrangement. Sales through our distribution channel are evidenced by an agreement governing the relationship together with purchase orders on a transaction-by-transaction basis.

     Delivery generally occurs when product is delivered to a common carrier from Packeteer or its designated fulfillment house. For certain destinations outside the Americas, delivery occurs when product is delivered to the destination country. For maintenance contracts, delivery is deemed to occur ratably over the contract period.

     Our fees are typically considered to be fixed or determinable at the inception of an arrangement and are negotiated at the outset of an arrangement, generally based on specific products and quantities to be delivered. In the event payment terms are provided that differ significantly from our standard business practices, which are generally ninety days or less, the fees are deemed to not be fixed or determinable and revenue is recognized as the fees become due and payable.

     We assess collectibility based on a number of factors, including credit worthiness of the customer and past transaction history of the customer.

     Generally, product revenue is recognized upon delivery. However, product revenue on sales to major new distributors is recorded based on sell-through to the end user customers until such time as we have established significant experience with the distributor’s product exchange activity. Additionally, when we introduce a new product into its distribution channel for which there is no historical customer demand or acceptance history, revenue is recognized on the basis of sell-through to end user customers until such time as demand or acceptance history has been established.

     We have analyzed all of the elements included in our multiple element arrangements and have determined that we have sufficient vendor specific objective evidence, or VSOE, of fair value to allocate revenue to the maintenance component of our product and to training. VSOE is based upon separate sales of maintenance renewals and training to customers. Accordingly, assuming other revenue recognition criteria are met, revenue from product sales is recognized upon delivery using the residual method in accordance with SOP 98-9. Revenue from maintenance is recognized ratably over the maintenance term and revenue from training is recognized when the training has taken place. To date, training revenues have not been material.

     Inventory valuation. Inventories consist primarily of finished goods and are stated at the lower of cost (on a first-in, first-out basis) or market. We record inventory reserves for excess and obsolete inventories based on historical usage and forecasted demand. Factors which could cause our forecasted demand to prove inaccurate include our reliance on indirect sales channels and the variability of our sales cycle; the potential of announcements of our new products or enhancements to replace or shorten the life cycle of our current products, or cause customers to defer their purchases; loss of sales due to product shortages; and the potential of new or alternative technologies achieving widespread market acceptance and thereby rendering our existing products obsolete. If future demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made.

     Valuation of long-lived and intangible assets and goodwill. We test goodwill for impairment in accordance with SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires that goodwill be tested for impairment at the “reporting-unit” level, or Reporting Unit, at least annually and more frequently upon the occurrence of certain events, as defined by SFAS 142. Consistent with the Company’s determination that it has only one reporting segment as defined in SFAS 131, “Disclosures about Segments of an

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Enterprise and Related Information,” the Company has determined that it has only one Reporting Unit. Goodwill is tested for impairment annually on December 1, in a two-step process. First, we determine if the carrying amount of our Reporting Unit exceeds the “fair value” of the Reporting Unit, which would indicate that goodwill may be impaired. If we determine that goodwill may be impaired, we compare the “implied fair value” of the goodwill, as defined by SFAS 142, to its carrying amount to determine if there is an impairment loss. As of March 31, 2005, we do not have any goodwill that we consider to be impaired.

     In accordance with SFAS 144, “Accounting for Impairment or Disposal of Long-lived Assets”, we evaluate long-lived assets, including intangible assets other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

     Sales return reserve. In accordance with SFAS 48, “Revenue Recognition When Right of Return Exists,” management must use judgment and make estimates of potential future product returns related to current period product revenue. When providing for sales return reserves, we analyze historical return rates, as we believe they are the primary indicator of possible future returns. Material differences may result in the amount and timing of our revenues if for any period actual returns differ from our judgments or estimates. The sales return reserve balances at March 31, 2005 and December 31, 2004 were $1.1 million and $1.3 million, respectively.

     Rebate reserves. Certain distributors and resellers can earn rebates under several Packeteer programs. The rebates earned are recorded as a reduction to revenues in accordance with Emerging Issues Task Force 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products)”. For established programs, our estimates for rebates are based on historical usage rates. For new programs, rebate reserves are calculated to cover our maximum exposure until such time as historical usage rates are developed. When sufficient historical experience is established, there may be a reversal of previously accrued rebates if actual rebate claims are less than the maximum exposure. Additionally, there may be a reversal of previously accrued rebate reserves if rebates are not claimed before the expiration dates established for each program. Rebate reserves at March 31, 2005 and December 31, 2004 were $2.0 million and $1.8 million, respectively.

     Warranty reserves. Upon shipment of products to our customers, we provide for the estimated cost to repair or replace products that may be returned under warranty. Our warranty period is typically 12 months from the date of shipment to the end user customer. For existing products, the reserve is estimated based on actual historical experience. For new products, the warranty reserve is based on historical experience of similar products until such time as sufficient historical data has been collected on the new product. Factors that may impact our warranty costs in the future include our reliance on our contract manufacturer to provide quality products and the fact that our products are complex and may contain undetected defects, errors or failures in either the hardware or the software. To date, these problems have not materially adversely affected us. Warranty reserves at March 31, 2005 and December 31, 2004 were $326,000 and $315,000, respectively.

     Accounting for Income Taxes. We utilize the asset and 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.

     SFAS 109 provides for the recognition of deferred tax assets if it is more likely than not that those deferred tax assets will be realized. Management reviews deferred tax assets periodically for recoverability and makes estimates and judgments regarding the expected geographic sources of taxable income in assessing the need for a valuation allowance to reduce deferred tax assets to their estimated realizable value. If the estimates and assumptions used in our determination change in the future, we could be required to revise our estimates of the valuation allowances against our deferred tax assets and adjust our provisions for additional income taxes.

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     RESULTS OF OPERATIONS

     The following table sets forth certain financial data as a percentage of total net revenues for the periods indicated. These historical operating results are not necessarily indicative of the results for any future period.

	Three months ended
	March 31,
	2005			2004
Net revenues:
Product revenues		79	%		82	%
Service revenues		21			18
Total net revenues		100			100
Cost of revenues:
Product costs		18			17
Service costs		7			6
Amortization of purchased intangible assets		1			—
Total cost of revenues		26			23
Gross margin		74			77
Operating expenses:
Research and development		18			16
Sales and marketing		35			38
General and administrative		7			7
Total operating expenses		60			61
Income from operations		14			16
Other income, net		2			1
Income before provision for income taxes		16			17
Provision for income taxes		3			2
Net income		13	%		15	%

     OVERVIEW OF RESULTS

     Net revenues for the three months ended March 31, 2005 were $28.1 million, an increase of 31% over the same period in 2004. Gross profit was $20.9 million, or 74%, and operating income was $3.9 million. During the comparable period a year ago, net revenues were $21.5 million, gross profit was $16.6 million, or 77%, and operating income was $3.5 million.

     The increase in revenues was due to both an increase in the number of units shipped and the number of units under maintenance contracts. We believe a number of forces contributed to our revenue growth, including continued strength in our Americas region and a growing number of larger transactions. During the three months ended March 31, 2005, we continued to invest in our operations, with operating expenses of $17.0 million increasing $3.9 million, or 30%, from $13.1 million reported in the comparable period of 2004. Compared to March 31, 2004, headcount has increased by 59, or 25%, primarily in sales and marketing and research and development.

     During the three months ended March 31, 2005, we generated $9.1 million of cash from operating activities, compared to $4.6 million in the comparable period a year ago. At March 31, 2005, we had cash, cash equivalents and investments of $102.0 million, accounts receivable of $17.9 million and deferred revenues of $21.3 million.

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     NET REVENUES

     Total net revenues of $28.1 million in the three months ended March 31, 2005 increased $6.6 million, or 31%, from $21.5 million in the same period last year. Product revenues of $22.3 million for the three months ended March 31, 2005 increased $4.6 million, or 26%, from $17.7 million for the three months ended March 31, 2004. The increase in product revenues is primarily the result of an increase in the number of units shipped, particularly our higher end units. There were no significant selling price changes during any of the periods presented.

     Service revenues of $5.8 million in the three months ended March 31, 2005, increased $2.0 million, or 52%, from $3.8 million in the same period last year. The increase is mainly due to an increase in the number of units under maintenance contracts.

     For the three months ended March 31, 2005, net revenues in the Americas of $11.9 million increased $4.5 million, from $7.4 million in the same period last year, and accounted for 42% of total net revenues, compared to 35% for the same period last year. Net revenues in Asia Pacific of $8.0 million for the three months ended March 31, 2005 accounted for 29% of net revenues compared to $6.4 million, or 29%, of net revenues for the same period last year. Net revenues in EMEA of $8.2 million for the three months ended March 31, 2005, accounted for 29% of total net revenues, compared to $7.7 million, or 36%, of net revenues for the same period last year.

     During the three months ended March 31, 2005, two customers, Alternative Technology, Inc. and Westcon, Inc. accounted for 20% and 15% of net revenues, respectively. For the three months ended March 31, 2004, Westcon, Inc., Alternative Technology, Inc. and Macnica Inc., accounted for 25%, 19% and 11% of net revenues, respectively.

     COST OF REVENUES

     Our cost of revenues was $7.2 million in the three months ended March 31, 2005, an increase of $2.3 million, or 46%, from $4.9 million in the same period last year. The increase in costs was due to an increase in units shipped, higher service support costs and amortization of Mentat related intangible assets. Excluding the amortization of intangibles, the cost of revenues represented 25% of net revenues for the three months ended March 31, 2005, compared to 23% of net revenues in the same period last year.

     Product costs for the three months ended March 31, 2005 increased by $1.4 million, or 40%, to $5.0 million from $3.6 million in the same period last year. For the three months ended March 31, 2005, manufacturing costs increased $1.3 million from the same period of the prior year due to an increase in units shipped and a continued shift to higher end product. Other product costs increased $66,000 from the prior year, primarily reflecting increases in warranty, and fulfillment costs of $76,000, and $30,000, respectively, partially offset by an $83,000 decrease in inventory reserves.

     Service costs for the three months ended March 31, 2005 increased by $485,000, or 36%, to $1.8 million from $1.3 million in the same period last year. The increased service costs are due to increased personnel costs of $162,000 as a result of increased headcount in both our support and training groups, as well as a $122,000 increase in service fees to our third-party maintenance service provider and a $124,000 increase in product used to support maintenance contracts.

     In connection with the acquisition of Mentat, we recorded $7.2 million of purchased intangible assets, including developed technology, customer contracts and relationships and tradename. These assets have useful lives ranging from one to six years. During the three months ended March 31, 2005, amortization expense of $356,000 was included in cost of revenues.

     RESEARCH AND DEVELOPMENT

     Research and development expenses of $5.2 million in the three months ended March 31, 2005 were up $1.7 million, or 49%, from $3.5 million in the same period last year. The increased costs are primarily attributable to increased salaries and related personnel expenses. Personnel related expenses increased $1.3 million, including $218,000 in amortization of stock-based compensation related to the Mentat acquisition and $1.1 million related to the increase in headcount, which went from 73 at March 31, 2004 to 103 at March 31, 2005. The headcount increase was primarily attributable to the engineering resources acquired as a part of the Mentat acquisition in December 2004. Depreciation, and other facilities related expenses, increased $238,000 and were also primarily related to the Mentat acquisition. Research and development expenses represented 18% and 16% of net revenues for the three months ended March 31, 2005 and 2004, respectively.

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     SALES AND MARKETING

     Sales and marketing expenses increased to $9.9 million in the three months ended March 31, 2005, an increase of $1.7 million, or 21%, from $8.2 million in the same period last year. Increases included personnel costs, demonstration units and various channel marketing program related costs. Personnel related costs, including salaries, bonuses and commissions increased $1.3 million as headcount increased from 98 at March 31, 2004 to 117 at March 31, 2005. The cost of demonstration units increased $186,000 as a result of the introduction of two new PacketShaper products, as well as Mentat’s SkyX products, to our customer base. The cost of various marketing programs increased $126,000 as we introduced new channel marketing programs in the third quarter of 2004, replacing previous channel rebate programs. Sales and marketing expenses represented 35% and 38% of net revenues for the three months ended March 31, 2005 and 2004, respectively.

     GENERAL AND ADMINISTRATIVE

     General and administrative expenses of $2.0 million in the three months ended March 31, 2005 increased $513,000, or 36%, from $1.4 million in the same period of last year. Increases included personnel costs, primarily salaries, of $174,000 and consulting fees, particularly audit and tax related expenses, of $402,000. General and administrative expenses represented 7% of net revenues for both the three months ended March 31, 2005 and 2004.

     OTHER INCOME, NET

     Other income, net consists primarily of investment income from our cash, cash equivalents and investments. Other income, net increased to $502,000 in the three months ended March 31, 2005 from $193,000 for the same period last year. The increase was primarily due to increased investment yields and increased investment balances as well as the elimination of interest expense, as we had no debt during the three months ended March 31, 2005.

     INCOME TAX PROVISION

     The effective tax rate for the three months ended March 31, 2005, and the expected annual rate for the remainder of 2005, is approximately 18%, compared to 10% for the three months ended March 31, 2004. The increase was attributable to a shift in the mix of taxable income among the various jurisdictions where we do business. Our future effective tax rates could be significantly impacted by lower than anticipated earnings in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws or interpretations thereof. In addition, our income tax returns may be examined by various tax authorities. We regularly assess the likelihood of adverse outcomes that could result from any such examination to determine the adequacy of our income tax provision.

     Additionally, this effective tax rate does not include any one-time impact that may result from the repatriation of permanently reinvested off-shore earnings under the American Jobs Creation Act, or the Jobs Act. Enacted on October 22, 2004, the Jobs Act provides for a temporary 85% dividends received deduction on certain foreign earnings during either 2004 or 2005. We did not elect this provision in 2004, and therefore can make qualifying distributions in 2005. If taken, the deduction would result in an approximate 5.25% federal tax rate on the repatriated earnings. To qualify for the deduction, the earnings must be reinvested in the United States pursuant to a domestic reinvestment plan established by our chief executive officer and approved by our board of directors. Certain other criteria in the Jobs Act must be satisfied as well.

     LIQUIDITY AND CAPITAL RESOURCES

Cash Requirements

     During the past three years, we have had sufficient financial resources to meet our operating requirements, to fund our capital spending and to repay all of our debt obligations.

     We expect to experience growth in our working capital needs for at least the next twelve months in order to execute our business plan. We anticipate that operating activities, as well as planned capital expenditures, will constitute a partial use of our cash resources. In addition, we may utilize cash resources to fund acquisitions or investments in complementary businesses, technologies or products. We believe that our current cash, cash equivalents and investments of $102.0 million at March 31, 2005 will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures for at least the next twelve months. However, we may need to raise additional funds if our estimates of revenues, working capital or capital expenditure requirements change or prove inaccurate

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or in order for us to respond to unforeseen technological or marketing hurdles or to take advantage of unanticipated opportunities. These funds may not be available at the time or times needed, or available on terms acceptable to us. If adequate funds are not available, or are not available on acceptable terms, we may not be able to take advantage of market opportunities to develop new products or to otherwise respond to competitive pressures.

     We have contractual obligations in the form of operating leases. These are described in further detail in Note 5 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2004. Additionally, we have purchase obligations reflecting open purchase order commitments. The following chart details our contractual obligations as of March 31, 2005 (in thousands):

	Payments due by period
			Remainder		1 - 3		3 - 5		More than 5
Contractual Obligations	Total		of 2005		years		years		years
Cash obligations not reflected in Balance Sheet
Operating lease obligations	$	4,511	$	1,395	$	2,853	$	211	$	52
Purchase obligations		6,646		6,646		—		—		—
Total	$	11,157	$	8,041	$	2,853	$	211	$	52

Sources and Uses of Cash

     Overview. Our cash, cash equivalents and investments, which are classified as “available for sale” and consist of highly liquid financial instruments, increased $9.8 million during the three months ended March 31, 2005 to $102.0 million. The increase during the three months was primarily due to net income of $3.6 million, increased deferred revenue of $5.1 million and proceeds from the issuance of stock through option exercises and the Employee Stock Purchase Plan totaling $3.0 million, partially offset by changes in operating assets and liabilities.

     Operating Activities. Cash provided by operating activities was $9.1 million in the three months ended March 31, 2005, up from $4.6 million in the same period last year. The increase was primarily due to the increase in deferred revenue of $4.0 million, of which $2.9 million relates to the buyout of a license agreement by a Mentat OEM customer discussed in further detail in Note 3 of the Notes to Condensed Consolidated Financial Statements, and the balance relates to an increase in the number of support contracts outstanding.

