PACKETEER INC, S-1/A, 1999-07-21

PACKETEER INC
S-1/A, 1999-07-21
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1999

REGISTRATION NO. 333-79077
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

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

<TABLE>
<S> <C> <C>
DELAWARE 7373 77-0420107
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (INTERNAL REVENUE SERVICE
CLASSIFICATION CODE NUMBER) EMPLOYER IDENTIFICATION NUMBER)
</TABLE>

10495 N. DE ANZA BOULEVARD
CUPERTINO, CALIFORNIA 95014
(408) 873-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

------------------------

CRAIG W. ELLIOTT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PACKETEER, INC.
10495 N. DE ANZA BOULEVARD
CUPERTINO, CALIFORNIA 95014
(408) 873-4400
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)

------------------------

COPIES TO:

<TABLE>
<S> <C>
WARREN T. LAZAROW NEIL WOLFF
ARMANDO CASTRO YOICHIRO TAKU
VAHE H. SARRAFIAN JOHN SASAKI
ELIZABETH A. R. YEE WILSON SONSINI GOODRICH & ROSATI
BROBECK, PHLEGER & HARRISON LLP PROFESSIONAL CORPORATION
TWO EMBARCADERO PLACE 650 PAGE MILL ROAD
2200 GENG ROAD PALO ALTO, CALIFORNIA 94304
PALO ALTO, CALIFORNIA 94303 (650) 493-9300
(650) 424-0160
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED JULY 21, 1999

LOGO

4,000,000 SHARES

COMMON STOCK

Packeteer, Inc. is offering 4,000,000 shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. The shares being sold in the offering have been approved for quotation
on the Nasdaq National Market under the symbol "PKTR." We anticipate that the
initial public offering price will be between $10 and $12 per share.

------------------------------

INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.

------------------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Total Proceeds to Packeteer................................. $ $
</TABLE>

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Packeteer has granted the underwriters a 30-day option to purchase up to
600,000 additional shares of our common stock. BancBoston Robertson Stephens
Inc. expects to deliver the shares of common stock to purchasers on
, 1999.

------------------------------

BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.

DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED

The date of this prospectus is , 1999.
<PAGE> 3

SUBJECT TO COMPLETION, DATED JULY 21, 1999

LOGO

4,000,000 SHARES

COMMON STOCK

------------------------------

INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.

------------------------------

BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER
INCORPORATED

The date of this prospectus is , 1999.
<PAGE> 4

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.

UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

------------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 31
Management.................................................. 49
Certain Transactions........................................ 59
Principal Stockholders...................................... 60
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 66
Underwriting................................................ 68
Legal Matters............................................... 70
Experts..................................................... 70
Where You Can Find More Information......................... 71
Index to Consolidated Financial Statements.................. F-1
</TABLE>

------------------------------

Packeteer, PacketShaper, PacketWise and our spiral design logo are
trademarks of Packeteer. This prospectus also contains other trade names,
trademarks of Packeteer and of other companies.

i
<PAGE> 5

PROSPECTUS SUMMARY

You should read this summary together with the more detailed information
regarding our company and the common stock being sold in this offering and our
consolidated financial statements and related notes to financial statements
appearing elsewhere in this prospectus. Because this is only a summary, you
should read the rest of the prospectus before you invest in our common stock.
Read this entire prospectus carefully, especially the risks described under
"Risk Factors."

Unless otherwise indicated, the information in this prospectus assumes the
automatic conversion of each outstanding share of preferred stock into one share
of common stock and no exercise of the underwriter's option to purchase
additional shares.

PACKETEER, INC.

Packeteer is a provider of network software products that enhance
mission-critical application performance over enterprise wide area networks and
the Internet. An enterprise wide area network, or WAN, is a computer
communications network that extends beyond a single location or office. Our
application-adaptive bandwidth management solutions give businesses and service
providers control of bandwidth at congested WAN access links, the slow-speed
bottlenecks that connect high-speed local area networks, or LANs, with wide area
backbone networks. Our bandwidth management solutions are application-adaptive
because they allow network managers to identify different applications at the
WAN access link and to control the bandwidth allocated to each of these
applications, enabling them to protect the performance of their most critical
applications.

We deliver comprehensive application-adaptive bandwidth management by
discovering and classifying network traffic, analyzing application and network
performance, controlling traffic flows and reporting on performance. These four
steps are accomplished through our PacketWise software which is embedded in our
PacketShaper family of products and in the networking products of our technology
partners. Our PacketShaper product family consists of hardware platforms based
on Intel compatible microprocessor technologies. Installing a PacketShaper
imposes no changes to the existing network's equipment, configuration or
software.

Today, both the Internet and its underlying protocols have grown to
positions of prominence in enterprise networking. From its origins as a network
connecting academic and government institutions, the Internet has evolved into
an interactive communications and commerce platform supporting businesses' daily
operations. Electronic commerce extends the confines of the enterprise network
across the Internet, making application performance difficult to ensure.

The rapid emergence of Internet computing has created new challenges for
information technology managers. Enterprise users access graphics-intensive web
sites, download large files, view streaming media presentations, monitor news
and stock quotes and access other non-critical information over the Internet. In
enterprise networks that are overwhelmed by increasing amounts of both
non-critical and mission-critical traffic, unmanaged congestion at the WAN
access link undermines application performance and can result in impaired
productivity and lost revenues. Businesses and service providers require
bandwidth management solutions to enhance mission-critical application
performance, increase network efficiency and enable the convergence of data,
voice and video traffic.
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<PAGE> 6

Our application-adaptive bandwidth management solutions enable businesses
and service providers to realize the following key benefits:

- Gain Network Performance Visibility and Insight. We provide valuable
historical and real-time information about application performance and
network utilization.

- Ensure Bandwidth to Mission-Critical Applications. Our policy-based
bandwidth allocation protects bandwidth for mission-critical applications
from less critical traffic.

- Simplify Deployment. Our solutions require no changes to the existing
network infrastructure, install easily and automatically start to
discover, classify and analyze network traffic.

- Enable Interactive Services. We deliver smooth and predictable
performance of delay-sensitive multimedia services that require
guaranteed bandwidth, such as voice calls over networks based on Internet
Protocol and real-time video.

- Increase Network Efficiency. We improve network efficiency and help delay
expensive capacity upgrades by managing non-critical traffic and
smoothing the variability in bandwidth utilization.

- Facilitate E-Commerce. Our solutions optimize response times for critical
e-commerce sites such as online retailing or banking by automatically
redirecting users with slower network connections to less
graphics-intensive web pages.

Our objective is to be the leading provider of application-adaptive
bandwidth management solutions to businesses and service providers. We believe
we have established a differentiated market position based on our comprehensive
solution that provides the elements for effective bandwidth management, early
market leadership and brand awareness. We intend to continue to direct our
development and sales and marketing efforts toward addressing the bandwidth
management needs of the Internet computing market. We plan to expand our
presence in the service provider market by providing solutions that enable
service providers to offer higher value-added application-based services. We
intend to continue to build our indirect channel and develop additional
technology partnerships to enable the worldwide deployment of our technology.
Finally, we plan to extend our bandwidth management technology leadership to
increase the performance, functionality and modularity of our existing bandwidth
management solutions and to develop new leading-edge technologies for emerging
markets.

We have shipped over 2,800 PacketShapers to date and have established a
network of over 100 value-added resellers, or VARs, distributors and systems
integrators that sell our solutions in over 50 countries. In addition, we have
business partners who license our PacketWise software for integration into their
networking products and other partners such as Lucent Technologies, Inc., who
resell our PacketWise-enabled platforms under their private labels.

We were incorporated in Delaware on January 25, 1996. Our principal
executive offices are located at 10495 North De Anza Boulevard, Cupertino,
California 95014, and our telephone number at that address is (408) 873-4400.
Information contained on our web site at www.packeteer.com does not constitute
part of this prospectus.
2
<PAGE> 7

THE OFFERING

Common stock offered by Packeteer........ 4,000,000 shares
Common stock to be outstanding after this
offering................................. 26,153,884 shares
Use of proceeds.......................... General corporate purposes
including working capital,
repayment of $2.5 million of
indebtedness and potential
acquisitions. See "Use of
Proceeds."

Nasdaq National Market Symbol............ PKTR

The number of shares of common stock to be outstanding after this offering
is based upon shares outstanding as of June 30, 1999. This number excludes, as
of June 30, 1999, 1,833,167 shares of common stock reserved for issuance under
our equity plans and 2,936,377 shares of common stock issuable upon exercise of
outstanding stock options and warrants.

SUMMARY CONSOLIDATED FINANCIAL DATA

The as adjusted consolidated balance sheets data summarized below reflects
the conversion of our preferred stock into 12,391,001 shares of common stock
upon the completion of this offering and the application of the net proceeds
from the sale of 4,000,000 shares of common stock offered hereby at an assumed
offering price of $11.00 per share and after deducting the underwriting
discounts and commissions and our estimated offering expenses. Please see Note 1
of Notes to Consolidated Financial Statements for an explanation of the number
of shares used in computing per share data.

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
JAN. 25, 1996 DECEMBER 31, ENDED JUNE 30,
(INCEPTION) TO ----------------- -----------------
DEC. 31, 1996 1997 1998 1998 1999
-------------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total net revenues..................................... $ -- $ 1,413 $ 7,230 $ 2,917 $ 7,080
Gross profit........................................... -- 956 4,844 1,847 5,153
Total operating expenses............................... 1,312 7,076 13,932 5,611 10,082
Net loss from operations............................... (1,312) (6,120) (9,088) (3,764) (5,649)
Net loss............................................... $(1,237) $(5,909) $(8,799) $(3,629) $(5,723)
Basic and diluted net loss per share................... $ (1.28) $ (1.82) $ (1.54) $ (0.72) $ (0.76)
Shares used in computing basic and diluted net loss per
share................................................ 965 3,253 5,709 5,064 7,565
Pro forma basic and diluted net loss per share......... $ (0.49) $ (0.29)
Shares used in computing pro forma basic and diluted
net loss per share................................... 18,100 19,956
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash, cash equivalents and short-term investments........... $ 7,774 $47,644
Working capital............................................. 1,786 41,656
Total assets................................................ 11,430 51,300
Long-term obligations....................................... 2,498 2,498
Total stockholders' equity.................................. 327 40,197
</TABLE>

3
<PAGE> 8

RISK FACTORS

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.

OUR LIMITED OPERATING HISTORY AND THE RAPIDLY EVOLVING MARKET WE SERVE MAKES
EVALUATING OUR BUSINESS PROSPECTS DIFFICULT

We were incorporated in January 1996 and began shipping our products
commercially in February 1997. Because of our limited operating history and the
uncertain nature of the rapidly changing market that we serve, we believe the
prediction of future results of operations is difficult. As an investor in our
common stock, you should consider the risks and difficulties that we face as an
early stage company in a new and rapidly evolving market. Some of the specific
risks we face include our ability to:

- execute our sales and marketing strategy;

- maintain current and develop new relationships with key VARs,
distributors, systems integrators and original equipment manufacturers,
or OEMs; and

- expand our domestic and international sales efforts.

WE HAVE A HISTORY OF LOSSES, EXPECT OUR EXPENDITURES TO INCREASE AND OUR LOSSES
TO CONTINUE, AND MAY NEVER ACHIEVE PROFITABILITY

We have incurred losses since we commenced operations in 1996 and may never
achieve profitability. Furthermore, we currently expect that our operating
expenditures will continue to increase significantly and we may not generate a
sufficient level of revenues to offset these expenditures or be able to adjust
spending in a timely manner to respond to any unanticipated decline in revenues.
We incurred net losses of $1.2 million in 1996, $5.9 million in 1997, $8.8
million in 1998 and $5.7 million for the six months ended June 30, 1999. As of
June 30, 1999, we had an accumulated deficit of $21.7 million. Although our
revenues have grown in recent quarters, we cannot be certain when or if we will
realize sufficient revenues to achieve profitability. If revenues grow slower
than we anticipate or if operating expenditures exceed our expectations or
cannot be adjusted accordingly, we may continue to experience significant losses
on a quarterly and annual basis. Even if we achieve profitability, we cannot
assure you that we can sustain or increase profitability on a quarterly or
annual basis in the future.

OUR FUTURE OPERATING RESULTS MAY NOT MEET ANALYSTS' EXPECTATIONS 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. Our operating
results may be below the expectations of public market analysts or investors in
some future quarter. If this occurs, the price of our common stock would likely
decrease. Our operating results are likely to fluctuate significantly in the
future on both a quarterly and an annual basis due to a number of factors, many
of which are outside our control. Factors that could cause our operating results
to fluctuate include variations in:

- the mix of products we sell;

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

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<PAGE> 9

- the average selling prices of our products;

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

- the amount and timing of revenues from OEMs; and

- the amount and timing of our operating expenses.

In the past, we have experienced fluctuations in operating results. For
example, gross margin decreased from 69.6% for the three months ended December
31, 1997 to 61.8% for the three months ended March 31, 1998, primarily due to
variations in the mix of products sold and variations in channels through which
products were sold. Research and development expenses have fluctuated due to
increased prototype expenses and consulting fees related to the launch of new
products, increased personnel expenses and costs associated with a facilities
move. Sales and marketing expenses have fluctuated due to increased personnel
expenses, expenditures related to trade shows and the launch of new products.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our annual and quarterly 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 expect to have difficulties in
predicting revenues from OEMs because we are unable to forecast unit sales of
their products which incorporate our technology. Sales from our VARs and systems
integrators to end users typically take three to four months to complete. We are
dependent on timely and accurate inventory information from our indirect channel
partners to enable us to establish channel inventory reserves for indirect
channel partners whose inventory exceeds normal stocking levels. If this
inventory information is not timely or accurate, we could experience increased
levels of sales returns or unforecasted fluctuations in future revenue.

If revenues forecasted in a particular quarter do not occur in that
quarter, our operating results for that quarter could be adversely affected.
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.

IF THE BANDWIDTH MANAGEMENT SOLUTIONS MARKET FAILS TO GROW, OUR BUSINESS WILL
FAIL

The market for bandwidth management solutions 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. The growth of the bandwidth management solutions market also depends
upon a number of factors, including the availability of inexpensive bandwidth,
especially in international markets, and the growth of wide area networks.

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<PAGE> 10

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, OUR SALES MAY SUFFER AND OUR REVENUES MAY NOT INCREASE

We rely on an indirect distribution channel consisting of VARs,
distributors, systems integrators and OEMs for all of 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 expand our
field sales and support staff significantly. 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 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.

DEVELOPING STRONG OEM RELATIONSHIPS WILL BE TIME AND RESOURCE INTENSIVE AND MAY
NOT RESULT IN THE SUCCESSFUL DEPLOYMENT OF OUR TECHNOLOGY AND PRODUCTS

One aspect of our sales strategy is to develop relationships with OEM
partners that will license our PacketWise software and incorporate it into their
networking products. If we are not successful in entering into suitable OEM
relationships, our ability to successfully deploy our PacketWise software and
build brand awareness would be harmed. The development of OEM relationships
generally involves a considerable amount of management time and company
resources as potential OEM partners evaluate the viability of integrating our
technology. We cannot assure you that potential OEM partners will enter into a
relationship with us after we have expended these efforts and costs. In
addition, even if we are successful in entering into an OEM relationship, we
cannot assure you that our current or future OEM partners will be able to
integrate our technology into commercially viable products on a timely basis.
Furthermore, we cannot assure you that our OEM partners will give a high
priority to the marketing and sale of products which incorporate our technology
or that our OEM partners will not develop competitive products and decide to
terminate or minimize their relationship with us. The failure to build and
maintain successful OEM relationships would have a negative effect on the
deployment of our technology and products.

IF WE ARE NOT ABLE TO MAINTAIN CURRENT AND FUTURE OEM RELATIONSHIPS, OUR
BUSINESS WILL BE HARMED

We may be unable to retain our current or future OEM partners. Generally,
OEM relationships can be terminated with little or no notice. Our recent OEM
agreements with ADC Telecommunications, Inc. and Adtran, Inc. are not exclusive
and are each for an initial term of five years, with no obligation for either
ADC or Adtran to renew their respective agreements with us. We expect to enter
into similar OEM relationships in the future. If our relationship with any
current or future OEM partner is terminated by either party, we may not be
successful in replacing such partner on a timely basis or at all with another
suitable OEM partner.

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<PAGE> 11

OUR RELIANCE ON OEM PARTNERS FOR THE SALE OF OUR PRODUCTS MAKES IT DIFFICULT TO
MANAGE AND FORECAST PRODUCTION AND DELIVERY SCHEDULES AND SALES EXPECTATIONS

Our inability to forecast the level of orders from OEM partners may make it
difficult to schedule production, manage our contract manufacturers, and
forecast sales. The level and timing of orders placed by OEM partners who
purchase hardware from us may vary due to many factors including OEM partners'
attempts to balance their inventories, changes in the OEM partners'
manufacturing strategies and variation in demand for their products. Due to
product life cycles, competitive and economic conditions, these OEM partners
generally do not commit to firm production schedules in advance. Anticipated
orders from our current or future OEM partners may not materialize or delivery
schedules may be deferred as a result of changes in customer's business needs.
These order fluctuations and deferrals will harm our business.

THE PACKETSHAPER FAMILY OF PRODUCTS AND PACKETWISE SOFTWARE ARE CURRENTLY OUR
ONLY PRODUCTS, AND ALL OF OUR CURRENT REVENUES AND A SIGNIFICANT PORTION OF OUR
FUTURE GROWTH DEPENDS ON THEIR COMMERCIAL SUCCESS

All of our current revenues and a significant portion of our future growth
depends on the commercial success of our PacketShaper family of products and
PacketWise software, which are the only products that we currently offer. If our
target customers do not widely adopt, purchase and successfully deploy the
PacketShaper family of products or PacketWise software, our revenues will not
grow significantly.

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 North America accounted
for 54.7% of our total net revenues in 1998 and 55.0% of our total net revenues
for the six months ended June 30, 1999. In particular, sales to customers in our
Asia Pacific region accounted for 31.0% of our total net revenues in 1998 and
28.7% of our total net revenues for the six months ended June 30, 1999. Our
ability to grow will depend in part on the expansion of international sales,
which will require success on the part of our VARs, distributors, systems
integrators and OEMs 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 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 will 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.

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<PAGE> 12

SALES TO MACNICA, ADC TELECOMMUNICATIONS OR OUR OTHER 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.
Sales to Macnica, Inc. accounted for 11.9% of our total net revenues in 1998.
For the six months ended June 30, 1999, sales to ADC Telecommunications
accounted for 10.6% of total net revenues and sales to Macnica accounted for
10.5% of total net revenues. 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.

COMPETITION FOR EXPERIENCED PERSONNEL IS INTENSE AND 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. Given
our early stage of development, we are dependent on our ability to attract,
retain and motivate high caliber key personnel. We have recently expanded our
sales force, and we are actively searching for systems engineers, research and
development engineers and sales and marketing personnel, all of whom are in
short supply. We currently have a small indirect channel partner and end-user
service and support organization and will need to increase our staff to support
new indirect channel partners and end users and the expanding needs of existing
indirect channel partners and end users. Additionally, we rely on qualified
systems engineers and service and support personnel to provide pre- and
post-sales technical support for our products. Competition for qualified
personnel in the networking industry, including systems 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. Our business will suffer if
we encounter delays in hiring these additional personnel.

Competitors and others have in the past and may in the future attempt to
recruit our employees. We do not have employment contracts with any of our
personnel. We currently maintain "key person" life insurance on Craig W.
Elliott, our chief executive officer, Robert L. Packer, our chief technology
officer, and Brett D. Galloway, our vice president of engineering and chief
operating officer. The loss of the services of any of our senior management
could negatively impact our ability to carry out our business plan.

WE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES IN OUR MARKET
SECTOR WHO ARE SUBSTANTIALLY LARGER AND MORE ESTABLISHED AND WHO HAVE
SIGNIFICANTLY GREATER RESOURCES THAN OUR COMPANY

We compete in a new, 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

8
<PAGE> 13

Systems, Inc. and CheckPoint Software Technologies Ltd., which sell products
incorporating competing technologies. We also compete with several small private
companies which utilize competing technologies to provide bandwidth management.
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 enterprises and service providers increased bandwidth and
infrastructure upgrades that increase the capacity of their networks, which may
lessen or delay the need for bandwidth management solutions.

Many of our 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, customers who are extremely confident in
and committed to the product offerings of our competitors. Furthermore, some of
our competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties to increase their ability
to rapidly gain market share by addressing the needs of our prospective
customers. These competitors may enter our existing or future markets with
solutions that may be less expensive, provide higher performance or additional
features or be introduced earlier than our solutions. Given the market
opportunity in the bandwidth management solutions market, we also expect that
other companies may 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 TO
TECHNOLOGICAL CHANGE, OUR BUSINESS MAY NOT GROW

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 bandwidth
management solutions market is characterized by rapid 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 could also significantly reduce demand for our
product. Alternative technologies, including packet-queuing technology, could
achieve widespread market acceptance. Our future success will depend in large
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;

- 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.

9
<PAGE> 14

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.

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.

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

We have rapidly and significantly expanded our operations and anticipate
that further significant expansion will be 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 installation and use of our products requires
training. If we are unable to provide training and support for our products, the
implementation process will be longer and customer satisfaction may be lower. In
addition, our management team may not be able to achieve the rapid execution
necessary to fully exploit the market for our products and services. We cannot
assure you that our systems, procedures or controls will be adequate to support
the anticipated growth in our operations.

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.

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 would cause our revenue and gross margins to decline.

OUR RELIANCE ON PEMSTAR, INC. AND SANMINA CORPORATION FOR SUBSTANTIALLY 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

We currently contract with PEMSTAR, Inc. and Sanmina Corporation, for the
manufacture of all of our current products. Any manufacturing disruption could
impair our ability to fulfill orders. Our future success will depend, in
significant part, on our ability to have others manufacture our

10
<PAGE> 15

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;

- manufacturing yields and costs;

- quality assurance; and

- increases in prices and the potential misappropriation of our
intellectual property.

We have no long-term contracts or arrangements with any of our vendors 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 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 contract manufacturers or that
these manufacturers 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. Further, new third-party manufacturers may encounter difficulties
in the manufacture of our products resulting in product delivery delays.

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.

We do not have any long-term supply contracts to ensure sources of supply.
If our contract manufacturers fail 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 sole-sourced or
limited-sourced components, or to develop alternative sources for components or
products would harm our ability to grow our business.

OUR PRODUCTS MAY HAVE ERRORS OR DEFECTS THAT WE FIND AFTER THE PRODUCTS HAVE
BEEN SOLD, WHICH COULD NEGATIVELY AFFECT OUR REVENUES, INCREASE OUR COSTS 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 between the WAN access router and the
enterprise local area network, or LAN, they can directly affect the
functionality of the network. We have in the past encountered errors in our
products, which in a few instances resulted in complete network failures. To
date, these errors have not materially

11
<PAGE> 16

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.

ANY ACQUISITIONS WE MAKE COULD RESULT IN DILUTION, UNFAVORABLE ACCOUNTING
CHARGES AND DIFFICULTIES IN SUCCESSFULLY MANAGING OUR BUSINESS

We continually evaluate strategic acquisitions of other businesses. If we
were to consummate an acquisition, we would be subject to a number of risks,
including the following:

- 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; and

- limitations on our ability to successfully incorporate acquired
technology and rights into our service offerings and maintain uniform
standards, controls, procedures, and policies.

We may not successfully overcome problems encountered in connection with
potential acquisitions. In addition, an acquisition could harm our operating
results by diluting our stockholders' equity, causing us to incur additional
debt, or requiring us to amortize acquisition expenses and acquired assets.

Finally, recent and proposed changes by the Financial Accounting Standards
Board (FASB) and the SEC in the rules for merger accounting may affect our
ability to make acquisitions or be acquired. For example, elimination of the
"pooling" method of accounting for mergers increases the amount of goodwill that
we would be required to recognize if we acquire another company, which would
have an adverse financial impact on our future net loss or net income. The
requirement to capitalize in-process research and development costs in
connection with an acquisition could result in goodwill which must be amortized
over several years, increasing our losses or reducing our net income.

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 and confidentiality provisions and
other contractual provisions to protect our proprietary rights. These measures
afford only limited protection. We currently have one issued U.S. patent and 10
pending patent applications including one for which we have received a notice of
allowance. 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 information that we regard as proprietary. Legal
proceedings to enforce our intellectual property rights could be burdensome and
expensive and could

12
<PAGE> 17

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
bandwidth 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 bandwidth 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 may be
required to comply with standards established by telecommunications authorities
in various countries 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 the proceeds of this offering, together with
our existing cash balances and available line of credit will be sufficient to
meet our liquidity needs for at least the next 12 months. 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.
While we have no current agreements or negotiations underway with respect to any
such acquisition, 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.

13
<PAGE> 18

ADDITIONAL SHARES HELD BY EXISTING STOCKHOLDERS MAY BE SOLD INTO THE PUBLIC
MARKET IN THE FUTURE, WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE

Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of our common stock and could impair our
ability to raise capital through the sale of additional equity securities. After
completion of this offering, we will have outstanding 26,153,884 shares of
common stock, assuming no exercise of outstanding options or warrants after June
30, 1999 and no exercise of the underwriters' over-allotment option. The
4,000,000 shares of common stock sold in this offering, which would be 4,600,000
shares if the underwriters' over-allotment option to purchase additional shares
is exercised in full, will be freely tradable without restriction or further
registration under the federal securities laws unless purchased by our
"affiliates" as that term is defined in Rule 144. The remaining 22,153,884
shares of common stock outstanding upon completion of this offering will be
"restricted securities" as that term is defined in Rule 144.

All of our stockholders, option holders and warrant holders are subject to
agreements that limit their ability so sell their shares of common stock. These
securityholders cannot sell or otherwise dispose of any shares of common stock
for a period of at least 180 days after the date of this prospectus without the
prior written approval of BancBoston Robertson Stephens or us in certain cases.
When these agreements expire, these shares and the shares underlying the options
will become eligible for sale, in some cases only pursuant to the volume, manner
of sale and notice requirements of Rule 144. See "Management -- Employee Benefit
Plans," "Shares Eligible for Future Sale" and "Underwriting."

OUR EXECUTIVE OFFICERS AND DIRECTORS WILL BE ABLE TO CONTROL ALL MATTERS
REQUIRING STOCKHOLDER APPROVAL INCLUDING DELAYING OR PREVENTING A CHANGE IN OUR
CORPORATE CONTROL

After this offering, our executive officers and directors and their
affiliates will together control approximately 54.0% of the outstanding common
stock. As a result, these stockholders, if they act together, will be able to
control all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may have the effect of delaying, preventing or deterring a change
in control of Packeteer, could deprive our stockholders of an opportunity to
receive a premium for their common stock as part of a sale of Packeteer and
might affect the market price of our common stock.

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.

YOU WILL INCUR SUBSTANTIAL AND IMMEDIATE DILUTION

You will incur substantial and immediate dilution in the net tangible book
value of $9.46 per share. Net tangible book value per share represents the
amount of total tangible assets less total liabilities, divided by the number of
shares of common stock then outstanding. To the extent that currently
outstanding options and warrants are exercised or converted, there will be
further dilution in your shares. See "Dilution."

14
<PAGE> 19

YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS AND THE COSTS TO CORRECT THESE
PROBLEMS MAY BE MATERIAL

Some computers, software, and other equipment include computer code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. As a
result, computer systems and software used by many companies and governmental
agencies may need to be upgraded to comply with year 2000 requirements or risk
system failure or miscalculations causing disruptions of normal business
activities. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches, and are commonly referred to as the "year
2000 problem." We have begun to identify measures to address the issues arising
from the year 2000 problem. The risks associated with being year 2000 compliant
are unknown. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 readiness disclosure."