     Investing Activities. Cash provided by investing activities in the three months ended March 31, 2005 was $5.1 million, compared to $15.2 million in the same period last year, primarily reflecting transactions in marketable securities. Among our investment policy objectives are preserving of principal, meeting liquidity needs and delivering good yields in relationship to the policy guidelines and market conditions. Changes in our investment portfolio are made in response to the market outlook and fluctuations in interest rates.

     Financing Activities. For the three months ended March 31, 2005, cash provided by financing activities included $3.0 million in proceeds from employee option exercises and the Employee Stock Purchase Plan. This compares to $1.6 million in proceeds for the three months ended March 31, 2004, which was partially offset by $164,000 used to pay down capital leases and a note payable. We paid off both our note payable and the remaining capital lease obligations during 2004.

     RECENT ACCOUNTING PRONOUNCEMENTS

     The impact of recent accounting pronouncements is discussed in Note 11 of the Notes to the Condensed Consolidated Financial Statements.

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FACTORS THAT MAY AFFECT FUTURE RESULTS

     You should carefully consider the risks described below before making an investment decision. If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.

IF THE WAN APPLICATION TRAFFIC MANAGEMENT SOLUTIONS MARKET FAILS TO GROW, OUR BUSINESS WILL FAIL

     The market for WAN Application Traffic Management is in an early stage of development and its success is not guaranteed. Therefore, we cannot accurately assess the size of the market, the products needed to address the market, the optimal distribution strategy, or the competitive environment that will develop. In order for us to be successful, our potential customers must recognize the value of more sophisticated bandwidth management solutions, decide to invest in the management of their networks and the performance of important business software applications and, in particular, adopt our bandwidth management solutions.

OUR FUTURE OPERATING RESULTS ARE DIFFICULT TO PREDICT AND MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD ADVERSELY AFFECT OUR STOCK PRICE

     We believe that period-to-period comparisons of our operating results cannot be relied upon as an indicator of our future performance, and that the results of any quarterly period are not necessarily indicative of results to be expected for a full fiscal year. We have experienced fluctuations in our operating results in the past and may continue to do so in the future. Our operating results are subject to numerous factors, many of which are outside of our control and are difficult to predict. As a result, our quarterly operating results could fall below our forecasts or the expectations of public market analysts or investors in the future. If this occurs, the price of our common stock would likely decrease. Factors that could cause our operating results to fluctuate include variations in:

-   the timing and size of orders and shipments of our products;

-   the mix of products we sell;

-   the mix of channels through which those products are sold;

-   the average selling prices of our products; and

-   the amount and timing of our operating expenses.

     In the past, revenue fluctuations resulted primarily from variations in the volume and mix of products sold and variations in channels through which products were sold. Total operating expenses may fluctuate between quarters due to the timing of spending. For example, research and development expenses, specifically prototype expenses, consulting fees and other program costs, have fluctuated relative to the specific stage of product development of the various projects underway. Sales and marketing expenses have fluctuated due to the timing of specific events such as sales meetings or tradeshows, or the launch of new products. Additionally, operating costs outside the United States are incurred in local currencies, and are remeasured from the local currency to the U.S. dollar upon consolidation. As exchange rates vary, these operating costs, when remeasured, may differ from our prior performance and our expectations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for detailed information on our operating results.

IF IN THE FUTURE WE ARE UNABLE TO FAVORABLY ASSESS THE EFFECTIVENESS OF OUR INTERNAL CONTROL OVER FINANCIAL REPORTING, OR IF OUR INDEPENDENT AUDITORS ARE UNABLE TO PROVIDE AN UNQUALIFIED ATTESTATION REPORT ON OUR ASSESSMENT, OUR STOCK PRICE COULD BE ADVERSELY AFFECTED

     Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, our management is required to report on, and our independent auditors to attest to, the effectiveness of our internal controls over financial reporting in each of our annual reports. The rules governing the standards that must be met for management to assess our internal controls over financial reporting are new and complex, and require significant documentation, testing and possible remediation. As a result, our efforts to comply with Section 404 has required the commitment of significant managerial and financial resources. As we are committed to maintaining high standards of public disclosure, our efforts to comply with Section 404 are ongoing, and we are continuously in the process of reviewing,

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documenting and testing our internal controls over financial reporting, which will result in continued commitment of significant financial and managerial resources.

     Although we received a favorable assessment of our internal controls from our auditors for 2004, in future years we may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal controls over financial reporting, or we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation. If in the future we cannot favorably assess the effectiveness of our internal controls over financial reporting, or if our independent auditors are unable to provide an unqualified attestation report on our assessment, investor confidence and our stock price could be adversely affected.

WE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES IN OUR MARKET SECTOR WHO OFFER, OR MAY IN THE FUTURE OFFER, COMPETING TECHNOLOGIES

     We compete in a rapidly evolving and highly competitive sector of the networking technology market. We expect competition to persist and intensify in the future from a number of different sources. Increased competition could result in reduced prices and gross margins for our products and could require increased spending by us on research and development, sales and marketing and customer support, any of which could harm our business. We compete with Cisco Systems, Inc., other switch/router vendors, security vendors and several small private companies that utilize competing technologies to provide bandwidth management and compression. We expect this competition to increase particularly due to the anticipated requirement from enterprises to consolidate more functionality into a single appliance. In addition, our products and technology compete for information technology budget allocations with products that offer monitoring capabilities, such as probes and related software. Lastly, we face indirect competition from companies that offer enterprise customers and service providers increased bandwidth and infrastructure upgrades that increase the capacity of their networks, which may lessen or delay the need for WAN Application Traffic Management solutions.

     Some of our competitors and potential competitors are substantially larger than we are and have significantly greater financial, sales and marketing, technical, manufacturing and other resources and more established distribution channels. These competitors may be able to respond more rapidly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products than we can. We have encountered, and expect to encounter, prospective customers who are extremely confident in and committed to the product offerings of our competitors, and therefore are unlikely to buy our products. Furthermore, some of our competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties to increase their ability to rapidly gain market share by addressing the needs of our prospective customers. Our competitors may enter our existing or future markets with solutions that may be less expensive, provide higher performance or additional features or be introduced earlier than our solutions. Given the market opportunity in the WAN Application Traffic Management solutions market, we also expect that other companies may enter or announce an intention to enter our market with alternative products and technologies, which could reduce the sales or market acceptance of our products and services, perpetuate intense price competition or make our products obsolete. If any technology that is competing with ours is or becomes more reliable, higher performing, less expensive or has other advantages over our technology, then the demand for our products and services would decrease, which would harm our business.

IF WE DO NOT EXPAND OR ENHANCE OUR PRODUCT OFFERINGS OR RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO TECHNOLOGICAL CHANGE, OUR BUSINESS MAY NOT GROW OR WE MAY LOSE CUSTOMERS AND MARKET SHARE

     Our future performance will depend on the successful development, introduction and market acceptance of new and enhanced products that address customer requirements in a cost-effective manner. We cannot assure you that our technological approach will achieve broad market acceptance or that other technologies or solutions will not supplant our approach. The WAN Application Traffic Management solutions market is characterized by ongoing technological change, frequent new product introductions, changes in customer requirements and evolving industry standards. The introduction of new products, market acceptance of products based on new or alternative technologies, or the emergence of new industry standards, could render our existing products obsolete or make it easier for other products to compete with our products. Developments in router-based queuing schemes or alternative compression technologies could also significantly reduce demand for our product. Our future success will depend in part upon our ability to:

-   develop and maintain competitive products;

-   enhance our products by adding innovative features that differentiate our products from those of our competitors;

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-   bring products to market on a timely basis at competitive prices;

-   identify and respond to emerging technological trends in the market; and

-   respond effectively to new technological changes or new product announcements by others.

     We have in the past experienced delays in product development which to date have not materially adversely affected us. However, these delays may occur in the future and could result in a loss of customers and market share.

THE AVERAGE SELLING PRICES OF OUR PRODUCTS COULD DECREASE RAPIDLY, WHICH MAY NEGATIVELY IMPACT GROSS MARGINS AND REVENUES

     We may experience substantial period-to-period fluctuations in future operating results due to the erosion of our average selling prices. The average selling prices of our products could decrease in the future in response to competitive pricing pressures, increased sales discounts, new product introductions by us or our competitors or other factors. Therefore, to maintain our gross margins, we must develop and introduce on a timely basis new products and product enhancements and continually reduce our product costs. Our failure to do so could cause our revenue and gross margins to decline.

IF OUR INTERNATIONAL SALES EFFORTS ARE UNSUCCESSFUL, OUR BUSINESS WILL FAIL TO GROW

     The failure of our indirect partners to sell our products internationally will harm our business. Sales to customers outside of the Americas accounted for 58% and 65% of net revenues for the three months ended March 31, 2005 and 2004, respectively, and 59% of net revenues for all of 2004. Our ability to grow will depend in part on the expansion of international sales, which will require success on the part of our resellers, distributors and systems integrators in marketing our products.

     We intend to expand operations in our existing international markets and to enter new international markets, which will demand management attention and financial commitment. We may not be able to successfully sustain and expand our international operations. In addition, a successful expansion of our international operations and sales in foreign markets will require us to develop relationships with suitable indirect channel partners operating abroad. We may not be able to identify, attract or retain these indirect channel partners.

     Furthermore, to increase revenues in international markets, we will need to continue to establish foreign operations, to hire additional personnel to run these operations and to maintain good relations with our foreign indirect channel partners. To the extent that we are unable to successfully do so, our growth in international sales may be limited.

     Our international sales are currently all U.S. dollar-denominated. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. In the future, we may elect to invoice some of our international customers in local currency. Doing so will subject us to fluctuations in exchange rates between the U.S. dollar and the particular local currency and could negatively affect our financial performance.

IF WE ARE UNABLE TO DEVELOP AND MAINTAIN STRONG PARTNERING RELATIONSHIPS WITH OUR INDIRECT CHANNEL PARTNERS, OR IF THEIR SALES EFFORTS ON OUR BEHALF ARE NOT SUCCESSFUL, OR IF THEY FAIL TO PROVIDE ADEQUATE SERVICES TO OUR END USER CUSTOMERS, OUR SALES MAY SUFFER AND OUR REVENUES MAY NOT INCREASE

     We rely primarily on an indirect distribution channel consisting of resellers, distributors and systems integrators for our revenues. Because many of our indirect channel partners also sell competitive products, our success and revenue growth will depend on our ability to develop and maintain strong cooperative relationships with significant indirect channel partners, as well as on the sales efforts and success of those indirect channel partners.

     We cannot assure you that our indirect channel partners will market our products effectively or continue to devote the resources necessary to provide us with effective sales, marketing and technical support. In order to support and develop leads for our indirect distribution channels, we plan to continue to expand our field sales and support staff as needed. We cannot assure you that this internal expansion will be successfully completed, that the cost of this expansion will not exceed the revenues generated or that our expanded sales and support staff will be able to compete successfully against the significantly more extensive and well-funded sales and marketing operations of many of our current or potential competitors. In addition, our indirect channel agreements are generally not

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exclusive and one or more of our channel partners may compete directly with another channel partner for the sale of our products in a particular region or market. This may cause such channel partners to stop or reduce their efforts in marketing our products. Our inability to effectively establish or manage our distribution channels would harm our sales.

     In addition, our indirect channel partners may provide services to our end user customers that are inadequate or do not meet expectations. Such failures to provide adequate services could result in customer dissatisfaction with us or our products and services due to delays in maintenance and replacement, decreases in our customers’ network availability and other losses. These occurrences could result in the loss of customers and repeat orders and could delay or limit market acceptance of our products, which would negatively affect our sales and results of operations.

SALES TO LARGE CUSTOMERS WOULD BE DIFFICULT TO REPLACE IF LOST

     A limited number of indirect channel partners have accounted for a large part of our revenues to date and we expect that this trend will continue. Because our expense levels are based on our expectations as to future revenue and to a large extent are fixed in the short term, any significant reduction or delay in sales of our products to any significant indirect channel partner or unexpected returns from these indirect channel partners could harm our business. During the three months ended March 31, 2005, two customers, Alternative Technology, Inc. and Westcon, Inc. accounted for 20% and 15% of net revenues, respectively. For the three months ended March 31, 2004, Westcon, Inc., Alternative Technology, Inc. and Macnica Inc., accounted for 25%, 19% and 11% of net revenues, respectively. We expect that our largest customers in the future could be different from our largest customers today. End users can stop purchasing and indirect channel partners can stop marketing our products at any time. We cannot assure you that we will retain these indirect channel partners or that we will be able to obtain additional or replacement partners. The loss of one or more of our key indirect channel partners or the failure to obtain and ship a number of large orders each quarter could harm our operating results.

OUR RELIANCE ON SALES OF OUR PRODUCTS BY OTHERS MAKES IT DIFFICULT TO PREDICT OUR REVENUES AND RESULTS OF OPERATIONS

     The timing of our revenues is difficult to predict because of our reliance on indirect sales channels and the variability of our sales cycle. The length of our sales cycle for sales through our indirect channel partners to our end users may vary substantially depending upon the size of the order and the distribution channel through which our products are sold.

     We generally do not have significant unfulfilled product orders at any point in time. Substantially all of our revenues in any quarter depend upon customer orders that we receive and fulfill in that quarter. To the extent that an order that we anticipate will be received and fulfilled in a quarter is not actually received in time to fulfill prior to the end of that quarter, we will not be able to recognize any revenue associated with that order in the quarter. If revenues forecasted in a particular quarter do not occur in that quarter, our operating results for that quarter could be adversely affected. The greater the volume of an anticipated order that is not timely received in a quarter, the more material the potential adverse impact on our operating results. Furthermore, because our expense levels are based on our expectations as to future revenue and to a large extent are fixed in the short term, a substantial reduction or delay in sales of our products or the loss of any significant indirect channel partner could harm our business.

WE FACE RISKS RELATED TO INVENTORIES OF OUR PRODUCTS HELD BY OUR DISTRIBUTORS

     Many of our distributors maintain inventories of our products. We work closely with these distributors to monitor channel inventory levels so that appropriate levels of products are available to resellers and end users. However, if distributors reduce their levels of inventory or if they do not maintain sufficient levels to meet customer demand, our sales could be negatively impacted.

     Additionally, although we monitor and track channel inventory with our distributors, overstocking could occur if the demand for our products were to rapidly decline due to economic downturns, increased competition, underperformance of distributors or the introduction of new products by our competitors or ourselves. This could cause sales and cost of sales to fluctuate from quarter to quarter.

WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF PRODUCTS FOR A SIGNIFICANT PORTION OF OUR REVENUES

     Most of our revenues have been derived from sales of our WAN Application Traffic Management systems and related maintenance and training services. We currently expect that our system-related revenues will continue to account for a substantial percentage of our revenues in 2005 and for the foreseeable future thereafter. Our future operating results are significantly dependent

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upon the continued market acceptance of our products and enhanced applications. Our business will be harmed if our products do not continue to achieve market acceptance or if we fail to develop and market improvements to our products or new and enhanced products. A decline in demand for our WAN Application Traffic Management systems as a result of competition, technological change or other factors would harm our business.

INTRODUCTION OF OUR NEW PRODUCTS MAY CAUSE CUSTOMERS TO DEFER PURCHASES OF OUR EXISTING PRODUCTS WHICH COULD HARM OUR OPERATING RESULTS

     When we announce new products or product enhancements that have the potential to replace or shorten the life cycle of our existing products, customers may defer purchasing our existing products. These actions could harm our operating results by unexpectedly decreasing sales, increasing our inventory levels of older products and exposing us to greater risk of product obsolescence .

OUR RELIANCE ON THIRD-PARTY MANUFACTURERS FOR ALL OF OUR MANUFACTURING REQUIREMENTS COULD CAUSE US TO LOSE ORDERS IF THESE THIRD-PARTY MANUFACTURERS FAIL TO SATISFY OUR COST, QUALITY AND DELIVERY REQUIREMENTS

     During 2004 we contracted with SMTC for all of our manufacturing requirements. In January 2005, we signed agreements with Plexus Services, Corp., an additional contract manufacturer, to manufacture our products and provide fulfillment services. Third-party manufacturers may encounter difficulties in the manufacture of our products, resulting in product delivery delays. Any manufacturing disruption could impair our ability to fulfill orders. Our future success will depend, in significant part, on our ability to have these third party manufacturers, or others, manufacture our products cost-effectively and in sufficient volumes. We face a number of risks associated with our dependence on third-party manufacturers including:

-   reduced control over delivery schedules;

-   the potential lack of adequate capacity during periods of excess demand;

-   decreases in manufacturing yields and increases in costs;

-   the potential for a lapse in quality assurance procedures;

-   increases in prices; and

-   the potential misappropriation of our intellectual property.

     We have no long-term contracts or arrangements with these manufacturers that guarantee product availability, the continuation of particular payment terms or the extension of credit limits. We have experienced in the past, and may experience in the future, problems with our contract manufacturers, such as inferior quality, insufficient quantities and late delivery of product. To date, these problems have not materially adversely affected us. We may not be able to obtain additional volume purchase or manufacturing arrangements with these manufacturers on terms that we consider acceptable, if at all. If we enter into a high-volume or long-term supply arrangement and subsequently decide that we cannot use the products or services provided for in the agreement, our business will be harmed. We cannot assure you that we can effectively manage our third-party manufacturers or that they will meet our future requirements for timely delivery of products of sufficient quality or quantity. Any of these difficulties could harm our relationships with customers and cause us to lose orders.

     In the future, we may seek to use additional contract manufacturers. We may experience difficulty in locating and qualifying suitable manufacturing candidates capable of satisfying our product specifications or quantity requirements, or we may be unable to obtain terms that are acceptable to us. The lead-time required to identify and qualify new manufacturers could affect our ability to timely ship our products and cause our operating results to suffer. In addition, failure to meet customer demand in a timely manner could damage our reputation and harm our customer relationships, resulting in reduced market share.

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MOST OF THE COMPONENTS FOR OUR PRODUCTS COME FROM SINGLE OR LIMITED SOURCES, AND WE COULD LOSE SALES IF THESE SOURCES FAIL TO SATISFY OUR SUPPLY REQUIREMENTS

     Almost all of the components used in our products are obtained from single or limited sources. Our products have been designed to incorporate a particular set of components. As a result, our desire to change the components of our products or our inability to obtain suitable components on a timely basis would require engineering changes to our products before we could incorporate substitute components. Any such changes could be costly and result in lost sales.

     We do not have any long-term supply contracts with any of our vendors to ensure sources of supply. If our contract manufacturer fails to obtain components in sufficient quantities when required, our business could be harmed. Our suppliers also sell products to our competitors. Our suppliers may enter into exclusive arrangements with our competitors, stop selling their products or components to us at commercially reasonable prices or refuse to sell their products or components to us at any price. Our inability to obtain sufficient quantities of single-sourced or limited-sourced components, or to develop alternative sources for components or products would harm our ability to maintain and expand our business.

FUTURE CHANGES IN FINANCIAL ACCOUNTING STANDARDS ARE LIKELY TO IMPACT OUR FUTURE FINANCIAL POSITION AND RESULTS OF OPERATIONS

     Proposed initiatives could result in changes in accounting rules, which could materially increase the expenses we report under generally accepted accounting principles, and adversely affect our operating results. Specifically, the adoption of Statement of Financial Accounting Standards (SFAS) 123(R), “Accounting for Stock-Based Compensation,” requires us to recognize the fair value of certain equity instruments as an expense in the reported financial statements as services are performed, rather than footnote only disclosure as currently required. The adoption of this new accounting pronouncement is expected to have a material impact on our financial statements commencing with the three months ending March 31, 2006.

ANY ACQUISITIONS WE MAKE COULD RESULT IN DILUTION TO OUR EXISTING STOCKHOLDERS AND DIFFICULTIES IN SUCCESSFULLY MANAGING OUR BUSINESS

     Packeteer has made, and may in the future make, acquisitions of, mergers with, or significant investments in, businesses that offer complementary products, services and technologies. For example, in December 2004 we announced our acquisition of Mentat. There are risks involved in these activities, including but not limited to:

-   difficulty in integrating the acquired operations and retaining acquired personnel;

-   limitations on our ability to retain acquired distribution channels and customers;

-   diversion of management’s attention and disruption of our ongoing business;

-   difficulties in managing software development activities to define a combined product roadmap, ensuring timely development of new products, timely release of new products to market, and the development of efficient integration and migration tools;

-   the potential product liability associated with selling the acquired company’s products; and

-   the potential write-down of impaired goodwill and intangible and other assets. In particular, we recorded approximately $9.5 million in goodwill related to the acquisition of Mentat that will be subject to impairment testing rather than being amortized over a fixed period. To the extent that the business acquired in that transaction does not remain competitive, some or all of the goodwill related to that acquisition could be charged against future earnings.

     These factors could have a material adverse effect on Packeteer’s business, results of operations or financial position, especially in the case of a large acquisition. Furthermore, we may incur indebtedness or issue equity securities to pay for future acquisitions. The issuance of equity or convertible debt securities could be dilutive to our existing stockholders.

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OUR INABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD SIGNIFICANTLY INTERRUPT OUR BUSINESS OPERATIONS

     Our future success will depend, to a significant extent, on the ability of our management to operate effectively, both individually and as a group. We are dependent on our ability to attract, retain and motivate high caliber key personnel. Competition for qualified personnel and management in the networking industry, including engineers, sales and service and support personnel, is intense, and we may not be successful in attracting and retaining such personnel. There may be only a limited number of persons with the requisite skills to serve in these key positions and it may become increasingly difficult to hire such persons. Competitors and others have in the past and may in the future attempt to recruit our employees. With the exception of our CEO, we do not have employment contracts with any of our personnel. Our business will suffer if we encounter delays in hiring additional personnel as needed.

IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WE MAY EXPERIENCE OPERATING INEFFICIENCIES AND HAVE DIFFICULTY MEETING DEMAND FOR OUR PRODUCTS

     In the past, we have experienced rapid and significant expansion of our operations. If further rapid and significant expansion is required to address potential growth in our customer base and market opportunities, this expansion could place a significant strain on our management, products and support operations, sales and marketing personnel and other resources, which could harm our business.

     In the future, we may experience difficulties meeting the demand for our products and services. The use of our products requires training, which is provided by our channel partners, as well as ourselves. If we are unable to provide training and support for our products in a timely manner, the implementation process will be longer and customer satisfaction may be lower. In addition, our management team may not be able to achieve the rapid execution necessary to fully exploit the market for our products and services. We cannot assure you that our systems, procedures or controls will be adequate to support the anticipated growth in our operations.

     We may not be able to install management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations.

OUR PRODUCTS MAY HAVE ERRORS OR DEFECTS THAT WE FIND AFTER THE PRODUCTS HAVE BEEN SOLD, WHICH COULD INCREASE OUR COSTS AND NEGATIVELY AFFECT OUR REVENUES AND THE MARKET ACCEPTANCE OF OUR PRODUCTS

     Our products are complex and may contain undetected defects, errors or failures in either the hardware or software. In addition, because our products plug into our end users’ existing networks, they can directly affect the functionality of the network. Furthermore, end users rely on our products to maintain acceptable service levels. We have in the past encountered errors in our products, which in a few instances resulted in network failures and in a number of instances resulted in degraded service. To date, these errors have not materially adversely affected us. Additional errors may occur in our products in the future. The occurrence of defects, errors or failures could result in the failure of our customer’s network or mission-critical applications, delays in installation, product returns and other losses to us or to our customers or end users. In addition, we would have limited experience responding to new problems that could arise with any new products that we introduce. These occurrences could also result in the loss of or delay in market acceptance of our products, which could harm our business.

     We may also be subject to liability claims for damages related to product errors. While we carry insurance policies covering this type of liability, these policies may not provide sufficient protection should a claim be asserted. A material product liability claim may harm our business.

FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY WOULD RESULT IN SIGNIFICANT HARM TO OUR BUSINESS

     Our success depends significantly upon our proprietary technology and our failure or inability to protect our proprietary technology would result in significant harm to our business. We rely on a combination of patent, copyright and trademark laws, and on trade secrets, confidentiality provisions and other contractual provisions to protect our proprietary rights. These measures afford only limited protection. As of March 31, 2005, we have 18 issued U.S. patents and 59 pending U.S. patent applications. Currently, none of our technology is patented outside of the United States. Our means of protecting our proprietary rights in the U.S. or abroad may not be adequate and competitors may independently develop similar technologies. Our future success will depend in part on our ability to protect our proprietary rights and the technologies used in our principal products. Despite our efforts to protect our proprietary rights and technologies unauthorized parties may attempt to copy aspects of our products or to obtain and use trade secrets or other

25

information that we regard as proprietary. Legal proceedings to enforce our intellectual property rights could be burdensome and expensive and could involve a high degree of uncertainty. These legal proceedings may also divert management’s attention from growing our business. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the U.S. Issued patents may not preserve our proprietary position. If we do not enforce and protect our intellectual property, our business will suffer substantial harm.

CLAIMS BY OTHERS THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS COULD BE COSTLY TO DEFEND AND COULD HARM OUR BUSINESS

     We may be subject to claims by others that our products infringe on their intellectual property rights. These claims, whether or not valid, could require us to spend significant sums in litigation, pay damages, delay product shipments, reengineer our products or acquire licenses to such third-party intellectual property. We may not be able to secure any required licenses on commercially reasonable terms, or at all. We expect that we will increasingly be subject to infringement claims as the number of products and competitors in the WAN Application Traffic Management solutions market grows and the functionality of products overlaps. Any of these claims or resulting events could harm our business.

IF OUR PRODUCTS DO NOT COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT REGULATIONS, OUR BUSINESS COULD BE HARMED

     The market for WAN Application Traffic Management solutions is characterized by the need to support industry standards as these different standards emerge, evolve and achieve acceptance. In the United States, our products must comply with various regulations and standards defined by the Federal Communications Commission and Underwriters Laboratories. Internationally, products that we develop must comply with standards established by the International Electrotechnical Commission as well as with recommendations of the International Telecommunication Union. To remain competitive we must continue to introduce new products and product enhancements that meet these emerging U.S. and international standards. However, in the future we may not be able to effectively address the compatibility and interoperability issues that arise as a result of technological changes and evolving industry standards. Failure to comply with existing or evolving industry standards or to obtain timely domestic or foreign regulatory approvals or certificates could harm our business.

OUR GROWTH AND OPERATING RESULTS WOULD BE IMPAIRED IF WE ARE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS

     We currently anticipate that our existing cash and investment balances will be sufficient to meet our liquidity needs for the foreseeable future. However, we may need to raise additional funds if our estimates of revenues, working capital or capital expenditure requirements change or prove inaccurate or in order for us to respond to unforeseen technological or marketing hurdles or to take advantage of unanticipated opportunities.

     In addition, we expect to review potential acquisitions that would complement our existing product offerings or enhance our technical capabilities. Any future transaction of this nature could require potentially significant amounts of capital. These funds may not be available at the time or times needed, or available on terms acceptable to us. If adequate funds are not available, or are not available on acceptable terms, we may not be able to take advantage of market opportunities to develop new products or to otherwise respond to competitive pressures.

CERTAIN PROVISIONS OF OUR CHARTER AND OF DELAWARE LAW MAKE A TAKEOVER OF PACKETEER MORE DIFFICULT, WHICH COULD LOWER THE MARKET PRICE OF THE COMMON STOCK

     Our corporate documents and Section 203 of the Delaware General Corporation Law could discourage, delay or prevent a third- party or a significant stockholder from acquiring control of Packeteer. In addition, provisions of our certificate of incorporation may have the effect of discouraging, delaying or preventing a merger, tender offer or proxy contest involving Packeteer. Any of these anti-takeover provisions could lower the market price of the common stock and could deprive our stockholders of the opportunity to receive a premium for their common stock that they might otherwise receive from the sale of Packeteer.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Fixed Income Investments

     Our exposure to market risks for changes in interest rates and principal relates primarily to investments in debt securities issued by U.S. government agencies and corporate debt securities. We place our investments with high credit quality issuers and, by policy, limit the amount of the credit exposure to any one issuer. Our investment securities are classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income (loss).

     We do not use derivative financial instruments. In general our policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. All highly liquid investments with less than three months to maturity from date of purchase are considered to be cash equivalents; investments with maturities between three and twelve months are considered to be short-term investments; and investments with maturities in excess of twelve months from the balance sheet date are considered to be long-term investments. The following table presents the amortized cost, fair value and related weighted-average interest rates by year of maturity for our investment portfolio as of March 31, 2005 and comparable fair values as of December 31, 2004 (in thousands):

									March		December
	Amortized Cost as of March 31, 2005								31, 2005		31, 2004
	2005			2006			Total		Fair Value		Fair Value
Expected Maturity Date
Cash equivalents	$	29,041		$	—		$	29,041	$	29,031	$	12,904
Weighted-average rate		2.76	%		—
Short-term investments		59,416			9,199			68,615		68,381		66,512
Weighted-average rate		2.29	%		3.04	%
Long-term investments		—			736			736		720		10,019
Weighted-average rate		—			2.17	%
Total investment portfolio	$	88,457		$	9,935		$	98,392	$	98,132	$	89,435

Foreign Exchange

     We develop products in North America and sell our products worldwide. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in worldwide markets. All sales are currently made in U.S. dollars; and as a result, a strengthening of the dollar could make our products less competitive in foreign markets. All operating costs outside the United States are incurred in local currencies, and are remeasured from the local currency to U.S. dollars upon consolidation. As exchange rates vary, these operating costs, when remeasured, may differ from our prior performance and our expectations. We have no foreign exchange contracts, option contracts or other foreign currency hedging arrangements.

ITEM 4. CONTROLS AND PROCEDURES

a.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures were sufficiently effective to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-Q.

b.

There has been no change in our internal control over financial reporting during the three months ending March 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The information set forth under Note 5, entitled “Contingencies,” of the Notes to Condensed Consolidated Financial Statements, is incorporated herein by reference.

ITEM 6. EXHIBITS

Exhibit 10.28+	Professional Manufacturing Services Agreement between Plexus Services Corp. and Packeteer, Inc. dated January 17, 2005.
Exhibit 10.29	Amendment dated February 24, 2005 to the 1999 Employee Stock Purchase Plan.
Exhibit 31.1	Sarbanes-Oxley Section 302 Certification – CEO
Exhibit 31.2	Sarbanes-Oxley Section 302 Certification – CFO
Exhibit 32.1	Sarbanes-Oxley Section 906 Certification – CEO
Exhibit 32.2	Sarbanes-Oxley Section 906 Certification – CFO

+ This exhibit has been filed separately with the SEC pursuant to an application for confidential treatment. The confidential portions have been omitted from this exhibit and are marked by asterisks.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cupertino, State of California, on this 29th day of April, 2005.

PACKETEER, INC.
By:	/s/ DAVE CÔTÉ
	Dave Côté
	President and Chief Executive Officer
By:	/s/ DAVID YNTEMA
	David Yntema
	Chief Financial Officer and Secretary

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Exhibit Index

Exhibit 10.28+	Professional Manufacturing Services Agreement between Plexus Services Corp. and Packeteer, Inc. dated January 17, 2005.
Exhibit 10.29	Amendment dated February 24, 2005 to the 1999 Employee Stock Purchase Plan.
Exhibit 31.1	Sarbanes-Oxley Section 302 Certification – CEO
Exhibit 31.2	Sarbanes-Oxley Section 302 Certification – CFO
Exhibit 32.1	Sarbanes-Oxley Section 906 Certification – CEO
Exhibit 32.2	Sarbanes-Oxley Section 906 Certification – CFO

+ This exhibit has been filed separately with the SEC pursuant to an application for confidential treatment. The confidential portions have been omitted from this exhibit and are marked by asterisks.

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EX-10.28

Exhibit 10.28

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
EXHIBIT, WHICH PORTIONS HAVE BEEN OMITTED AND REPLACED WITH [****] AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Professional Manufacturing Service Agreement
(for Use with Manufacturing Services Only)

This Agreement is hereby entered into on this 17th day of January, 2005 (the “Effective Date”) by and between Packeteer, Inc. , of 10201 N. DeAnza Blvd., Cupertino, CA 95014 (hereinafter “Packeteer”), and Plexus Services Corp., of 55 Jewelers Park Drive, Neenah, WI 54956, (hereinafter “Plexus”).