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES

This prospectus contains forward-looking statements that are not historical
facts but rather are based on current expectations, estimates and projections
about our industry, our beliefs and assumptions. Word such as "anticipates",
"expects", "intends", "plans", "believes", "seeks", "estimates" and variations
of these words and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and other factors, some of which are
beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed or forecasted in the forward-looking
statements. These risks and uncertainties include those described in "Risk
Factors" and elsewhere in this prospectus. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this prospectus. We undertake no
obligation to update these statements or publicly release the results of any
revisions to the forward-looking statements that we may make to reflect events
or circumstances after the date of this prospectus or to reflect the occurrence
of unanticipated events.

15
<PAGE> 20

USE OF PROCEEDS

Our net proceeds from the sale and issuance of 4,000,000 shares of common
stock are estimated to be approximately $39.9 million (approximately $46.0
million if the underwriters' over-allotment option is exercised in full), at an
assumed offering price of $11.00 per share and after deducting the estimated
underwriting discounts and commissions and the estimated offering expenses
payable by Packeteer.

We will use $2.5 million of the net proceeds to repay a subordinated loan
which bears interest at a rate of 12.25% per annum. We intend to use the
remainder of the proceeds of this offering for working capital and to fund our
operations, including to continue expanding and enhancing our sales and
marketing operations and to continue expanding our product offerings.

We may also use a portion of the net proceeds to acquire complementary
businesses, products or technologies. From time to time, we evaluate these
potential acquisitions and we anticipate continuing to make such evaluations. We
have no current plans, agreements or commitments with respect to any such
acquisitions. The amounts and timing of our actual expenditures will depend upon
numerous factors, including the status of our product development efforts,
marketing and sales activities, and the amount of cash generated by our
operations and competition. Actual expenditures may vary substantially from
these estimates. We may find it necessary or advisable to use portions of the
proceeds for other purposes. Pending any of these uses, we intend to invest the
net proceeds of this offering in short-term, interest-bearing, investment grade
securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We currently intend to retain future earnings, if any, for
use in our business. Our line of credit arrangement prohibits us to pay
dividends without the lender's prior consent.

16
<PAGE> 21

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 1999:

- on an actual basis;

- on a pro forma basis giving effect to the conversion of all outstanding
shares of preferred stock into common stock upon completion of the
offering; and

- as adjusted to reflect the receipt by Packeteer of the estimated net
proceeds from the sale of the 4,000,000 shares of common stock offered by
Packeteer at an assumed offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and the
estimated offering expenses.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term obligations............. $ 3,330 $ 3,330 $ 3,330
-------- -------- --------
Long-term obligations................................ 2,498 2,498 2,498
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.001 par value per share;
13,703,287 shares authorized, actual; 5,000,000
shares authorized, pro forma and as adjusted;
12,391,001 shares issued and outstanding, actual;
no shares issued and outstanding, pro forma and as
adjusted........................................... 13 -- --
Common stock, $0.001 par value per share; 40,000,000
shares authorized, actual and pro forma; 85,000,000
shares authorized, as adjusted; 9,762,883 shares
issued and outstanding, actual; 22,153,884 shares
issued and outstanding, pro forma; and 26,153,884
shares issued and outstanding, as adjusted......... 10 23 26
Additional paid-in capital........................... 26,043 26,043 65,910
Deferred stock-based compensation.................... (3,265) (3,265) (3,265)
Notes receivable from stockholders................... (806) (806) (806)
Accumulated deficit.................................. (21,668) (21,668) (21,668)
-------- -------- --------
Total stockholders' equity...................... 327 327 40,197
-------- -------- --------
Total capitalization....................... $ 2,825 $ 2,825 $ 42,695
======== ======== ========
</TABLE>

The outstanding shares shown above exclude, as of June 30, 1999:

- 2,506,750 shares of common stock issuable upon exercise of stock options
outstanding under our 1996 Equity Incentive Plan at a weighted average
exercise price of $3.21 per share;

- 200,628 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $3.67 per share;

- 1,333,167 shares of common stock reserved for future issuance under our
1999 Stock Incentive Plan;

- 500,000 shares of common stock reserved for future issuance under our
1999 Employee Stock Purchase Plan; and

- 228,999 shares of common stock issuable upon exercise of stock options
outstanding outside of our equity plans.

See "Management -- Employee Benefit Plans" and Note 5 of Notes to
Consolidated Financial Statements.

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<PAGE> 22

DILUTION

As of June 30, 1999 our net tangible book value was $327,000, or $0.03 per
share of common stock. Net tangible book value per share represents the amount
of total tangible assets less total liabilities, divided by the number of shares
of common stock then outstanding.

After giving effect to the sale of 4,000,000 shares of common stock offered
by Packeteer, at an assumed offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and the estimated
expenses related to this offering, our net tangible book value on June 30, 1999
would have been $40.2 million, or approximately $1.54 per share. This represents
an immediate increase in net tangible book value of $1.51 per share to existing
stockholders and an immediate dilution of $9.46 per share to new investors. The
following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed offering price per share............................ $11.00
Net tangible book value per share as of June 30, 1999....... $0.03
Increase per share attributable to the offering............. 1.51
-----
Net tangible book value per share after the offering........ 1.54
------
Dilution per share to new investors......................... $ 9.46
======
</TABLE>

The following table summarizes, as of June 30, 1999, on the pro forma basis
described above, the difference between the number of shares of common stock
purchased from Packeteer, the total consideration paid and the average price per
share paid by the existing stockholders and by new public investors purchasing
shares from us before deducting underwriting discounts and commissions and
estimated offering expenses:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 22,153,884 84.7% $21,068,000 32.4% $ 0.95
New investors................ 4,000,000 15.3 44,000,000 67.6 11.00
---------- ----- ----------- -----
Total.............. 26,153,884 100.0% $65,068,000 100.0%
========== ===== =========== =====
</TABLE>

The foregoing computations are based on the number of shares of common
stock outstanding as of June 30, 1999 and exclude:

- 2,506,750 shares of common stock issuable upon exercise of stock options
outstanding under Packeteer's 1996 Equity Incentive Plan at a weighted
average exercise price of $3.21 per share;

- 200,628 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $3.67 per share;

- 1,333,167 shares of common stock reserved for future issuance under our
1999 Stock Incentive Plan;

- 500,000 shares of common stock reserved for future issuance under our
1999 Employee Stock Purchase Plan; and

- 228,999 shares of common stock issuable upon exercise of stock options
outstanding outside of our equity plans.

The issuance of common stock in connection with the exercise of these
options and warrants will result in further dilution to new investors. See
"Capitalization," "Management -- Employee Benefit Plans," "Description of
Capital Stock" and Note 5 of Notes to Consolidated Financial Statements.

18
<PAGE> 23

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus. The consolidated statements of
operations data for the period from January 25, 1996, the date of inception, to
December 31, 1996 and for each of the years in the two-year period ended
December 31, 1998, and the consolidated balance sheets data at December 31, 1997
and 1998, are derived from the consolidated financial statements of Packeteer
which have been audited by KPMG LLP, independent auditors, and are included in
this prospectus. The consolidated balance sheet data at December 31, 1996 is
derived from audited consolidated financial statements not included in this
prospectus. The selected historical consolidated financial data as of June 30,
1999 and for the six months ended June 30, 1998 and 1999 have been derived from
unaudited consolidated financial statements included elsewhere in this
prospectus, that include, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
fair presentation of our financial position and results of operations for those
periods. The historical results are not necessarily indicative of the operating
results to be expected in the future.

<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED SIX MONTHS
JAN. 25, 1996 DECEMBER 31, ENDED JUNE 30,
(INCEPTION) TO ----------------- -----------------
DEC. 31, 1996 1997 1998 1998 1999
-------------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues:
Product revenues........................... $ -- $ 1,413 $ 7,105 $ 2,917 $ 6,330
Licensing revenues......................... -- -- 125 -- 750
------- ------- ------- ------- -------
Total net revenues.................... -- 1,413 7,230 2,917 7,080
Cost of revenues............................. -- 457 2,386 1,070 1,927
------- ------- ------- ------- -------
Gross profit................................. -- 956 4,844 1,847 5,153
Operating expenses:
Research and development................... 725 2,932 2,779 1,168 2,220
Sales and marketing........................ 349 3,210 8,866 3,469 5,656
General and administrative................. 238 934 1,750 746 1,142
Amortization of stock-based compensation... -- -- 537 228 1,784
------- ------- ------- ------- -------
Total operating expenses.............. 1,312 7,076 13,932 5,611 10,802
------- ------- ------- ------- -------
Net loss from operations..................... (1,312) (6,120) (9,088) (3,764) (5,649)
Other income (expense), net.................. 75 211 289 135 (74)
------- ------- ------- ------- -------
Net loss..................................... $(1,237) $(5,909) $(8,799) $(3,629) $(5,723)
======= ======= ======= ======= =======
Basic and diluted net loss per share......... $ (1.28) $ (1.82) $ (1.54) $ (0.72) $ (0.76)
======= ======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share......................... 965 3,253 5,709 5,064 7,565
======= ======= ======= ======= =======
Pro forma basic net loss per share........... $ (0.49) $ (0.29)
======= =======
Shares used in computing pro forma basic net
loss per share............................. 18,100 19,956
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1996 1997 1998 1999
------ ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash, cash equivalents and short-term investments........ $4,255 $2,416 $4,477 $ 7,774
Working capital.......................................... 4,077 2,612 3,501 1,786
Total assets............................................. 4,453 4,935 8,570 11,430
Long-term obligations.................................... -- 356 739 2,498
Total stockholders' equity............................... 4,251 2,804 3,759 327
</TABLE>

19
<PAGE> 24

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our
consolidated financial statements and the related notes included elsewhere in
this prospectus.

OVERVIEW

Packeteer is a leading provider of network software products that enhance
mission-critical application performance over WANs and the Internet. We market
and distribute our products via a worldwide network of VARs, distributors,
systems integrators and OEMs. We have subsidiaries in Hong Kong, Japan and The
Netherlands.

We were incorporated in January 1996. From our inception through January
1997, our operating activities related primarily to establishing a research and
development organization, developing and testing prototype designs, establishing
a sales and marketing organization and developing customer, vendor and
manufacturing relationships. We shipped our first product, the PacketShaper
2000, in February 1997. Since then, we have focused on developing additional
products and product enhancements, building our worldwide indirect sales channel
and establishing our sales, marketing and customer support organizations. We
began shipments of the PacketShaper 1000 and 4000 in October 1997. Since
inception, we have incurred significant losses and as of June 30, 1999, had an
accumulated deficit of $21.7 million.

Our revenues consist primarily of product sales and, to a lesser extent,
licensing fees from an OEM partner. Our product revenues consist of sales of our
PacketShaper family of products. We recognize product revenues once the customer
issues a noncancelable purchase order and the product has been shipped to the
customer. Maintenance revenue is deferred and amortized over the period of the
contract. Service revenue is recognized as the services are performed.
Maintenance and service revenues to date have not been material. We routinely
analyze and provide, as necessary, reserves at the time of shipment for product
returns and allowances. We have estimated these reserves based on our experience
since we began shipping. These amounts have not been significant to date. Our
ability to estimate these reserves is limited to the short history we have of
shipping products. Our licensing revenues currently consist of licensing fees
and may in the future include royalty payments from unit sales of OEM products
that incorporate our technology. We recognize OEM license fees, which include
post-contract customer support, when the software has been shipped to the
customer, the fees are fixed and determinable and there is evidence of the fair
value of the post-contract customer support. When sufficient evidence of fair
value of post-contract customer support is not available, revenues are
recognized ratably over the support period. We do not have sufficient evidence
of fair value of post-contract customer support for our current OEM license
arrangements, and therefore are recognizing the revenues for these arrangements
over the support period.

We sell our products worldwide exclusively through VARs, distributors,
systems integrators and OEMs. We use indirect channels to leverage the reach of
our sales force to obtain worldwide coverage. Our sales force and marketing
efforts are used to develop brand awareness and support our indirect channels.

Our cost of revenues consists primarily of the cost of finished products
purchased from our two turnkey manufacturers, documentation and other overhead
costs. We outsource the manufacturing of the PacketShaper 1000 and PacketShaper
2000 to PEMSTAR and the PacketShaper 4000 to Sanmina.

20
<PAGE> 25

Research and development expenses consist primarily of salaries and related
personnel expenses, consultant fees and prototype expenses related to the
design, development, testing and enhancement of the PacketShaper family of
products and PacketWise software. As of June 30, 1999, all research and
development costs have been expensed as incurred. We believe that continued
investment in research and development is critical to attaining our strategic
product and cost reduction objectives. We expect these expenses to increase
significantly in the future as we continue to develop new products and enhance
existing products.

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. We intend to pursue sales and marketing campaigns aggressively and
therefore expect these expenses to increase in the future.

General and administrative expenses consist primarily of salaries and
related personnel expenses for executive, accounting and administrative
personnel, professional fees and other general corporate expenses. As we add
personnel and incur additional costs related to the growth of our business, we
expect that general and administrative expenses will also increase.

Amortization of stock-based compensation resulted from the granting of
stock options to employees and consultants with exercise prices per share
determined to be below the deemed fair value per share of our common stock on
the dates of grant for financial reporting purposes. The stock-based
compensation is being amortized to expense in accordance with FASB
Interpretation No. 28 over the vesting period of the individual options,
generally four years. We recorded stock-based compensation expense of $537,000
and $1.8 million in 1998 and for the six months ended June 30, 1999,
respectively, leaving $3.3 million to be amortized in future periods.

There was no provision for federal or California state income taxes for any
period since we have incurred operating losses since inception. As of December
31, 1998, we had $13.8 million of net loss carryforwards for federal income tax
purposes and $12.1 million of net loss carryforwards for California state income
tax purposes. Utilization of the net operating loss carryforwards may be subject
to annual limitations due to the ownership change limitations contained in the
Internal Revenue Code of 1986 and similar state provisions. Annual limitations
may result in the expiration of the net operating losses before we can utilize
them. The federal net operating loss carryforwards will expire at various dates
beginning in 2010 through 2018 if we do not use them. See Note 6 of Notes to
Consolidated Financial Statements.

21
<PAGE> 26

RESULTS OF OPERATIONS

The following table sets forth certain financial data for the periods
indicated as a percentage of total net revenues.

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------- ---------------
1997 1998 1998 1999
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net revenues:
Product revenues.................................. 100.0% 98.3% 100.0% 89.4%
Licensing revenues................................ -- 1.7 -- 10.6
------ ------ ------ -----
Total net revenues........................... 100.0 100.0 100.0 100.0
Cost of revenues.................................... 32.3 33.0 36.7 27.2
------ ------ ------ -----
Gross margin........................................ 67.7 67.0 63.3 72.8
Operating expenses:
Research and development.......................... 207.5 38.4 40.0 31.4
Sales and marketing............................... 227.2 122.6 118.9 79.9
General and administrative........................ 66.1 24.2 25.6 16.1
Amortization of stock-based compensation.......... -- 7.5 7.8 25.2
------ ------ ------ -----
Total operating expenses..................... 500.8 192.7 192.3 152.6
------ ------ ------ -----
Net loss from operations............................ (433.1) (125.7) (129.0) (79.8)
Other income (expense), net......................... 14.9 4.0 4.6 (1.0)
------ ------ ------ -----
Net loss............................................ (418.2)% (121.7)% (124.4)% (80.8)%
====== ====== ====== =====
</TABLE>

Six months ended June 30, 1998 and 1999

Total net revenues. Our total net revenues increased by $4.2 million from
$2.9 million for the six months ended June 30, 1998 to $7.1 million for the six
months ended June 30, 1999, an increase of 142.7%. This increase was due to an
increased number of units sold relating to channel development and increased
product acceptance, and the revenue from the ADC Telecommunications agreement.
Product revenues increased by $3.4 million from $2.9 million for the six months
ended June 30, 1998, to $6.3 million for the six months ended June 30, 1999, an
increase of 117.0%. Product revenues comprised all of total net revenues for the
six months ended June 30, 1998, and 89.4% of total net revenues for the six
months ended June 30, 1999. Licensing revenues were $750,000, or 10.6% of total
net revenues, for the six months ended June 30, 1999, which consisted of
revenues from the ADC agreement. We recorded no licensing revenues for the six
months ended June 30, 1998.

Cost of revenues. Our cost of revenues increased by $857,000 from $1.1
million for the six months ended June 30, 1998 to $1.9 million for the six
months ended June 30, 1999, an increase of 80.1%. The cost of revenues was 36.7%
of total net revenues for the six months ended June 30, 1998 as compared to
27.2% of total net revenues for the six months ended June 30, 1999. The decrease
in cost of revenues as a percentage of total net revenues was primarily due to
increased economies of scale and, to a lesser extent, reductions in
manufacturing costs.

Research and development. Research and development expenses increased by
$1.0 million from $1.2 million for the six months ended June 30, 1998 to $2.2
million for the six months ended June 30, 1999, an increase of 90.1%. The
absolute dollar increase was due primarily to increases in staffing and related
personnel costs of $606,000 and, to a lesser extent, related overhead and
consulting costs. Research and development expenses represented 40.0% of total
net revenues for the

22
<PAGE> 27

six months ended June 30, 1998 as compared to 31.4% of total net revenues for
the six months ended June 30, 1999. The decrease in research and development
expenses as a percentage of total net revenues was due to increased net
revenues.

Sales and marketing. Sales and marketing expenses increased by $2.2 million
from $3.5 million for the six months ended June 30, 1998 to $5.7 million for the
six months ended June 30, 1999, an increase of 63.0%. The absolute dollar
increase was primarily due to increases in staffing, related personnel costs of
$1.3 million and, to a lesser extent, increased marketing activities. Sales and
marketing expenses were 118.9% of total net revenues for the six months ended
June 30, 1998 as compared to 79.9% of total net revenues for the six months
ended June 30, 1999. The decrease in sales and marketing expenses as a
percentage of total net revenues was due to increased net revenues.

General and administrative. General and administrative expenses increased
by $396,000 from $746,000 for the six months ended June 30, 1998 to $1.1 million
for the six months ended June 30, 1999, an increase of 53.1%. The absolute
dollar increase was primarily due to increases in staffing and related personnel
costs of $247,000 to support our growth and, to a lesser extent, consulting and
professional services costs. General and administrative expenses were 25.6% of
total net revenues for the six months ended June 30, 1998 as compared to 16.1%
of total net revenues for the six months ended June 30, 1999. The decrease in
general and administrative expenses as a percentage of total net revenues was
due to increased net revenues.

Other income (expense), net. Other income (expense), net consisted
primarily of interest income and interest expense. Other income (expense), net
decreased by $209,000 from $135,000 for the six months ended June 30, 1998 to an
expense of $74,000 for the six months ended June 30, 1999, a decrease of 154.8%.
Interest income earned increased by $39,000 from $159,000 for the six months
ended June 30, 1998 to $198,000 for the six months ended June 30, 1999, an
increase of 24.5%. This increase was due to increased interest earned on higher
average levels of cash. Interest expense increased by $247,000 from $23,000 for
the six months ended June 30, 1998 to $270,000 for the six months ended June 30,
1999. This increase was due to increased interest expense related to our
financing activities.

Years ended December 31, 1997 and 1998

Total net revenues. Our total net revenues increased by $5.8 million from
$1.4 million in 1997 to $7.2 million in 1998, an increase of 411.7%. Product
revenues increased by $5.7 million from $1.4 million in 1997 to $7.1 million in
1998, an increase of 402.8%. This increase was due to increased unit sales as a
result of the addition of indirect channel partners and the sales of the
PacketShaper 1000 and 4000 for the full year in 1998, as compared to 1997, in
which those models were not introduced until the fourth quarter. Licensing
revenues were $125,000 in 1998, which consisted of revenues from the OEM
licensing agreement with ADC Telecommunications that we signed in December 1998.
We recorded no licensing revenues in 1997.

Cost of revenues. Our cost of revenues increased by $1.9 million from
$457,000 in 1997 to $2.4 million in 1998, an increase of 422.1%. The increase in
cost of revenues in absolute dollars was due to an increased number of units
sold. The cost of revenues was 32.3% of total net revenues in 1997 and 33.0% of
total net revenues in 1998.

Research and development. Research and development expenses decreased by
$153,000 from $3.0 million for 1997 to $2.8 million for 1998, a decrease of
5.2%. Decreases in consulting and other nonpersonnel-related costs were offset
by $550,000 in personnel related expenses tied to higher headcount. Research and
development expenses represented 207.5% of total net revenues in 1997 as
compared to 38.4% of total net revenues in 1998. The decrease in research and
development expenses

23
<PAGE> 28

as a percentage of total net revenues was due to relatively unchanged expenses
coupled with increased net revenues.

Sales and marketing. Sales and marketing expenses increased by $5.7 million
from $3.2 million in 1997 to $8.9 million in 1998, an increase of 176.2%. This
increase was primarily due to increased headcount costs and related commissions
of approximately $2.3 million, marketing communication programs of approximately
$1.0 million and, to a lesser extent, consulting and travel expenses. Sales and
marketing expenses represented 227.2% of total net revenues in 1997 as compared
to 122.6% of total net revenues in 1998. This decrease in sales and marketing
expenses as a percentage of total net revenues was due to increased sales.

General and administrative. General and administrative expenses increased
by $816,000 from $934,000 for 1997 to $1.8 million in 1998, an increase of
87.4%. This absolute dollar increase was primarily due to increases in staffing
and related personnel costs of approximately $400,000 and, to a lesser extent,
miscellaneous other costs. General and administrative expenses represented 66.1%
of total net revenues in 1997 as compared to 24.2% of total net revenues in
1998. This decrease in general and administrative expenses as a percentage of
total net revenues was due to increased sales.

Other income (expense), net. Other income (expense), net increased by
$78,000 from $211,000 in 1997 to $289,000 in 1998, an increase of 37.0%. This
absolute dollar increase was due to increased interest earned on higher average
levels of cash. Interest income increased by $129,000 from $238,000 in 1997 to
$367,000 in 1998, an increase of 54.2%. This increase was due to increased
interest earned on higher average levels of cash. Interest expense increased by
$51,000 from $27,000 in 1997 to $78,000 in 1998, an increase of 188.9%. This
increase was due to increased financing costs.

Period from inception through December 31, 1996

During the period from January 25, 1996, the date of inception, through
December 31, 1996, our operating activities related primarily to development of
the PacketShaper product, recruitment and training of personnel, raising capital
and development of sales channels. We recognized no revenue and incurred
operating expenses of $1.3 million during the period. Accordingly, we believe a
comparison of operating results for that period with the operating results in
1997 is not meaningful and have therefore omitted that discussion.

24
<PAGE> 29

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited consolidated statements of
operations data in dollars and as a percentage of total net revenues for our ten
most recent quarters. In management's opinion, this unaudited information has
been prepared on the same basis as the annual consolidated financial statements
and includes all adjustments necessary to fairly present the unaudited quarterly
results. These adjustments consist only of normal recurring adjustments. This
information should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
CONSOLIDATED STATEMENTS OF 1997 1997 1997 1997 1998 1998 1998 1998
OPERATIONS DATA: --------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Product revenues.......... $ 43 $ 153 $ 424 $ 793 $ 1,246 $ 1,671 $ 1,895 $ 2,293
Licensing revenues........ -- -- -- -- -- -- -- 125
--------- ------- ------- ------- ------- ------- ------- --------
Total net revenues.... 43 153 424 793 1,246 1,671 1,895 2,418
Cost of revenues............ 10 60 146 241 476 594 605 711
--------- ------- ------- ------- ------- ------- ------- --------
Gross profit................ 33 93 278 552 770 1,077 1,290 1,707
Operating expenses:
Research and
development............. 489 755 827 861 566 602 676 935
Sales and marketing....... 339 622 614 1,635 1,551 1,918 2,306 3,091
General and
administrative.......... 174 202 219 339 292 454 453 551
Amortization of
stock-based
compensation............ -- -- -- -- -- 228 172 137
--------- ------- ------- ------- ------- ------- ------- --------
Total operating
expenses............ 1,002 1,579 1,660 2,835 2,409 3,202 3,607 4,714
--------- ------- ------- ------- ------- ------- ------- --------
Net loss from operations.... (969) (1,486) (1,382) (2,283) (1,639) (2,125) (2,317) (3,007)
--------- ------- ------- ------- ------- ------- ------- --------
Other income (expense),
net....................... 58 27 74 52 34 101 101 53
--------- ------- ------- ------- ------- ------- ------- --------
Net loss.................... $ (911) $(1,459) $(1,308) $(2,231) $(1,605) $(2,024) $(2,216) $ (2,954)
========= ======= ======= ======= ======= ======= ======= ========

<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 31, JUNE 30,
CONSOLIDATED STATEMENTS OF 1999 1999
OPERATIONS DATA: --------- --------
(IN THOUSANDS)
<S> <C> <C>
Net revenues:
Product revenues.......... $ 2,724 $ 3,606
Licensing revenues........ 375 375
------- -------
Total net revenues.... 3,099 3,981
Cost of revenues............ 854 1,073
------- -------
Gross profit................ 2,245 2,908
Operating expenses:
Research and
development............. 955 1,265
Sales and marketing....... 2,429 3,227
General and
administrative.......... 533 609
Amortization of
stock-based
compensation............ 865 919
------- -------
Total operating
expenses............ 4,782 6,020
------- -------
Net loss from operations.... (2,537) (3,112)
------- -------
Other income (expense),
net....................... 14 (88)
------- -------
Net loss.................... $(2,523) $(3,200)
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET REVENUES
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Product revenues......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Licensing revenues....... -- -- -- -- -- --
--------- ------- ------- ------- ------- --------
Total net revenues... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues........... 23.3 39.2 34.4 30.4 38.2 35.5
--------- ------- ------- ------- ------- --------
Gross margin............... 76.7 60.8 65.6 69.6 61.8 64.5
Operating expenses:
Research and
development............ 1,137.2 493.5 195.0 108.6 45.4 36.0
Sales and marketing...... 788.4 406.5 144.8 206.2 124.5 114.8
General and
administrative......... 404.6 132.0 51.7 42.7 23.4 27.2
Amortization of
stock-based
compensation........... -- -- -- -- -- 13.6
--------- ------- ------- ------- ------- --------
Total operating
expenses........... 2,330.2 1,032.0 391.5 357.5 193.3 191.6
--------- ------- ------- ------- ------- --------
Net loss from operations... (2,253.5) (971.2) (325.9) (287.9) (131.5) (127.1)
--------- ------- ------- ------- ------- --------
Other income (expense),
net...................... 134.9 17.6 17.4 6.6 2.7 6.0
--------- ------- ------- ------- ------- --------
Net loss................... (2,118.6)% (953.6)% (308.5)% (281.3)% (128.8)% (121.1)%
========= ======= ======= ======= ======= ========

<CAPTION>
AS A PERCENTAGE OF NET REVENUES
-------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1998 1999 1999
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net revenues:
Product revenues......... 100.0% 94.8% 87.9% 90.6%
Licensing revenues....... -- 5.2 12.1 9.4
------- -------- ----- -----
Total net revenues... 100.0 100.0 100.0 100.0
Cost of revenues........... 31.9 29.4 27.6 27.0
------- -------- ----- -----
Gross margin............... 68.1 70.6 72.4 73.0
Operating expenses:
Research and
development............ 35.7 38.7 30.8 31.8
Sales and marketing...... 121.7 127.8 78.4 81.0
General and
administrative......... 23.9 22.8 17.2 15.3
Amortization of
stock-based
compensation........... 9.0 5.7 27.9 23.1
------- -------- ----- -----
Total operating
expenses........... 190.3 195.0 154.3 151.2
------- -------- ----- -----
Net loss from operations... (122.2) (124.4) (81.9) (78.2)
------- -------- ----- -----
Other income (expense),
net...................... 5.3 2.2 0.5 (2.2)
------- -------- ----- -----
Net loss................... (116.9)% (122.2)% (81.4)% (80.4)%
======= ======== ===== =====
</TABLE>

25
<PAGE> 30

Total net revenues. Total net revenues have increased each quarter since
the three months ended March 31, 1997, due to an increased number of units sold
resulting from the development of indirect sales channels, marketing the
PacketShaper and PacketWise brands and development of new products and feature
enhancements to existing products. Our sales strategy is to continue to develop
indirect sales channels, to increase marketing of the PacketShaper and
PacketWise brands and to develop new products and feature enhancements to
existing products.