1.   DEFINITIONS

a.   Affiliates

Any corporation or other entity controlled by, controlling, or under common control with any other corporation or entity. “Control” means the direct or indirect beneficial ownership of at least fifty (50%) percent of the voting stock of, or at least a fifty (50%) percent interest in the income of, such corporation or entity, or the power to elect at least fifty (50%) percent of the directors or trustees of such corporation, or such other relationship which in fact constitutes actual control.

b.   Assembly or Assemblies

Shall mean the systems that Plexus will manufacture for Packeteer and which has completed all aspects of manufacture including, but not limited to, test and packaging.

c.   Component Value

Shall mean Plexus’ standard cost for a given Component plus mark-up as defined in Plexus’ then effective quote for an applicable Assembly.

d.   Components

Shall mean any and all material used in the manufacture of Packeteer’s Assemblies.

e.   Customer-Supplied Components

Shall mean Components in Plexus’ possession that are provided by Packeteer at no charge or at the then current Component Value less the Plexus markup to be used solely for the manufacture of Packeteer’s Assemblies. Plexus shall pay such Packeteer invoice net 30 day from date of invoice unless otherwise agreed.

f.   Demand

Shall mean quantities of Assemblies required by Packeteer and communicated to Plexus via Forecast and/or Packeteer’s Purchase Orders.

g.   Engineering Change (“EC”)

Shall mean mechanical, software, electrical, design and/or specification changes which, if made to the Assemblies, would affect the form, fit, function, delivery schedule, performance, reliability, appearance, dimensions, tolerance, safety or purchase price of such Assemblies or which would require any additional test.

h.   Excess Components

Shall mean those Components procured by Plexus in accordance with Section 4 and that (i) are projected to be consumed by Plexus in the manufacture of Assemblies in greater than ^[****^] days based on Packeteer Demand, or (ii) have remained in Plexus inventory for greater than ^[****^] days; provided, however, that, in each case, such value of the specific Excess Component exceeds $^[****^].

i.   Forecast

“CONFIDENTIAL TREATMENT REQUESTED”

Shall mean a non-binding nine (9) month rolling estimate of requirements provided by Packeteer for each Assembly including the quantities to be manufactured and the requested Delivery Date.

j.   Manufacturing Lead-Time

Shall mean the lead-time communicated by Plexus to Packeteer to kit Components and manufacture an Assembly.

k.   Obsolete Components

Shall mean those Components procured by Plexus in accordance with Section 4 and that have been removed from the bill of materials of all Assemblies, or which appear on an Assembly bill of materials that has no Demand.

l.   OX Components

Shall mean Obsolete Components and Excess Components.

m.   OX Report

Shall mean the report issued by Plexus as described and defined in Section 2.b. below. The report shall distinguish between Obsolete Components and Excess Components

n.   Purchase Order

Shall mean an order by Packeteer, communicated via EDI, email, facsimile or other means, to purchase Assemblies, at a stated quantity, unit price, and delivery date.

o   . Quarterly Business Review (“QBR”)

Shall mean a strategic business meeting between Packeteer and Plexus to discuss current business issues and opportunities as further defined in Section 6.

p.   Software

Shall mean any and all source and object code installed in the Assemblies as detailed in the Specifications. Third party software licensed by Packeteer shall be subject to Section 4.4 of this Agreement. Unless otherwise mutually agreed upon in writing by Plexus and Packeteer subject to Section 4.1(c), all Software installed into the Assemblies by Plexus shall be supplied by Packeteer. Packeteer supplied Software shall be provided to Plexus at no charge.

q.   Specifications

Shall mean the manufacturing and test specifications and other documentation for the Assemblies, which Specifications are set forth in Addendum 3 hereto. All such Specifications shall be deemed Packeteer confidential and subject to the confidentiality requirements set forth herein. Changes to the Specification shall be managed via the EC process set forth in Section 9.

r.   Supplier

Shall mean any vendor, including Packeteer, that provides Components or services to Plexus.

2.   PURPOSE, SCOPE, AND APPLICABLE DOCUMENTS

This Agreement sets forth the terms and conditions under which Plexus will manufacture Assemblies for Packeteer and provide related services, other than fulfillments services, which are set forth in the Order Fulfillment Services Agreement and Order Fulfillment Statement of Work dated January 17, 2005, or design services or other services which shall be agreed upon in a separate agreement. In the event that such a separate written agreement is not signed, such services shall be performed in accordance with the Order Fulfillment Services Agreement with the exception of the warranty provision (Section 5 thereof), which shall be agreed upon by the parties in writing prior to the engagement of any such services. All manufacture of Assemblies by Plexus shall be solely for Packeteer and not for Plexus’ own internal use or other customers. Plexus shall deliver to Packeteer’s specified location only that quantity of Assemblies specified in Packeteer’s Purchase Orders, at prices and by the Delivery Dates set forth in such accepted Purchase Orders. Packeteer reserves the right to act in its discretion to meet its requirements for Assemblies, internally, from Plexus or from any other sources.

Unless otherwise agreed, all manufacture shall be conducted in Nampa, Idaho. In the event Plexus chooses to

“CONFIDENTIAL TREATMENT REQUESTED”

relocate any of its manufacturing or other services being performed on the behalf of Packeteer, Plexus agrees to provide Packeteer not less than one hundred and eighty (180) prior written notice before making any such relocation change.

Each party shall appoint a technical coordinator to maintain technical liaison with the other party hereto in connection with the manufacture of the Assemblies. Communication between the parties regarding design or engineering of the Assemblies shall be between the designated coordinators.

The parties agree that (i) each of Plexus’ and Packeteer’s Affiliates shall be entitled to the rights and benefits afforded Plexus and Packeteer, respectively, hereunder, and (ii) Plexus and Packeteer shall cause any such Plexus or Packeteer Affiliate participating in this Agreement to perform the obligations of Plexus and Packeteer, respectively, hereunder as if named a party herein. Each party shall be liable for the failure of any of its Affiliates to so perform hereunder. No Plexus Affiliate shall perform services under this Agreement without the express prior written consent of Packeteer.

This Agreement contains the following Addendums, which are incorporated herein and made part of this Agreement:

Addendum 1 – Pricing as of the Effective Date
Addendum 2 – Quality Plan
Addendum 3 – Specifications
Addendum 4 – Reports
Addendum 5 – Transition Plan

In the event of any conflict between this Agreement and the Addendums attached hereto, the Addendums shall control.

3.   TERM

The term of this Agreement shall be from the Effective Date and continue for a period of twelve (12) months, and shall be automatically extended for successive terms of one (1) year each unless either party terminates this Agreement subject to Section 15 below.

4.   FORECASTS/ORDERING/INVENTORY/DELIVERY/TITLE

4.1   Forecasts and Purchase Orders

a.   Forecasts. Packeteer agrees to provide Plexus an updated Forecast each month for each Assembly manufactured by Plexus.

b.  Purchase Orders. Packeteer agrees to issue Purchase Orders for an Assembly thirty days prior to the Delivery Date. So long as the Purchase Order is reasonably consistent with the quantity and type of Assemblies set forth in Packeteer’s previously issued Forecasts (e.g. within plus or minus ^[****^]% or Section 4.2 below), which Forecasts provide Plexus reasonably sufficient lead-times to procure Components, and subject to Component availability from the supply chain, Plexus will accept the Purchase Order. Plexus shall provide Packeteer an acknowledgement of receipt of a Purchase Order within one (1) business day. Plexus may reject the Purchase Order if unable to procure Components. Any rejection by Plexus of a Purchase Order shall be accompanied with an explanation of the reasons for the rejection within five (5) business days of receipt of the Purchase Order or such Purchase Order shall be deemed accepted. Plexus will make reasonable efforts to accommodate all Purchase Orders. If Plexus rejects a Purchase Order solely due to the Delivery Date specified by Packeteer, Plexus shall along with its explanation of the reason for the rejection provide an alternative acceptable Delivery Date for Packeteer’s written approval. Upon acceptance of each Purchase Order, Plexus will manufacture, conduct final testing and package the Assemblies called for by such Purchase Order all in accordance with Packeteer’s Specifications.

“CONFIDENTIAL TREATMENT REQUESTED”

c. Component Procurement. Unless otherwise agreed by the parties, Plexus will procure only those Components necessary to fulfill Demand and for which the Component lead-times require that Plexus procure such items in advance. Notwithstanding the forgoing, Plexus will provide Packeteer with a list (a “LLT Component List”) of all Components having a lead-time longer than ninety (90) days (“LLT Components”) at each QBR. So long as a LLT Component has been included on a LLT Component List previously provided to Packeteer, Plexus shall be entitled to procure the same. If a Component becomes a LLT Component between QBRs, Plexus will notify Packeteer of the same, and add the Component to the LLT Component List, prior to procuring the same. Further, Plexus shall at each QBR, or more frequently if requested by Packeteer, provide Packeteer a list of the lead-times for all required Components and a list of Components subject to minimum or economical order quantities. The LLT Component List may be included in such list so long as Plexus makes clear the lead-time of these Components. Packeteer acknowledges that Plexus may be required by Suppliers to procure Components in minimum or economic order quantities and that such quantity may exceed Packeteer’s actual Demand. Packeteer will be liable for any such minimum or economic order quantities so procured by Plexus, provided that Packeteer has provided Plexus written approval to order such minimum or economic order quantities. Plexus shall notify Packeteer of such instances where minimum or economical order quantities would reduce the Component Value. Should any third party Software be included in the Assemblies manufactured by Plexus hereunder, Packeteer and Plexus will work together to determine (i) whether Packeteer or Plexus will be the direct licensee of such Software, and (ii) in the event Plexus is to be responsible for licensing such third party Software, the scope of an appropriate license to seek from such third party Software provider, including the right to sublicense such Software to Packeteer and Packeteer’s customers. Plexus will install all Software in accordance with the Specifications.

d. Manufacture of Assemblies. Plexus will manufacture Assemblies to support the Delivery Date set forth in Packeteer’s accepted Purchase Order. Plexus will communicate to Packeteer on hand quantities of manufactured Assemblies (finished goods inventory reporting) weekly, or as frequently as may otherwise be requested by Packeteer. Such finished Assembly Report shall include such information as Packeteer specifies and shall be in a format as reasonably requested by Packeteer.

4.2 Demand Changes and Cancellation

Within ^[****^] days of the Delivery Date (the “Frozen Period”), Purchase Orders may not be changed in relation to: (i) the quantities (increase or decrease), (ii) rescheduling the Delivery Date (accelerated or delayed) or (iii) cancellation. Packeteer shall be entitled to change quantities (increase or decrease) or reschedule delivery (acceleration or delay), or cancel Purchase Orders with a Delivery Date extending beyond the Frozen Period according to the table below (provided that any acceleration or increase is subject to Component availability):

Number of days
prior to Delivery Date	% Change
[****]		+/-[****]	%
>[****]		+/-[****]	%

Packeteer may reschedule Purchase Orders as often as Packeteer chooses, but such rescheduling shall be in accordance with the above limits and will not exceed a maximum of [****] days from the originally scheduled Delivery Date unless mutually agreed to in writing. In addition, in the event a Purchase Order is cancelled inside the ^[****] day Frozen Period, Packeteer will pay Plexus, within thirty (30) days of the date of Plexus’ invoice, for any Assemblies in Plexus finished goods inventory that are subject to Packeteer’s cancellation at the full applicable price of the same. With respect to any work-in-process that is cancelled by Packeteer during the Frozen Period, Packeteer shall, at its choosing, either (i) direct Plexus to complete the assembly of work-in process into Assemblies and pay Plexus the full applicable price of the same, or (ii) direct Plexus to cease manufacturing and pay Plexus for the work-in-process based on percentage completion, as reasonably determined by the parties. Plexus agrees to use its reasonable efforts to return, reuse, or sell any Components covered by the canceled portion of the applicable Purchase Order. Plexus will make good faith efforts to effectively minimize costs associated with such cancellation. Any changes in Demand will be subject to Component liability under Section 7.

“CONFIDENTIAL TREATMENT REQUESTED”

Plexus will make all reasonable efforts to accommodate any increase in Demand by Packeteer. Plexus will notify Packeteer as soon as practicable of any Components impeding Packeteer requested increase in Demand. Should any additional costs be required to expedite delivery of Assemblies or Components to meet Packeteer’s increase in Demand, Plexus will notify Packeteer of the same and, if approved by Packeteer, Packeteer shall pay Plexus for such additional cost subject to Section 5.

Plexus agrees to use its reasonable effort to accommodate changes in versions or Engineering Changes of an Assembly within a reasonable time after receiving a written request for such change.

4.3   Delivery

The delivery date for an Assembly will be the delivery date set forth in Packeteer’s Purchase Order accepted in writing by Plexus (the “Delivery Date”). Assemblies will be shipped by Plexus FCA (Incoterms 2000) Plexus’ plant of manufacture. Completed Assemblies will be deemed delivered and title and risk of loss shall be transferred to Packeteer upon Plexus’ release of Assemblies to the carrier for shipment or stocking of the Assemblies in its finished goods inventory, whichever comes first. Assemblies shall not be deemed complete until they have passed all quality requirements set forth in the Quality Plan. Plexus is responsible for insurance for the Assemblies while the Assemblies are under Plexus’ control and will name Packeteer as loss payee under such insurance. Plexus will not cause to occur any lien or encumbrance on Customer-Supplied Components and shall insure the same at the replacement value thereof while in its possession under the terms of Plexus’ then current insurance policies and Packeteer shall be named a loss payee. Packeteer may specify the carrier by so indicating within a mutually agreeable, reasonable period of time prior to shipment.

Delivery in Installments. Plexus may fill a Purchase Order in installments, but only in mutually agreeable partial quantities and at mutually agreeable intervals.

In the event of a shortfall of production or deliveries where Plexus will not meet Packeteer’s Delivery Dates, Plexus shall allocate to Packeteer a percentage of its capacity not less than Packeteer’s percentage share of Plexus’ total manufacturing capacity using the same manufacturing facilities during the three (3) months prior to the first month in which the shortfall occurred.

4.4   Components and Software Supplied by Packeteer

Packeteer may provide Plexus with Customer-Supplied Components, Software or Components purchased by Plexus from Packeteer that are required to manufacture Packeteer’s Assemblies. Packeteer will be responsible as a Supplier to Plexus for the quality and on-time delivery of such Customer-Supplied Components and Software supplied to Plexus by Packeteer. Title and risk of loss to Customer-Supplied Components and Software shall at all times remain with Packeteer. Plexus will not cause to occur any lien or encumbrance on Customer-Supplied Components or Software and shall insure the same at the replacement value thereof while in its possession under the terms of Plexus’ then current insurance policies reasonably acceptable to Packeteer and Packeteer shall be named a loss payee. Any Customer-Supplied Components and Software incorporated in the Assemblies will be without warranty by Plexus of any kind, however, Plexus agrees to reasonably work with Packeteer to obtain warranty from the manufacturer of such Components or Software.

Packeteer’s inability to provide defect-free Customer-Supplied Components or Software in a timely manner may affect Plexus’ ability to meet Delivery Dates. Any additional expenses that Plexus must incur due to delayed shipment resulting from a quality or delivery issue from Packeteer will be borne by Packeteer. In addition, Plexus reserves the right to define a new Delivery Date based upon the availability and condition of Components or Software supplied by Packeteer.

Packeteer may identify to Plexus certain Components and/or Software that must be used in the manufacturing, test or packaging of the Assemblies. These Components and/or Software may be consigned by Packeteer as Customer-Supplied Components or Packeteer supplied Software or Plexus may be directed by Packeteer to purchase such Components from Packeteer’s approved vendor list (AVL). If Plexus offers an alternative to Packeteer’s AVL, the alternative must be approved in writing by Packeteer prior to use in production of the Assemblies.

“CONFIDENTIAL TREATMENT REQUESTED”

If computer programming or programmed Software is incorporated in the Assemblies, procurement of such programming shall be the responsibility of Plexus or Packeteer as set forth in the applicable Specifications or Bill of Materials. Plexus shall comply with any restrictions or payment obligations imposed by the original source. There shall be no payment or reimbursement obligation on Packeteer’s part for programming obtained or provided by Plexus unless such payments or reimbursements are set forth in a Bill of Materials that indicates that Packeteer has accepted such obligation (any such costs will be included in Plexus’ quotes). Programmable parts should be programmed as close to the manufacturing date as practical to reduce material costs. Packeteer will be liable for a maximum of three (3) weeks inventory (based on future Demand) on programmed parts that are scrapped due to changes in programming.

5.   PRICING/PAYMENT/INSURANCE

5.1   Pricing

The purchase price per Assembly and other costs to be paid by Packeteer for Assemblies are specified in Addendum 1. Plexus labor and machine rates, including Plexus profit and markup rates shall be fixed for the initial [****] of this Agreement. Following the ^[****^] period, any price changes shall be mutually agreed upon by the parties. Subject to the effect of any change to the bill of materials (including the Supplier of a Component), which shall be addressed under the process set forth in Section 9, Prices for Components and Software licensed directly by Plexus shall be [****]. Both parties agree to pay for their respective travel and travel related out-of-pocket costs unless otherwise specifically agreed to in writing. The prices quoted do not include, unless specifically stated otherwise, the cost for testing (except with respect to testing set forth in the Quality Plan or Specifications required to be performed by Plexus)and/or submittals for Assembly approvals or any annual file maintenance fee, such as for UL, VDE, CSA or FCC. Prior to any such services outside of this Agreement being provided by Plexus or Plexus incurring any costs which it will look to Packeteer to reimburse, the parties must first mutually agree to such terms and conditions in writing and Packeteer must issue a Purchase Order to Plexus for such services. Unless otherwise agreed by Plexus in writing, prices quoted are FCA Plexus’ manufacturing facility. Plexus’ price quotations are based upon drawings, specifications, and other written information available to Plexus at the time of quotation. Any additional or different data supplied thereafter may require price adjustments. Pricing will be reviewed at QBRs conducted by the parties on a quarterly basis. In the event new pricing is agreed to at a QBR (or at any other time by mutual, written agreement), such new pricing will be implemented on shipments by Plexus beginning on the day following such agreement. On the day new pricing is implemented, Plexus will also write-down or write-up, as applicable, existing raw materials, and work-in-process held by it to reflect the new agreed to pricing and invoice or credit Packeteer for the same, as applicable.

5.2   Payment

Unless otherwise stated herein, all payments hereunder by Packeteer to Plexus shall be made in US Dollars within thirty (30) calendar days following the date of the invoice without set-off of any kind. Packeteer shall report any believed discrepancies in Plexus’ invoices no later than fifteen (15) days after the date of invoice. Invoices not paid within thirty (30) days of the date thereof will be subject to an interest charge equal to the lesser of 1% per month or the highest rate allowed by law.

5.3   Invoicing

Plexus may invoice for the Assemblies only after the completed Assemblies are deemed delivered as provided under Section 4.3. Invoicing for OX Components shall be subject to Section 7 below. Along with the invoice, Plexus shall furnish, at no additional charge, Packeteer an electric MS Excel report in a format and version acceptable to Packeteer. Such report shall be organized by Assembly serial number and shall include the following information: (1) Packeteer Assembly part number, (2) Plexus invoice number, (3) Plexus invoice date; and (4) Packeteer Purchase Order number. Packeteer may request modifications to this report with reasonable notice and Plexus agrees to use it reasonable best efforts to facilitate Packeteer’s request at no additional charge. In the event Plexus

“CONFIDENTIAL TREATMENT REQUESTED”

can provide an alternative means in which Packeteer may obtain and download the above report electronically to load into Packeteer’s systems, the parties agree to work in good faith to work towards implementing such change.

5.4   Taxes

Packeteer shall be responsible for sales, use, excise or custom taxes or duties resulting from the sale or shipment of the Assemblies in accordance with its Purchase Orders. In the event Plexus is required to pay such tax, Packeteer shall reimburse Plexus for the same subject to Section 5.2. If the transaction between Plexus and Packeteer is exempt from all such taxes, Packeteer shall provide Plexus with a tax exemption certificate or other document acceptable to all taxing authorities at the time the order or contract is submitted. Packeteer assumes responsibility for obtaining resale certificates from its customer.

5.5   Insurance

a. Plexus represents that it has procured and at all times during the term of this Agreement shall maintain the following minimum levels of insurance, covering activities and obligations undertaken by Plexus pursuant to this Agreement:

i)   Workers’ Compensation and Employer’s Liability Insurance

Limits of Liability
Workers’ Compensation — statutory limits
Employer’s Liability- $1,000,000

ii)   General Liability, Comprehensive Form, including but not limited to:

Premises – Operations
Completed Operations
Contractual
Broad Form Property Damage
Personal Injury
Limits of Liability
Bodily Injury: $1,000,000 per occurrence; $2,000,000 aggregate.
Property Damage: $1,000,000 per occurrence; $2,000,000 aggregate.
OR
Combined Single Limit. Bodily Injury and Property Damage
$1,000,000 per occurrence; $2,000,000 aggregate.

               iii) Property Insurance to cover the replacement value of the finished Assemblies work in process and all Components, including Customer-Supplied Components and all Packeteer tooling and other Packeteer equipment or supplies while under the control of Plexus up to and prior to shipment of the Assembly to Packeteer or Packeteer’s customer. Packeteer shall be named loss payee on such policies for all such property owned by them.

b. Plexus shall procure additional amounts or categories of insurance coverage, if required by law. Prior to commencing work, Plexus shall provide executed certificates of insurance to Packeteer evidencing the coverage described above and copies of such policies upon request. Plexus shall promptly notify Packeteer of any modification, cancellation, lapse, or termination in such insurance which may affect Packeteer.

6. QUARTERLY BUSINESS REVIEWS (“QBR”) AND OTHER BUSINESS REVIEWS

Plexus and Packeteer agree to meet quarterly, or as otherwise specified below or agreed upon by both parties, to discuss the state of business and to review business performance issues and improvement initiatives. The items to be reviewed include, but are not limited to, the following:

Packeteer and Plexus Business Trends

Packeteer and Plexus agree to review their business initiatives and any significant changes that may affect the relationship between Packeteer and Plexus. In addition, Packeteer will present business trends and performance to

“CONFIDENTIAL TREATMENT REQUESTED”

Forecast so that Plexus can better serve the current Packeteer requirements. Nothing herein will obligate either party to disclose any information regarding such party’s business and any such disclosures so made shall be made in the disclosing party’s sole discretion.

Cost Savings Initiatives (Components and Labor)

Plexus and Packeteer agree to review initiatives to reduce cost from the bill of materials and manufacturing process for the Assemblies.

Physical Inventory Review

Plexus and Packeteer agree to review inventory and other reporting requirements set forth herein and Plexus’ Assembly handling and inventory procedures.

Volatile Component Pricing Meeting

Plexus and Packeteer agree to review the Volatile Component List on a monthly basis. The Volatile Component List shall include those Components as agreed and adjusted from time to time by the parties.

OX Components Review

Plexus and Packeteer agree to review the OX Report on a monthly basis in order to adjust the manner in which Plexus place orders for Components if Packeteer views the value of such Components as being excess.

Delivery Performance

Plexus and Packeteer agree to measure, review and discuss delivery performance for all Assemblies. Both parties agree to measure actual delivery dates as compared to Packeteer requested delivery dates and to Plexus’ expected delivery dates.

Quality Performance

Plexus and Packeteer agree to discuss the agreed upon quarterly quality metrics for the program.

Payment Performance

Plexus and Packeteer agree to review any issues that are preventing payment within the agreed upon payment terms.

Assembly Pricing

Plexus and Packeteer agree to review Assembly pricing. Any Assembly price adjustments required shall be based upon total Assembly order quantities, prevailing Component market prices, supply chain programs, Engineering Change requests or other relevant data.

7.   INVENTORY MITIGATION/REPORTING/LIABILITY

7.1   Inventory Reporting, Inventory Liability and Coverage

a. Component Mitigation. Plexus may have OX Components on hand or on order as a consequence of 1) Packeteer Demand adjustments, cancellations or rescheduling of Purchase Orders by Packeteer, 2) Plexus’ support of increases to Demand by Packeteer, 3) the failure of Purchase Orders to consume previously Forecasted requirements, 4) the failure to have adequate or conforming supplies of Customer-Supplied Components, 5) end of life requirements, 6) economic or minimum order quantities, or 7) engineering or material change orders. Plexus will use best reasonable efforts to minimize Component liability to Packeteer caused by Packeteer Demand changes, cancellations, and other factors. These efforts will include returning Components to, or restocking Components with Suppliers, canceling orders with Suppliers, or using Components to meet the current demand of other Plexus customers but only if first approved by Packeteer. Packeteer agrees to assist Plexus in such efforts if appropriate and requested by Plexus.

Packeteer acknowledges that Plexus’ mitigation efforts, even if successful, may result in cancellation, restocking, and similar charges imposed by Suppliers. Plexus will obtain Packeteer’s approval prior to incurring such charges.

“CONFIDENTIAL TREATMENT REQUESTED”

If so approved by Packeteer, Packeteer will pay Plexus for the charges imposed within thirty (30) days from the date of Plexus’ invoice.

b. Component Inventory Reporting. Monthly on Plexus’ own initiative or sooner upon Packeteer request, Plexus will provide a written report to Packeteer detailing the level of OX Components at Plexus (the “OX Report”). Packeteer will respond to Plexus in writing within thirty (30) days of receipt of the OX Report with any good faith disagreement to it, detailing with reasonable particularity the nature of any such disagreement. Packeteer’s failure to respond within such period will represent its acceptance of the OX Report. Should Packeteer disagree with the OX Report, Packeteer and Plexus will work in good faith to promptly resolve the disagreement, escalating such disagreement to executive management at the request of either party and Plexus agrees to provide such additional information as Packeteer may reasonably request in order to verify the accuracy of the OX Report and the basis for such Excess Components or Obsolete Components being procured. Any undisputed portion of the OX Report will proceed to resolution as provided in Section 7.1.c. below. The parties agree that Packeteer shall not be obligated to pay for Excess Components or Obsolete Components that were not procured in accordance with Packeteer Demand, at times reasonably consistent with the lead-time of such Components at the time of order, and as otherwise required by the terms of this Agreement or permitted by Packeteer.

c. OX Component Liability Resolution. Subject to having performed the mitigation and reporting on OX Components as provided above, Packeteer shall within thirty (30) days from the date of an appropriate Plexus invoice to reflect the undisputed portion of the OX Report:

1.	remit payment to Plexus for Obsolete Components at the Component Value; and
2.	with respect to Excess Components, at Packeteer’s option (i) remit payment to Plexus for the Excess Material at the Component Value thereof, (ii) remit a deposit to Plexus for the Excess Material at the Component Value thereof, or (iii) provide Plexus with a Purchase Order for Assemblies that will consume the Excess Material within thirty (30) days.

The remittance of a deposit by Packeteer as provided above will represent a security to Plexus for Packeteer’s Component liability. Plexus and Packeteer will review any amounts on deposit with Plexus from time to time at either party’s discretion and make adjustments to the same to reflect the-then current Component Value of Excess Components. Plexus may hold any such deposits made by Packeteer under this Agreement in any manner at its discretion. Title and risk of loss for Components against which a deposit has been made shall remain with Plexus. Plexus will also retain responsibility to insure and warehouse such Components according to Plexus’ then-current practices.

7.2   Physical Inventory Reviews

Plexus shall permit Packeteer to conduct physical inventory reviews on a regular basis as deemed necessary by Packeteer in its sole discretion. During such reviews, Plexus agrees to provided at no additional cost a person reasonably familiar with this Agreement and Plexus’ manufacturing and inventory procedures to assist Packeteer in conducting such reviews. In such event that Packeteer chooses to migrate from conducting physical inventory reviews to a cycle count method of tracking inventory, then Plexus shall at no additional cost agree to provided such services to Packeteer in a method and manner reasonably agreed upon by the parties.

8.   QUALITY STANDARDS

a. General. Plexus agrees to maintain a quality assurance program compliant with the requirements of ISO 9001: 2000 and shall be ISO 9001 certified and provide a copy of certification and/or plan upon request. Plexus additionally agrees to obtain other Packeteer specified or legally required Assembly certifications if requested by Packeteer. The cost of procuring such additional services shall be mutually agreed upon in writing at prior to such services being performed. Upon Packeteer’s request, Plexus shall provided Packeteer with a statement of origin and with applicable customs documentation for any Components wholly or partially manufactured outside of the United States.

b. Workmanship Requirements. Assemblies manufactured by Plexus will be assembled, inspected, and tested in

“CONFIDENTIAL TREATMENT REQUESTED”

accordance with the Specifications and in accordance with the attached Quality Plan. Unless otherwise agreed upon in writing, Plexus shall maintain a Product assurance “workmanship” requirement which mandates internal compliance to ^[****^]. Target process in writing and product first pass yields (or PPM’s) in manufacturing shall be jointly agreed to between Plexus Quality Engineering and the Packeteer. These Packeteer goals will form the basis for Continuous Quality Improvement (“CI”) Activities at Plexus.

c.   Continuous Improvement.

Plexus and Packeteer agree to hold a CI meeting or conference call as often as necessary to be established with the Packeteer’s Quality Team and Plexus CI Team. This CI event will result in documented action items at Plexus that drive improvement efforts that can be reported to management at both organizations.

d. Chronic Tests Failures (“Production”). Packeteer Assemblies will be manufactured and tested to the Specifications associated with the current Assembly revision and the Quality Plan. Assemblies that fail the approved tests [****] for the same issue or that cannot be repaired by Plexus due to a design related issue will be deemed non-repairable Assemblies. The non-repairable Assemblies will be clearly marked as “failed Assemblies.” Both companies agree to review the status of all “failed Assemblies” within ten (10) business days of identification and Plexus agrees to dispose of them as directed by Packeteer either by scrapping the Assemblies or shipping the Assemblies to Packeteer. If such failure was at no fault of Plexus, Plexus will issue Packeteer an invoice at the quoted Assembly price with payment terms as described in Section 5 of this Agreement. Plexus’ test data will be maintained and will be available for inspection by Packeteer during normal business hours upon reasonable notice. Plexus agrees to comply with applicable quality procedures and testing as set forth in the Specifications and the Quality Plan, including the quality guidelines attached thereto, and Plexus shall provide quality-control records and reports to Packeteer promptly upon request.

e. Packaging. Packaging will be in accordance with Packeteer’s standards set forth in the Specifications, unless otherwise mutually agreed in writing. Packeteer shall specify in the Specifications, the trademarks and trade dress features to appear on the Assemblies and the publications to be included in the packaging.

f. Manufacturing and Design Documentation. Plexus shall segregate all materials and media provided to Plexus by Packeteer or third party contractors, Suppliers or licensors acting at Packeteer’s request or created by Plexus or third party contractors, Suppliers, or licensors acting at Plexus’ request, in each case for use in the services to be performed by Plexus for Packeteer hereunder, and provide Packeteer with a set of copies thereof as requested by Packeteer from time to time. Except for copies needed to be retained for Plexus to complete its obligations under this Agreement and one copy which may be retained in a segregated manner solely for nonproductive archival purposes for reference concerning Plexus’ obligation hereunder subject to the confidentiality provisions set forth herein, Plexus shall turn over such materials to Packeteer upon termination of this Agreement.

9.   ENGINEERING CHANGES

a. Notice of change. Packeteer agrees to submit all Engineering Changes (EC) to Plexus in writing. An EC may be a permanent change or a temporary change or temporary deviation from Packeteer’s Specifications as directed by Packeteer. Plexus will attempt to evaluate the feasibility of the EC requested by Packeteer within two (2) business days of receipt and respond to Packeteer in writing with the potential impact of the EC on current on-hand or on-order inventory, work-in-progress and the delivery schedule. In the event that Packeteer requests an EC, Plexus agreed to use its best efforts to implement the EC in an appropriate manner.

b. Notice of EC impact.

In addition to the written response provided above, Plexus will attempt to respond to Packeteer within seven (7) business days of Packeteer’s submission of an EC with a written evaluation of the EC including: a) the cost to modify tooling or related non-recurring expenses, b) the obsolete quantity of Components Plexus has on hand and/or on order with its Suppliers related to the EC which cannot be cancelled by Plexus without penalty, c) the cost to rework work-in-process and any ongoing unit price adjustment resulting from the EC, d) the expected effect on the delivery schedule to include the effect on all in-process work (e.g., re-workable, repairable, etc.), and e) the manner in which the EC will be implemented. Should an EC affect Plexus’ ability to meet a previously agreed upon

“CONFIDENTIAL TREATMENT REQUESTED”

Delivery Date, Plexus shall immediately notify Packeteer of such event and shall provide Packeteer with the alternative Delivery Date. However, Plexus will work with Packeteer in good faith to avoid any such inability to perform and deliver the Assemblies required by Packeteer.