Cost of revenues. Our cost of revenues has increased in absolute dollars
each quarter since the three months ended March 31, 1997, primarily due to
increased sales. Fluctuations in the cost of revenues as a percentage of total
net revenues have resulted from variations in the mix of products sold and
variations in the channel mix. During the first three quarters of 1997, our
units shipped were manufactured by small volume specialty house manufacturers
rather than by our current high-volume contract manufacturers. Our gross margin
increased in the three months ended December 31, 1997 consistent with our launch
of the PacketShaper 4000, which is our highest margin product. Gross margin
increased from 68.1% for the three months ended September 30, 1998 to 70.6% for
the three months ended December 31, 1998 to 72.4% for the three months ended
March 31, 1999 to 73.0% for the three months ended June 30, 1999. The increases,
beginning in the three months ended December 31, 1998, were due to the
recognition of licensing revenues from our OEM relationship with ADC
Telecommunications.

Research and development. Our research and development expenses have
fluctuated in absolute dollars since the three months ended March 31, 1997.
Research and development expenses increased in the three months ended June 30,
1997 and September 30, 1997 due to increased prototype expenses and consulting
fees related to the launch of the PacketShaper 1000 and 4000 models. Research
and development expenses increased in the three months ended December 31, 1997
primarily due to increased personnel expenses and costs associated with a
facilities move. Research and development expenses increased in the three months
ended December 31, 1998 due to the hiring of additional engineers and increasing
consulting fees related to new product development initiatives. Research and
development expenses have generally decreased as a percentage of total net
revenues, due to increased net revenues.

Sales and marketing. Our sales and marketing expenses have generally
increased in absolute dollars since the three months ended March 31, 1997,
primarily due to increased salaries, commissions and related personnel expenses.
Marketing expenses generally increased in the second and fourth quarters of 1997
and 1998 due to increased expenditures related to trade shows. Sales and
marketing expenses increased for the three months ended December 31, 1997, due
to increased expenditures related to the launch of the PacketShaper 1000 and
4000 models. Sales and marketing expenses have generally decreased as a
percentage of total net revenues, due to increased net revenues.

General and administrative. General and administrative expenses have
generally increased in absolute dollars since the three months ended March 31,
1997, primarily due to the addition of finance, information technology and
administrative personnel. General and administrative expenses increased for the
three months ended December 31, 1997, primarily due to the costs associated with
a facilities move. General and administrative expenses have generally decreased
as a percentage of total net revenues, primarily due to increased net revenues.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations primarily from the sale of preferred stock
and other financing activities such as bank credit against accounts receivable,
subordinated debt offerings and capital equipment leasing. As of June 30, 1999,
we had cash, cash equivalents and short-term investments of $7.7 million which
included amounts borrowed under our credit facilities.

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We have a lease to finance the acquisition of computer software and
hardware, and furniture. The lease expires on June 30, 1999. We entered into a
revolving credit facility against accounts receivable in January 1999 which
provides borrowings of up to $3.0 million. Borrowings under this credit facility
bear interest at the prime rate, which was 7.75% as of June 30, 1999, and are
due upon demand and are secured by substantially all of our assets. As of June
30, 1999, we had an outstanding balance of $1.5 million. The agreement expires
on January 10, 2000. We also entered into subordinated loan and security
agreements in January and May 1999. Borrowings under these loans were $2.5
million individually, bear interest at a rate of 12.25% and 12.76% per annum,
respectively, and are secured by all of our tangible assets.

Net cash used by operating activities was $3.2 million for the six months
ended June 30, 1999. Net cash used by operating activities during the six months
ended June 30, 1999 was primarily due to net losses and decreases in deferred
revenues and accounts payable, partially offset by a decrease in accounts
receivable. Net cash used by operating activities was $7.0 million in 1998 and
$6.1 million in 1997. During 1997 and 1998, net cash used by operating
activities was primarily due to net losses and increases in accounts receivable,
partially offset by increases in deferred revenue and accrued expenses.

Net cash used in investing activities was $1.6 million for the six months
ended June 30, 1999 as a result of net purchases of short-term investments and
property and equipment. Net cash used by investing activities was $605,000 in
1997 and $2.6 million in 1998. Cash was used during these periods to acquire
property and equipment and purchase investments. There were no short-term
investments at December 31, 1997. We currently do not have significant capital
spending or short-term purchase commitments, but expect to continue to engage in
capital spending in the ordinary course of business. During 1998, we expensed as
incurred all software development costs.

Net cash provided by financing activities was $6.8 million for the six
months ended June 30, 1999. The net increase was primarily due to subordinated
debt offerings that resulted in proceeds of $5.0 million and a revolving credit
facility against accounts receivables that netted $1.5 million. Net cash
provided by financing activities in 1997 was $4.9 million and $9.7 million in
1998. Net cash used by financing activities in 1997 and 1998 primarily
represented repayment of indebtedness. Net cash provided by financing activities
during 1997 and 1998 was primarily due to the issuance of preferred stock.

We expect to experience growth in our working capital needs for the
foreseeable future in order to execute our business plan. We anticipate that
operating activities, as well as planned capital expenditures, will constitute a
material 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 the net proceeds from this offering, together with our
current cash and cash equivalents, cash generated from operations and available
borrowings under our line of credit, will be sufficient to meet our anticipated
cash requirements for working capital and capital expenditures for at least the
next 12 months.

DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily
to our cash equivalents and short-term investments. The short-term investments
are available for sale. We do not use derivative financial instruments in our
investment portfolio. As stated in our investment policy, we are averse to
principal loss and ensure the safety and preservation of our invested funds by
limiting default and market risks. We mitigate default risk by investing in only
investment-grade securities. The portfolio includes marketable securities with
active secondary or resale markets to ensure portfolio liquidity. All short-term
investments have a fixed interest rate and are carried at market value, which
approximates cost.

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As of December 31, 1998, we had cash equivalents and short-term investments
of $4.3 million with a weighted average interest rate of 5.7%. These investments
mature in 1999.

A hypothetical increase or decrease in market interest rates of 10% from
the December 31, 1998 rates would cause the fair value of these investments to
change by an insignificant amount.

We invoice all of our foreign customers from the United States in U.S.
dollars and all revenues are collected in U.S. dollars. In addition, we do not
have significant cash balances denominated in foreign currencies. As a result,
we do not believe that we have significant market risks associated with foreign
currencies or related to sales and collections.

YEAR 2000 READINESS DISCLOSURE

Assessment. The year 2000 problem affects the computers, software and other
equipment that we use, operate or maintain for our operations. Accordingly, we
have organized a project team responsible for monitoring the assessment and
remediation status of our year 2000 projects. This project team is currently
assessing the potential effects and costs of remediating the year 2000 problem
for our internal systems. To date, we have not obtained verification or
validation from any independent third parties of our processes to assess and
correct any of our year 2000 problems or the costs associated with these
activities.

Internal infrastructure. We believe that we have identified
mission-critical computers, servers and applications, and our business systems
and related equipment used in connection with our internal operations that will
need to be evaluated to determine if they must be modified, upgraded or replaced
to minimize the possibility of a material disruption to our business. Upon
completion of such evaluation, which we expect to occur by July 1999, we expect
to commence the process of modifying, upgrading and replacing major systems that
have been assessed as adversely affected, and expect to complete this process
before the occurrence of any material disruption of our business.

Systems other than information technology systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems and other common devices may
be affected by the year 2000 problem. We are currently assessing the potential
effects and costs of remediating the year 2000 problem on our office equipment
and our facilities and expect this process to be completed by the end of the
calendar year 1999.

Products. We have tested and intend to continue to test all of our products
for year 2000 problems. To date, we have been able to correct any problems with
our products relating to the year 2000 problem. We currently do not expect any
significant year 2000 problems to arise with our products. We have generally
represented to our indirect channel partners and end users that our products are
year 2000 compliant, and if that turns out to be untrue, these parties may make
claims against us which may result in litigation or contract terminations.

We estimate the total cost to us of completing any required modifications,
upgrades or replacements of our internal systems will not exceed $100,000,
almost all of which we believe will be incurred in 1999. Based on the activities
described above, we do not believe that the year 2000 problem will have a
material adverse effect on our business or operating results. In addition, we
have not deferred any material information technology projects as a result of
our year 2000 problem activities.

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Suppliers. We are in the process of assessing the readiness of our
sole-sourced component suppliers. We expect that we will be able to resolve any
significant year 2000 problems with sole-sourced component suppliers; however,
we cannot assure you that these suppliers will resolve any or all year 2000
problems before the occurrence of a material disruption to the operation of our
business. Any failure of these third parties to timely resolve year 2000
problems with their systems could harm our business.

Most likely consequences of year 2000 problems. We expect to identify and
resolve all year 2000 problems that could adversely affect our business
operations. However, we believe that it is not possible to determine with
complete certainty that all year 2000 problems affecting us have been identified
or corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, no one can accurately
predict how many year 2000 problem-related failures will occur or the severity,
duration or financial consequences of these perhaps inevitable failures. As a
result, we believe that the following consequences are possible:

- a significant number of operational inconveniences and inefficiencies for
us, our contract manufacturers and our indirect channel partners and end
users that will divert management's time and attention and financial and
human resources from ordinary business activities;

- business disputes and claims for pricing adjustments or penalties due to
year 2000 problems by our indirect channel partners and end users; and

- a number of serious business disputes alleging that we failed to comply
with the terms of contracts or industry standards of performance, some of
which could result in litigation or contract termination.

Contingency plans. We are currently developing contingency plans to be
implemented if our efforts to identify and correct year 2000 problems affecting
our internal systems are not effective. We expect to complete our contingency
plans by the end of September 1999. Depending on the systems affected, these
plans could include:

- accelerated replacement of affected equipment or software;

- short to medium-term use of backup equipment and software;

- increased work hours for our personnel; and

- use of contract personnel to correct on an accelerated schedule any year
2000 problems that arise or to provide manual workarounds for information
systems.

Our implementation of any of these contingency plans could harm our
business.

The discussion of our efforts and expectations relating to year 2000
compliance are forward-looking statements. Our ability to achieve year 2000
compliance and the level of incremental costs associated with compliance could
be adversely affected by, among other things, availability and cost of
programming and testing resources, third-party suppliers' ability to modify
proprietary software, and unanticipated problems identified in the ongoing
compliance review.

Disclaimer. The discussion of our efforts and expectations relating to year
2000 compliance are forward-looking statements. Our ability to achieve year 2000
compliance and the level of incremental associated cost, could be adversely
affected by, among other things, availability and cost of programming and
testing resources, third-party suppliers' ability to modify proprietary software
and unanticipated problems identified in the ongoing compliance review.

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RECENTLY ISSUED ACCOUNTING STANDARD

In June 1998, the FASB issued Statement of Financial Accounting Standards,
or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. We will adopt SFAS No. 133 for 2000. We believe that this statement
will not have a significant impact on our business.

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BUSINESS

OVERVIEW

Packeteer is a provider of network software products that enhance
mission-critical application performance over enterprise WANs and the Internet.
These application-adaptive bandwidth management solutions give businesses and
service providers per-application control of bandwidth at congested WAN access
links. Our bandwidth management solutions are application-adaptive because they
allow network managers to identify different applications at the WAN access link
and to control the bandwidth allocated to each of these applications, enabling
them to protect the performance of their most critical applications.

We deliver comprehensive application-adaptive bandwidth management by
discovering and classifying network traffic, analyzing application and network
performance, controlling traffic flows and then reporting on performance. These
four steps are accomplished through our PacketWise software which is embedded in
our PacketShaper family of products and in the networking products of our
technology partners. Our PacketShaper product family consists of hardware
platforms based on Intel compatible microprocessor technologies. Installing
PacketShaper imposes no changes to the existing network's equipment,
configuration or software.

We have shipped over 2,800 PacketShapers and have established a network of
over 100 VARs, distributors and systems integrators that sell our solutions in
over 50 countries. In addition, we have business partners who license our
PacketWise software for integration into their networking products and other
partners, such as Lucent Technologies, who resell our products under their
private labels.

INDUSTRY BACKGROUND

The Emergence of Internet Computing

Today, both the Internet and its underlying protocol TCP/IP, have grown to
positions of prominence in enterprise networking. Protocols are predefined
mechanisms for computers to communicate over networks. From its origins as a
network connecting academic and government institutions, the Internet has
evolved into an interactive communications and commerce platform supporting
businesses' daily operations. Originally intended to accommodate non-interactive
traffic such as file transfers and e-mail, the Internet and TCP/IP were designed
with the basic goals of connectivity, versatility and bandwidth exploitation.
With the evolution towards Internet computing, TCP/IP has become the
communications fabric, or as is commonly referred to in the technology industry,
the underlying protocol, of mission-critical enterprise networks. The Internet
has enabled a new generation of interactive applications to deliver core
business functions, including e-commerce, data access and information exchange,
to a broad range of users. Leveraging the fundamental attributes of the Internet
and TCP/IP, businesses, consumers and suppliers have become better connected.
This rapid development of a vast connected economy has given rise to a new
innovative business model, the Internet computing model.

The rapid emergence of Internet computing has had a significant effect on
today's enterprise networks and has created new challenges for information
technology managers. As more interactive business applications are developed
using web-enabled versions of enterprise software platforms, such as SAP R/3,
Oracle, PeopleSoft and Baan, the amount of network data is increasing
dramatically. E-commerce extends the confines of the enterprise network across
the Internet, making application performance difficult to ensure. Enterprise
users access graphics-intensive web sites, download large files, view streaming
media presentations, monitor news and stock quotes and access other non-critical
information over the Internet. The resulting traffic deluge impacts network
resources that serve point-of-sale, order processing, enterprise resource

planning, supply-chain management and other vital business functions.

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Internet computing relies on TCP/IP as the underlying protocol to support
distributed enterprise applications and the delivery of electronic services. The
Internet Protocol, or IP, provides for routing of packets across networks that
utilize TCP/IP as their underlying protocol. The Transmission Control Protocol,
or TCP, provides flow control for, and reliable ordered delivery of, Internet
Protocol packets. Unlike early non-interactive applications that did not require
real-time responsiveness, today's enterprise and e-commerce applications depend
on timely access to data and real-time transaction responses to ensure
productivity and a high quality of experience for end users. The shift toward
real-time, delay-sensitive data is accelerating as corporations begin to
converge database transactions and multimedia traffic onto their enterprise
networks. TCP/IP is unable to differentiate between traffic types and is
designed so that each transmission attempts to consume all available bandwidth.
These characteristics, which make TCP/IP suitable for non-interactive traffic,
threaten the performance of today's mission-critical applications.

The Traffic Bottleneck at the WAN Access Link

In recent years, the adoption of Fast Ethernet and Gigabit Ethernet
technologies has reduced network congestion on the LAN. Simultaneously, the
deployment of fiber infrastructure in the service provider backbone has also
reduced bandwidth contention in that portion of the network. However, the bridge
between the two, the WAN access link, has remained the slow, weak link in the
chain, forming a bandwidth bottleneck. WAN access link capacity is often
constrained, expensive and difficult to upgrade. When faced with bandwidth
contention at the bottleneck, TCP/IP provides neither a means to give
preferential treatment to select applications nor a good mechanism to
effectively control data flows because TCP flow control is handled only by end
systems. TCP/IP reacts to network congestion by discarding data packets and
sporadically reducing packet transmissions from the host computer. In enterprise
networks that are overwhelmed by increasing amounts of both non-critical and
mission-critical traffic, unmanaged congestion at the WAN access link undermines
application performance and can result in impaired productivity and lost
revenues.
LOGO

Today's enterprise networks require solutions that ensure mission-critical
application performance, increase network efficiency, and enable the convergence
of data, voice and video traffic. Enterprises are seeking to align their
networks with their business priorities by making them adaptive to the unique
requirements of the growing mix of mission-critical applications. At the same
time, they seek to leverage investments in application software and proactively
control recurring network costs by optimizing bandwidth utilization.

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Many existing and newly emerging telecommunications service providers are
also seeking to address the needs of enterprises that are adopting Internet
computing. Service providers have traditionally functioned as WAN bandwidth
suppliers, leasing data lines and selling Internet access to businesses and
consumers. In the face of heightened competition, service providers are seeking
to differentiate themselves by offering tiered services in order to attract and
retain customers and increase profitability. These offerings include web
hosting, application outsourcing and managed network services. To deliver these
services, service providers must be able to ensure network and application
performance and better manage and allocate network resources.

Limitations of Existing Approaches

Businesses and service providers currently employ several approaches in an
attempt to alleviate network congestion at the WAN access link. These approaches
include the following:

Adding bandwidth and infrastructure to over-provision the network. This
approach requires expensive upgrades to WAN access links and associated network
equipment. Moreover, incremental increases in bandwidth only temporarily
alleviate network congestion, leaving the following problems unresolved:

- Over-provisioning results in under-utilization of the network during
non-peak periods;

- Increases in bandwidth tend to be consumed quickly by latent demand
within LAN and backbone infrastructure;

- Deployment costs and increases in recurring service charges can be
prohibitively expensive, especially for networks with many remote sites
and for international networks; and

- There is no application performance visibility to enable effective
capacity planning.

Implementing queuing-based features. Queuing technologies provide some
degree of prioritization and are frequently incorporated in routers, which are
devices that forward data packets from one LAN or WAN to another. These
implementations engage only after queues form, and attempt to provide quality of
service, or QoS, by reordering packets and then discarding packets when the
queues overflow. Router-based approaches typically identify and prioritize
traffic based on rudimentary characteristics such as port number, a simplistic
mechanism to coordinate the transmission of application data, IP address or
protocol type. While these approaches can alleviate some of the bandwidth
contention problems, they are inadequate to handle an increasingly complex mix
of interactive and real-time mission-critical applications. These limitations
include:

- Queuing-based approaches are reactive in nature and can only address
congestion after the fact, rather than preventing it from occurring;

- Congested queues result in packet loss, retransmissions and delays that
waste bandwidth and undermine application response times;

- Limited traffic classification capabilities inadequately distinguish
between different types of applications, resulting in sub-optimal
prioritization of traffic;

- Queuing does not directly control end-to-end application performance; and

- Queuing-based approaches do not control inbound traffic flowing from the
WAN to the LAN.

Installing network-management tools. Several vendors provide software that
analyzes and monitors network traffic. While these products enable network
administrators to determine how

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bandwidth is being utilized, thereby identifying where bandwidth management is
required, they do not comprise a complete solution for the following reasons:

- These products only monitor and report application performance and
bandwidth utilization, offering no means of fixing or resolving
performance problems; and

- Products that detect problems once they occur are reactive and don't
proactively prevent similar problems in the future.

The Bandwidth Management Opportunity

As Internet computing is more widely adopted, both businesses and service
providers are seeking ways to cost-effectively manage bandwidth, ensure
application performance and increase network efficiency. As mission-critical
applications compete with bandwidth-hungry non-critical traffic for limited
network resources, enterprises require a solution that not only monitors and
reports on application performance problems, but also provides the means to fix
such problems. As the complexity of their network infrastructures increases,
enterprises seek solutions that integrate easily into the existing network and
are cost-effective to deploy and maintain. In response to growing competition,
service providers are looking to create new revenue streams by offering
differentiated network and application-based services that meet the needs of
enterprise customers. Whether the solution is implemented by the enterprise or
purchased from a service provider, effectively managing the performance of
mission-critical applications is essential to businesses relying on Internet
computing.

THE PACKETEER SOLUTION

Packeteer provides application-adaptive bandwidth management solutions that
enhance the performance of mission-critical applications over enterprise WANs
and the Internet. Addressing the needs of both enterprises and service
providers, our products incorporate innovative technology for discovery,
classification, analysis, control and management of disparate traffic flows on
congestion-prone WAN access links.

PacketWise software is at the core of our bandwidth management solutions
and is embedded in Packeteer-manufactured products and OEM-manufactured
products. Our PacketShaper family of products consists of hardware platforms
based on Intel compatible microprocessor technologies that run various
configurations of our PacketWise software. Our PacketShaper products provide
customers with a solution designed to be deployed easily and cost-effectively
without additional investment in or impact to network equipment, software or
infrastructure. In addition, by working with OEM partners to embed PacketWise
technology into their networking products, we are able to address new market
opportunities that are outside of the scope of our PacketShaper family of
products.

As the enterprise network increasingly extends to include the Internet,
network managers are challenged with managing the dynamic growth in critical and
non-critical traffic. Each particular application and type of traffic -- such as
transactions, file transfers, voice or streaming multimedia -- requires a
tailored management strategy to ensure optimal performance. Our solutions are
based on a comprehensive four-step methodology that provides the elements for
effective bandwidth management:

I. Discover and Classify Traffic. Currently, PacketShaper automatically
detects and identifies over 150 types of traffic. Network managers can
refine traffic categories based on application, protocol, web page,
addresses, users and host names. In addition, managers can define
criteria to recognize proprietary applications so that PacketShaper
automatically classifies the associated traffic. Sophisticated traffic
classification enables network managers to understand network
congestion and to precisely target bandwidth-allocation policies.

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II. Analyze Performance. PacketShaper provides detailed analysis and
evaluation of network resources and application performance.
PacketShaper tracks traffic levels and trends, measures response times
and calculates network efficiency. Network managers can analyze all
traffic traversing a particular WAN access link or can focus on an
individual application, client, server or traffic type.

III. Control Traffic. PacketShaper allows network managers to control
application performance and network resources by defining precise
bandwidth-allocation policies. Policies can protect important traffic,
cap bandwidth-intensive traffic and guarantee service levels. Network
managers can tailor management strategies and bandwidth allocation to
suit the requirements of particular applications or traffic, such as
voice, video or data. PacketShaper paces both inbound and outbound
traffic over the WAN access link to optimize performance and control
end-to-end QoS. Our control technology can also prohibit specific
applications, such as web-based entertainment or leisure applications,
from utilizing any enterprise resources.

IV. Report Performance. PacketShaper provides reports describing current
and historical network performance. Comprehensive reports, graphs and
tables enable network managers to refine bandwidth management policies,
evaluate efficiency and plan capacity. PacketShaper automatically
measures per-transaction response times for each application. Managers
can set, enforce and monitor service-level agreements, which quantify
desired QoS for a particular application or customer.

Our dynamic four-step approach to application-adaptive bandwidth management
enables businesses and service providers to realize the following key benefits:

- Gain Network Performance Visibility and Insight. PacketShaper provides
valuable historical and real-time information about application
performance and network utilization through an easy-to-use browser
interface. Network managers gain a better understanding of the nature of
traffic running on their networks and the problems and inefficiencies
associated with that traffic.

- Ensure Bandwidth to Mission-Critical Applications. Policy-based bandwidth
allocation protects bandwidth for mission-critical applications such as
SAP R/3, Oracle and Baan, preventing disruptions from bandwidth-hungry
but less urgent applications such as file transfers or casual web
browsing.

- Simplify Deployment. PacketShaper installs easily and automatically
starts to discover, classify and analyze network traffic and suggests
policies to optimize performance. It complements the existing network
infrastructure, requires no router reconfiguration or desktop changes and
is designed not to disrupt network connectivity in the event of software
or hardware failure.

- Enable Interactive Services. VoIP, real-time video and other streaming
media require guaranteed bandwidth in order to achieve minimum quality
requirements. By using PacketShaper to set minimum bandwidth guarantees
and explicit delay bounds, network managers and service providers can
deliver smooth and predictable performance of these delay-sensitive
multimedia services.

- Increase Network Efficiency. PacketShaper improves network efficiency and
helps delay expensive capacity upgrades by managing non-critical traffic
to reduce retransmission overhead and smooth the variability in bandwidth
utilization.

- Facilitate E-Commerce. PacketShaper can reserve bandwidth for individual
web site customers on a shared WAN connection. PacketShaper can also
optimize response time for certain web pages, such as product order and
home pages, and redirect users with slower connections to less
data-intensive web pages.

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STRATEGY

Our objective is to be the leading provider of application-adaptive
bandwidth management solutions. Key elements of our strategy include:

Focus on Bandwidth Management Needs of Enterprises. We are focused on
providing high performance, easy-to-use and cost-effective bandwidth management
solutions to enterprises whose businesses are based on Internet computing. For
these businesses, managing mission-critical application performance and
optimizing the value of the network will continue to be competitive
requirements. As the Internet proliferates and new Internet-based applications
and services emerge, we believe businesses will continue to adopt Internet
computing business models at a rapid rate and that effective bandwidth
management will become an increasingly important requirement for maintaining an
efficient enterprise network. We believe we have established a differentiated
market position based on our comprehensive solution that provides for effective
bandwidth management, early market leadership and brand awareness. We intend to
continue to direct our development, sales and marketing efforts toward
addressing the bandwidth management needs of the Internet computing market.

Expand Presence in Telecommunications Service Provider Market. We are
actively pursuing opportunities in the service provider market and currently
have numerous service provider customers, including: BIGLOBE, a wholly owned
subsidiary of NEC Corporation; CLEAR Communications Ltd.; NTT Corporation;
SONERA Technologies; Telefonica de Espana; and Verio Inc. We believe service
providers are under increasing pressure to attract new subscribers, reduce
subscriber turnover, improve operating margins and develop new revenue streams.
Specifically, service providers seek to differentiate themselves through
value-added service offerings, such as web hosting, application outsourcing and
application service-level management. We believe our PacketShaper and PacketWise
solutions enable service providers to deliver these higher value services by
enhancing network and application performance and better managing and allocating
network resources. We intend to increase demand for our solutions with service
providers by leveraging our strong enterprise presence.

Continue to Build Indirect Distribution Channels. We believe we have built
a significant worldwide distribution channel. We currently have over 100 VARs,
distributors, systems integrators and OEMs, that sell our products in over 50
countries. These relationships include: Syncordia Solutions, a division of
British Telecommunications PLC; Datacraft Asia Ltd.; Fujitsu Limited; Macnica;
Nissho Electronics Corporation; Persetel PQ Client Computing, a subsidiary of
Comparex Holdings; Unisys Corp.; and Williams Communications Solutions, LLC.
Recently, we entered into an agreement with Alcatel Business Systems to
distribute our products globally. We intend to continue to develop and support
new VAR and distribution relationships, as well as to establish additional
indirect channels with service providers, systems integrators and OEMs. We
believe this strategy will enable us to increase the worldwide deployment of our
products.

Develop OEM Relationships to Broaden PacketWise Deployment. We have
designed our PacketWise software in distinct modules to integrate with network
hardware platforms offered by other vendors. This integration brings Packeteer's
unique capabilities into markets where QoS is required but is beyond the scope
of the PacketShaper offering. We currently have two software OEM relationships.
ADC Telecommunications has licensed portions of our PacketWise software to
incorporate in its networking products. Adtran has licensed PacketWise
technology to enable classification and partitioning in managed network services
products. In addition, Lucent Technologies, Memorex Telex and NEC sell
PacketShaper with PacketWise software under their own labels. These private
label relationships allow our products to reach consumers and markets that we
would have difficulty reaching alone. With Memorex Telex and NEC we have
partners in Asia that provide local account management. Lucent Technologies
provides us a worldwide partnership with a

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leader in the convergence of data and voice. We intend to pursue additional OEM
relationships in order to drive the proliferation of our technology in
enterprise and service provider networks.

Extend Bandwidth Management Technology Leadership. Our technological
leadership is based on our sophisticated traffic classification, flexible
policy-setting capabilities, precise rate control expertise and ability to
measure response time and network performance. We intend to invest our research
and development resources to increase performance by handling higher speed WAN
connections, functionality by identifying and managing additional applications
or traffic types, and modularity by taking individual components of Packetwise
together or on a stand-alone basis of our existing bandwidth management
solutions and to develop new leading-edge technologies for emerging markets.
This includes extending our bandwidth management solutions to incorporate
in-depth application-management techniques that will improve performance over
the Internet and reduce bandwidth requirements. We plan to extend our current
portfolio by offering PacketWise-defined solutions that target the specific
needs of three primary market opportunities: application service-level
management, enterprise bandwidth management and service provider bandwidth
management.

PRODUCTS

We provide application-adaptive bandwidth management solutions to address
the needs of both businesses and service providers. Our products incorporate
innovative technology for discovery, classification, analysis, control and
management of disparate traffic flows in congestion-prone TCP/IP WAN access
links. Our PacketWise software is at the core of our bandwidth management
solutions and is embedded in our PacketShaper family of products. PacketShaper
products consist of Intel compatible microprocessor technology running various
configurations of PacketWise. We also license our PacketWise software to OEM
partners for incorporation in their networking products.

PacketShaper is available in three models to fit a broad range of network
environments, including corporate and service providers' data centers,
enterprise networks, branch offices and remote sites, as well as a wide variety
of additional network environments. Our PacketShaper products support multiple
WAN access link speeds. In addition, our solution supports thousands of
simultaneous sessions involving a wide range of protocols. Each of our
PacketShaper models is described below:

<TABLE>
<S> <C>
PacketShaper 1000 PacketShaper 1000 targets the needs of branch offices and
remote sites. It connects to 10 megabits per second, or
Mbps, Ethernet LANs and manages WAN access links with speeds
up to 384 Kbps.
PacketShaper 2000 PacketShaper 2000 targets the requirements of enterprise
network administrators and Internet service providers. It
connects to 10 Mbps LANs and manages WAN access links with
speeds up to 8 Mbps, or two T1/E1 lines.
PacketShaper 4000 PacketShaper 4000 targets corporate data centers, Fast
Ethernet LAN, or 100 Mbps, environments and Internet service
providers. It connects to 10 or 100 Mbps LANs and controls
WAN access links with speeds up to 45 Mbps, or a T3 line.
This model also has redundant power supplies and cooling
fans, which are important features in service provider
environments. Even if one of the fans or power supplies
fails, PacketShaper still operates.
</TABLE>

37
<PAGE> 42

PacketShapers are designed to be deployed easily and cost-effectively in an
existing network configuration. PacketShaper does not require any new protocols,
standards, router reconfiguration or desktop changes. Additionally, each
PacketShaper features a passive connector that maintains network connectivity if
a PacketShaper is turned off or shuts down due to a hardware or software
failure. PacketShapers are typically deployed between the LAN and the WAN access
router in order to manage bandwidth at the WAN access link where traffic needs
to be controlled to avoid a bottleneck. The diagram below depicts examples of
how PacketShapers are deployed on customer networks.

LOGO

38
<PAGE> 43

TECHNOLOGY

We differentiate our solution by combining our knowledge of enterprise
applications with our expertise in underlying network protocols. We have
invested heavily in developing valuable, proprietary software and related
technologies. In particular, we have developed expertise and technology in these
major areas: sophisticated traffic discovery and classification, flexible policy
definition and enforcement, precise rate control, application-based
response-time measurement, high-performance packet engines and scaleable
configuration. We have tied together these technologies with an easy-to-use, web
browser interface in order to insulate the end user from the sophistication of
the underlying technology and to allow them to derive the benefits of the
technology with minimal effort.

Sophisticated Traffic Discovery and Classification

The ability to automatically detect and classify an extensive collection of
applications and protocols differentiates PacketShaper from other bandwidth
management technologies. Sophisticated traffic classification is crucial to
understand network congestion and to target appropriate bandwidth-allocation
policies. Network software or devices that claim QoS features typically offer
rudimentary solutions because they can identify traffic based only on protocol
type or port numbers. This approach limits application-specific QoS capabilities
because these products do not recognize the detailed information required to
make intelligent classification decisions. PacketShaper discovers and classifies
traffic by focusing on content and applications where value to the end user
lies.

Relying only on more basic protocols to classify traffic prevents network
managers from discovering important traffic trends and limits policy-setting.
Sophisticated traffic types such as VoIP, Oracle 8, TN3270, Citrix, and
Microsoft DCOM cannot be identified using rudimentary traffic classification
schemes. PacketShaper identifies traffic markers, detects dynamic port
assignments and tracks transactions with migrating port assignments. This
sophisticated traffic classification allows network managers to set policies and
control the traffic related to an individual application, session, client,
server or traffic type. PacketShaper permits a network manager to isolate each
published application running within a Citrix-based environment and can also
differentiate among various applications using the same port. For example, web
browsing, traffic from mission-critical web sites, PointCast and PeopleSoft e7.5
are all assigned to the same TCP port number but can be individually classified
using PacketShaper.

39
<PAGE> 44

PacketShaper needs no assistance from network managers to automatically
detect and identify over 150 traffic types. Without a sophisticated
identification and classification capability, managers are usually unaware of
the diversity of their own network traffic. In addition, managers can define
proprietary applications so that their traffic can be recognized and reported.
Our PacketShaper technology is differentiated by its ability to recognize older
enterprise protocols, such as AppleTalk, DECnet, IPX and SNA. We continuously
enhance PacketShaper's classification capability to include new traffic types.
Any traffic category can be made even more specific by adding more detailed
criteria -- for example, Oracle traffic to or from a particular database. The
PacketShaper automatically classifies over 150 different traffic types, some of
which are listed below. The traffic types are named either with their associated
protocol or application and are grouped according to the class of application
which generated that traffic. Each traffic type has an associated protocol which
allows it to be recognized on the network.

<TABLE>
<S> <C> <C> <C> <C> <C>
CLIENT/SERVER DIRECTORY E-MAIL FILE INTERNET LEGACY LAN
CORBA SERVICES cc:MAIL SERVER ActiveX AND NON-IP
FileMaker Pro CRS IMAP Lockd FTP AppleTalk
FIX DHCP MS DCOM NetBIOS-IP Gopher DECnet
LotusNotes DNS (MS NFS HTTP IPX
MS DCOM DPA Exchange IP SNA
MS SQL Finger MSSQ GAMING IPv6 FNA
Oracle Ident POP3 SYSTEMS IRC LAT
SunRPC Kerberos SMTP Doom NNTP NetBEUI
LDAP Kali SSH AFP
RADIUS Quake SSL
TACACS Quake II TCP
Whois TFTP
UDP
UUCP
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C>
NETWORK PRINT ROUTING SESSION TUNNELING VOICE OVER
MANAGEMENT LPR AURP Citrix PROTOCOL IP
PROTOCOL TN3287 BGP RDP DLS CUSeeMe
Cisco TN5250p CBT Telnet GRE H.323
Discovery DRP Timbuktu IPSEC I-Phone
ICMP PUSH EGP TN3270 L2TP Micom VIP
NTP Backweb EIGRP TN5250 PPTP RTCP
SNMP Marimba IGMP Xwindows RTP
SYSLOG PointCast OSPF T.120
PIM STREAMING VDOPhone
RARP MEDIA
RIP MPEG
Spanning NetShow
Tree RealAudio
RTSP
ST2
Streamworks
</TABLE>

Flexible Policy Definition and Enforcement

PacketShaper provides network managers flexible tools to tailor solutions
for different applications or traffic types. Unlike queuing-based approaches,
PacketShaper allows network managers to do more than just prioritize one traffic
type over another. Our policy features offer the flexibility required to tune
bandwidth to specific applications and dynamically utilize available bandwidth.
Our policy features may be used individually or in conjunction with each other.
PacketShaper policy features include:

- Per-session rate policies. These policies enable network managers to
limit or guarantee bandwidth to each individual session of an
application's traffic. Per-session policies allocate each session an
appropriate amount of bandwidth and prevent one large session from

40
<PAGE> 45

inappropriately impacting others. Network managers specify a
minimum-guaranteed rate and allow the session scaled access to additional
available bandwidth. For example, a bandwidth cap for traffic prevents
web browsers from competing for bandwidth required by mission-critical
applications. Likewise, a guaranteed rate for audio or video streams
ensures that they are not interrupted by traffic that tends to consume
any available bandwidth.

- Partitions. Partitions allow the creation of a separate, exclusive
channel within a WAN access link. Partitions represent aggregate
bandwidth minimums or maximums governing how much of the network can be
used by a single application or traffic category. Partitions can be
fixed, creating dedicated virtual circuits, or burstable, creating
virtual circuits whose unused bandwidth can be shared.

- Priority policies. Priorities may be assigned to each application or
traffic category. Eight priority levels are available. Priority policies
are ideal for traffic that does not burst, non-IP traffic and traffic
characterized by small, high-priority flows.

- Admission-control policies. Admission control determines the response if
a bandwidth guarantee cannot be satisfied. Network managers may choose to
deny access, accommodate an additional user with less than guaranteed
performance, or, for web requests, redirect the request to another
server. For example, if an online streaming-video service suffers a high-
demand period and all available bandwidth is consumed, an
admission-control policy could present a web page explaining that
resources are busy. This allows a maximum number of users to receive a
targeted service quality without degradation as new users seek to access
the service.

- Discard and never-admit policies. These policies intentionally block
traffic. Discard policies toss packets without sending feedback to the
sender. Never-admit policies are similar to discard policies except that
the policy informs the sender that service is blocked.

Precise Rate Control

One of TCP/IP's primary weaknesses is an inability to guarantee QoS. Unlike
systems network architecture, or SNA, and asynchronous transfer mode, or ATM,
protocols, which have an embedded concept of rate, TCP/IP's attempts to consume
all available bandwidth conflict with the goal of predictable, consistent,
mission-critical application performance. PacketShaper's standards-based TCP
rate control technology overcomes TCP/IP's shortcomings by proactively
preventing congestion on both inbound and outbound flows and increasing overall
network throughput. Rather than discarding packets from a congested queue, TCP
rate control paces packet delivery to prevent congestion. Rate control uses the
remote user's access speed and real-time network latency to calculate the
optimal transmission speed. Evenly paced packet transmissions, instead of packet
bursts which consume all available bandwidth, yield significant efficiency gains
in the network. TCP rate control is a proactive and precise way to increase
network efficiency by avoiding retransmissions and packet loss and creates a
smooth, even flow rate that maximizes throughput. By employing TCP rate control,
PacketShaper manages the majority of traffic at the access link before network
congestion occurs.

For non-TCP based traffic, such as UDP, alternative rate-based management
techniques must be implemented. Typically UDP does not rely on acknowledgments
to signal successful receipt of data, and it therefore offers no means for flow
control. By directly controlling other TCP flows, however, PacketShaper
effectively makes bandwidth available for UDP flows. The combination of per flow
rate scheduling and explicit delay bounds removes latency and variability, or
jitter, for the UDP flows traversing the WAN access link.

For example, VoIP is a UDP-based application that is particularly
latency-sensitive, requiring packets to be evenly spaced to eliminate jitter.
PacketShaper enhances VoIP performance in two

41
<PAGE> 46

ways. First, PacketShaper manages competing traffic by using rate control to
constrain bursty TCP traffic. In addition, a rate policy for VoIP gives a
minimum bandwidth guarantee to each flow, ensuring that each voice stream gets
the bandwidth it needs for predictable performance. When there is a lull in the
conversation, any unused bandwidth is re-allocated to other traffic.

Application-Based Response-Time Measurement

PacketShaper's position in the enterprise network -- monitoring and
controlling all the traffic that passes -- gives it an opportunity to provide
accurate response-time measurements. Because it already handles and classifies
every packet, PacketShaper can easily calculate the time traffic spends
traveling between a client and a server and the time used by the server itself.

PacketShaper breaks each response-time measurement into network delay, the
time spent in transit, and server delay, the time the server used to process the
request. It can highlight clients and servers with the slowest performance.
PacketShaper allows network managers to set acceptability standards and then
track whether performance adheres to the standards.

High-Performance Packet Engines

Sophisticated classification and control of high-speed traffic must be
accomplished in an efficient manner. Adding significant delay in the process of
managing traffic flows would negate the resulting performance improvements.
Packeteer has developed expertise in the development of high-speed,
software-based packet engines running on real-time operating systems that can
efficiently process thousands of simultaneous high-speed connections with
minimal delay. This core-engine software technology scales to take advantage of
ever-increasing microprocessor performance to manage faster access links.

Scaleable Configuration

Large deployments require tools to ease the process of updating tens or
hundreds of PacketShapers that are distributed throughout the network. To
address these requirements, PacketShaper offers its own features, aligns with
industry standards and integrates with third-party tools.

For example, PacketShaper's Group Configuration Service is a feature in the
form of a web-based tool that network managers use to configure and deploy large
PacketShaper installations. As another example, PacketShaper can access a
lightweight directory access protocol, or LDAP, which is a networking industry
standard, to enable centralized management of data such as lists of IP
addresses. Finally, PacketShaper is accessible from within HP OpenView, a

Hewlett-Packard developed tool for network management.

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<PAGE> 47

CUSTOMERS

We sell all of our products through indirect channel partners. The
following is a representative list of our indirect channel partners by
geographic region:

<TABLE>
<CAPTION>
EUROPE, AFRICA
NORTH AND SOUTH AMERICA AND THE MIDDLE EAST ASIA
- -------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
AmeriNet, Inc. Activis, Ltd. AsiaSoft HK Ltd.
Bay Data Consultants ADAnet IIS Datacraft Asia Ltd.
Data Transit Alcatel Kanematsu USA, Inc.
DTM Corporation Antea Consulting Lan Systems Pty Ltd.
M-13 Data Construction Macnica, Inc.
MicroVisions Iperformances Nissho Electronics Corporation
NCA (Network Logical Networks Plc Teledata (Singapore) Ltd.
Computing Architects, Inc.) ME Networks AG Unitech Computer Systems Limited
NETPLEX Systems, Inc. MIEL
NETsource Persetel PQ Client Computing
Ocean Systems Engineer/ITI Telemation AG & Co Netzwerke
(OSEC) Wang Holdings Netherlands B.V.
SE Technologies, Inc.
Solunet, Inc.
ThinApse Corp
Trivalent LAN Concepts, Inc.
Unisys Corp. through LACD
</TABLE>

The following is a representative list of end users that have deployed
multiple PacketShapers:

<TABLE>
<CAPTION>
ENTERPRISES SERVICE PROVIDERS
- ------------------------------------------------------------------- --------------------------------
<S> <C> <C>
American Bottling Company Mitchell International, Inc. BIGLOBE
Autodesk, Inc. Motorola, Inc. British Telecommunications PLC
Borden Chemical Inc. Northwestern Mutual Life CLEAR Communications Ltd.
Boy Scouts of America Insurance Company Cypress Communications
Cytec Industries Inc. Sony Pictures Entertainment NTT Corporation
Domino's Pizza, Inc. Staley/Tate & Lyle North America SONERA Technologies
Grant Thornton International Standard & Poor's Telefonica de Espana
Hoechst Marion Roussel AG Transamerica Corporation Verio Inc.
Hewlett-Packard Company Unilever N.V.
Lucent Technologies Inc.
</TABLE>

In 1998, sales to Macnica accounted for 11.9% of total net revenues. For
the six months ended June 30, 1999, sales to ADC Telecommunications accounted
for 10.6% of total net revenues and sales to Macnica accounted for 10.5% of
total net revenues. In 1998, sales to the top 10 indirect channel partners
accounted for 45.0% of total net revenues and for the six months ended June 30
1999, sales to the top 10 indirect channel partners accounted for 46.2% of total
net revenues.

In 1998, sales to customers outside of North America constituted 54.7% of
total net revenues and in the six months ended June 30, 1999, revenues
attributable to sales to customers outside of North America constituted 55.0% of
total net revenues.

The following representative case studies of three of our current customers
illustrate how some of our customers have deployed our products:

Autodesk. Autodesk is a leading supplier of PC design software and
multimedia tools used for a wide range of design, engineering, mapping and
design-visualization purposes. Autodesk sought to reduce spending on expensive
international WAN connections to its worldwide offices, as well as to ensure
predictable performance for mission-critical applications such as SAP, Citrix
WinFrame and Microsoft Outlook. Before installing PacketShaper, Autodesk
required two permanent virtual circuits, or PVCs, for each of its hub locations:
one for mission-critical applications and another for secondary

43
<PAGE> 48

traffic such as file transfers. Using PacketShaper, Autodesk was able to
consolidate its network traffic, simplify its network management, reduce its PVC
requirements by half, and realize cost savings and efficiency by not maintaining
additional network infrastructure.

Domino's Pizza. Domino's Pizza is a leader in pizza delivery. When Domino's
purchased a new order-processing application from PeopleSoft, it sought to
ensure that appropriate bandwidth would be available on its corporate network
while preserving performance for other important traffic such as IPX, which is
used for access to network directory services. Using PacketShaper, Domino's was
able to identify the different types of traffic on its network, including
traffic types it had not previously known were consuming bandwidth. Network
managers defined bandwidth-allocation policies to enable PeopleSoft performance,
protect other mission-critical applications, and reduce bandwidth for non-
urgent traffic during times of contention.

Hoechst Marion Roussel. Hoechst Marion Roussel, or HMR, is a leading
pharmaceutical company with operations worldwide. When HMR began deploying SAP
R/3 in its Latin American operations to support mission-critical financial
management, manufacturing and sales functions, they found SAP R/3 competed for
network bandwidth with Microsoft Exchange. Adding more bandwidth was not an
effective solution because TCP/IP applications, such as Microsoft Exchange,
attempt to consume all of the available bandwidth on a network, leaving other
applications with inadequate bandwidth to perform properly. WAN bandwidth is
also very expensive in Latin America. Packeteer's TCP rate control technology
enabled HMR to manage their Microsoft Exchange traffic by setting appropriate
bandwidth policies for several applications and enabling SAP R/3 to perform even
during heavy network congestion. The easily deployable nature and remote
management capabilities of Packeteer's solution enabled HMR to deploy
PacketShapers in multiple sites where technical resources were scarce.

MANUFACTURING

We outsource our manufacturing, including warranty repair, to two contract
manufacturers. PEMSTAR, located in San Jose, California, manufactures our
PacketShaper 1000 and 2000, and Sanmina, located in San Jose, California,
manufactures our PacketShaper 4000. The manufacturing processes and procedures
for both of these manufacturers are ISO 9002 certified. Outsourcing our
manufacturing enables us to reduce fixed costs and to provide flexibility in
meeting market demand.

We design and develop the key components of our products, including printed
circuit boards and software. In addition, we determine the components that are
incorporated in our products and select the appropriate suppliers of these
components. Product testing and burn-in is performed by our contract
manufacturers using tests and automated testing equipment that we specify. We
also use inspection testing and statistical process controls to assure the
quality and reliability of our products.

We use a rolling seven-month forecast based on anticipated product orders
to determine our material requirements. Lead times for the materials and
components we order vary significantly and depend on factors such as specific
supplier, contract terms and demand for a component at a given time. We submit
purchase orders for quantities requested within 90 days. PEMSTAR, Sanmina or
Packeteer may terminate the contract without cause at any time. At that time the
terminating party must honor all open purchase orders.

MARKETING AND SALES

We target our marketing and sales efforts at enterprises and service
providers. Marketing and sales activities focus on reaching the corporate
application network managers responsible for the performance of mission-critical
applications in the enterprise. They also focus on reaching service

44
<PAGE> 49

providers that provide valued-added service offerings, such as web hosting,
application outsourcing and application service-level management.

Our marketing programs support the sale and distribution of our products
and educate existing and potential enterprise and service provider customers
about the benefits of our application-adaptive bandwidth management solutions.
Our marketing efforts include the following:

- publication of technical and educational articles in industry magazines;

- public speaking opportunities;

- web site-based communication and promotion;

- industry tradeshows, technical conferences and technology seminars; and

- advertising, direct mail and public relations.

We classify our distribution channels in the following three categories:

- Solution Partners. We have established a network of over 100 VARs,
distributors and systems integrators that sell our solutions in over 50
countries. These solution partners sell PacketShapers and other products
that are complementary to our application-adaptive bandwidth management
solution.

- Technology Partners. Technology partners are OEMs and companies with whom
we have established joint development relationships. For example, we
established a joint development relationship with Hewlett-Packard so that
PacketShapers can be viewed and managed through OpenView.

- Alliance Partners. We have developed a marketing alliance program to
establish new marketing relationships, as well as enhance existing
relationships, with hardware, software and systems vendors. We believe
that we can build brand awareness by working with alliance partners to
target the needs of specific customer environments. For example, we
formed an alliance with Citrix to enhance the performance of individual
applications within the Citrix MetaFrame and WinFrame environments and an
alliance with Clarent Corporation to enhance the quality of their VoIP
applications. We work with alliance partners on various joint marketing
initiatives, including product literature, direct mailings and seminars.

As of June 30, 1999, our worldwide sales and marketing organization
consisted of 51 individuals, including managers, sales representatives and
technical and administrative support personnel. We have ten domestic sales
offices located in Bedminster, New Jersey; Chicago, Illinois; Cupertino and San
Diego, California; Dallas and Houston, Texas; Fall River, Massachusetts;
Littleton, Colorado; Duluth, Georgia; and Tacoma, Washington. In addition, we
have four international sales offices located in Hong Kong; Sydney, Australia;
Tokyo, Japan; and Waddinxveen, The Netherlands.

We believe there is a strong international market for our bandwidth
management solutions. Our international sales are conducted primarily through
our overseas offices. Sales to customers outside of North America accounted for
54.7% of our total net revenues in 1998 and 55.0% of our total net revenues for
the six months ended June 30, 1999. In addition, sales to Asia Pacific accounted
for 31.0% of our total net revenues in 1998 and 28.7% of our total net revenues
for the six months ended June 30, 1999.

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<PAGE> 50

RESEARCH AND DEVELOPMENT

As of June 30, 1999, our research and development organization consisted of
26 employees, each with expertise in a different area of our software: core
engineering, classification, configuration and reporting management, user
interface and platform engineering. Since inception, we have focused our
research and development efforts on developing and enhancing our
application-adaptive bandwidth management solutions. To date, we have released
the following products and enhancements:

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
QUARTER PRODUCT OR
INTRODUCED ENHANCEMENT DESCRIPTION
- -------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Q1 1997 PacketShaper 2000 - First product introduced, a T1
PacketWise v1.1 bandwidth-capacity hardware model
- -------------------------------------------------------------------------------------------------
Q2 1997 PacketWise v2.0 - Policy Console, which provides management of
PacketShaper from a web browser
- Multi-protocol support (non-IP traffic types)
- -------------------------------------------------------------------------------------------------
Q3 1997 PacketWise v2.1 - First add-on policy modules for classifying and
suggesting policies for applications
- -------------------------------------------------------------------------------------------------
Q4 1997 PacketShaper 4000 - T3 bandwidth-capacity hardware model introduced
----------------------------------------------------------------------------------
PacketShaper 1000 - Fractional-T1 bandwidth-capacity hardware model
introduced
----------------------------------------------------------------------------------
PacketWise v3.0 - Integrated measurement engine for recording and
reporting usage and performance data
- Built-in application traffic discovery and
suggested policies
- -------------------------------------------------------------------------------------------------
Q2 1998 PacketWise v3.1 - Policy-based management
-- Dynamic domain name servers, or DNS, software
that lets users locate computers on the
Internet by domain name, to permit traffic to
be classified by dynamic DNS name and not
static IP address
-- Fail-over to lower-capacity backup link, to
permit different policies to be applied where
lower bandwidth capacity is available
-- Group configuration services, for sharing
configurations between multiple PacketShapers
- Support for classifying and managing VoIP
traffic
- Support for classifying and managing thin-client
traffic
- HP OpenView network management support
- -------------------------------------------------------------------------------------------------
Q3 1998 Memorex Telex - First private label PacketShaper introduced
Bandwidth Manager
- -------------------------------------------------------------------------------------------------
Q4 1998 PacketWise v3.1-ADC - First commercial OEM software product license
- -------------------------------------------------------------------------------------------------
Q1 1999 PacketWise v4.0 - Support for measurement and reporting of
response times
- Deep application classification of Oracle (e.g.
database name) and of Citrix (e.g. published
application name)
- Microsoft Exchange classification
- -------------------------------------------------------------------------------------------------
Q2 1999 PacketWise v4.1-Adtran - OEM software product license
----------------------------------------------------------------------------------
Lucent bandwidth manager - Private label PacketShaper
- -------------------------------------------------------------------------------------------------
</TABLE>

46
<PAGE> 51

CUSTOMER SERVICE AND TECHNICAL SUPPORT

Our customer service and support organization provides both product
maintenance and technical support services. Our technical support staff is
strategically located in four regional service centers: California, Hong Kong,
Japan and The Netherlands. Our indirect channel partners offer similar support
services for all of our products they sell. These services are typically sold as
a one-year contract to our resellers and end users. These services are not
provided without a maintenance contract. Our two maintenance programs are
described as follows:

Packeteer Partner ProSupport. This service is designed for our indirect
channel partners. Our partners purchase this program so that they can offer
support services to their customers. These services include:

- an extended warranty period beyond the standard one-year warranty;

- a software subscription service allowing access to all software upgrades
and updates; and

- current technical bulletins, advanced white papers and other technical
support materials.

Packeteer Premium ProSupport. This service is designed for end users who
receive support services directly from us and includes:

- an extended warranty with advance replacement of defective units within
two business days of notification;

- a software subscription service allowing access to all software upgrades
and updates;

- unlimited telephone and e-mail support; and

- current technical bulletins, advanced white papers and other technical
support materials.

COMPETITION

We compete in a new, rapidly evolving and highly competitive sector of the
bandwidth management solutions 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, any of
which could harm our business. We compete with Cisco, CheckPoint and several
small private companies which sell products that utilize competing technologies
to provide bandwidth management. In addition, our products and technology
compete for information technology budget allocations with products that offer
monitoring technologies, such as probes and related software. Lastly, we face
indirect competition from companies that offer enterprises and service providers
increased bandwidth and infrastructure upgrades that increase the capacity of
their networks, and thereby may lessen or delay the need for bandwidth
management.

We believe the principal competitive factors in the bandwidth management
solutions market are:

- expertise and in-depth knowledge of applications;

- timeliness of new product introductions;

- ability to integrate in the existing network architecture without
requiring network reconfigurations or desktop changes;

- ability to ensure end-user performance in addition to aggregate
performance of the WAN access link;

- compatibility with industry standards;

- products that do not increase latency and packet loss;

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<PAGE> 52

- size and scope of distribution network;

- brand name; and

- access to customers and size of installed customer base.

INTELLECTUAL PROPERTY

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.
We currently have one issued U.S. patent and 10 pending patent applications,
including one for which we have received a notice of allowance. We cannot assure
you that our means of protecting our proprietary rights in the U.S. or abroad
will be adequate or that competitors will not independently develop similar
technologies. Our future success depends in part on our ability to protect our
proprietary rights to the technologies used in our principal products. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products or to obtain and use trade secrets or other
information that we regard as proprietary. In addition, the laws of some foreign
countries do not protect our proprietary rights as fully as do the laws of the
U.S. We cannot assure you that any issued patent will preserve our proprietary
position, or that competitors or others will not develop technologies similar to
or superior to our technology. Our failure to enforce and protect our
intellectual property rights could harm our business, operating results and
financial condition.

From time to time, third parties, including our competitors, have asserted
patent, copyright and other intellectual property rights to technologies that
are important to us. We expect that we will increasingly be subject to
infringement claims as the number of products and competitors in the
application-adaptive bandwidth management market grows and the functionality of
products overlaps. The results of any litigation matter are inherently
uncertain. In the event of an adverse result in any litigation with third
parties that could arise in the future, we could be required to pay substantial
damages, including treble damages if we are held to have willfully infringed, to
cease the manufacture, use and sale of infringing products, to expend
significant resources to develop non-infringing technology, or to obtain
licenses to the infringing technology. Licenses may not be available from any
third party that asserts intellectual property claims against us on commercially
reasonable terms, or at all. In addition, litigation frequently involves
substantial expenditures and can require significant management attention, even
if we ultimately prevail.

EMPLOYEES

As of June 30, 1999, Packeteer employed a total of 90 full-time employees.
Of the total number of employees, 26 were in research and development, 40 in
sales and customer service, 11 in marketing, three in operations and 10 in
administration. Our employees are not represented by any collective bargaining
agreement with respect to their employment by Packeteer.

FACILITIES

We lease approximately 27,000 square feet of administrative and research
and development facilities in Cupertino, California. We believe our current
facilities will be sufficient to handle our operations for at least the next 12
months. We believe that future growth can be accommodated by obtaining the
necessary additional space. Packeteer leases sales offices in the following
locations: Duluth, Georgia; Bedminster, New Jersey; Dallas, Texas; Tacoma,
Washington; Sydney, Australia; Hong Kong; Tokyo, Japan; and Waddinxveen, The
Netherlands.