10.   TOOLING AND TEST EQUIPMENT

All Packeteer custom tooling produced or obtained by Plexus for the Assemblies delivered hereunder will be paid for by Packeteer at prices agreed upon by the parties. Such tooling shall become and remain the property of Packeteer. If Plexus is required to obtain such custom tooling for Packeteer, Plexus agrees to invoice Packeteer for such tooling within one (1) business day of such tooling/equipment being placed into service. Packeteer may also consign tooling and/or test equipment to Plexus for the manufacture of the Assemblies.

All Packeteer custom tooling and test equipment owned by Packeteer shall be used by Plexus only for the benefit of Packeteer, and shall be delivered to Packeteer upon request. Plexus will not cause to occur any lien or encumbrance on any such tooling or test equipment owned by Packeteer and in Plexus possession. Plexus will insure any Packeteer owned tooling or test equipment in Plexus’ possession at the replacement value thereof under the terms of Plexus’ then current insurance policies.

Plexus shall maintain, repair, calibrate, or upgrade test equipment. Packeteer will pay for any such services on a time and materials basis subject to Plexus submitting a quotation and obtaining Packeteer’s acceptance of such quotation prior to any such services being performed with the exception of routine maintenance, which routine maintenance shall be performed by Plexus at no additional cost. Such maintenance shall be quoted by Plexus, and, if accepted by Packeteer, Packeteer shall issue a Purchase Order for such services. Replacement parts for test equipment will be charged at Plexus’ cost plus markup as specified in Addendum 1. Travel expense incurred by Plexus shall not be passed on to Packeteer unless specifically agreed upon in writing by Packeteer.If Packeteer requests the return of any tooling and/or test equipment from Plexus and the return of such tooling prevents Plexus from providing Assemblies or warranty service to Packeteer, then Plexus shall be relieved of such obligations.

11.   DOCUMENTATION

Packeteer, individually or through its subcontractors, shall have primary responsibility for the preparation of Specifications for the Assemblies and all updates to such Specifications. Packeteer will notify Plexus of any changes to the Specifications in accordance with Section 9.

12.   LIMITED WARRANTY

Warranty. Plexus warrants that the Assemblies will conform to the Specifications and be free from defects in workmanship performed by Plexus for a period of ^[****^] from the date the Assemblies are put into Plexus’ finished goods inventory, and that Packeteer shall receive good and marketable title to the Assemblies upon delivery, free of any liens or claims (other than intellectual property rights, which are addressed in Section 14). With respect to Components, Plexus will transfer to Packeteer any transferable Component warranties received from the manufacturer thereof. [****] Plexus shall provide Packeteer with a report identifying each Component’s warranty and indemnity terms and conditions at the QBR or sooner at Packeteer’s request. Such warranty shall begin no sooner than the date such Components are shipped to Plexus by the manufacturer. If Components may be returned under manufacturer’s warranty, Plexus will, on Packeteer’s behalf and without additional charge, manage the return of any such Components to the manufacturer thereof for repair or replacement. Packeteer, at any time, shall have the right to inspect the Assemblies, Component and/or work-in-process on Plexus’ premises. If inspection or test is made on Plexus’ premises, Plexus agrees to provide Packeteer inspectors with reasonable facilities and assistance at no additional charge. No such inspection or approval by Packeteer shall constitute a waiver of any further warranty claim.

In Warranty Assemblies. Plexus will, at it’s option and free of charge to Packeteer, repair or replace Assemblies not conforming to the warranties in this Section 12 provided they are returned to Plexus bearing a return materials authorization (RMA) number issued by Plexus, securely packaged, with freight prepaid, and within the warranty period. Plexus’ warranty for replacement or repaired Assemblies shall be the same as the warranty stated herein provided that the duration of such warranty shall be limited to the greater of (i) the duration of the balance of the

“CONFIDENTIAL TREATMENT REQUESTED”

^[****^] warranty which remained on the original defective Assemblies; or (ii) ^[****]. The duration of such warranty shall begin from the date of shipment of the Assembly to the Packeteer customer or shipment of the Assembly to Packeteer. Plexus will make all reasonable efforts to respond to Packeteer promptly after receiving a RMA number request but in no event later than five (5) calendar days. Plexus will return any Assemblies repaired or replaced pursuant to this paragraph to Packeteer with freight prepaid. If Plexus is unable to repair or replace such Assemblies, Plexus will credit Packeteer’s account for any Assemblies found not to conform to such warranties during the warranty period. Warranty repairs shall be made within ten (10) business days after receipt of the non-conforming Assembly. Warranty repairs performed by Packeteer or any third party will be only on terms to be mutually agreed by the parties.

The above warranty does not apply to:

§	Design Deficiencies, except that this exclusion will in no way affect any design warranty made by Plexus under any separate agreement executed by the parties for the provision by Plexus of design services.
§	Malfunctions, defects, or failures that result from misuse; abuse; accident; neglect; improper installation, operation or maintenance; theft; vandalism; acts of God; power failures or surges; casualty; or alteration, modification, or repairs by any party other than Plexus, its employees or agents.
§	Customer-Supplied Components
§	Assemblies shipped by Plexus and not tested according to agreed-upon test procedures at the direction of Packeteer provided that such test(s) would have reasonably been determined to have caught such defect.

Plexus warrants that the manufacturing processes employed by it hereunder (other than those specifically required by Packeteer’s Specifications) shall not infringe any third-party intellectual property rights.

THE FOREGOING CONSTITUTES PACKETEER’S SOLE REMEDIES AGAINST PLEXUS FOR BREACH OF WARRANTY CLAIMS. EXCEPT AS PROVIDED IN THIS SECTION, PLEXUS MAKES NO WARRANTIES WITH RESPECT TO THE ASSEMBLIES OR ITS SERVICES HEREUNDER, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES RESPECTING NONINFRINGEMENT, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM A COURSE OF PERFORMANCE, A COURSE OF DEALING, OR TRADE USAGE. PLEXUS MAKES NO WARRANTY WITH RESPECT TO MANUFACTURING SOFTWARE. ALL SOFTWARE IS PROVIDED “AS IS,” PROVIDED HOWEVER PLEXUS SHALL NOT INCLUDE ANY SUCH MANUFACTURING SOFTWARE IN THE ASSEMBLIES. FOR THE PURPOSE OF THIS SECTION, MANUFACTURING SOFTWARE SHALL MEAN SOLELY THAT SOFTWARE USED BY PLEXUS IN ITS MANUFACTURING PROCESS.

Out-of-Warranty Assemblies. Out-of-Warranty Assemblies returned for repair shall be evaluated and the cost to repair the Assembly determined by Plexus. Plexus will notify Packeteer of the estimated repair cost and will await written authorization from Packeteer before commencing repairs. Packeteer shall pay shipping charges for out-of-Warranty Assemblies. Out of warranty repairs shall be warranted for ^[****^]with respect to the repair work performed. Warranty repairs shall be made within ten (10) business days after receipt of the non-conforming Assembly. Any repair services requested of Plexus by Packeteer not explicitly covered by the above warranty, including, but not limited to, upgrade services, will be out-of-warranty services and performed by Plexus at its option and on a time and materials basis or as otherwise mutually agreed upon in writing by the parties. In addition, Assemblies for which Plexus cannot duplicate the failure reported by Packeteer and such conformity is verified by Packeteer, shall be returned to Packeteer and Plexus will invoice Packeteer, and Packeteer shall pay, Plexus shipping charges.

13.   PROPRIETARY RIGHTS

All intellectual property produced or developed (i) by Packeteer during the term of this Agreement in connection with the Assemblies, (ii) by Plexus relating to the design of the Assemblies, or (iii) by Plexus relating to any test

“CONFIDENTIAL TREATMENT REQUESTED”

services, tooling, or fixtures used to manufacture, test, or configure-to-order the Assemblies and that are custom in nature to the Assemblies shall be owned exclusively by Packeteer. All intellectual property produced or developed by Plexus during the term of this Agreement in connection with the manufacturing process, including relating to any test services, tooling, or fixtures (so long as such test, tooling, stencil, or equipment intellectual property is not custom in nature to the Assemblies) shall be owned exclusively by Plexus (“Plexus IP”). Except with respect to the Plexus IP, Plexus hereby assigns, transfers and conveys to Packeteer all copyright rights in the Assemblies and other services, including but not limited to works qualifying as “works made for hire” as defined in the U.S. Copyright Laws (U.S.C. Title 17 – Copyrights). Except for any licenses and immunities that are expressly granted by this Agreement, nothing in this Agreement or any course of dealing between the parties will be deemed to create a license from either party to the other of any intellectual property right, whether by estoppel, implication, or otherwise. Each party expressly reserves all rights under trade secrets, patents, trademarks, copyrights or maskworks owned by such party.

To the extent that Plexus incorporates into Assemblies or other services provided to Packeteer any of Plexus’ pre-existing works and with respect to Plexus IP, Plexus agrees to grant, and hereby grants to Packeteer a non-exclusive, fully paid up, world-wide, non-transferable, and perpetual license under such Plexus intellectual property rights to copy, distribute, display, perform and make derivative works of such intellectual property to the extent reasonably necessary for Packeteer to make, use, or sell the Assemblies. Any such derivative works developed by Packeteer shall be promptly disclosed to Plexus and will be owned by Plexus.

If Plexus incorporates any works of any third party into the Assemblies as a result of the subcontracting of any work to be performed hereunder, Plexus agrees to acquire for Packeteer, at no additional cost to Packeteer, a fully paid up, non-exclusive, world-wide, and perpetual license to copy, distribute, display, perform and make derivative works of such third party works to the extent reasonably necessary for Packeteer to make, use, or sell the Assemblies.

Plexus shall provide any reasonable assistance necessary for Packeteer to perfect its rights in the Assemblies. Plexus’ obligation under this section shall survive and continue beyond the expiration or termination of this Agreement.

14.   INDEMNIFICATION

Packeteer agrees to defend at its expense, hold harmless and indemnify Plexus, its officers, shareholders, directors, employees, and agents, from and against any judgments, liabilities, claims, demands, expenses, or costs (including reasonable attorneys’ fees) to the extent arising from any claim, action, or allegation relating to the Specifications of the Assemblies or the infringement by the Assemblies of any third party intellectual property right, except with respect to infringement caused by Plexus’ deviation from Packeteer’s Specifications without Packeteer’s written consent or for which Plexus has an indemnification obligation to Packeteer under the paragraph below. Plexus shall notify Packeteer promptly upon becoming aware of any claim or action pursuant to which indemnity will be sought and shall provide reasonable assistance to Packeteer, at Packeteer’s expense, in the defense of any such action. Packeteer shall have sole control over the defense or settlement of any such proceeding or claim. Plexus, at its own expense, shall protect, defend, hold harmless, and indemnify Packeteer, and shall pay any damages, agreed upon settlement amounts, or necessary costs (including reasonable attorney fees and fines) finally awarded with respect to all proceedings or claims against it for the infringement of any intellectual property rights to the extent resulting from (i) Plexus’ manufacturing process or its manufacture of tooling or fixtures and test development services or (ii) Plexus’ deviation from Packeteer’s Specifications without Packeteer’s prior written consent. Plexus shall not have any indemnification obligation to the extent resulting from (1) compliance with Packeteer’s Specifications; or (2) infringement or alleged infringement caused by Customer-Supplied Components. Plexus shall have sole control over the defense or settlement of any such proceeding or claim.

Furthermore, each party shall indemnify and defend the other party against all claims, suits, losses, expenses, and liabilities for bodily injury, personal injury, death, and tangible property damage directly or indirectly caused through the willful misconduct or gross negligence of such party or of any person for whose actions said party is legally liable.

15.   TERMINATION

“CONFIDENTIAL TREATMENT REQUESTED”

Either party may terminate this Agreement at any time and for any reason upon one hundred fifty (150) days prior written notice to the other party. In addition, either party may terminate this Agreement in the event that the other party (i) fails to cure a material default under this Agreement within forty-five (45) days after receiving written notice thereof or (ii) becomes insolvent, files, or has filed against it a petition in bankruptcy, makes an assignment for the benefit of creditors, or generally becomes unable to pay its debts as they become due.

After the issuance by either party of a notice of termination under this Section 15 hereof, and prior to the termination of this Agreement, Plexus will accept Purchase Orders, subject only to Component availability from the supply chain and the flexibility parameters of Section 4.2 hereof, to accommodate Packeteer’s “last time buy” requirements. Should the fulfillment by Plexus of these requirements extend beyond the actual termination date of this Agreement, the terms of this Agreement will nevertheless survive such termination and apply to such Purchase Orders and their fulfillment. However, Plexus may require that Packeteer establish an escrow account for the payment of the Assemblies should the notice of termination be due to Packeteer breach but shall not be obligated to accept Purchase Orders if Packeteer is in breach of Section 14 hereof or if the fulfillment of the same will extend beyond sixty (60) days after the termination of this Agreement based upon the Manufacturing Lead-Time established prior to the date notice of termination is given, which is expected not to exceed four (4) weeks from the receipt of Packeteer’s Purchase Order.

Upon termination of this Agreement, all outstanding Packeteer Purchase Orders shall be fulfilled subject to the terms and conditions of this Agreement unless otherwise cancelled by Packeteer. Furthermore, subject to the following paragraph, Packeteer agrees to pay Plexus the Component Value of any Components on hand or on order as of the date of Termination provided the quantity of such Components was procured in accordance with this Agreement.

Plexus will use best reasonable efforts to minimize Component liability to Packeteer caused by termination. These efforts will include returning Components to, or restocking Components with Suppliers, canceling orders with Suppliers, or using Components to meet the current demand of other Plexus customers but only if first approved by Packeteer. Packeteer agrees to assist Plexus in such efforts if appropriate and requested by Plexus.

Upon termination or expiration of this Agreement, Plexus shall immediately deliver or destroy, at Packeteer’s direction, all Packeteer Confidential Information, Assemblies, Components and Components on order for which Packeteer has paid for, and other materials, equipment, tools and other items in Plexus’ possession or which were provided to Plexus by Packeteer or purchased by Packeteer. With respect to equipment, tools, Components and other materials that Plexus has purchased at Packeteer’s direction and on Packeteer’s behalf, Packeteer shall be required to have reimbursed Plexus for such materials prior to Plexus delivering them to Packeteer.

16.   CONFIDENTIALITY

The parties shall abide by the terms and conditions of that certain Non-Disclosure Agreement entered into by them and dated January 17, 2005. All information provided by Packeteer with respect to the manufacture, testing or packaging of the Assemblies shall be treated as Confidential Information of Packeteer whether or not marked as “Confidential” but so long as such information qualifies as Confidential Information under said Non-Disclosure Agreement.

17.   SURVIVAL

Sections 1, 2, 5, 12, 13, 14, 15, 16, 17, 18, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37 of this Agreement shall survive the termination of this Agreement in accordance with their terms. In addition, the terms of this Agreement shall survive termination in the event of performance by the parties after termination as provided under Section 15.

18.   LIMITATION OF LIABILITY

EXCEPT WITH RESPECT TO SECTIONS 14, AND 16 OF THIS AGREEMENT, IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, PRODUCT LIABILITY, OR OTHERWISE, SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY LOSS OF PROFITS, LOSS OF USE, OR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR EXEMPLARY DAMAGES OF ANY KIND (“CONSEQUESTIAL DAMAGES”),

“CONFIDENTIAL TREATMENT REQUESTED”

WHETHER OR NOT SUCH PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING THE FAILURE, OR ESSENTIAL PURPOSE, OF ANY REMEDY.

19.   FORCE MAJEURE

Except with respect to obligations for the payment of money, neither party shall be liable for any delay in or failure of performance under this Agreement due to any contingency beyond said parties’ reasonable control, including, but not limited to, an act of God, war, acts of terrorism, insurrection, fire, riot, sabotage, an act of public enemy, flood, storm, accident, Component shortages, or changes in laws or regulations. In the event either party becomes aware of any such event that may lead to a force majeure claim, such party shall immediately advise the other party and shall agree to take all precautions to avoid such event impacting the manufacture of the Assemblies.