LEGAL PROCEEDINGS

We have no material legal proceedings threatened or pending.

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<PAGE> 53

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors and their ages as of June 30, 1999 are
as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Craig W. Elliott........ 38 President, Chief Executive Officer and Director
Brett D. Galloway....... 35 Vice President, Engineering, Chief Operating Officer
and Director
Robert L. Packer........ 39 Chief Technical Officer and Director
William E. Klaus........ 39 Vice President, Business Development
Todd J. Krautkremer..... 38 Vice President, Marketing
Neil A. Sundstrom....... 46 Vice President, Worldwide Sales
David C. Yntema......... 54 Chief Financial Officer and Secretary
Steven J. Campbell(2)... 57 Chairman of the Board of Directors
Joseph A. 55 Director
Graziano(1)(2)........
Peter T. Morris(1)(2)... 43 Director
William R. Stensrud..... 48 Director
</TABLE>

- -------------------------
(1) Member of audit committee
(2) Member of compensation committee

Craig W. Elliott has served as President, Chief Executive Officer and a
Director of Packeteer since April 1996. From January 1991 to March 1996, Mr.
Elliott served as International General Manager of Apple Computer, Inc.'s Online
Internet Division, where he managed Apple's Internet and online business in more
than 80 countries. From November 1987 to May 1991, Mr. Elliott served as Apple's
Product Business Manager in charge of Networking and Communication Products. Mr.
Elliott holds a B.S. in animal science from Iowa State University.

Brett D. Galloway, a co-founder of Packeteer, has served as Chief Operating
Officer, Vice President, Engineering and a Director of Packeteer since its
inception. Mr. Galloway also served as Chief Financial Officer of Packeteer from
its inception in 1996 to January 1999. Prior to founding Packeteer, Mr. Galloway
served as Director of Engineering at Metricom, Inc., a wireless Internet
networking company, from November 1994 through February 1996 and as Director of
Software Engineering at Metricom from October 1990 to November 1994. Mr.
Galloway holds a B.S. and an M.S. in electrical engineering from Stanford
University.

Robert L. Packer, a co-founder of Packeteer, has served as Chief Technical
Officer and a Director of Packeteer since its inception. From 1987 to January
1996, Mr. Packer was an independent consultant, developing telecommunications
and networking technologies, including protocols for the Ricochet microcellular
wireless network for Metricom, Inc., a wireless Internet networking company, OSI
protocols for IBM Corporation and a high-performance packet switch for British
Telecom North America, a telecommunications company. Mr. Packer holds a B.A. in
philosophy and political science from Swarthmore College.

William E. Klaus has served as Vice President, Business Development for
Packeteer since June 1998. From October 1996 to May 1998, Mr. Klaus served as
Vice President of Sales and Business Development for Packeteer. From March 1996
to October 1996, Mr. Klaus served as Director of Products and Channels for Eagle
River Interactive, an Internet development company. From October 1988 to March
1996, Mr. Klaus held various positions at Apple Computer, Inc., including Senior
Manager of Business Development. Mr. Klaus was a founding member of KPMG Peat

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<PAGE> 54

Marwick/ExIS, a joint effort of KPMG and Apple Computer, and also held positions
with Racore, Inc., a networking company, and Motorola, an electronic equipment
manufacturer. Mr. Klaus holds a B.S. in finance from San Jose State University.

Todd J. Krautkremer has served as Vice President, Marketing for Packeteer
since January 1999. From October 1990 through December 1998, Mr. Krautkremer
held various positions at Sync Research, a networking company, with his most
recent position being Vice President of Strategic Marketing. Mr. Krautkremer
holds a B.S. in computer science from St. Cloud State University.

Neil A. Sundstrom has served as Vice President, Sales for Packeteer since
June 1998. From September 1997 to May 1998 Mr. Sundstrom served as Vice
President of International Sales for Packeteer. From October 1994 to September
1997, Mr. Sundstrom served as Vice President of 3Com Corporation's Network
Service Provider Division (known as Primary Access prior to its 1995 acquisition
by 3Com). From January 1990 to September 1994 Mr. Sundstrom served as
Intercontinental Area Manager for SynOptics Communications, Inc., a networking
company. Mr. Sundstrom serves as a Director of Perle Systems, a publicly held
company. Mr. Sundstrom holds a B.A. in psychology from Simon Fraser University,
British Columbia.

David C. Yntema has served as Chief Financial Officer and Secretary of
Packeteer since January 1999. From May 1994 through August 1998, Mr. Yntema
served as Chief Financial Officer and Vice President, Finance and Administration
of VIVUS , Inc., a pharmaceutical company. Prior to joining VIVUS, Mr. Yntema
served as Chief Financial Officer for EO, Inc., a handheld computer company,
MasPar Computer Corporation, a massively parallel computer company, and System
Industries, a storage subsystem company and has held a variety of other
financial management positions. Mr. Yntema also serves as a Director of
Virologic, Inc., a biotechnology company. Mr. Yntema holds a B.A. in economics
and business administration from Hope College and an M.B.A. from the University
of Michigan.

Steven J. Campbell has served as Chairman of the Board of Directors of
Packeteer since its inception and served as Packeteer's Chief Executive Officer
from January 1996 through April 1996. Mr. Campbell was a founder of StrataCom,
Inc., a network switching equipment company which was acquired by Cisco Systems
in July 1996, where he was employed from 1986 through 1991 initially as Chief
Executive Officer and then as Vice President of Engineering and finally as Vice
President of Operations. He headed the PBX development at Rolm Communications,
Inc., a telecommunications company, from 1978 through 1983. He is a Director of
Air Flash, Inc., a wireless portal company. Mr. Campbell holds a B.S. in
electrical engineering from Oregon State University and an M.S. in electrical
engineering from Santa Clara University.

Joseph A. Graziano has served as a Director of Packeteer since February
1996. From June 1989 to December 1995, Mr. Graziano was the Executive Vice
President and Chief Financial Officer of Apple Computer, Inc. and was a member
of the Board of Directors of Apple Computer, Inc. from June 1993 until October
1995. Prior to this, Mr. Graziano held a variety of positions, including Chief
Financial Officer of Sun Microsystems, Inc. and Chief Financial Officer of Apple
Computer, Inc. In addition, he has held accounting positions with Rolm
Communications, Inc., Intel Corporation and various other technology companies
in the Silicon Valley. Mr. Graziano serves as a Director of Carrier Access
Corporation and Pixar, Inc., both publicly held companies. He is also a Director
of Talk City, Inc. Mr. Graziano holds a B.S. in accounting from Merrimack
College and is a certified public accountant.

Peter T. Morris has served as a Director of Packeteer since September 1996.
Mr. Morris is a general partner at New Enterprise Associates where he has been
employed since 1992. Prior to joining New Enterprise Associates, Mr. Morris held
positions at Telebit Corp., a networking

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<PAGE> 55

company, Montgomery Securities, an investment bank, and Bain and Company, an
international strategy consulting firm. Mr. Morris serves as a Director of
Accelerated Networks, Inc., America's Funding Source Corporation, AUNET, Gadzoox
Networks, Inc., Invox Technology, LuxN, Mayan Networks Corporation, Packetcom
Inc., Tiara Networks, Inc. and Virata Ltd. Mr. Morris received a B.S. in
electrical engineering from Stanford University and an M.B.A. from the Stanford
Graduate School of Business.

William R. Stensrud has served as a Director of Packeteer since July 1997.
Mr. Stensrud has been a general partner at the venture capital investment firm
of Enterprise Partners since January 1997. Previously, from February 1992 to
March 1996, Mr. Stensrud served as President and Chief Executive Officer of
Primary Access Corporation which was acquired by 3Com Corporation. Mr. Stensrud
is a director of several public and privately held companies, including
RhythmsNet Connections, Paradyne and Juniper Networks, Inc. Mr. Stensrud holds a
B.S. in electrical engineering and computer science from the Massachusetts
Institute of Technology.

We have authorized seven directors. Following this offering, the board will
consist of seven directors divided into three classes, with each class serving
for a term of three years. At each annual meeting of stockholders, directors
will be elected by the holders of common stock to succeed the directors whose
terms are expiring. Messrs. Morris and Packer are Class I directors whose terms
will expire in 2000, Messrs. Galloway and Stensrud are Class II directors whose
terms will expire in 2001, and Messrs. Campbell, Elliott and Graziano are Class
III directors whose terms will expire in 2002. The executive officers serve at
the discretion of the board of directors. There are no family relationships
among any of Packeteer's directors or executive officers.

BOARD COMMITTEES

Compensation committee. The compensation committee is primarily responsible
for reviewing and approving our general compensation policies and setting
compensation levels for our executive officers. The committee also administers
Packeteer's incentive compensation plans. The committee currently consists of
three directors, Mr. Campbell, Mr. Graziano and Mr. Morris.

Audit committee. The audit committee is primarily responsible for approving
the services performed by our independent auditors and reviewing the auditor's
reports regarding our accounting practices and systems of internal accounting
controls. The committee currently consists of two directors, Mr. Graziano and
Mr. Morris.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the compensation committee of our board of directors are Mr.
Campbell, Mr. Graziano and Mr. Morris. None of our executive officers serves on
the board of directors or compensation committee of any entity which has one or
more executive officers serving as a member of Packeteer's board of directors or
compensation committee.

DIRECTOR COMPENSATION

We currently do not compensate any member of our board of directors.
Members of the board are eligible to receive discretionary option grants and
stock issuances under the 1999 Stock Incentive Plan.

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<PAGE> 56

EXECUTIVE COMPENSATION

The following table sets forth compensation information with respect to the
compensation received for services rendered to Packeteer by its current Chief
Executive Officer and each of the four other most highly compensated executive
officers for the year ended December 31, 1998, whose salary and bonus exceeded
$100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
------------------ OTHER ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION GRANTED(#)
--------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Craig W. Elliott............................. $150,033 $ -- $ -- --
President and Chief Executive Officer
Brett D. Galloway............................ 120,783 -- -- --
Vice President, Engineering, Chief
Operating Officer and Former Chief
Financial Officer(1)
William E. Klaus............................. 143,783 69,912(2) 50,000 50,000
Vice President, Business Development
Robert L. Packer............................. 120,789 -- -- --
Chief Technical Officer
Neil A. Sundstrom............................ 100,058 117,377(2) -- --
Vice President, Worldwide Sales
</TABLE>

- -------------------------
(1) Mr. Galloway resigned as Chief Financial Officer in January 1999.
(2) Represents commissions paid.

OPTION GRANTS IN FISCAL YEAR 1998

The following table sets forth option grants for the year ended December
31, 1998 to Packeteer's Chief Executive Officer and each of the four other most
highly compensated executive officers for the year ended December 31, 1998,
whose salary and bonus exceeded $100,000.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE VALUE OF
NUMBER OF TOTAL OPTIONS APPRECIATION OPTION GRANT
SHARES GRANTED TO FOR OPTION TERM(3) AT ASSUMED
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION --------------------- INITIAL
NAME OPTIONS GRANTED FISCAL YEAR(1) PRICE(2) DATE 5% 10% OFFERING PRICE
---- --------------- -------------- -------- ---------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Craig W. Elliott...... -- -- -- -- -- -- --
Brett D. Galloway..... -- -- -- -- -- -- --
William E. Klaus...... 50,000(4) 3.3% $3.50 8/19/08 $110,000 $278,905 $550,000
Robert L. Packer...... -- -- -- -- -- -- --
Neil A. Sundstrom..... -- -- -- -- -- -- --
</TABLE>

- -------------------------
(1) Based on an aggregate of 1,501,000 options granted to employees, consultants
and directors during the year ended December 31, 1998.
(2) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by the board of
directors after consideration of a

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<PAGE> 57

number of factors, including, but not limited to, Packeteer's financial
performance, market conditions, the price and preferred rights and
privileges of shares of equity securities sold to or purchased by outside
investors and third-party appraisals.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant, which is ten years. It is calculated assuming that the
fair market value of Packeteer's common stock on the date of grant
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated stock price.
(4) Mr. Klaus' 50,000-share option grant vests as follows: 50% vested on
December 17, 1998, and the balance upon the earlier of the closing of at
least two OEM agreements, as a result of Mr. Klaus' efforts or August 19,
2005. The date of Mr. Klaus' 50,000-share option grant was August 19, 1998.
The option has a maximum term of 10 years, subject to earlier termination in
the event of his cessation of service to Packeteer.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND FISCAL YEAR-END 1998 OPTION VALUES

The following table sets forth information concerning option exercises and
option holdings for the year ended December 31, 1998 with respect to the Chief
Executive Officer and each of the four other most highly compensated executive
officers for the year ended December 31, 1998, whose salary and bonus exceeded
$100,000. Except as set forth below, no options or stock appreciation rights
were exercised by any such individual during such year, and no stock
appreciation rights were outstanding on December 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED UNDERLYING
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS UNEXERCISED
SHARES YEAR-END AT FISCAL YEAR-END(4) OPTIONS AT
ACQUIRED ON VALUE --------------------------- --------------------------- ASSUMED INITIAL
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE OFFERING PRICE
---- ----------- ----------- ----------- ------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Craig W. Elliott..... -- -- -- -- -- -- --
Brett D. Galloway.... -- -- -- -- -- -- --
William E. Klaus..... 40,000(1) $50,000(2) 25,000(3) 25,000(3) $6,000 $6,000 $550,000
Robert L. Packer..... -- -- -- -- -- -- --
Neil A. Sundstrom.... -- -- -- -- -- -- --
</TABLE>

- -------------------------
(1) As of December 31, 1998, Mr. Klaus was vested in 12,500 of the shares
exercised.
(2) Based on the fair market value of the purchased option shares at the time of
exercise, as determined by the board of directors, less the option exercise
price paid for those shares.
(3) Mr. Klaus' 50,000-share option grant vests as follows: 50% vested on
December 17, 1998, and the balance upon the earlier of the closing of at
least two OEM agreements, as a result of Mr. Klaus' efforts or August 19,
2005. The date of Mr. Klaus' 50,000-share option grant was August 19, 1998.
The option has a maximum term of 10 years, subject to earlier termination in
the event of his cessation of service to Packeteer.
(4) Based on the fair market value of the option shares on December 31, 1998,
which was $3.74 per share, as determined by the board, less the option
exercise price payable for those shares.

EMPLOYEE BENEFIT PLANS

1999 Stock Incentive Plan. The 1999 Stock Incentive Plan is intended to
serve as the successor program to our 1996 Equity Incentive Plan. The 1999 Stock
Incentive Plan was adopted by the board in May 1999, subject to stockholder
approval. The 1999 Stock Incentive Plan will become effective

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<PAGE> 58

when the underwriting agreement for this offering is signed. At that time, all
outstanding options under our existing 1996 Equity Incentive Plan will then be
transferred to the 1999 Stock Incentive Plan, and no further option grants will
be made under the 1996 Equity Incentive Plan. The transferred options will
continue to be governed by their existing terms, unless our compensation
committee decides to extend one or more features of the 1999 Stock Incentive
Plan to those options. Except as described below, the transferred options have
substantially the same term as will be in effect for grants made under the
discretionary option grant program of our 1999 Stock Incentive Plan.

Share Reserve. 3,836,167 shares of our common stock have been authorized
for issuance under the 1999 Stock Incentive Plan. This share reserve consists of
the number of shares we estimate will be carried over from the 1996 Equity
Incentive Plan plus an additional increase of 900,000 shares. The share reserve
under our 1999 Stock Incentive Plan will automatically increase on the first
trading day in January each year, beginning with calendar year 2000, by an
amount equal to 5% of the total number of shares of our common stock outstanding
on the last trading day of December in the prior year, but in no event will this
annual increase exceed 3,000,000 shares. In addition, no participant in the 1999
Stock Incentive Plan may be granted stock options or direct stock issuances for
more than 1,000,000 shares of common stock in total in any calendar year.

Programs. Our 1999 Stock Incentive Plan has three separate programs:

- the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;

- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones or upon the completion of a period of service or
as a bonus for past services;

- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date;

- the salary investment option grant program, which may, at the plan
administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow executive officers and other key
executives selected by the plan administrator the opportunity to apply a
portion of their base salary each year to the acquisition of special
below-market stock option grants; and

- the director fee option grant program, which may, in the plan
administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow non-employee board members the
opportunity to apply all or a portion of the annual retainer fee
otherwise payable to them in cash each year to the acquisition of special
below-market option grants.

Eligibility. The individuals eligible to participate in our 1999 Stock
Incentive Plan include our officers and other employees, our board members and
any consultants we hire.

Administration. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other highly
compensated employees who may

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<PAGE> 59

participate in the salary investment option grant program in the event that
program is put into effect for one or more calendar years.

Plan Features. Our 1999 Stock Incentive Plan will include the following
features:

- The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.

- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1996 Equity Incentive Plan, in return for
the grant of new options for the same or for a different number of option
shares with an exercise price per share based upon the fair market value
of our common stock on the new grant date.

- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. None of the options under our 1996
Equity Incentive Plan have any stock appreciation rights.

Change in Control. The 1999 Stock Incentive Plan will include the following
change in control provisions which may result in the accelerated vesting of
outstanding option grants and stock issuances:

In the event that we are acquired by merger or asset sale, each outstanding
option under the discretionary option grant program which is not to be assumed
by the successor corporation will immediately become exercisable for all the
option shares, and all outstanding unvested shares will immediately vest, except
to the extent our repurchase rights with respect to those shares are to be
assigned to the successor corporation.

- The compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of any outstanding shares under our 1999 Stock Incentive Plan may
be accelerated upon similar terms and conditions.

- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections. Such accelerated
vesting may occur either at the time of such transaction or upon the
subsequent termination of the individual's service.

- Most of the options currently outstanding under our 1996 Equity Incentive
Plan will immediately vest as if they had been held for two times the
length of time they had actually been held in the event of a change of
control. In the event we are acquired, all options which are not
exercised will terminate unless the acquired company assumes the options.

Automatic Option Grant Program. Each individual who is serving as a
non-employee board member when the underwriting agreement for this offering is
signed will automatically be granted an option to purchase 3,000 shares of
common stock. Each individual who first becomes a non-employee board member at
any time after the effective date of this offering will receive an option grant
for

55
<PAGE> 60

12,000 shares of common stock on the date such individual joins the board. In
addition, on the date of each annual stockholders meeting held after the
effective date of this offering, each non-employee board member who is to
continue to serve as a non-employee board member, including each of our current
non-employee board members, will automatically be granted an option to purchase
3,000 shares of common stock, provided such individual has served on the board
for at least six months.

Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time
the optionee no longer serves on the board. The shares subject to each
3,000-share automatic grant will be fully-vested when granted. The shares
subject to each initial 12,000-share automatic option grant will vest in a
series of six successive equal semi-annual installments upon the optionee's
completion of each six months of board service over the 36 month period measured
from the grant date. However, the shares will immediately vest in full upon
certain changes in control or ownership or upon the optionee's death or
disability while a board member.

Additional Program Features. Our 1999 Stock Incentive Plan will also have
the following features:

- Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.

- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based
upon the highest price per share of our common stock paid in that tender
offer.

- The board may amend or modify the 1999 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 1999 Stock Incentive
Plan will terminate no later than May 18, 2009.

1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan
was adopted by the board in May 1999, subject to stockholder approval. The plan
will become effective immediately upon the signing of the underwriting agreement
for this offering. The plan is designed to allow our eligible employees and the
eligible employees of our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.

Share Reserve. 500,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each year, beginning in calendar year 2000, by an amount
equal to 2% of the total number of outstanding shares of our common stock on the
last trading day in December in the prior year. In no event will any such annual
increase exceed 1,000,000 shares.

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<PAGE> 61

Offering Periods. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period may have a maximum duration of up to 27 months. The initial
offering period will start on the date the underwriting agreement for the
offering covered is signed and will end on the last business day in July 2001.
The next offering period will start on the first business day in August 2001,
and subsequent offering periods will set by our compensation committee.

Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than five calendar months per year may join an offering period on
the start date or any semi-annual entry date within that period. Semi-annual
entry dates will occur on the first business day of February and August each
year beginning on February 1, 2000. Individuals who become eligible employees
after the start date of an offering period may join the plan on any subsequent
semi-annual entry date within that offering period.

Payroll Deductions. A participant may contribute up to 15%, or such lesser
amount as may be designated by the plan administrator prior to the beginning of
a six month purchase period of his or her total cash compensation through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each semi-annual purchase date. The purchase price per
share will be equal to 85% of the fair market value per share on the
participant's entry date into the offering period or, if lower, 85% of the fair
market value per share on the semi-annual purchase date. Semi-annual purchase
dates will occur on the last business day of July and January each year except
the initial purchase date will occur on January 31, 2000. In no event, however,
may any participant purchase more than 1,000 shares on any purchase date, and
not more than 200,000 shares may be purchased in total by all participants on
any purchase date.

Reset Feature. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.

Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the market value per share on the participant's entry date into the offering
period in which an acquisition occurs or, if lower, 85% of the fair market value
per share immediately prior to the acquisition.

Plan Provisions. The following provisions will also be in effect under the
plan:

- The plan will terminate no later than the last business day of July 2009;
and

- The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

We do not presently have any employment contracts in effect with the Chief
Executive Officer or any of the four other most highly compensated executive
officers for the year ended December 31, 1998, whose salary and bonus exceeded
$100,000. We provide incentives such as salary, benefits and option grants to
attract and retain qualified employees.

In the event of a change of control, Mr. Yntema, our Chief Financial
Officer, and Mr. Krautkremer, our Vice President, Marketing, will each receive
his base salary and bonus for one year.

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<PAGE> 62

In the event that Packeteer is acquired by merger or asset sale, the
compensation committee will have the authority to grant options which will
immediately vest upon an acquisition of Packeteer, whether or not those options
are assumed by the successor corporation. The compensation committee is also
authorized under the Discretionary Option Grant and Stock Issuance Programs to
grant options and to structure repurchase rights so that the shares subject to
those options or repurchase rights will immediately vest in connection with a
change in control of Packeteer. This accelerated vesting shall take place
whether that change of control is by merger or asset sale, or successful tender
offer for more than 50% of the outstanding voting stock or a change in the
majority of the board by reason of one or more contested elections for board
membership. This vesting shall occur either at the time of such change in
control or upon the subsequent termination of the individual's service within a
designated period following such change in control. This designated period shall
not exceed 18 months. Some of the options incorporated from the Predecessor Plan
will immediately vest upon an acquisition of Packeteer by merger or asset sale,
as if they had been held for two times the length of the time they had actually
been held by the optionee, and the options will terminate unless assumed by, and
Packeteer's repurchase rights are assigned to, the successor entity. In
addition, certain options granted to executive officers provide that if the
options are assumed in an acquisition and the optionee's service is
involuntarily terminated within eighteen months following such acquisition the
option shares will vest in full and Packeteer's repurchase rights will lapse.
The compensation committee will have the discretion to extend the acceleration
provisions of the 1999 Stock Incentive Plan to options outstanding under the
Predecessor Plan.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Our certificate of incorporation limits our directors' liability for
monetary damages arising from a breach of their fiduciary duty as directors,
except to the extent otherwise required by the Delaware General Corporation Law.
This limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or recission.

Our bylaws provide that we shall indemnify its directors and officers to
the fullest extent permitted by Delaware law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. We have
entered into indemnification agreements with its officers and directors
containing provisions that may require us, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers, other than liabilities arising
from willful misconduct of a culpable nature, to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms.

At present, there is no pending litigation or proceeding involving any of
our directors or officers where indemnification is required or permitted.

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<PAGE> 63

CERTAIN TRANSACTIONS

Certain stock option grants to our directors and executive officers are
described in this prospectus under the caption "Management--Executive
Compensation."

PRIVATE PLACEMENT TRANSACTIONS

Since inception, we have raised capital primarily through the sale of our
convertible preferred stock in private placement transactions. Pursuant to these
private placements, we have issued the following:

<TABLE>
<CAPTION>
PRICE AGGREGATE
DATE OF ISSUANCE SERIES NUMBER OF SHARES PER SHARE CONSIDERATION
---------------- ------------------- ---------------- --------- -------------
<S> <C> <C> <C> <C>
February and April 1996................. Series A Preferred 2,800,000 $0.25 $ 700,000
September and October 1996.............. Series B Preferred 4,821,860 1.00 4,821,860
June and July 1997...................... Series C Preferred 2,216,320 2.00 4,432,640
April and July 1998..................... Series D Preferred 2,552,821 3.94 10,058,115
</TABLE>

The following table summarizes purchases, valued in excess of $60,000, of
shares of common stock and preferred stock purchased by executive officers,
directors, 5% stockholders and persons associated with them since our inception.
All share numbers reflect the number of shares purchased by the respective party
on an as-converted basis.

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
INVESTOR PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
-------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
New Enterprise Associates(1)............ 400,000 3,080,000 287,400 --
BG Services Limited..................... -- -- -- 2,538,071
Enterprise Partners(2).................. -- -- 1,618,128 --
Onset Enterprise Associates II, L.P..... -- 1,000,000 112,600 --
Steven Campbell(3)...................... 400,000 212,880 77,168 --
Joseph A. Graziano...................... 300,000 159,660 57,996 --
Peter Morris............................ 100,000 53,200 -- --
</TABLE>

- -------------------------
(1) Represents 75,000 shares held by NEA Presidents Fund, L.P., 5,000 shares
held by NEA Ventures 1996, L.P. and 3,687,400 shares held by New Enterprise
Associates VII, Limited Partnership. Mr. Morris, a director of Packeteer, is
a general partner of New Enterprise Associates VII.
(2) Represents 129,448 shares held by Enterprise Partners III Associates and
1,488,680 shares held by Enterprise Partners III, L.P. Mr. Stensrud, a
director of Packeteer, is a general partner of both of these entities.
(3) Represents 690,048 shares held by the Campbell 1984 Revocable Trust U/A
2/12/84 UTD 10/12/92, of which Mr. Campbell is Trustee.

We have entered into indemnification agreements with each of our directors
and officers. See "Description of Capital Stock -- Limitation of liability and
indemnification matters."

59
<PAGE> 64

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock as of June 30, 1999, except as
noted in the footnotes below by:

- all persons who are beneficial owners of 5% or more of our common stock;

- each director;

- our Chief Executive Officer and the four other most highly compensated
executive officers for the year ended December 31, 1998, whose salary and
bonus exceeded $100,000; and

- all directors and executive officers as a group.

Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable.

<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
-----------------------
NUMBER BEFORE THE AFTER THE
OF SHARES OFFERING OFFERING
---------------- ---------- ---------
<S> <C> <C> <C>
Peter T. Morris.................................... 4,520,620 20.4% 17.3%
New Enterprise Associates(1)
2490 Sand Hill Road
Menlo Park, CA 94025
BG Services Limited................................ 2,538,071 11.5 9.7
6 Minden Place
St. Helier
Channel Islands, JE 24WQ
William R. Stensrud................................ 1,618,128 7.3 6.2
Enterprise Partners(2)
7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
Onset Enterprise Associates II, L.P................ 1,312,600 5.9 5.0
2490 Sand Hill Road
Menlo Park, CA 94025
Craig W. Elliott(3)................................ 1,250,000 5.6 4.7
Brett D. Galloway(4)............................... 2,271,300 10.2 8.7
Robert L. Packer(5)................................ 2,071,300 9.3 7.9
William E. Klaus(6)................................ 250,000 1.1 1.0
Neil A. Sundstrom(7)............................... 262,500 1.2 1.0
Steven J. Campbell(8).............................. 1,238,620 5.6 4.7
Joseph A. Graziano(9).............................. 617,656 2.8 2.4
All directors and officers as a group (11
persons)(10)..................................... 14,700,124 63.3 54.0
</TABLE>

- -------------------------
* Less than 1%.

Except as otherwise noted below, the address of each person listed on the
table is c/o Packeteer, Inc., 10495 N. De Anza Boulevard, Cupertino, California
95014.

The number of shares beneficially owned and the percentage of shares
beneficially owned prior to the offering are based on 22,153,884 shares
outstanding as of June 30, 1999. Beneficial ownership is determined in
accordance with the rules of the SEC and includes voting and investment power
with respect to such shares. All shares of common stock subject to options
currently exercisable or exercisable within 60 days after June 30, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the number of shares

60
<PAGE> 65

beneficially owned and the percentage ownership of such person, but are not
deemed to be outstanding and to be beneficially owned for the purpose of
computing the percentage ownership of any other person. Except as indicated in
the footnotes to the table and subject to applicable community property laws,
based on information provided by the persons named in the table, such persons
have sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.

(1) Includes 75,000 shares held by NEA Presidents Fund, L.P., 5,000 shares held
by NEA Ventures 1996, L.P. and 4,287,400 shares held by New Enterprise
Associates VII, Limited Partnership. Also includes 153,220 shares held by
Mr. Morris. Voting and dispositive power over the shares is held by all of
the general partners of New Enterprise Associates. Mr. Morris is a general
partner at New Enterprise Associates, and as such he may be deemed to share
voting and investment power with respect to such shares. However, Mr.
Morris disclaims beneficial ownership of all such shares.

(2) Represents 129,448 shares held by Enterprise Partners III Associates and
1,488,680 shares held by Enterprise Partners III, L.P. Voting and
dispositive power over the shares is held by all of the general partners of
Enterprise Partners. Mr. Stensrud is a general partner at Enterprise
Partners, and as such he may be deemed to share voting and investment power
with respect to such shares. However, Mr. Stensrud disclaims beneficial
ownership of all such shares.

(3) Includes 250,000 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 166,676 shares of common
stock subject to Packeteer's right of repurchase. Includes 100,000 shares
held by Elliott Children's Trust, of which Mr. Elliott is Trustee.

(4) Includes 62,500 shares of common stock issuable upon exercise of
immediately exercisable options.

(5) Includes 62,500 shares of common stock issuable upon exercise of
immediately exercisable options.

(6) Includes 50,000 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 70,843 shares of common
stock subject to Packeteer's right of repurchase.

(7) Includes 46,875 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 119,788 shares of common
stock subject to Packeteer's right of repurchase. Includes 3,000 shares
held by Neil Sundstrom, as Custodian under the California Uniform Minor
Act, for the benefit of Eric John Sundstrom and Lee Roland Sundstrom until
age 18.

(8) Includes 1,238,620 shares held by the Campbell 1984 Revocable Trust U/A
2/12/84 UT, of which Mr. Campbell is Trustee.

(9) Includes 22,925 shares of common stock subject to Packeteer's right of
repurchase.

(10) Includes 1,071,875 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 380,232 shares of common
stock subject to Packeteer's right of repurchase.

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<PAGE> 66

DESCRIPTION OF CAPITAL STOCK

After this offering, the authorized capital stock of Packeteer consists of
85,000,000 shares of common stock, $0.001 par value per share and 5,000,000
shares of undesignated preferred stock, $0.001 par value per share. As of June
30, 1999, there were an aggregate 22,153,884 shares of common stock outstanding
held of record by 78 stockholders and after giving effect to this offering,
there will be an aggregate of 26,153,884 shares of common stock issued and
outstanding and approximately 2,735,749 shares of common stock issuable upon
exercise of outstanding options. There will be no shares of preferred stock
issued or outstanding.

The following description of our capital stock does not purport to be
complete and is subject to and qualified by our amended and restated certificate
of incorporation and bylaws and by the provisions of the applicable Delaware
law.

COMMON STOCK

The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock that may come into existence, the
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the board out of funds legally available
for dividends. In the event of liquidation, dissolution or winding up, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of preferred
stock, if any, then outstanding. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common stock
to be outstanding upon completion of this offering will be fully paid and
nonassessable.

PREFERRED STOCK

The board of directors has the authority to issue the preferred stock in
one or more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation of
such series, without any further vote or action by our stockholders. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of delaying, deferring or preventing a change in control without further action
by the stockholders and may adversely affect the market price, and the voting
and other rights, of the holders of common stock. The issuance of preferred
stock with voting and conversion rights may adversely affect the voting power of
the holders of common stock, including the loss of voting control to others. We
have no current plans to issue any shares of preferred stock.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

Under the terms of a registration rights agreement, subject to certain
exceptions, if we propose to register any of our shares of common stock under
the Securities Act, either for our own account or the account of any
stockholder, in any public offering, certain investors holding an aggregate of
12,391,001 shares of our preferred stock as of June 30, 1999 are entitled to
notice of such registration and are entitled, upon conversion of their
registrable securities to include those registrable securities. In addition, the
holder or holders of an aggregate of at least 50% of the then outstanding
registrable securities shall have the right to require us to file a registration
statement on a form, other than

62
<PAGE> 67

Form S-3 under the Securities Act, in order to register the registrable
securities then held by such holder or holders, provided that:

- at least one year has passed since our initial public offering of shares
of common stock under a registration statement;

- the anticipated aggregate offering price to the public is at least
$3,000,000; and

- we shall not be required to file more than two such registration
statements.

Further, a holder or holders may require us to use all reasonable efforts to
file additional registration statements on Form S-3, provided that:

- the anticipated aggregate offering price to the public is at least
$500,000 and

- we shall not be required to file more than two such registration
statements.

The right to include any of the above described registrable securities in any
registration is subject to certain limitations and conditions, including the
underwriters' right to limit the number of shares being registered by all
holders. We are required to indemnify holders of registrable securities and the
underwriters, if any, for these holders under certain circumstances. In general,
we are required to bear the expenses of two demand and all piggyback
registrations, except for the selling stockholders' pro rata portion of the
underwriting discounts and commissions.

ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW

Certificate of Incorporation and Bylaws. Our certificate of incorporation
and bylaws contain certain provisions that, together with the ownership position
of the officers, directors and their affiliates, could discourage potential
takeover attempts and make more difficult, attempts by stockholders to change
management, which could adversely affect the market price of our common stock.
Furthermore, our board of directors has the authority to impose various
procedural and other requirements that could make it more difficult for
stockholders to effect certain corporate actions. Any vacancy on the board of
directors may be filled only by vote of the majority of directors then in
office.

Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock.

Section 203 of the Delaware General Corporation Law. We are subject to
Section 203 of the Delaware General Corporation Law which imposes restrictions
on business combinations, which include a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, with
interested stockholders. An interested stockholder is any person who acquired
15% or more of our outstanding voting stock. In general, we are prohibited from
engaging in business combinations with an interested stockholder, unless:

- before such person became an interested stockholder, the board of
directors approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination;

63
<PAGE> 68

- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, which excludes for purposes of determining the number of
shares outstanding stock held by directors who are also officers and by
employee stock plans that do not provide employees with the rights to
determine confidentiality whether shares held subject to the plan will be
tendered in a tender or exchange offer; or

- at or subsequent to the time which such person became an interested
stockholder, the business combination is approved by the board of
directors and authorized at a meeting of stockholders by the affirmative
vote of the holders of two-thirds of the outstanding voting stock not
owned by the interested stockholder.

Under Section 203, the restrictions described above also do not apply to certain
business combinations proposed by an interested stockholder following the
earlier of the announcement or notification of one of certain extraordinary
transactions involving Packeteer and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of the board of directors, if such extraordinary
transaction is approved or not opposed by a majority of the directors who are
directors prior to any person becoming an interested stockholder during the
previous three years or who were recommended for election or elected to succeed
such directors by a majority of such directors. By restricting our ability to
engage in business combinations with an interested person, the application of
Section 203 to Packeteer may provide a barrier to hostile or unwanted takeovers.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Pursuant to the provisions of the Delaware General Corporation Law, we have
adopted provisions in our amended and restated certificate of incorporation that
provide that our directors shall not be personally liable for monetary damages
to us or our stockholders for a breach of fiduciary duty as a director, except
for liability as a result of:

- a breach of the director's duty of loyalty to us or our stockholders;

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- an act related to an unlawful stock repurchase or payment of a dividend
under Section 174 of the Delaware General Corporation Law; or

- transactions from which the director derived an improper personal
benefit.

This limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission. Nevertheless, this charter
provision may have the effect of reducing the likelihood of derivative
litigation being instituted against members of the board. Furthermore, it may
discourage or deter our stockholders or management from bringing a lawsuit
against board members for breaches of fiduciary duty, even though such an
action, if successful, might benefit us and our stockholders.

Our bylaws require us to indemnify our officers and directors and permit us
to indemnify our other agents, by agreement or otherwise, to the fullest extent
permitted under Delaware law. We have entered into separate indemnification
agreements with our directors and officers that may, in some cases, be broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require us, among other
things, to indemnify the officers and directors against certain liabilities,
other than liabilities arising from willful misconduct of a culpable nature,
that may arise by reason of their status or service as directors or officers.
These agreements also may require us to advance the expenses incurred by the
officers and

64
<PAGE> 69

directors as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers or persons controlling the
company, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

WARRANTS

At June 30, 1999, there were warrants to purchase 200,628 shares of common
stock at a weighted average exercise price of $3.67.

LISTING

Our common stock has been approved for quotation on The Nasdaq National
Market under the symbol PKTR.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar of the common stock is EquiServe.

65
<PAGE> 70

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of shares of our common stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale,
as described below, sales of substantial amounts of common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price.

After this offering, 26,153,884 shares of common stock will be outstanding,
assuming the issuance of an aggregate of 4,000,000 shares of common stock. The
number of shares outstanding after this offering is based on the number of
shares outstanding as of June 30, 1999, and assumes no exercise of outstanding
options or warrants. The 4,000,000 shares sold in this offering will be freely
tradable without restriction under the Securities Act. The remaining 22,153,884
shares of common stock outstanding upon completion of the offering are
restricted securities in that they may be sold in the public market only if
registered or if they qualify for an exemption from registration under the
Securities Act or Rules 144, 144(k) or 701 of the Securities Act. In addition,
all outstanding shares are subject to a 180 day market standoff either directly
with Packeteer or as described below.

All of the officers and directors, who hold an aggregate of 13,628,249
shares of common stock, and stockholders of Packeteer holding an aggregate of
8,429,966 shares of common stock have entered into lock-up agreements generally
providing that they will not offer, pledge, sell, offer to sell, contract to
sell, sell any option or contract to purchase, purchase any option to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, any of the shares of common stock or any securities
convertible into, or exercisable or exchangeable for, common stock owned by
them, or enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the common
stock, for a period of 180 days after the date of this prospectus, without the
prior written consent of BancBoston Robertson Stephens Inc. Transfers may be
made earlier:

- as a bona fide gift or gifts, provided the donee or donees agree in
writing to be bound by this restriction;

- as a transfer to members of the undersigned's immediate family or to
trusts for the benefit of members of the undersigned's immediate family,
provided that the transferees agree in writing to be bound by the terms
of this restriction;

- as a distribution to partners, stockholders or beneficiaries of the
transferor, provided that the distributees agree in writing to be bound
by the terms of this restriction;

- with respect to dispositions of common stock acquired on the open market;

- with respect to sales or purchases of common stock acquired on the open
market; or

- with the prior written consent of BancBoston Robertson Stephens Inc.

BancBoston Robertson Stephens Inc. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. When determining whether or not to release shares from the lock-up
agreements, BancBoston Robertson Stephens Inc. will consider, among other
factors, the stockholder's reasons for requesting the release, the number of
shares for which the release is being requested and market conditions at the
time. Following the expiration of the 180 day lock-up period, additional shares
of common stock will be available for sale in the public market subject to
compliance with Rule 144 or Rule 701.

66
<PAGE> 71

In general, under Rule 144 as currently in effect, an affiliate of
Packeteer or a person, or persons whose shares are aggregated, who has
beneficially owned restricted securities for at least one year, including the
holding period of any prior owner except an affiliate, would be entitled to sell
within any three months ended a number of shares that does not exceed the
greater of 1% of the then outstanding shares of Packeteer common stock or the
average weekly trading volume of Packeteer common stock on the Nasdaq National
Market during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about Packeteer. Any person, or
persons whose shares are aggregated, who is not deemed to have been an affiliate
of Packeteer at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years including any period of
ownership of preceding non-affiliated holders, would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.

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<PAGE> 72

UNDERWRITING

The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc. and Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, have severally agreed with
us, subject to the terms and conditions set forth in the underwriting agreement,
to purchase from us the number of shares of common stock set forth opposite
their names below. The underwriters are committed to purchase and pay for all
such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Bear, Stearns & Co. Inc. ...................................
Dain Rauscher Wessels.......................................
--------
Total.............................................
========
</TABLE>

We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which
$ may be reallowed to their dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the representatives. No such reduction shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters as stated in this prospectus, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part.

The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 600,000 additional shares of common stock at the same price per
share as we will receive for the 4,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of these additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the 4,000,000 shares offered in this offering. If purchased, such
additional shares will be sold by the underwriters on the same terms as those on
which the 4,000,000 shares are being sold. We will be obligated, according to
the option, to sell shares to the extent the option is exercised. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the shares of common stock offered in this offering.
If this option is exercised in full, the total public offering price of the
4,600,000 shares we sell to the underwriters, underwriting discounts and
commissions on such shares and total proceeds to us from the sale of these
shares will be $ , $ and $ , respectively.

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<PAGE> 73

The following table summarizes the compensation to be paid to the
underwriters by us:

<TABLE>
<CAPTION>
Total
----------------------
Without With
Over- Over-
Per Share allotment allotment
--------- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable
by us.............................................. $ $ $
</TABLE>

We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $ .

Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.

Lock-up Agreements. With the exception of holders of 95,667 shares of
outstanding common stock and holders of options and warrants to purchase 490,128
shares of common stock, each of our executive officers, directors, stockholders
of record, optionholders and warrantholders has agreed with the representatives,
for a period of 180 days after the date of this prospectus, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock,
any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or, with certain exceptions, thereafter acquired
directly by such holders or with respect to which they have or hereafter acquire
the power of disposition, without the prior written consent of BancBoston
Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to the lock-up agreements. There are no agreements
between the representatives and any of our stockholders providing consent by the
representatives to the sale of shares prior to the expiration of the period of
180 days after this prospectus.

Future Sales. In addition, we have agreed that during the period of 180
days after this prospectus, we will not, subject to certain exceptions, without
the prior written consent of BancBoston Robertson Stephens Inc.:

- Consent to the disposition of any shares held by stockholders prior to
the expiration of the period of 180 days after this prospectus; or

- Issue, sell, contract to sell or otherwise dispose of any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock, other than (1) the sale of shares in this
offering, (2) the issuance of common stock upon the exercise or
conversion of outstanding options, warrants or convertible securities,
(3) our issuance of stock options under existing stock option plans and
(4) our issuance of common stock under the Employee Stock Purchase Plan.

See "Shares Eligible for Future Sale."

Listing. We have been approved for quotation on the Nasdaq National Market
under the symbol PKTR.

No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered hereby was

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<PAGE> 74

determined through negotiations between us and the representatives. Among the
factors considered in such negotiations were prevailing market conditions,
certain of our financial information, market valuations of other companies that
we and the representatives believed to be comparable to us, estimates of our
business potential, the present state of our development and other factors
deemed relevant.

Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, include stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the representatives to reclaim the selling
concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.

Directed Share Program. At our request, the underwriters have reserved up
to 240,000 shares of common stock to be issued by us and offered hereby for
sale, at the initial public offering price, to directors, officers, employees,
business associates and related persons of Packeteer. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares which
are not so purchased will be offered by the underwriters to the general public
on the same basis as the other shares offered hereby.

LEGAL MATTERS

The legality of the common stock we are offering will be passed upon for
Packeteer by Brobeck, Phleger & Harrison LLP, Palo Alto, California, and for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.

EXPERTS

The consolidated financial statements and schedule of Packeteer, Inc. as of
December 31, 1997 and 1998, and for the period from January 25, 1996 (inception)
to December 31, 1996, and for each of the years in the two-year period ended
December 31, 1998 have been included herein and in the registration statement in
reliance upon the reports of KPMG LLP, independent auditors, appearing elsewhere
herein and in the registration statement, and upon authority of said firm as
experts in accounting and auditing.

70
<PAGE> 75

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC, Washington, D.C. 20549, under the Securities
Act a registration statement on Form S-1 relating to the common stock offered.
This prospectus does not contain all of the information set forth in the
registration statement and its exhibits and schedules. For further information
with respect to Packeteer and the shares we are offering pursuant to this
prospectus you should refer to the registration statement, including its
exhibits and schedules. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and you should refer to the copy of that contract or other
document filed as an exhibit to the registration statement or any other
document. You may inspect a copy of the registration statement without charge at
the Public Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at the SEC's regional offices at 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036. The SEC maintains an
Internet site that contains reports, proxy information statements and other
information regarding registrants that file electronically with the SEC. The
SEC's world wide web address is www.sec.gov.

We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
consolidated financial information for the first three quarters of each fiscal
year. We intend to furnish these other reports as we may determine or as may be
required by law.

71
<PAGE> 76

UNDERWRITING

<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITER
-------------------------
<S> <C>
BancBoston Robertson Stephens International Limited.........
Bear, Stearns International Limited.........................
Dain Rauscher Wessels.......................................
--------
Total.............................................
========
</TABLE>

The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

68
<PAGE> 77

The following table summarizes the compensation to be paid to the
underwriters by us:

We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $ .

Lock-up Agreements. With the exception of holders of warrants to purchase
200,628 shares of common stock, each of our executive officers, directors,
stockholders of record, optionholders and warrantholders has agreed with the
representatives, for a period of 180 days after the date of this prospectus,
subject to certain exceptions, not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of common stock, any options or warrants to purchase any shares of common
stock, or any securities convertible into or exchangeable for shares of common
stock owned as of the date of this prospectus or, with certain exceptions,
thereafter acquired directly by such holders or with respect to which they have
or hereafter acquire the power of disposition, without the prior written consent
of BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens
Inc. may, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to the lock-up agreements. There are no
agreements between the representatives and any of our stockholders providing
consent by the representatives to the sale of shares prior to the expiration of
the period of 180 days after this prospectus.

- Consent to the disposition of any shares held by stockholders prior to
the expiration of the period of 180 days after this prospectus; or

See "Shares Eligible for Future Sale."

Listing. We have applied for quotation on the Nasdaq National Market under
the symbol PKTR.

No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered hereby was

69
<PAGE> 78

LEGAL MATTERS

EXPERTS

70
<PAGE> 79

WHERE YOU CAN FIND MORE INFORMATION

71
<PAGE> 80

PACKETEER, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and June 30, 1999 (unaudited)............................. F-3
Consolidated Statements of Operations for the period from
January 25, 1996 (inception) to December 31, 1996, for the
years ended December 31, 1997 and 1998 and for the six
months ended June 30, 1998 and 1999 (unaudited)........... F-4
Consolidated Statements of Stockholders' Equity for the
period from January 25, 1996 (inception) to December 31,
1996, for the years ended December 31, 1997 and 1998 and
for the six months ended June 30, 1999 (unaudited)........ F-5
Consolidated Statements of Cash Flows for the period from
January 25, 1996 (inception) to December 31, 1996, for the
years ended December 31, 1997 and 1998 and for the six
months ended June 30, 1998 and 1999 (unaudited)........... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 81

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
PACKETEER, INC.:

We have audited the accompanying consolidated balance sheets of Packeteer,
Inc. and subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from January 25, 1996 (inception) to December 31, 1996, and for each
of the years in the two-year period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Packeteer,
Inc. and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the period from January 25, 1996 (inception)
to December 31, 1996, and for each of the years in the two-year period ended
December 31, 1998, in conformity with generally accepted accounting principles.

/s/ KPMG LLP

Mountain View, California
March 3, 1999, except as to
Note 9, which is as of
May 19, 1999

F-2
<PAGE> 82

PACKETEER, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, JUNE 30, STOCKHOLDERS'
------------------ -------- EQUITY AT
1997 1998 1999 JUNE 30, 1999
------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,416 $ 2,550 $ 4,569
Short-term investments.................................... -- 1,927 3,205
Accounts receivable, less allowance for doubtful accounts
of $37, $293, and $211 as of December 31, 1997 and 1998,
and June 30, 1999....................................... 721 2,745 1,955
Other receivables......................................... 764 39 50
Inventories............................................... 362 188 202
Prepaids and other current assets......................... 124 124 410
------- -------- --------
Total current assets.................................. 4,387 7,573 10,391
Property and equipment, net................................. 404 794 849
Other assets................................................ 144 203 190
------- -------- --------
Total assets.......................................... $ 4,935 $ 8,570 $ 11,430
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ -- $ -- $ 1,532
Current portion of capital lease obligations.............. 36 215 286
Current portion of note payable........................... 67 71 3,044
Accounts payable.......................................... 1,334 1,015 726
Accrued compensation...................................... 85 253 452
Other accrued liabilities................................. 211 1,011 1,561
Deferred revenue.......................................... 42 1,507 1,004
------- -------- --------
Total current liabilities............................. 1,775 4,072 8,605
Capital lease obligations, less current portion............. 116 570 643
Note payable, less current portion.......................... 222 151 1,837
Other long-term liabilities................................. 18 18 18
------- -------- --------
Total liabilities..................................... $ 2,131 $ 4,811 $ 11,103
------- -------- --------
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value; 13,703,287 shares
authorized; actual -- 9,838,180, 12,391,001 and
12,391,001 shares, issued and outstanding as of December
31, 1997 and 1998 and June 30, 1999; liquidation
preference of $9,955, $20,013 and $20,013 in aggregate
as of December 31, 1997 and 1998, and June 30, 1999; pro
forma -- no shares issued and outstanding............... 10 13 13 $ --
Common stock, $0.001 par value; 40,000,000 shares
authorized; actual -- 8,981,300, 9,722,842 and 9,762,883
shares issued and outstanding as of December 31, 1997
and 1998, and June 30, 1999, respectively; pro
forma -- 22,153,884 shares issued and outstanding as of
June 30, 1999........................................... 9 10 10 23
Additional paid-in capital.................................. 10,145 20,924 26,043 26,043
Deferred stock-based compensation........................... -- (514) (3,265) (3,265)
Notes receivable from stockholders.......................... (214) (729) (806) (806)
Accumulated deficit......................................... (7,146) (15,945) (21,668) (21,668)
------- -------- -------- --------
Total stockholders' equity............................ 2,804 3,759 327 $ 327
------- -------- -------- ========
Total liabilities and stockholders' equity............ $ 4,935 $ 8,570 $ 11,430
======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.
F-3
<PAGE> 83

PACKETEER, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED SIX MONTHS ENDED
JAN. 25, 1996 DECEMBER 31, JUNE 30,
(INCEPTION) TO ----------------- -----------------
DEC. 31, 1996 1997 1998 1998 1999
-------------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Product revenues........................... $ -- $ 1,413 $ 7,105 $ 2,917 $ 6,330
Licensing revenues......................... -- -- 125 -- 750
------- ------- ------- ------- -------
Total net revenues.................... -- 1,413 7,230 2,917 7,080
Cost of revenues............................. -- 457 2,386 1,070 1,927
------- ------- ------- ------- -------
Gross profit................................. -- 956 4,844 1,847 5,153
Operating expenses:
Research and development................... 725 2,932 2,779 1,168 2,220
Sales and marketing........................ 349 3,210 8,866 3,469 5,656
General and administrative................. 238 934 1,750 746 1,142
Amortization of stock-based compensation... -- -- 537 228 1,784
------- ------- ------- ------- -------
Total operating expenses.............. 1,312 7,076 13,932 5,611 10,802
------- ------- ------- ------- -------
Net loss from operations..................... (1,312) (6,120) (9,088) (3,764) (5,649)
Other income (expense), net.................. 75 211 289 135 (74)
------- ------- ------- ------- -------
Net loss..................................... $(1,237) $(5,909) $(8,799) $(3,629) $(5,723)
======= ======= ======= ======= =======
Basic and diluted net loss per share......... $ (1.28) $ (1.82) $ (1.54) $ (0.72) $ (0.76)
======= ======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share......................... 965 3,253 5,709 5,064 7,565
======= ======= ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.
F-4
<PAGE> 84

PACKETEER, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 25, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998, AND FOR
THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D COMMON STOCK
--------------- --------------- --------------- --------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash......... -- $-- -- $-- -- $-- -- $-- 640 $--
Issuance of common stock for personal
property................................ -- -- -- -- -- -- -- -- 5,120 5
Issuance of Series A preferred stock, net
of issuance costs of $7................. 2,800 3 -- -- -- -- -- -- -- --
Issuance of common stock upon exercise of
stock options........................... -- -- -- -- -- -- -- -- 1,759 2
Issuance of Series B preferred stock, net
of issuance costs of $43................ -- -- 4,822 5 -- -- -- -- -- --
Repurchase of common stock................ -- -- -- -- -- -- -- -- (160) --
Net loss.................................. -- -- -- -- -- -- -- -- -- --
----- --- ----- --- ----- --- ----- --- ----- ---
Balances as of December 31, 1996.......... 2,800 3 4,822 5 -- -- -- -- 7,359 7
Issuance of Series C preferred stock, net
of issuance costs of $41................ -- -- -- -- 2,216 2 -- -- -- --
Issuance of common stock upon exercise of
stock options........................... -- -- -- -- -- -- -- -- 1,940 2
Repurchase of common stock................ -- -- -- -- -- -- -- -- (318) --
Issuance of warrants for Series B
preferred stock......................... -- -- -- -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- -- -- -- --
----- --- ----- --- ----- --- ----- --- ----- ---
Balances as of December 31, 1997.......... 2,800 3 4,822 5 2,216 2 -- -- 8,981 9
Issuance of Series D preferred stock, net
of issuance costs of $950............... -- -- -- -- -- -- 2,553 3 -- --
Issuance of common stock upon exercise of
stock options........................... -- -- -- -- -- -- -- -- 1,042 1
Stock-based compensation to
non-employees........................... -- -- -- -- -- -- -- -- -- --
Issuance of common stock upon exercise of
stock purchase rights................... -- -- -- -- -- -- -- -- 6 --
Repurchase of common stock................ -- -- -- -- -- -- -- -- (306) --
Issuance of warrants for Series D
preferred stock......................... -- -- -- -- -- -- -- -- -- --
Repayment of notes receivable from
stockholders............................ -- -- -- -- -- -- -- -- -- --
Deferred compensation related to stock
option grants........................... -- -- -- -- -- -- -- -- -- --
Amortization of stock-based
compensation............................ -- -- -- -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- -- -- -- --
----- --- ----- --- ----- --- ----- --- ----- ---
Balances as of December 31, 1998.......... 2,800 3 4,822 5 2,216 2 2,553 3 9,723 10
Stock-based compensation to
non-employees........................... -- -- -- -- -- -- -- -- -- --
Stock options granted to new employees.... -- -- -- -- -- -- -- -- -- --
Issuance of common stock upon exercise of
stock options........................... -- -- -- -- -- -- -- -- 57 --
Repurchase of common stock................ -- -- -- -- -- -- -- -- (17) --
Issuance of warrants for Series D
preferred stock......................... -- -- -- -- -- -- -- -- -- --
Repayments of notes receivable from
stockholders............................ -- -- -- -- -- -- -- -- -- --
Deferred compensation related to stock
option grants........................... -- -- -- -- -- -- -- -- -- --
Amortization of stock-based
compensation............................ -- -- -- -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- -- -- -- --
----- --- ----- --- ----- --- ----- --- ----- ---
Balances as of June 30, 1999
(unaudited)............................. 2,800 $ 3 4,822 $ 5 2,216 $ 2 2,553 $ 3 9,763 $10
===== === ===== === ===== === ===== === ===== ===