20.   ASSIGNMENT

Neither Plexus nor Customer shall assign this Agreement, or any of its rights or delegate any of its responsibilities under this Agreement, and any purported attempt to do so will be null and void, unless agreed to by both parties in writing; provided, however, that Plexus and Customer may, without consent, assign this Agreement to any successor organization resulting from a merger, spin-off, or other reorganization, or any sale of all or substantially all of such party’s assets provided Plexus agrees that it shall not be permitted in any event to assign this Agreement to a competitor of Packeteer and provided Plexus provide advance written notice of such action as soon as practicable. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns.

21.   ALTERNATE DISPUTE RESOLUTION (“ADR”)

Each party shall escalate any disputes arising hereunder to executive management, who will make good faith efforts to resolve the dispute in a timely manner. If attempts to resolve a dispute by each parties’ executive management fail, then the dispute will be mediated by a mutually acceptable mediator to be chosen by Packeteer and Plexus within forty-five (45) days after written notice by either party demanding mediation. Such mediation shall be conducted in Santa Clara County, California. Neither party may unreasonably withhold consent to the selection of a mediator, and Packeteer and Plexus will share the costs of the mediator equally. Each party shall pay its own attorneys’ fees. By mutual agreement, however, Packeteer and Plexus may postpone mediation until each has completed some specified but limited discovery regarding the dispute. The parties may also agree to replace mediation with some other form of alternate dispute resolution, such as neutral fact finding or a mini-trial.

Any dispute which cannot be resolved between the parties through negotiation, mediation, or other form of ADR within three (3) months of the date of the initial demand for ADR by one of the parties may then be submitted to a court of competent jurisdiction. The use of any ADR procedures will not be construed under the doctrines of laches, waiver, or estoppel to affect adversely the rights of either party. Nothing in this Section will prevent either party from resorting to judicial proceedings if (i) good faith efforts to resolve the dispute under these procedures have been unsuccessful, or (ii) interim relief from a court is necessary to prevent serious and irreparable injury to that party or to others.

22.   APPLICABLE LAW

The parties hereby agree that this Agreement shall be governed by and will be construed in accordance with the laws of the State of New York, irrespective of the conflicts of law provisions thereof. Neither the sale of Assemblies nor any services performed in accordance with this Agreement shall be governed by, or subject to, the United Nations Convention on Contracts for the International Sale of Goods.

23.   TRADEMARKS AND TRADE NAMES

Except with respect to either parties legal or securities reporting obligations, neither this Agreement nor the sale of Assemblies hereunder shall be deemed to give either party any right to use any of the other party’s trademarks or trade names without such other party’s specific, written consent. Packeteer specifically shall have the right to identify Plexus as its contract manufacturer.

24.   COMPLIANCE WITH GOVERNMENT REQUIREMENTS

“CONFIDENTIAL TREATMENT REQUESTED”

In the performance of this Agreement, Plexus shall at all times comply with all applicable governmental laws, statutes, ordinances, rules, regulations, orders and other requirements, including, without limitation, such governmental requirements applicable to environmental protection, wages, hours, equal employment opportunity, nondiscrimination, health, safety and working conditions. Plexus shall comply with the provisions outlined in the Equal Opportunity Clauses of Executive Order 11246, (60-1.4), section 503 of the Rehabilitation Act of 1973, (60-741.5), and, section 402 of the Vietnam Era Veterans Readjustment Act of 1974, (60-250.5), as well as any other regulations pertaining to these orders. In particular, without limitation of the foregoing, Plexus acknowledges and agrees that the Assemblies are subject to restrictions and controls imposed by the Export Administration Act and the Export Administration Regulations and other laws and regulations of the United States and any other applicable government or jurisdiction as enacted by the United States or such other government or jurisdiction from time to time (“the Acts”). Plexus hereby agrees to comply with such restrictions and controls as imposed by the Acts. Plexus agrees that neither the Assemblies will be exported, directly or indirectly, in violation of these laws, or used for any purpose prohibited by these laws, including without limitation, nuclear, chemical, or biological weapons proliferation. Notwithstanding the foregoing, Packeteer shall assume responsibility to secure any export licenses or other approvals required to ship the Assemblies to Packeteer’s customers. Plexus will not be responsible for Packeteer’s failure to comply with the Acts in such effort or any compliance by Plexus with Packeteer instructions with regard to the shipment of Product. In the event that Packeteer’s assistance is necessary to achieve such compliance, Plexus shall promptly notify Packeteer. Upon Packeteer’s request, Plexus shall provide Packeteer with documentation demonstrating Plexus’ compliance with such governmental requirements. After reasonable notice and under reasonable conditions, Packeteer shall have the right to inspect and copy any records of Plexus regarding such compliance.

25.   INSURANCE, TAXES AND BENEFITS

Plexus shall have full and exclusive liability for the payment of, and Plexus shall pay, any and all taxes and contributions for unemployment insurance, old age retirement benefits, workers’ compensation insurance or benefits, life insurance, pensions, annuities and similar benefits and any other employment-related costs, obligations, and duties which may now or hereafter be imposed by law, collective bargaining agreements or otherwise with respect to persons employed by Plexus for the performance of services under this Agreement.

26.   SOLICITATION OF EMPLOYMENT

Plexus agrees not to recruit, divert or solicit the employment of any Packeteer employee during the term of this Agreement and for a period of ninety (90) days following termination of this Agreement. If Plexus violates this provision, the parties agree that Plexus shall pay Packeteer the equivalent of six (6) month’s salary for each of the employees so solicited. The foregoing shall not prohibit Plexus from making general solicitations, such as by advertisement, and hiring any Packeteer employee responding to such general solicitation.

27.   USE OF PACKETEER RESOURCES

If given authorization to utilize Packeteer resources (e.g. computer resources), Plexus agrees to use such resources strictly for performing the services hereunder to Packeteer. Any other or unauthorized use will subject Plexus to immediate termination of the Agreement without further payment. Upon such termination, Packeteer does not waive any possible legal action arising from the unauthorized use of Packeteer resources.

28.   NOTICES

All notices shall be in writing and shall be deemed given on the date deposited in the United States mail, postage prepaid, registered or certified, with return receipt requested. Notices shall be addressed at their respective addresses appearing in the introductory section of this Agreement, but each party may change its address by written notice in accordance with this section.

“CONFIDENTIAL TREATMENT REQUESTED”

29.   INSPECTION

At no additional cost, at reasonable times and under reasonable conditions, Packeteer, its agents and Packeteer’s customers or potential customers shall have the right to inspect Plexus’ facility. However, inspection of Plexus’ facility by a Packeteer agent, customer or potential customer shall be subject to Plexus’ consent, which shall not be unreasonably withheld. Additionally, Packeteer and its agents shall have the right to inspect and audit Plexus records and facility as they pertain to the services performed by Plexus under this Agreement. At the conclusion of any services performed under this Agreement, Packeteer shall have the right to make any final inspection or tests that Packeteer shall deem advisable, but at reasonable times and under reasonable conditions.

30.   TITLES AND HEADINGS

All titles or headings utilized in this Agreement are for convenience only and shall not be considered in construing or interpreting this Agreement. The titles or headings used in this Agreement shall not define, limit, extend or describe the scope of this Agreement or the intent of its provisions.

31.   LANGUAGE

The parties agree that (i) the English language shall be the exclusive and official language of this Agreement, (ii) this Agreement shall be interpreted exclusively in the English language, and (iii) the English language will govern all future relations of the parties, including, but not limited to, any proceeding, mediation, arbitration, dispute, or claim hereunder.

32.   RELATIONSHIP OF THE PARTIES

Neither party is designated or appointed an agent or representative to the other party and no party will have any authority, either expressed or implied, to create or assume any agency or obligation on behalf of or in the name of the other party. The relationship of Plexus to Packeteer is that of independent contractor, and neither party will have any responsibility for, or obligations to, the employees of the other.

33.   SEVERABILITY

If any provision of this Agreement is adjudged to be unenforceable in whole or in part, such adjudication shall not affect the validity of the remainder of this Agreement. Each provision of this Agreement is severable from every other provision and constitutes a separate, distinct and binding covenant.

34.   COOPERATION

The parties cooperated in the preparation and negotiation of this Agreement and this Agreement will not be construed against or in favor of any party by virtue of the identity, interest, or affiliation of its preparer.

35.   NON-WAIVER

Failure by either party to exercise any right granted in this Agreement shall not be deemed a waiver of such right. A waiver of any right under this Agreement must be in writing and signed by an authorized representative of the party making such waiver.

36.   ENTIRE AGREEMENT; MODIFICATION

This Agreement and the Addendums attached hereto or referenced herein contains the entire understanding of the parties pertaining to the subject matter hereof, and no other agreements, oral or otherwise, shall be deemed to exist or to bind the parties pertaining to the subject matter hereof. This Agreement may not be modified or terminated orally, and no claimed modification, termination, or waiver shall be binding unless in writing and signed by authorized representatives of both parties. Where there is any conflict or inconsistency with the express terms in this Agreement and the attached Addendums, the terms of this Agreement shall supersede such conflicting or inconsistent terms and conditions. The parties expressly agree that any preprinted terms and conditions on any Plexus or Packeteer forms or documents shall be void and of no effect in interpreting the obligations of either party during the term of this Agreement.

37.   COUNTERPARTS; FACSIMILE SIGNATURES

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The delivery of signatures to this

“CONFIDENTIAL TREATMENT REQUESTED”

Agreement by facsimile transmission shall be binding as original signatures.

In witness whereof, the parties have executed this Agreement as of the Effective Date.

PACKETEER, INC.	PLEXUS SERVICES CORP.
By:	By:
Name:	Name:
Title:	Title:
Date:	Date:

“CONFIDENTIAL TREATMENT REQUESTED”

EX-10.29

Exhibit 10.29

PACKETEER, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN

As Amended and Restated Effective as of February 24, 2005

     I. PURPOSE OF THE PLAN

          This Employee Stock Purchase Plan is intended to promote the interests of Packeteer, Inc., a Delaware corporation, by providing eligible employees with the opportunity to acquire a proprietary interest in the Corporation through participation in a payroll-deduction based employee stock purchase plan designed to qualify under Section 423 of the Code.

          Capitalized terms herein shall have the meanings assigned to such terms in the attached Appendix.

     II. ADMINISTRATION OF THE PLAN

          The Plan Administrator shall have full authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary in order to comply with the requirements of Code Section 423. Decisions of the Plan Administrator shall be final and binding on all parties having an interest in the Plan.

     III. STOCK SUBJECT TO PLAN

          A. The stock purchasable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares of Common Stock purchased on the open market. The number of shares of Common Stock initially reserved for issuance over the term of the Plan shall be limited to 500,000 shares.

          B. The number of shares of Common Stock available for issuance under the Plan shall automatically increase on the first trading day of January each calendar year during the term of the Plan, beginning with calendar year 2000, by an amount equal to two percent (2%) of the total number of shares of Common Stock outstanding on the last trading day in December of the immediately preceding calendar year, but in no event shall any such annual increase exceed 1,000,000 shares.

          C. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and class of securities issuable under the Plan, (ii) the maximum number and class of securities purchasable per Participant on any one Purchase Date, (iii) the maximum number and class of securities purchasable by all Participants in the aggregate on any one Purchase Date, (iv) the maximum number and/or class of securities by which the share reserve is to increase automatically each calendar year pursuant to the provisions of Section III.B of this Article One and (v) the number

and class of securities and the price per share in effect under each outstanding purchase right in order to prevent the dilution or enlargement of benefits thereunder.

     IV. OFFERING PERIODS

          A. Shares of Common Stock shall be offered for purchase under the Plan through a series of successive offering periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated.

          B. Each offering period shall be of such duration (not to exceed twenty-four (24) months) as determined by the Plan Administrator prior to the start date of such offering period. However, the initial offering period shall commence at the Effective Time and terminate on the last business day in July 2001. The next offering period shall commence on the first business day in August 2001, and subsequent offering periods shall commence as designated by the Plan Administrator.

          C. Each offering period shall be comprised of a series of one or more successive Purchase Intervals. Unless otherwise determined by the Plan Administrator, Purchase Intervals shall run from the first business day in February to the last business day in July each year and from the first business day in August each year to the last business day in January in the following year. However, the first Purchase Interval in effect under the initial offering period shall commence at the Effective Time and terminate on the last business day in January 31, 2000. Subsequent Purchase Intervals shall commence and be of such duration as designated by the Plan Administrator.

          D. Should the Fair Market Value per share of Common Stock on the next business day following any Purchase Date (the “Subject Purchase Date”), other than the last Purchase Date within an offering period, be less than the Fair Market Value per share of Common Stock on any Semi-Annual Entry Date within that offering period (including the start date of the offering period), then each Participant whose participation in that offering period commenced on such Semi-Annual Entry Date (the “Subject Entry Date”) shall automatically be deemed to have (i) terminated in accordance with Section VII.F(i) his or her outstanding purchase right immediately following the purchase of shares of Common Stock on the Subject Purchase Date and (ii) enrolled and been granted a purchase right in a new offering period commencing on such next business day following the Subject Purchase Date. Unless a shorter duration is established by the Plan Administrator within five (5) business days following the start date of the new offering period, the new offering period shall have a duration equal to (i) twenty-four (24) months if the Subject Entry Date was the start date of the old offering period or (ii) the number of Purchase Intervals that remained following the Subject Purchase Date in the old offering period if the Subject Entry Date was other than the start date of the old offering period. Any payroll deductions of a Participant enrolled in a new offering period in accordance with this Section which were withheld on or before the Subject Purchase Date and not applied to the purchase of shares of Common Stock on the Subject Purchase Date (unless such unapplied amount was insufficient to purchase a whole share of Common Stock) shall be promptly

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refunded. This Section shall be effective for each offering period commencing on or after July 16, 2003 and having a duration of twenty-four (24) months.¹

     V. ELIGIBILITY AND ENROLLMENT

          A. Each individual who is an Eligible Employee on the start date of any offering period under the Plan may enter that offering period on such start date or on any subsequent Periodic Entry Date within that offering period, provided he or she remains an Eligible Employee.

          B. Each individual who first becomes an Eligible Employee after the start date of an offering period may enter that offering period on any subsequent Periodic Entry Date within that offering period on which he or she is an Eligible Employee.

          C. The date an individual enters an offering period shall be designated his or her Entry Date for purposes of that offering period.

          D. To participate in the Plan for a particular offering period, an Eligible Employee must complete the enrollment forms prescribed by the Plan Administrator (including a stock purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designee) on or before his or her scheduled Entry Date. Each Eligible Employee who has become a Participant shall automatically participate in the next offering period commencing immediately after the final Purchase Date of each offering period in which the Participant participates, provided that the Participant remains an Eligible Employee on the start date of the new offering period and has not terminated his or her purchase right as provided in Section VII.F. A Participant who may automatically participate in a subsequent offering period as provided in this Section is not required to deliver any additional enrollment form or stock purchase agreement for the subsequent offering period in order to continue participation in the Plan. However, a Participant may deliver a new enrollment form for a subsequent offering period in accordance with the procedures set forth in Section VI if the Participant desires to change any of the elections contained in the Participant’s then effective enrollment form.

     VI. PAYROLL DEDUCTIONS

          A. The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock during an offering period may be any multiple of one percent (1%) of the Cash Compensation paid to the Participant during each Purchase Interval within that offering period, up to a maximum not to exceed fifteen percent (15%). The Plan Administrator shall designate the maximum payroll deduction in effect under the Plan prior to the start of any Purchase Interval; if no designation is made, the maximum shall be fifteen percent (15%) of Cash Compensation. The deduction rate so authorized by the Participant shall continue in effect throughout the offering period, except to the extent such rate is changed in accordance with the following guidelines:

¹ Section IV.D of the Plan as in effect prior to July 16, 2003 shall apply to each offering period having a start date prior to such date.

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     (i) The Participant may, at any time during the offering period, reduce his or her rate of payroll deduction to become effective as soon as possible after filing the appropriate form with the Plan Administrator. The Participant may not, however, effect more than one (1) such reduction per Purchase Interval.

     (ii) The Participant may, prior to the commencement of any new Purchase Interval within the offering period, increase the rate of his or her payroll deduction by filing the appropriate form with the Plan Administrator. The new rate (which may not exceed the fifteen percent (15%) maximum) shall become effective on the start date of the first Purchase Interval following the filing of such form.

          B. Payroll deductions shall begin on the first pay day administratively feasible following the Participant’s Entry Date into the offering period and shall (unless sooner terminated by the Participant) continue through the pay day ending with or immediately prior to the last day of that offering period. The amounts so collected shall be credited to the Participant’s book account under the Plan, but no interest shall be paid on the balance from time to time outstanding in such account. The amounts collected from the Participant shall not be required to be held in any segregated account or trust fund and may be commingled with the general assets of the Corporation and used for general corporate purposes.

          C. Payroll deductions shall automatically cease upon the termination of the Participant’s purchase right in accordance with the provisions of the Plan.

          D. The Participant’s acquisition of Common Stock under the Plan on any Purchase Date shall neither limit nor require the Participant’s acquisition of Common Stock on any subsequent Purchase Date, whether within the same or a different offering period.

     VII. PURCHASE RIGHTS

          A. Grant of Purchase Right. A Participant shall be granted a separate purchase right for each offering period in which he or she participates. The purchase right shall be granted on the Participant’s Entry Date into the offering period and shall provide the Participant with the right to purchase shares of Common Stock on each Purchase Date during the remainder of such offering period, upon the terms set forth below. The Participant shall execute a stock purchase agreement embodying such terms and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable.

          Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if such individual would, immediately after the grant, own (within the meaning of Code Section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Corporation or any Corporate Affiliate.

          B. Exercise of the Purchase Right. Each purchase right shall be automatically exercised on each successive Purchase Date within the offering period, and shares of Common Stock shall accordingly be purchased on behalf of each Participant on each such

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Purchase Date. The purchase shall be effected by applying the Participant’s payroll deductions for the Purchase Interval ending on such Purchase Date to the purchase of whole shares of Common Stock at the purchase price in effect for the Participant for that Purchase Date.

          C. Purchase Price. The purchase price per share at which Common Stock will be purchased on the Participant’s behalf on each Purchase Date within any offering period shall be established by the Plan Administrator; provided, however, the purchase price on each Purchase Date shall not be less than eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on the Participant’s Entry Date into that offering period or (ii) the Fair Market Value per share of Common Stock on that Purchase Date.

          D. Number of Purchasable Shares. The number of shares of Common Stock purchasable by a Participant on each Purchase Date during the offering period shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during the Purchase Interval ending with that Purchase Date by the purchase price in effect for the Participant for that Purchase Date. However, the maximum number of shares of Common Stock purchasable per Participant on any one Purchase Date shall not exceed 1,000 shares, subject to periodic adjustments in the event of certain changes in the Corporation’s capitalization. In addition, the maximum aggregate number of shares of Common Stock purchasable by all Participants on any one Purchase Date shall not exceed 200,000 shares, subject to periodic adjustments in the event of certain changes in the Corporation’s capitalization. However, the Plan Administrator shall have the discretionary authority, exercisable prior to the start of any offering period under the Plan, to increase or decrease the limitations to be in effect for the number of shares purchasable per Participant and in the aggregate by all Participants on each Purchase Date during that offering period.

          E. Excess Payroll Deductions. Any payroll deductions not applied to the purchase of shares of Common Stock on any Purchase Date because they are not sufficient to purchase a whole share of Common Stock shall be held for the purchase of Common Stock on the next Purchase Date. However, any payroll deductions not applied to the purchase of Common Stock by reason of the limitation on the maximum number of shares purchasable per Participant or in the aggregate on the Purchase Date shall be promptly refunded.

          F. Termination of Purchase Right. The following provisions shall govern the termination of outstanding purchase rights:

     (i) A Participant may, at any time prior to the next scheduled Purchase Date in the offering period, terminate his or her outstanding purchase right by filing the appropriate form with the Plan Administrator (or its designate), and no further payroll deductions shall be collected from the Participant with respect to the terminated purchase right. Any payroll deductions collected during the Purchase Interval in which such termination occurs shall, at the Participant’s election, be immediately refunded or held for the purchase of shares on the next Purchase Date. If no such election is made at the time such purchase right is terminated, then the payroll deductions collected with respect to the terminated right shall be refunded as soon as possible.

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     (ii) The termination of such purchase right shall be irrevocable, and the Participant may not resume participation in the offering period for which the terminated purchase right was granted unless he or she re-enrolls in the Plan (by making a timely filing of the prescribed enrollment forms) on or before a regularly-scheduled Periodic Entry Date into that offering period. In such event, the Participant shall be granted a new purchase right with a new purchase price based upon the Fair Market Value per share on Common Stock on his or her new Entry Date, if applicable.

     (iii) Should the Participant cease to remain an Eligible Employee for any reason (including death, disability or change in status) while his or her purchase right remains outstanding, then that purchase right shall immediately terminate, and all of the Participant’s payroll deductions for the Purchase Interval in which the purchase right so terminates shall be immediately refunded. For purposes of the Plan, a Participant shall be deemed to remain an Eligible Employee while on any military leave, sick leave or other bona fide leave of absence approved by the Company so long as the period of such leave does not exceed ninety (90) days or such longer period during which the Participant’s right to reemployment with the Corporation is guaranteed by statute or contract. However, should a Participant’s approved leave of absence exceed ninety (90) days or such longer period during which the Participant’s right to reemployment with the Corporation is guaranteed by statute or contract, the Participant shall be deemed to have ceased to be an Eligible Employee on the ninety-first (91st) day of such leave or the day immediately following the end of the period during which the Participant’s right to reemployment with the Corporation is guaranteed by statute or contract, whichever is later. A Participant who has ceased to be in active service by reason of an approved leave of absence shall, for so long as such Participant remains an Eligible Employee, have the right, exercisable up until the last business day of the Purchase Interval in which such leave commences, to (a) withdraw all the payroll deductions collected to date on his or her behalf for that Purchase Interval or (b) have such funds held for the purchase of shares on his or her behalf on the next scheduled Purchase Date. In no event, however, shall any further payroll deductions be collected on the Participant’s behalf during such leave other than from such Participant’s Cash Earnings. Upon the Participant’s return to active service (x) within ninety (90) days following the commencement of such approved leave of absence or (y) prior to the expiration of any longer period for which such Participant’s right to reemployment with the Corporation is guaranteed by statute or contract, his or her payroll deductions under the Plan shall automatically resume at the rate in effect at the time the leave began, unless the Participant withdraws from the Plan prior to his or her return. An individual who returns to active employment following a leave of absence which exceeds in duration the applicable (x) or (y) time period will be treated as a new employee for purposes of subsequent participation in the Plan and must accordingly qualify as an Eligible Employee and re-enroll in the Plan (by making a timely filing of the prescribed enrollment forms) on or before his or her scheduled Entry Date into the offering period.

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          G. Change in Control. Each outstanding purchase right shall automatically be exercised, immediately prior to the effective date of any Change in Control and the date of such exercise shall be treated as the Purchase Date for the purposes of this Section, by applying the payroll deductions of each Participant for the Purchase Interval in which such Change in Control occurs to the purchase of whole shares of Common Stock at a purchase price per share determined in accordance with Section VII.C as of such Purchase Date. However, the applicable limitation on the number of shares of Common Stock purchasable per Participant shall continue to apply to any such purchase, but not the limitation applicable to the maximum number of shares of Common Stock purchasable in the aggregate.

          The Corporation shall use its best efforts to provide at least ten (10)-days prior written notice of the occurrence of any Change in Control, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights prior to the Purchase Date established for the purposes of this Section.

          H. Proration of Purchase Rights. Should the total number of shares of Common Stock to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each Participant, to the extent in excess of the aggregate purchase price payable for the Common Stock pro-rated to such individual, shall be refunded.

          I. Assignability. The purchase right shall be exercisable only by the Participant and shall not be assignable or transferable by the Participant.

          J. Stockholder Rights. A Participant shall have no stockholder rights with respect to the shares subject to his or her outstanding purchase right until the shares are purchased on the Participant’s behalf in accordance with the provisions of the Plan and the Participant has become a holder of record of the purchased shares.

VIII.   ACCRUAL LIMITATIONS

          A. No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent such accrual, when aggregated with (i) rights to purchase Common Stock accrued under any other purchase right granted under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise permit such Participant to purchase more than Twenty-Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or any Corporate Affiliate (determined on the basis of the Fair Market Value per share on the date or dates such rights are granted) for each calendar year such rights are at any time outstanding.

          B. For purposes of applying such accrual limitations to the purchase rights granted under the Plan, the following provisions shall be in effect:

     (i) The right to acquire Common Stock under each outstanding purchase right shall accrue in a series of installments on each

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     successive Purchase Date during the offering period on which such right remains outstanding.

     (ii) No right to acquire Common Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire Common Stock under one or more other purchase rights at a rate equal to Twenty-Five Thousand Dollars ($25,000.00) worth of Common Stock (determined on the basis of the Fair Market Value per share on the date or dates of grant) for each calendar year such rights were at any time outstanding.

          C. If by reason of such accrual limitations, any purchase right of a Participant does not accrue for a particular Purchase Interval, then the payroll deductions which the Participant made during that Purchase Interval with respect to such purchase right shall be promptly refunded.

          D. In the event there is any conflict between the provisions of this Article and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article shall be controlling.

IX.   EFFECTIVE DATE AND TERM OF THE PLAN

          A. The Plan was adopted by the Board on May 19, 1999 and shall become effective at the Effective Time, provided no purchase rights granted under the Plan shall be exercised, and no shares of Common Stock shall be issued hereunder, until (i) the Plan shall have been approved by the stockholders of the Corporation and (ii) the Corporation shall have complied with all applicable requirements of the 1933 Act (including the registration of the shares of Common Stock issuable under the Plan on a Form S-8 registration statement filed with the Securities and Exchange Commission), all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock is listed for trading and all other applicable requirements established by law or regulation. In the event such stockholder approval is not obtained, or such compliance is not effected, within twelve (12) months after the date on which the Plan is adopted by the Board, the Plan shall terminate and have no further force or effect, and all sums collected from Participants during the initial offering period hereunder shall be refunded.

          B. Unless sooner terminated by the Board, the Plan shall terminate upon the earliest of (i) the last business day in July 2009, (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan or (iii) the date on which all purchase rights are exercised in connection with a Change in Control. No further purchase rights shall be granted or exercised, and no further payroll deductions shall be collected, under the Plan following such termination.

X.   AMENDMENT OF THE PLAN

          A. The Board may alter, amend, suspend or terminate the Plan at any time to become effective immediately following the close of any Purchase Interval. However, the Plan may be amended or terminated immediately upon Board action, if and to the extent necessary to

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assure that the Corporation will not recognize, for financial reporting purposes, any compensation expense in connection with the shares of Common Stock offered for purchase under the Plan, should the financial accounting rules applicable to the Plan at the Effective Time be subsequently revised so as to require the recognition of compensation expense in the absence of such amendment or termination.

          B. In no event may the Board effect any of the following amendments or revisions to the Plan without the approval of the Corporation’s stockholders: (i) increase the number of shares of Common Stock issuable under the Plan, except for permissible adjustments in the event of certain changes in the Corporation’s capitalization, (ii) alter the purchase price formula so as to reduce the purchase price payable for the shares of Common Stock purchasable under the Plan or (iii) modify the eligibility requirements for participation in the Plan.

XI.   GENERAL PROVISIONS

          A. All costs and expenses incurred in the administration of the Plan shall be paid by the Corporation; however, each Plan Participant shall bear all costs and expenses incurred by such individual in the sale or other disposition of any shares purchased under the Plan.

          B. Nothing in the Plan shall confer upon the Participant any right to continue in the employ of the Corporation or any Corporate Affiliate for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Corporate Affiliate employing such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person’s employment at any time for any reason, with or without cause.

          C. The provisions of the Plan shall be governed by the laws of the State of California without resort to that State’s conflict-of-laws rules.

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Schedule A

Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time

Packeteer, Inc.
Packeteer Europe, b.v.
Packeteer Asia Pacific Limited
Packeteer K.K. (Kabushiki Kaisha)

APPENDIX

     The following definitions shall be in effect under the Plan:

     A. Board shall mean the Corporation’s Board of Directors.

     B. Cash Earnings shall mean the (i) regular base salary paid to a Participant by one or more Participating Companies during such individual’s period of participation in one or more offering periods under the Plan plus (ii) all overtime payments, bonuses, commissions, profit-sharing distributions and other incentive-type payments received during such period. Such Cash Earnings shall be calculated before deduction of (A) any income or employment tax withholdings or (B) any and all contributions made by the Participant to any Code Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit program now or hereafter established by the Corporation or any Corporate Affiliate. However, Cash Earnings shall not include any contributions made on the Participant’s behalf by the Corporation or any Corporate Affiliate to any employee benefit or welfare plan now or hereafter established (other than Code Section 401(k) or Code Section 125 contributions deducted from such Cash Earnings).

     C. Change in Control shall mean a change in ownership of the Corporation pursuant to any of the following transactions:

     (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or

     (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or

     (iii) the acquisition, directly or indirectly by an person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by or is under common control with the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders.

     D. Code shall mean the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.

     E. Common Stock shall mean the Corporation’s common stock.

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     F. Corporate Affiliate shall mean any parent or subsidiary corporation of the Corporation (as determined in accordance with Code Section 424), whether now existing or subsequently established.

     G. Corporation shall mean Packeteer, Inc., a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of Packeteer, Inc., which shall by appropriate action adopt the Plan.

     H. Effective Time shall mean the time at which the Underwriting Agreement is executed and the Common Stock priced for the initial public offering. Any Corporate Affiliate which becomes a Participating Corporation after such Effective Time shall designate a subsequent Effective Time with respect to its employee-Participants.

     I. Eligible Employee shall mean any person who is employed by a Participating Corporation on a basis under which he or she is regularly expected to render more than twenty (20) hours of service per week for more than five (5) months per calendar year for earnings considered wages under Code Section 3401(a).

     J. Entry Date shall mean the Periodic Entry Date on which an Eligible Employee first commences participation in the offering period in effect under the Plan. The earliest Entry Date under the Plan shall be the Effective Time.

     K. Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

     (i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

     (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

     (iii) For purposes of the initial offering period which begins at the Effective Time, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock is sold in the initial public offering pursuant to the Underwriting Agreement.

     L. 1933 Act shall mean the Securities Act of 1933, as amended.

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     M. Participant shall mean any Eligible Employee of a Participating Corporation who is actively participating in the Plan.

     N. Participating Corporation shall mean the Corporation and such Corporate Affiliate or Affiliates as may be authorized from time to time by the Board to extend the benefits of the Plan to their Eligible Employees. The Participating Corporations in the Plan are listed in attached Schedule A.

     O. Periodic Entry Date shall mean the first business day of each Purchase Interval contained in an offering period and which shall be a day on which an Eligible Employee may enter such offering period.

     P. Plan shall mean the Corporation’s 1999 Employee Stock Purchase Plan, as set forth in this document.

     Q. Plan Administrator shall mean the committee of two (2) or more Board members appointed by the Board to administer the Plan.

     R. Purchase Date shall mean the last business day of each Purchase Interval. The initial Purchase Date shall be January 31, 2000.

     S. Purchase Interval shall mean a period, as determined by the Plan Administrator, at the end of which there shall be purchased shares of Common Stock on behalf of each Participant. An offering period may contain one or more Purchase Intervals.

     T. Semi-Annul Entry Date shall mean a Periodic Entry Date commencing on the first business day in February and August each year pursuant to an offering period of at least twelve (12) months in duration.

     U. Stock Exchange shall mean either the American Stock Exchange or the New York Stock Exchange.

     V. Underwriting Agreement shall mean the agreement between the Corporation and the underwriter or underwriters managing the initial public offering of the Common Stock.

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Dave Côté, CEO of Packeteer, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Packeteer, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	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
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

(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.

Dated: April 29, 2005	/s/ Dave Côté
	Dave Côté
	Chief Executive Officer

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EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, David Yntema, CFO of Packeteer, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Packeteer, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	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
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

(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.

Dated: April 29, 2005	/s/ David Yntema
	David Yntema
	Chief Financial Officer

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EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer 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 Packeteer, Inc. (the “Company”) on Form 10-Q for the three months ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dave Côté, as President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) 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 results of operations of the Company.

Date: April 29, 2005	/s/	DAVE CÔTÉ
		Dave Côté
		President and Chief Executive Officer

32

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer 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 Packeteer, Inc. (the “Company”) on Form 10-Q for the three months ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Yntema, as Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) 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 results of operations of the Company.

Date: April 29, 2005	/s/	DAVID YNTEMA
		David Yntema
		Chief Financial Officer

33