NOTES
ADDITIONAL DEFERRED RECEIVABLE TOTAL
PAID-IN STOCK-BASED FROM ACCUMULATED STOCKHOLDERS'
CAPITAL COMPENSATION STOCKHOLDERS DEFICIT EQUITY
---------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash......... $ -- $ -- $ -- $ -- $ --
Issuance of common stock for personal
property................................ (4) -- -- -- 1
Issuance of Series A preferred stock, net
of issuance costs of $7................. 690 -- -- -- 693
Issuance of common stock upon exercise of
stock options........................... 42 -- (29) -- 15
Issuance of Series B preferred stock, net
of issuance costs of $43................ 4,774 -- -- -- 4,779
Repurchase of common stock................ (4) -- 4 -- --
Net loss.................................. -- -- -- (1,237) (1,237)
------- ------- ----- -------- -------
Balances as of December 31, 1996.......... 5,498 -- (25) (1,237) 4,251
Issuance of Series C preferred stock, net
of issuance costs of $41................ 4,389 -- -- -- 4,391
Issuance of common stock upon exercise of
stock options........................... 242 -- (195) -- 49
Repurchase of common stock................ (10) -- 6 -- (4)
Issuance of warrants for Series B
preferred stock......................... 26 -- -- -- 26
Net loss.................................. -- -- -- (5,909) (5,909)
------- ------- ----- -------- -------
Balances as of December 31, 1997.......... 10,145 -- (214) (7,146) 2,804
Issuance of Series D preferred stock, net
of issuance costs of $950............... 9,105 -- -- -- 9,108
Issuance of common stock upon exercise of
stock options........................... 619 -- (568) -- 52
Stock-based compensation to
non-employees........................... 269 -- -- -- 269
Issuance of common stock upon exercise of
stock purchase rights................... 1 -- -- -- 1
Repurchase of common stock................ (40) -- 52 -- 12
Issuance of warrants for Series D
preferred stock......................... 38 -- -- -- 38
Repayment of notes receivable from
stockholders............................ -- -- 1 -- 1
Deferred compensation related to stock
option grants........................... 787 (787) -- -- --
Amortization of stock-based
compensation............................ -- 273 -- -- 273
Net loss.................................. -- -- -- (8,799) (8,799)
------- ------- ----- -------- -------
Balances as of December 31, 1998.......... 20,924 (514) (729) (15,945) 3,759
Stock-based compensation to
non-employees........................... 621 -- -- -- 621
Stock options granted to new employees.... 16 -- -- -- 16
Issuance of common stock upon exercise of
stock options........................... 216 -- (182) -- 34
Repurchase of common stock................ (16) -- 17 -- 1
Issuance of warrants for Series D
preferred stock......................... 368 -- -- -- 368
Repayments of notes receivable from
stockholders............................ -- -- 88 -- 88
Deferred compensation related to stock
option grants........................... 3,914 (3,914) -- -- --
Amortization of stock-based
compensation............................ -- 1,163 -- -- 1,163
Net loss.................................. -- -- -- (5,723) (5,723)
------- ------- ----- -------- -------
Balances as of June 30, 1999
(unaudited)............................. $26,043 $(3,265) $(806) $(21,668) $ 327
======= ======= ===== ======== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 85

PACKETEER, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED SIX MONTHS ENDED
JANUARY 25, 1996 DECEMBER 31, JUNE 30,
(INCEPTION) TO ----------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(1,237) $(5,909) $(8,799) $(3,629) $(5,723)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 68 261 215 68 250
Allowance for doubtful accounts................. -- 37 305 105 (82)
Amortization of deferred stock-based
compensation.................................. -- -- 542 228 1,784
Issuance of stock purchase rights............... -- 26 38 38 16
Amortization of deferred interest............... -- -- -- -- 61
Changes in operating assets and liabilities:
Accounts receivable........................... -- (758) (2,329) (488) 872
Other receivables............................. -- (764) 724 745 (11)
Inventories................................... (6) (356) 175 (122) (14)
Prepaids and other current assets............. (18) (106) -- (131) (286)
Accounts payable.............................. 149 1,185 (318) 204 (289)
Accrued compensation.......................... 25 60 168 97 199
Other accrued liabilities..................... 28 184 800 145 550
Deferred revenue.............................. -- 42 1,464 47 (503)
------- ------- ------- ------- -------
Net cash used in operating activities....... (991) (6,098) (7,015) (2,693) (3,176)
------- ------- ------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment............... (241) (492) (605) (242) (305)
Purchase of short-term investments................ -- -- (1,927) -- (3,205)
Proceeds from sale of short-term investments...... -- -- -- -- 1,927
Other assets...................................... -- (113) (59) (35) 13
------- ------- ------- ------- -------
Net cash used in investing activities....... (241) (605) (2,591) (277) (1,570)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of preferred stock..... 5,472 4,391 9,108 9,050 --
Net proceeds from issuance of common stock........ 15 49 53 50 34
Proceeds from stockholders' note receivable....... -- -- 1 -- 88
Repurchase of common stock........................ -- (4) 12 (1) 1
Borrowings under line of credit................... -- -- -- -- 1,892
Repayments of line of credit...................... -- -- -- -- (360)
Proceeds from note payable........................ -- 287 -- -- 5,000
Payments of note payable.......................... -- (29) (67) (33) (34)
Proceeds from lease financing..................... -- 165 749 292 267
Principal payments of capital lease obligations... -- (13) (116) (44) (123)
Proceeds from other long-term liabilities......... -- 18 -- -- --
------- ------- ------- ------- -------
Net cash provided by financing activities... 5,487 4,864 9,740 9,314 6,765
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 4,255 (1,839) 134 6,344 2,019
Cash and cash equivalents at beginning of year...... -- 4,255 2,416 2,416 2,550
------- ------- ------- ------- -------
Cash and cash equivalents at end of year............ $ 4,255 $ 2,416 $ 2,550 $ 8,760 $ 4,569
======= ======= ======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during year for interest................ $ -- $ -- $ 48 $ 17 $ 172
======= ======= ======= ======= =======
Noncash investing and financing activities:
Issuance of common stock in exchange for
equipment and technology...................... $ 1 $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Issuance of common stock upon exercise of
options in exchange for notes receivable...... $ 25 $ 195 $ 568 $ 444 $ 182
======= ======= ======= ======= =======
Repurchase of common stock in exchange for
cancellation of notes receivable.............. $ -- $ 6 $ 52 $ 4 $ 17
======= ======= ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 86

PACKETEER, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Organization

Packeteer, Inc. (the Company) was incorporated on January 25, 1996, to
provide application-adaptive bandwidth management solutions that enhance
mission-critical application performance over enterprise WANs and the Internet.
The Company's solutions enable businesses and service providers to manage
proactively bandwidth contention at WAN access links, protect important
application traffic and increase network efficiency. The Company markets and
distributes its products via a worldwide network of VARs, distributors, systems
integrators and OEMs. The Company commenced principal operations in 1997. The
Company is headquartered in Cupertino, California, and has wholly owned
subsidiaries in Japan, Hong Kong and The Netherlands.

(b) Principles of Consolidation

The accompanying consolidated financial statements include the financial
statements of the Company and its three wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(d) Unaudited Interim Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, the accompanying
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements, and including all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the Company's financial position as of June 30, 1999 and the
results of its operations and its cash flows for the six months ended June 30,
1998 and 1999.

(e) Revenue Recognition

The Company recognizes product revenues, with provision made for estimated
returns, after the following events have occurred: the customer issues a
noncancelable purchase order; a product has been shipped to the customer; and
collection of the sales price is probable.

Maintenance revenue on product sales is recognized ratably over the term of
the maintenance period.

F-7
<PAGE> 87
PACKETEER, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
For software transactions entered into after January 1, 1998, the Company
adopted the American Institute of Certified Public Accountants' (AICPA)
Statement of Position (SOP) 97-2, "Software Revenue Recognition" as modified by
SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect
to Certain Transactions." SOP 97-2 generally requires revenue earned on software
arrangements involving multiple-elements to be allocated to each element based
on its relative fair value. The fair value of the element must be based on
objective evidence that is specific to the vendor. If a vendor does not have
objective evidence of the fair value of all elements in a multiple-element
arrangement, all revenue from the arrangement must be deferred until such
evidence exists or until all elements have been delivered, unless the only
undelivered element is post-contract customer support, in which case, the entire
fee is recognized over the support period.

Licensing revenues relate to OEM arrangements. We recognize OEM license
fees, which include post-contract customer support, when the software has been
shipped to the customer, the fees are fixed and determinable and there is
evidence of the fair value of the post-contract customer support. When
sufficient evidence of fair value of post-contract customer support is not
available, revenues are recognized ratably over the support period. We do not
have sufficient evidence of fair value of post-contract customer support for our
current OEM license arrangements, and therefore are recognizing the revenues for
these arrangements over the support period.

Service revenue is recognized as the services are performed. To date, these
amounts have not been significant.

(f) Cost of Revenues

Cost of revenues consists primarily of costs of product sales. Costs of
licensing revenues, including product packaging, documentation and reproduction
have not been significant. The Company provides reserves for warranty costs
expected to be incurred. To date the Company has not incurred significant
warranty costs.

(g) Cash, Cash Equivalents and Short-Term Investments

The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of cash on deposit with banks, money market
instruments, and investments in commercial paper. As of December 31, 1997 and
1998, cash equivalents total approximately $2,141 and $2,389, respectively.

Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. As of December 31, 1997 and 1998, all investment securities
are designated as "available-for-sale." Available-for-sale securities are
carried at fair value based on quoted market prices, which approximates cost.
The cost of securities sold is determined based on the specific identification
method.

F-8
<PAGE> 88
PACKETEER, INC.
AND SUBSIDIARIES

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(h) Inventories

Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market. Inventory balances represent completed products
available-for-sale.

(i) Property and Equipment

Property and equipment, including leasehold improvements and equipment
acquired under capital lease, are recorded at cost. Depreciation and
amortization are provided using a straight-line method over the shorter of the
estimated useful lives of the assets or the lease terms, generally one to four
years.

The Company reviews property and equipment for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of property and equipment is measured by
comparison of its carrying amount to future net cash flows the property and
equipment are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property and equipment exceeds its fair market value. To
date, the Company has made no adjustments to the carrying amount of its property
and equipment due to impairment.

(j) Research and Development Costs

Development costs incurred in the research and development of new products
and enhancements to existing products are expensed as incurred until
technological feasibility in the form of a working model has been established.
To date, software developments have been completed concurrent with the
establishment of technological feasibility, and, accordingly, no costs have been
capitalized.

(k) Business and Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents,
short-term investments and accounts receivable. The Company's cash, cash
equivalents and short-term investments are maintained with highly accredited
financial institutions. The Company's cash equivalents are primarily in highly
liquid money market funds. The Company believes no significant concentration of
credit risk exists with respect to these financial instruments. Concentrations
of credit risk with respect to trade receivables are limited as the Company
performs ongoing credit evaluations of its customers. Based on management's
evaluation of potential credit losses, the Company believes its allowances for
doubtful accounts are adequate.

The Company's products, which are sold worldwide, are targeted to
organizations utilizing wide area networks. Accordingly, the Company's future
success depends upon the capital spending patterns of such customers and the
continued demand by such customers for the Company's product. The networking
industry is characterized by rapidly changing technology, evolving industry
standards, changes in end-user requirements and frequent new product
introductions and enhancements.

F-9
<PAGE> 89
PACKETEER, INC.
AND SUBSIDIARIES

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company's continued success will depend upon its ability to enhance
existing products and to develop and introduce, on a timely basis, new products
and features that keep pace with technology developments and emerging industry
standards. Furthermore, as a result of its international sales, the Company's
operations are subject to risks of doing business abroad, including, but not
limited to, export duties, changes to import and export regulations, longer
payment cycles, and greater difficulty in collecting accounts receivable. While,
to date, these factors have not had an adverse material impact on the Company's
consolidated results of operations, there can be no assurance that there will
not be such an impact in the future.

(l) Income Taxes

The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for any
tax benefits of which future realization is uncertain.

(m) Stock-Based Compensation

For employee stock-based compensation plans, the Company uses the intrinsic
value-based method of accounting. Deferred compensation expense associated with
stock-based compensation is being amortized on an accelerated basis over the
vesting period of the individual award consistent with the method described in
Financial Accounting Standards Board (FASB) Interpretation No. 28, Accounting
for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.

For non-employees, the Company computes the fair value of the stock based
compensation in accordance with SFAS 123 "Accounting for Stock Based
Compensation" and Emerging Issues Task Force (EITF) 96-18 "Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."

(n) Foreign Currency Transactions

The Company's sales to international customers are U.S. dollar-denominated.
As a result, there are no foreign currency gains or losses related to these
transactions.

The functional currency for the Company's foreign subsidiaries is the U.S.
dollar. Accordingly, the entities remeasure monetary assets and liabilities at
period-end exchange rates, while nonmonetary items are remeasured at historical
rates. Income and expense accounts are remeasured at the average rates in effect
during the year, except for depreciation which is remeasured at historical
rates.

F-10
<PAGE> 90
PACKETEER, INC.
AND SUBSIDIARIES

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Remeasurement adjustments and transaction gains and losses are recognized in
income in the year of occurrence. To date, the effect of such amounts on net
income has not been material.

(o) Other Comprehensive Income

The Company has no material components of other comprehensive income.

(p) Net Loss Per Share

Basic net loss per share is computed using the weighted-average number of
vested outstanding shares of common stock. Diluted net loss per share is
computed using the weighted-average number of shares of vested common stock
outstanding and, when dilutive, potential common shares. Potential common shares
include unvested common stock outstanding and potential common shares from
options and warrants to purchase common stock using the treasury stock method,
and convertible preferred stock on the as-if converted basis. All potential
shares have been excluded from the computation of diluted net loss per share for
all periods presented because the effect would be antidilutive. Pursuant to the
SEC Staff Accounting Bulletin No. 98, common stock and convertible preferred
stock issued for nominal consideration, prior to the anticipated effective date
of the initial public offering, or IPO, are included in the calculation of basic
and diluted net loss per share as if they were outstanding for all periods
presented. To date, the Company has not had any issuances or grants for nominal
consideration. Diluted net loss per share does not include the effects of the
following potential common shares:

<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED
JANUARY 25, 1996 DECEMBER 31,
(INCEPTION) TO ---------------
DECEMBER 31, 1996 1997 1998
----------------- ----- ------
<S> <C> <C> <C>
Shares issuable under stock options.................. 704 900 1,073
Shares of unvested stock subject to repurchase....... 5,177 4,571 2,757
Shares issuable pursuant to warrants to purchase
convertible preferred.............................. -- 42 58
Shares issuable related to convertible preferred
stock on an "as-if-converted" basis................ 7,622 9,838 12,391
</TABLE>

The weighted-average exercise price of stock options outstanding was $0.22
and $1.90 as of December 31, 1997 and 1998, respectively. The weighted average
purchase price of unvested stock was $0.10 and $0.34 as of December 31, 1997 and
1998, respectively. The weighted average exercise price of warrants was $1.00
and $1.81 as of December 31, 1997 and 1998, respectively.

(q) Financial Instruments

The carrying value of cash, cash equivalents, short-term investments,
accounts receivable, accounts payable and accrued expenses approximates their
estimated fair value due to the relative

F-11
<PAGE> 91
PACKETEER, INC.
AND SUBSIDIARIES

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
short maturity of these instruments. The carrying value of long-term debt and
capital lease obligations approximates carrying value based on the market
interest rates available to the Company for debt of similar risk and maturities.

(r) Recent Accounting Pronouncements

The FASB recently issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. For a derivative not
designated as a hedging instrument, changes in the fair value of the derivative
are recognized in earnings in the period of change. The Company must adopt SFAS
No. 133 by January 1, 2000. Management does not believe the adoption of SFAS No.
133 will have a material effect on the financial position or results of
operations of the Company.

2. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of December 31, 1997
and 1998:

<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Computers and equipment..................................... $262 $ 262
Equipment under capital lease............................... 415 1,021
Furniture and fixtures...................................... 39 39
Leasehold improvements...................................... 17 17
---- ------
733 1,339
Less accumulated depreciation and amortization.............. 329 545
---- ------
$404 $ 794
==== ======
</TABLE>

Accumulated depreciation and amortization includes amortization of
approximately $31 and $226 on equipment under capital lease as of December 31,
1997 and 1998, respectively.

F-12
<PAGE> 92
PACKETEER, INC.
AND SUBSIDIARIES

3. LEASE COMMITMENTS

The Company leases its facility and certain equipment under noncancelable
lease agreements, which expire at various dates through 2002. As of December 31,
1998, the future minimum rental payments under capital and operating leases are
as follows:

<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASE LEASE
------------ -------- ---------
<S> <C> <C>
1999..................................................... $262 $ 699
2000..................................................... 262 734
2001..................................................... 248 770
2002..................................................... 114 773
---- ------
Total future minimum lease payments......................... 886 $2,976
======
Less imputed interest....................................... 101
----
Present value of future minimum lease payments under capital
lease..................................................... 785
Less current portion........................................ 215
----
Long-term portion........................................... $570
====
</TABLE>

Rent expense for the period from January 25, 1996 (inception) to December
31, 1996 and for the years ended December 31, 1997 and 1998, was $32, $138 and
$616, respectively.

4. NOTE PAYABLE

The note payable, which totaled $287 at inception, has a stated interest
rate of 6.75% and is payable in 48 monthly installments of $7 with a final
balloon payment of $34 due on June 1, 2001. The note is secured by the Company's
property and equipment. The note has been discounted for warrants valued at
approximately $26 issued in connection with the note (see Note 5). The Company
estimates the fair value of its fixed rate debt using discounted cash flow
analysis based on the Company's current borrowing rates for similar debt.

F-13
<PAGE> 93
PACKETEER, INC.
AND SUBSIDIARIES

5. STOCKHOLDERS' EQUITY

(a) Preferred Stock

As of December 31, 1998, the Company has 13,703 shares of preferred stock
authorized. As of December 31, 1997 and 1998 and June 30, 1999, the Company had
designated and issued preferred stock as follows:

<TABLE>
<CAPTION>
OUTSTANDING SHARES
--------------------------
DECEMBER 31,
DESIGNATED -------------- JUNE 30, LIQUIDATION
SHARES 1997 1998 1999 PREFERENCE
---------- ----- ------ --------- -----------
<S> <C> <C> <C> <C> <C>
Series A.............................. 2,800 2,800 2,800 2,800 $0.25
Series B.............................. 4,864 4,822 4,822 4,822 1.00
Series C.............................. 2,216 2,216 2,216 2,216 2.00
Series D.............................. 3,823 -- 2,553 2,553 3.94
------ ----- ------ ------
13,703 9,838 12,391 12,391
====== ===== ====== ======
</TABLE>

In February and April 1996, the Company issued 2,800 shares of Series A
preferred stock for cash of $0.25 per share. A total of $693 was raised, net of
issuance costs.

In September and October 1996, the Company raised an additional $4,779, net
of issuance costs, through the issuance of 4,822 shares of Series B preferred
stock for cash of $1.00 per share.

During 1997, the Company issued 2,216 shares of Series C preferred stock
for cash of $2.00 per share. A total of $4,391 was raised, net of issuance
costs.

In 1998, the Company completed another round of private financing. A total
of 2,553 shares of Series D preferred stock were issued for cash of $3.94 per
share. A total of $9,108 was raised, net of issuance costs.

The rights, preferences, and privileges of the holders of Series A, B, C,
and D preferred stock are as follows:

- The holders of Series A, B, C, and D preferred stock are entitled to
receive dividends at the rate of $0.02, $0.08, $0.16, and $0.32 per
share, respectively, per annum, payable when and as declared by the
Company's Board of Directors, in preference and priority to any payments
of dividends to holders of the Company's common stock. The dividend
rights are not cumulative.

- Shares of Series A, B, C, and D preferred stock have a liquidation
preference of $0.25, $1.00, $2.00, and $3.94 per share, respectively,
plus any declared but unpaid dividends.

- Each holder of preferred stock has voting rights equal to common stock on
an "as if converted" basis.

- Each share of preferred stock is convertible at any time into one share
of common stock at the option of the holder, subject to adjustment. Each
share of preferred stock automatically converts upon the closing of the
sale of the Company's common stock in a public offering in

F-14
<PAGE> 94
PACKETEER, INC.
AND SUBSIDIARIES

5. STOCKHOLDERS' EQUITY -- (CONTINUED)
which the gross proceeds exceed $15,000 and the offering price equals or
exceeds $3.75 per share for Series A, B, and C preferred stock, and $7.39
per share for Series D preferred stock.

(b) Common Stock

The Company is authorized to issue 40,000 shares of common stock.

In January 1996, the Company issued 640 shares in exchange for cash. In
January 1996, the Company also issued 5,120 shares of common stock in exchange
for certain personal property, which was recorded at estimated fair value of the
property and is included in property and equipment on the accompanying balance
sheets. As of December 31, 1998, 747 of these shares were subject to repurchase.

In July and August 1996, the Company issued 1,759 shares of common stock
upon the exercise of stock options granted under the Company's 1996 Equity
Incentive Plan (the Plan). Shares issued under the Plan are subject to
repurchase as described below. Of the 1,759 shares issued upon the exercise of
stock options, 1,280 shares were issued in conjunction with full recourse,
promissory notes secured by the shares. Of the total purchase price, 10% was
paid at the time of purchase. The remaining principal, which bears interest at
6.74%, is due annually in equal installments, plus interest, through 2006.

In December 1996, the Company repurchased 160 shares of common stock at
$0.10 per share from a terminated employee in exchange for cash and forgiveness
of a $4 promissory note.

During 1997, the Company issued 1,940 shares of common stock upon the
exercise of stock options granted under the Company's 1996 Equity Incentive Plan
(the Plan). Shares issued under the Plan are subject to repurchase as described
below under Note (5)(c). Of the 1,940 shares issued upon the exercise of stock
options in 1997, 1,840 shares were issued in conjunction with full recourse,
promissory notes secured by the shares. Of the total purchase price, 10% was
paid at the time of purchase. The remaining principal, which bears interest at
5.6% to 6.8%, is due in annual installments, plus interest, through 2002.

In October 1997, the Company repurchased 278 shares of common stock at
$0.25 per share from two terminated employees in exchange for $4 in cash and
forgiveness of a $3 promissory note.

In December 1997, the Company repurchased 40 shares of common stock at
$0.10 per share from a terminated employee in exchange for cash and forgiveness
of a $3 promissory note.

During 1998, the Company issued 1,048 shares of common stock upon the
exercise of stock options and stock purchase rights. Of the 1,048 shares issued
upon the exercise of stock options, 1,042 shares were issued in conjunction with
full recourse, promissory notes secured by the shares. Of the total purchase
price, 10% was paid at the time of purchase. The remaining principal, which
bears interest at 5.5% to 6.5%, is due in annual installments, plus interest,
through 2003.

F-15
<PAGE> 95
PACKETEER, INC.
AND SUBSIDIARIES

5. STOCKHOLDERS' EQUITY -- (CONTINUED)
During 1998, the Company granted rights to purchase 202 shares of common
stock. These rights, which were not granted under the Plan, have exercise prices
ranging from $0.25 to $3.50 per share. At the date of grant, the Company
estimated the fair value of the rights to be $5 using the Black-Scholes model
with the following assumptions: risk free interest rate of 4.5%; an expected
life of four years; expected volatility of 50%; and no dividend.

During 1998, the Company repurchased 306 shares of common stock at $0.10 to
$0.50 per share from terminated employees in exchange for $12 in cash and
forgiveness of $52 in promissory notes.

The Company has adopted the Plan in order to provide selected employees,
directors, and consultants of the Company an opportunity to acquire the
Company's common stock. The Plan provides for granting of incentive stock
options, nonstatutory stock options, stock bonuses, and restricted stock
purchase rights. The Plan is administered by the Board of Directors, which sets
the terms and conditions of the options. Nonstatutory stock options and
incentive stock options are exercisable at prices not less than 85% and 100%,
respectively, of the fair value on the date of grant. The options become 25%
vested one year after the date of grant with 1/48 per month vesting thereafter
and expire at the end of 10 years from date of grant or sooner if terminated by
the Board of Directors. The options may include a provision whereby the option
holder may elect at any time to exercise the option prior to the full vesting of
the option. Unvested shares so purchased shall be subject to a repurchase right
by the Company at the original purchase price. Such right shall lapse at a rate
equivalent to the vesting period of the original option. As of December 31,
1998, 2,010 shares were subject to repurchase. During 1997, the Board of
Directors reserved 953 shares for issuance under the Plan, and 318 shares were
made available through the repurchase of certain shares. In 1998, the Board of
Directors reserved an additional 2,025 shares for issuance under the Plan, and
306 shares were made available through the repurchase of certain shares, as
noted above.

F-16
<PAGE> 96
PACKETEER, INC.
AND SUBSIDIARIES

5. STOCKHOLDERS' EQUITY -- (CONTINUED)
A summary of stock option activity follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
AVAILABLE NUMBER OF WEIGHTED-AVERAGE
FOR GRANT SHARES EXERCISE PRICE
--------- --------- ----------------
<S> <C> <C> <C>
Shares made available for grant................. 3,440 -- $ --
Repurchased..................................... 160 -- --
Granted......................................... (2,463) 2,463 0.05
Exercised....................................... -- (1,759) 0.03
------ ------
Balances as of December 31, 1996.................. 1,137 704 0.10
Shares made available for grant................. 953 -- --
Repurchased..................................... 318 -- --
Granted......................................... (2,480) 2,480 0.17
Exercised....................................... -- (1,940) 0.13
Canceled........................................ 344 (344) 0.16
------ ------
Balances as of December 31, 1997.................. 272 900 0.22
Shares made available for grant................. 2,025 -- --
Repurchased..................................... 306 -- --
Granted......................................... (1,300) 1,300 1.96
Exercised....................................... -- (1,042) 0.59
Canceled........................................ 85 (85) 1.02
------ ------
Balances as of December 31, 1998.................. 1,388 1,073 1.90
Shares made available for grant (unaudited)..... 515 -- --
Repurchased (unaudited)......................... 17 -- --
Granted (unaudited)............................. (1,503) 1,503 4.18
Exercised (unaudited)........................... -- (53) 3.99
Cancelled (unaudited)........................... 16 (16) 3.23
------ ------
Balances as of June 30, 1999...................... 433 2,507 $3.21
====== ======
</TABLE>

The per share weighted-average fair value of stock options granted during
1996, 1997 and 1998 was $0.01, $0.04 and $0.90, respectively, on the date of
grant using the minimum value method with the following weighted-average
assumptions: risk free interest rate of 6.8%, 6.5% and 4.5% in 1996, 1997 and
1998, respectively; an expected life of four years; and no dividends.

F-17
<PAGE> 97
PACKETEER, INC.
AND SUBSIDIARIES

5. STOCKHOLDERS' EQUITY -- (CONTINUED)
The following table summarizes information about stock options outstanding
under the Plan as of December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------
WEIGHTED-AVERAGE
REMAINING
RANGE OF EXERCISE CONTRACTUAL
PRICES NUMBER OUTSTANDING LIFE (YEARS) NUMBER VESTED
- ----------------- ------------------ ---------------- -------------
<S> <C> <C> <C>
$0.10...... 128 7.94 57
0.25....... 182 8.73 48
0.50....... 77 9.15 --
1.50....... 148 9.36 --
2.50....... 163 9.54 --
3.50....... 375 9.77 --
----- ---
1,073 105
===== ===
</TABLE>

As of December 31, 1998, 105 options with a weighted-average exercise price
of $0.17 were vested.

The weighted-average fair value of stock options granted during 1996, 1997
and 1998 with an exercise price equal to the fair value of the Company's common
stock on the date of grant was $0.05, $0.17 and $0.73 per share. Stock options
granted during 1998 with an exercise price below the deemed fair value of the
Company's common stock on the date of grant had a weighted-average exercise
price of $2.65 per share and a weighted-average fair value of $3.61 per share.
In connection with options granted in fiscal year 1998 and during the six months
ended June 30, 1999, the Company has recorded deferred stock-based compensation
of $787 and $3,914 (unaudited), respectively, representing the difference
between the exercise price and the fair value of the Company's common stock at
the date of grant. The amount is being amortized over the vesting period for the
individual options. Amortization of stock-based compensation of $273 was
recognized during the year ended December 31, 1998 and was $1,163 (unaudited)
during the six months ended June 30, 1999.

Pursuant to SFAS No. 123, the Company is required to disclose the pro forma
effects on the operating results of the Company as if the Company has elected to
use the fair value approach to account for all its stock-based employee
compensation plans. Had compensation costs for the Company's Plans been
determined consistent with the fair value approach enumerated in SFAS

F-18
<PAGE> 98
PACKETEER, INC.
AND SUBSIDIARIES

5. STOCKHOLDERS' EQUITY -- (CONTINUED)
No. 123, net losses for the period from January 25, 1996 (inception) to December
31, 1996 and for the years ended December 31, 1997 and 1998 would have been as
follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
PERIOD FROM JANUARY 25, ------------------------
1996 TO DECEMBER 31, 1996 1997 1998
-------------------------- -------- --------
<S> <C> <C> <C>
Net loss applicable to common stock as
reported................................ $(1,237) $(5,909) $(8,799)
Pro forma net loss applicable to common
stock................................... $(1,239) $(5,934) $(8,854)
Basic and diluted net loss per share as
reported................................ $ (1.28) $ (1.82) $ (1.54)
Basic and diluted pro forma net loss per
share................................... $ (1.28) $ (1.82) $ (1.55)
</TABLE>

(d) Warrants

In June 1997, the Company issued a warrant in connection with a leasing
agreement to purchase 42 shares of Series B preferred stock at $1.00 per share.
The warrant is immediately exercisable and expires in June 2005. At the date of
grant, the Company estimated the fair value of the warrant to be $26 using the
Black-Scholes model with the following assumptions: risk free interest rate of
6%; an expected life of eight years; expected volatility of 50%; and no
dividends.

In 1998, the Company issued a warrant in connection with a leasing
agreement to purchase 16 shares of Series D preferred stock at $3.94 per share.
The warrant is immediately exercisable and expires in June 2006. At the date of
grant, the Company estimated the fair value of the warrant to be $38 using the
Black-Scholes model with the following assumptions: risk free interest rate of
5%; an expected life of eight years; expected volatility of 50%; and no
dividends.

6. INCOME TAXES

The differences between the income tax expense (benefit) computed at the
federal statutory rate of 34% and the Company's actual income tax expense
(benefit) for the periods presented are as follows:

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 25, 1996
TO
DECEMBER 31, 1996 1997 1998
----------------- ------ ------
<S> <C> <C> <C>
Expected income tax expense....................... (421) (2,009) (2,992)
Net operating losses not benefited................ 421 2,009 2,992
---- ------ ------
Income tax expense (benefit)...................... 0 0 0
==== ====== ======
</TABLE>

F-19
<PAGE> 99
PACKETEER, INC.
AND SUBSIDIARIES

6. INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1997 and
1998, are presented below:

<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Various accruals and reserves not deductible for tax
purposes............................................... $ 59 $ 264
Property and equipment...................................... 90 97
Net operating loss carryover................................ 2,528 5,759
Research credit carryforwards............................... 146 255
Capitalized start-up expenditures........................... 376 315
Deferred stock-based compensation........................... -- 215
------- -------
Total deferred tax assets.............................. 3,199 6,905
Valuation allowance......................................... (3,199) (6,905)
------- -------
Net deferred tax assets................................ $ -- $ --
======= =======
</TABLE>

As of December 31, 1998, the Company has net operating loss carryforwards
for federal and California state income tax purposes of approximately $13,790
and $12,113, respectively. In addition, the Company had federal and state
research credit carryforwards of approximately $142 and $112, respectively. The
Company's federal net operating loss and research credit carryforwards will
expire in the years 2010 through 2018, if not utilized. The Company's state net
operating loss carryforwards will expire in the year 2004. The state research
credit can be carried forward indefinitely.

Federal and state tax laws impose substantial restrictions on the
utilization of net operating loss and tax credit carryforwards in the event of
an "ownership change" as defined in Internal Revenue Code Section 382. The
Company has not yet determined whether an ownership change has occurred.

7. 401(k) PLAN

In 1997, the Company adopted a 401(k) plan (the 401(k)). Participation in
the 401(k) is available to all employees. Entry date to the 401(k) is the first
day of each month. Each participant may elect to contribute an amount up to 20%
of his or her annual base salary plus commission and bonus, but not to exceed
the statutory limit as prescribed by the Internal Revenue Code. The Company may
make discretionary contributions to the 401(k). To date, no contributions have
been made by the Company.

8. SEGMENT REPORTING

The Company has adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company's chief
operating decision maker is considered to be the Company's CEO. The CEO reviews
financial information presented on a consolidated basis substantially similar to
the consolidated financial statements. Therefore, the Company has concluded

F-20
<PAGE> 100
PACKETEER, INC.
AND SUBSIDIARIES

8. SEGMENT REPORTING -- (CONTINUED)
that it operates in one segment and accordingly has provided only the required
enterprise-wide disclosures.

The Company operates in the United States and internationally and derives
its revenue from the sale of products and software licenses. In 1997 and 1998,
the Company's sales, marketing, and development efforts have been focused on the
PacketShaper family of products and PacketWise software. Sales outside of North
America accounted for 59.9% and 54.7% of the Company's total revenues in 1997
and 1998, respectively.

Geographic Information

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1998
------- -------
<S> <C> <C>
Total net revenues:
North America................................. $ 566 $3,273
Asia Pacific.................................. 617 2,238
Europe and rest of world...................... 230 1,719
------ ------
Total net revenues......................... $1,413 $7,230
====== ======
</TABLE>

Total net revenues reflects the destination of the product shipped.

Long-lived assets are primarily located in North America. Long-lived assets
located outside North America are insignificant.

In 1997 and 1998, sales to Macnica, accounted for 14.2% and 11.9%,
respectively, of the Company's total revenues. Also in 1997, sales to Nissho
Electronics Corporation accounted for 10.4% of the Company's total revenues. No
other single customer accounted for greater than 10% of the Company's total
revenues in 1997 or 1998.

9. SUBSEQUENT EVENTS

Revolving Loan Agreement

In January 1999, the Company entered into a revolving loan agreement with a
maximum line of $3,000. Advances are limited to the lesser of the maximum line
or the borrowing base which is 80% of eligible receivables. The outstanding
principal balance accrues interest at a per annum rate equal to the prime rate
and is secured by all present and future collateral of the Company.

Subordinated Loan Agreement

Additionally, in January 1999, the Company entered into a subordinated loan
agreement evidenced by a promissory note of $2,500, that is secured by the
assets of the Company. The note has a stated interest rate of 12.25% and is
payable in 36 monthly installments of various amounts with the final installment
due on February 1, 2002. In connection with the note, the Company issued a
warrant

F-21
<PAGE> 101
PACKETEER, INC.
AND SUBSIDIARIES

9. SUBSEQUENT EVENTS -- (CONTINUED)
to purchase 98 shares of Series D preferred stock at $3.58 per share. The
warrant is immediately exercisable and expires in January 2006. The Company
estimated the fair value of the warrant on the grant date to be $211 using the
Black-Scholes model with the following assumptions: risk-free interest rate of
4.5%; an expected life of seven years; expected volatility of 50%; and no
dividends. The Company will amortize the value to interest expense over the term
of the note.

Initial Public Offering and Unaudited Pro Forma Consolidated Balance Sheet

In May 1999, the Board of Directors authorized the filing of a registration
statement with the SEC, that would permit the Company to sell shares of the
Company's common stock in connection with a proposed IPO. If the offering is
consummated under the terms presently anticipated, all of the outstanding shares
of the Company's convertible preferred stock will automatically convert into
shares of common stock upon closing of the proposed IPO. The conversion of the
convertible preferred stock has been reflected in the accompanying unaudited pro
forma consolidated balance sheet.

1999 Stock Incentive Plan

In May 1999, the Company's Board of Directors approved the 1999 Stock
Incentive Plan under which 900 shares have been reserved for issuance. In
addition, any shares not issued under the 1996 Equity Incentive Plan will also
be available for grant. The number of shares reserved under the 1999 Stock
Incentive Plan will automatically increase annually beginning on January 1, 2000
by the lesser of 3,000 shares or 5% of the total number of shares of common
stock outstanding. Under the 1999 Stock Incentive Plan, eligible individuals may
be granted options to purchase common shares or may be issued shares of common
stock directly.

1999 Employee Stock Purchase Plan

The Company's Board of Directors adopted the 1999 Employee Stock Purchase
Plan (the "Purchase Plan") in May 1999. The Purchase Plan is pending approval by
the stockholders. A total of 500 shares have been reserved for issuance. The
number of shares reserved will automatically increase annually beginning on
January 1, 2000 by the lesser of 1,000 or 2% of the total number of common stock
shares outstanding.

Loan and Security Agreement (Unaudited)

In May 1999, the Company entered into a loan and security agreement
evidenced by a secured promissory note of $2,500. The note has a stated interest
rate of 12.76% with interest-only payments due monthly. The final interest and
principal payment is due in May 2000. In connection with the note, the Company
issued a warrant to purchase 45 shares of Series D preferred stock at $6.25 per
share. The warrant is immediately exercisable and expires in May 2009. The
Company estimated the fair value of the warrant on the grant date to be $157
using the Black-Scholes model. The Company will amortize the value to interest
expense over the term of the note.

F-22
<PAGE> 102
DESCRIPTION OF ARTWORK

INSIDE FRONT COVER

Centered at the top of the Inside Cover, is the caption, "Shaping the
Internet for Business. Packeteer provides bandwidth management solutions that
enhance the performance of mission-critical applications running over enterprise
wide-area networks and the Internet. This is accomplished using a comprehensive
4-step process."

Under the caption is a circle consisting of four large arrows pointing in a
clockwise direction. In the middle of the circle is the Packeteer logo. Embedded
in the stem of each arrow is one word reading as follows beginning with the
arrow in the upper left section of the circle: "Classify", "Analyze", "Control"
and "Report." At the outside of each arrow is a caption and a quotation. Outside
the arrow embedded with the word "Classify" is the caption, "Discover & Classify
Traffic" followed by the words, "Identifying the types of network traffic
competing for limited bandwidth is the first step toward solving the problem.
Packeteer discovers and classifies traffic, often exposing applications our
customers do not even realize were sneaking onto their networks." Outside the
arrow embedded with the word, "Analyze" is the caption, "Analyze Network
Behavior" followed by the words, "Packeteer technology shows how limited
bandwidth is consumed. When customers realize that a majority of their bandwidth
is being devoured by casual web browsing, it becomes obvious why critical
applications move so slowly." Outside the arrow embedded with the word "Control"
is the caption, "Control Bandwidth Allocation" followed by the words, "Packeteer
enables customers to protect the performance of critical applications like SAP
and Oracle with bandwidth policies. Control less important traffic while giving
voice and video streams the bandwidth they require for clear reception. Outside
the arrow embedded with the word "Report" is the caption "Report on Performance"
followed by the words "Packeteer's graphs and reports prove to internal and
external customers that applications continue to perform despite a constantly
growing network. If an application such as PeopleSoft becomes too slow,
customers can set a policy to protect the application and keep employees
productive."

Below the circle are two cutaway diagrams of bandwidth cable. The left
diagram, entitled "Before PacketShaper," illustrates how the use of bandwidth
for "Heavy Web & FTP traffic" causes the performance of "Mission-Critical
Applications" to suffer. The right diagram, entitled "After PacketShaper,"
illustrates guaranteed bandwidth for Mission-Critical Applications regardless of
how heavy Web and FTP traffic is.

At the bottom of the Inside Cover is a picture of three PacketShapers next
to the words, "PacketShaper 1000, 2000 & 4000. Packeteer's stand-alone bandwidth
management solutions. PacketWise embedded technology for OEMs," followed by the
PacketWise logo.
<PAGE> 103
BACK INSIDE COVER

The back inside cover has a caption reading, "Take Control of Your Network.
Packeteer's PacketShaper is controlled and monitored through a web-browser
interface that enables network managers with a password to configure, control
and monitor the PacketShaper from anywhere via a network connection. Some sample
screens are shown." On the remainder of the page are five overlapping computer
screenshots displaying various reports on Internet traffic produced by the
PacketWise software.

BACK COVER

Packeteer logo.

DIAGRAM OF BOTTLENECK FIGURE ON PAGE 32 OF PROSPECTUS

A diagram entitled "Bandwidth Bottleneck" shows an hourglass shape lying
on its side. On the left end of the diagram are wide lines which narrow into
very thin lines through the center of the hourglass and then become wider again
as the hourglass becomes wider to the right. Above the left end of the diagram
is the caption "Enterprise Local Area Network" and below the diagram is the
caption "10/100/1000 Ethernet Growing." Above the middle of the hourglass is the
caption "WAN Access Link" and below is the caption "56K -- 1.5 Mbps." Above the
right of the hourglass is the caption "Service Provider Backbone Network" and
below is the caption "OC-3, OC-12, OC-192 & Growing."

DIAGRAM OF NETWORK TOPOLOGY DIAGRAM ON PAGE 37 OF PROSPECTUS

On the left are three pictures. The first two are computers with the
captions "Web Server" and "File Server", respectively. The third is a cloud-like
shape representing the "Enterprise Local Area Network." Lines from each of the
above converge to a box to the right with the words "PacketShaper 2000" above
it. To the right of the PacketShaper 2000, and connected by a line, is a
circular depiction of a router entitled "Internet Access Router." To the right
of the router and connected to it by a line is a cloud-shaped representation of
the Internet. Running from the top of the Internet is a line connecting to
another "Internet Access Router." Such line continues above the router to a box
representing a "PacketShaper 4000." Splitting off from the PacketShaper 4000 are
two lines, each running to a graphic depiction of a computer next to the caption
"ISP Web Server Farm." Running from the cloud-like depiction of the Internet are
four lines, each connected to a graphic depiction of a computer labeled, from
top to bottom, as follows: "28.8 Modem Low-Speed User", "T-1 High-Speed User",
"ISDN/xDSL Mid-Speed User" and "14.4 Modem Low-Speed User."

<PAGE> 104

LOGO
<PAGE> 105

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Packeteer in connection with
the sale of Common Stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fees.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 15,346
NASD Filing Fee............................................. 6,020
Nasdaq National Market Listing Fee.......................... 66,710
Printing and Engraving Expenses............................. 175,000
Legal Fees and Expenses of Packeteer........................ 400,000
Accounting Fees and Expenses................................ 350,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent Fees......................................... 8,000
Miscellaneous............................................... 23,924
----------
Total..................................................... $1,050,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Packeteer's Bylaws provide for mandatory
indemnification of its directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. Packeteer's Certificate of Incorporation provides that,
subject to Delaware law, its directors shall not be personally liable for
monetary damages for breach of the directors' fiduciary duty as directors to
Packeteer and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to Packeteer or its stockholders for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. Packeteer has entered
into indemnification agreements with its officers and directors, a form of which
is filed as Exhibit 10 to this Registration Statement (the "Indemnification
Agreements"). The Indemnification Agreements provide Packeteer's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. Reference is also made to Section 6 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of Packeteer against certain liabilities, and Section 3.7 of the
Amended and Restated Investors' Rights Agreement contained in Exhibit 4.2
hereto, indemnifying certain of Packeteer's stockholders, including controlling
stockholders, against certain liabilities.

II-1
<PAGE> 106

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since January 25, 1996, Packeteer has issued and sold the following
securities:

1. Packeteer issued and sold 4,788,050 shares of its Common Stock to
employees and consultants for an aggregate purchase price of $1,064,820
pursuant to the exercise of options under its 1996 Equity Incentive Plan
(Exhibit 10.8).

2. On February 14, 1996 and April 26, 1996, Packeteer issued 2,800,000
shares of its Series A Preferred Stock, for an aggregate purchase price
of $700,000 to several investors.

3. On September 12, 1996 and October 4, 1996, Packeteer issued and sold an
aggregate of 4,821,860 shares of its Series B Preferred Stock for an
aggregate purchase price of $4,821,860 to several investors.

4. On June 19, 1997 and July 18, 1997, Packeteer issued and sold an
aggregate of 2,216,320 shares of its Series C Preferred Stock for an
aggregate purchase price of $4,432,640 to several investors.

5. On April 16, 1998 and July 15, 1998, Packeteer issued and sold an
aggregate of 2,552,821 shares of its Series D Preferred Stock for an
aggregate purchase price of $10,058,115 to several investors.

6. On June 3, 1997, Packeteer issued warrants to purchase 42,000 shares of
its Series B Preferred Stock, at an exercise price of $1.00 per share
and on June 16, 1998 Packeteer issued warrants to purchase 15,863 shares
of its Series D Preferred Stock, at an exercise price of $3.94 per
share, to Comdisco Inc. in connection with an equipment leasing
transaction.

7. On January 21, 1999, in connection with a subordinated loan and security
agreement, Packeteer issued warrants to purchase 97,765 shares of its
Series D Preferred Stock, at an exercise price of $3.58 per share, to
Comdisco Inc.

8. On May 24, 1999, Packeteer issued warrants to purchase 45,000 shares of
Series D Preferred Stock at an exercise price of $6.25 per share, to
Meier Mitchell.

The issuances described in paragraph 1 were deemed exempt from registration
under the Securities Act in reliance upon Rule 701 promulgated under the
Securities Act. The issuances of the securities described in paragraphs 2
through 7 were deemed to be exempt from registration under the Act in reliance
on Section 4(2) of the Act as transactions by an issuer not involving any public
offering. In addition, the recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with Packeteer, to information about Packeteer.

II-2
<PAGE> 107

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The exhibits and schedule listed in the Exhibit Index and Schedule are
filed as part of this Registration Statement.

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- -------- -------------
<S> <C>
1.1** Form of Underwriting Agreement by and among the Registrant,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc.
and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated.
3.1** Registrant's Amended and Restated Certificate of
Incorporation.
3.2** Registrant's Amended and Restated Bylaws.
4.1 Form of Registrant's Specimen Common Stock Certificate.
4.2** Amended and Restated Investors' Rights Agreement, among the
Registrant and the investors and founders named therein,
dated as of April 16, 1998.
5.1** Legal Opinion of Brobeck, Phleger & Harrison LLP, counsel
for the Registrant.
10.1** Lease Agreement between Packeteer and Eldon R. Hoffman dated
August 25, 1997.
10.2+** OEM Agreement between Packeteer and ADC Telecommunications,
Inc., dated December 17, 1998.
10.3+** Reseller Agreement between Packeteer and Alcatel Business
Systems, dated May 7, 1999.
10.4** Loan and Security Agreement between Packeteer and Silicon
Valley Bank, dated January 1, 1999.
10.5** Export-Import Bank Loan and Security Agreement between
Packeteer and Silicon Valley Bank, dated January 19, 1999.
10.6** Subordinated Loan and Security Agreement between Packeteer
and Comdisco, Inc., dated January 21, 1999.
10.7** Master Lease Agreement between Packeteer and Comdisco, Inc.,
dated June 3, 1997.
10.8** Registrant's 1996 Equity Incentive Plan.
10.9** Registrant's 1999 Stock Incentive Plan.
10.10 Registrant's 1999 Employee Stock Purchase Plan.
10.11** Form of Indemnity Agreement entered into by Registrant with
each of its executive officers and directors.
10.12+** Loan and Security Agreement between Packeteer and MMC/GATX
Partnership No. 1 dated May 20, 1999.
10.13+** OEM Agreement between Packeteer and Lucent Technologies,
Inc. dated June 25, 1999.
10.14+** OEM Agreement between Packeteer and Adtran, Inc. dated June
29, 1999.
21.1** Subsidiaries.
23.1 Independent Auditors' Consent and Report on Schedule.
23.2** Consent of Counsel (see Exhibit 5.1).
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>

- -------------------------
** Previously filed.

+ Confidential treatment has been requested as to portions of this exhibit.

(b) SCHEDULES

Schedule II -- Valuation and Qualifying Accounts and Reserves

II-3
<PAGE> 108

ITEM 17. UNDERTAKINGS

Packeteer hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Packeteer
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of Packeteer, Indemnification Agreements entered
into between Packeteer and its officers and directors, the Underwriting
Agreement, or otherwise, Packeteer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Packeteer of expenses incurred or paid by a director, officer, or
controlling person of Packeteer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, Packeteer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by Packeteer pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 109

PACKETEER, INC.
AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
PERIOD FROM JANUARY 25, 1996 (INCEPTION) TO DECEMBER 31, 1996 AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
Accounts Receivable Allowances........... $-- $ -- $ -- $ --
Warranty Reserve......................... -- -- -- --
1997
Accounts Receivable Allowances........... -- 37 -- 37
Warranty Reserve......................... -- 32 -- 32
1998
Accounts Receivable Allowances........... 37 305 (49) 293
Warranty Reserve......................... 32 85 (41) 76
</TABLE>

II-5
<PAGE> 110

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-1 and has duly caused this Amendment No. 2
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cupertino, State of California, on
this 21st day of July, 1999.

PACKETEER, INC.

By: /s/ DAVID YNTEMA
---------------------------------------
David Yntema
Chief Financial Officer and Secretary

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed by the persons
whose signatures appear below, which persons have signed such Amendment No. 2 to
Registration Statement in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Chief Executive July 21, 1999
- ---------------------------------- Officer (Principal Executive
Craig Elliott Officer) and Director

/s/ DAVID YNTEMA Chief Financial Officer and July 21, 1999
- ---------------------------------- Secretary (Principal Financial and
David Yntema Accounting Officer)

* Chief Technical Officer and July 21, 1999
- ---------------------------------- Director
Robert Packer

* Vice President, Engineering, July 21, 1999
- ---------------------------------- Chief Operating Officer
Brett Galloway and Director

* Director July 21, 1999
- ----------------------------------
Steven Campbell

* Director July 21, 1999
- ----------------------------------
Joseph Graziano

* Director July 21, 1999
- ----------------------------------
Peter Morris
</TABLE>

II-6
<PAGE> 111

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director July 21, 1999
- ----------------------------------
William Stensrud

By: /s/ DAVID YNTEMA
- ----------------------------------
David Yntema
Attorney-in-fact
</TABLE>

II-7
<PAGE> 112

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C> <C>
1.1** Form of Underwriting Agreement by and among the Registrant,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc.
and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated.
3.1** Registrant's Amended and Restated Certificate of
Incorporation.
3.2** Registrant's Amended and Restated Bylaws.
4.1 Form of Registrant's Specimen Common Stock Certificate.
4.2** Amended and Restated Investors' Rights Agreement, among the
Registrant and the investors and founders named therein,
dated July 15, 1998.
5.1** Legal Opinion of Brobeck, Phleger & Harrison LLP, counsel
for the Registrant.
10.1** Lease Agreement between Packeteer and Eldon R. Hoffman dated
August 25, 1997.
10.2+** OEM Agreement between Packeteer and ADC Telecommunications,
Inc., dated December 17, 1998.
10.3+** Reseller Agreement between Packeteer and Alcatel Business
Systems, dated May 7, 1999.
10.4** Loan and Security Agreement between Packeteer and Silicon
Valley Bank, dated January 1, 1999.
10.5** Export-Import Bank Loan and Security Agreement between
Packeteer and Silicon Valley Bank, dated January 19, 1999.
10.6** Subordinated Loan and Security Agreement between Packeteer
and Comdisco, Inc., dated January 21, 1999.
10.7** Master Lease Agreement between Packeteer and Comdisco, Inc.,
dated June 3, 1997.
10.8** Registrant's 1996 Equity Incentive Plan.
10.9** Registrant's 1999 Stock Incentive Plan.
10.10 Registrant's 1999 Employee Stock Purchase Plan.
10.11** Form of Indemnification Agreement entered into by Registrant
with each of its executive officers and directors.
10.12+** Loan and Security Agreement between Packeteer and MMC/GATX
Partnership No. 1 dated May 20, 1999.
10.13+** OEM Agreement between Packeteer and Lucent Technologies,
Inc. dated June 25, 1999.
10.14+** OEM Agreement between Packeteer and Adtran, Inc. dated June
29, 1999.
21.1** Subsidiaries.
23.1 Independent Auditors' Consent and Report on Schedule.
23.2** Consent of Counsel (see Exhibit 5.1).
24.1** Power of Attorney (see page II-6).
27.1** Financial Data Schedule.
</TABLE>

- -------------------------

** Previously filed.

+ Confidential treatment has been requested as to portions of this exhibit.

<PAGE> 1
Exhibit 4.1

<TABLE>
<S> <C> <C>
COMMON STOCK COMMON STOCK

[SEAL] [SEAL]
[PACKETEER INC LOGO]

THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN DEFINITIONS
IN BOSTON, MA OR NEW YORK, NY INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 695210 10 4

THIS CERTIFIES THAT

IS THE RECORD HOLDER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK $.001 PAR VALUE PER SHARE OF

PACKETEER, INC.

transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender
of this Certificate properly endorsed.
This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

Dated:

/s/ David C. Yntema [PACKETEER, INC. CORPORATE SEAL] /s/ Craig Elliott
--------------------------- -------------------------------------
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED BY:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR

BY /s/ [Signature Illegible]
---------------------------------------
AUTHORIZED SIGNATURE
</TABLE>

<PAGE> 2
PACKETEER, INC.

A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT___________ Custodian __________
TEN ENT - no tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gift to Minors
survivorship and not as tenants Act______________________________
in common (State)
COM PROP - as community property UNIF TRF MIN ACT ________ Custodian (until age ___)
(Cust)
__________ under Uniform Transfers
(Minors)
to Minors Act ___________________
(State)
Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED, _____________________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

- --------------------------------------

- -------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

- -------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------ Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

- ---------------------------------------------------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

Dated ______________________________

X__________________________________________________

NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed

BY ____________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM PURSUANT TO SEC RULE 17Ad-16.

- --------------------------------------------------
AMERICAN BANK NOTE COMPANY JUNE 16, 1999 fm
3504 ATLANTIC AVENUE
SUITE 12 062281bk
LONG BEACH, CA 90607
(562) 989-2333 NEW
(FAX) (562) 426-7450
- --------------------------------------------------
</TABLE>

<PAGE> 1
EXHIBIT 10.10

PACKETEER, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN

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

<PAGE> 2
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. 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.

D. Should the Fair Market Value per share of Common Stock on
any Purchase Date within an offering period be less than the Fair Market Value
per share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty (24) months, unless a shorter duration is
established by the Plan Administrator within five (5) business days following
the start date of that offering period.

V. ELIGIBILITY

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 Semi-Annual 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 Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.

2.
<PAGE> 3

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, the 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
designate) on or before his or her scheduled Entry Date.

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:

(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.

3.
<PAGE> 4

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, in a series of successive installments over
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 in installments 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 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 the offering period shall be equal to 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.

4.
<PAGE> 5

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.

(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 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.

(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. However,
should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the
Participant shall 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. Upon the Participant's return to active service
(x) within ninety (90) days following the commencement of such
leave or (y) prior to the expiration of any longer period for
which such Participant's right

5.
<PAGE> 6

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 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.

G. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, 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 equal to 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 the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. 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 effective date of the
Change in Control.

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

6.
<PAGE> 7

(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 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.

7.
<PAGE> 8

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 Corporate
Transaction. 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 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.

8.
<PAGE> 9

SCHEDULE A

CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME

Packeteer, Inc.

<PAGE> 10

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.

E. COMMON STOCK shall mean the Corporation's common stock.

<PAGE> 11

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 date 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.

A-13.
<PAGE> 12

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

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

P. PLAN ADMINISTRATOR shall mean the committee of two (2) or
more Board members appointed by the Board to administer the Plan.

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

R. PURCHASE INTERVAL shall mean each successive six (6)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.

S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
February and August each year on which an Eligible Employee may first enter an
offering period.

T. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.

U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

A-14.

<PAGE> 1

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE

The Board of Directors
Packeteer, Inc.:

The audits referred to in our report dated March 3, 1999, except as to Note 9,
which is as of May 19, 1999, included the related financial statement schedule
for the period from January 25, 1996 to December 31, 1996 and for each of the
years in the two-year period ended December 31, 1998, included in this
registration statement on page II-5. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

We consent to the use of our reports included herein and to the reference to our
firm under the headings "Experts" and "Selected Consolidated Financial Data" in
the prospectus.

/s/ KPMG LLP

Mountain View, California
July 21, 1999