UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549





Form
10-K/A


Amendment
No. 1





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


For
the fiscal year ended December 31, 2007




OR


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


For the transition
period
from         to







Commission
File Number 000-49862





Procera
Networks, Inc.


(Exact
Name of Registrant as Specified in Its Charter)





Nevada
            
            33-0974674(State
      of Incorporation)
            
            (I.R.S.
      Employer Identification No.)100
      Cooper Court
            
            (408)
      354-7200Los
      Gatos, California 95032
            
            (Registrant’s
      telephone number, including area code(Address
      of Principal Executive Office, including zip codes)





Securities
registered pursuant to Section 12(b) of the Exchange Act:





Title
      of Each Class
            
            Name
      of Each Exchange on Which RegisteredCommon
      Stock, par value $0.001 per share
            
            American
      Stock Exchange





Securities
registered pursuant to Section 12(g) of the Exchange Act:


None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes oNo  þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.  Yes  o      No  þ





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





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
      accelerated filer  o
            
            Accelerated
      filer  þ
            
            Non-accelerated
      filer  o
              (Do
      not check if a smaller reporting company)
            
            Smaller
      reporting company  o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  Yes  o      No  þ




The
aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of the registrant’s common stock as
reported on the American Stock Exchange on June 29, 2007, was
$140,153,532.*





As of
April 22, 2008, there were outstanding 76,384,292 shares of the registrant’s
common stock, par value $0.001 per share, and no shares of the registrant’s
preferred stock





*Excludes
23,057,285 shares of Common Stock held by directors, officers and stockholders
or stockholder groups whose beneficial ownership exceeds 5% of the Registrant’s
Common Stock outstanding.  The number of shares owned by stockholders
whose beneficial ownership exceeds 5% was determined based upon information
supplied by such persons and upon Schedules 13D and 13G, if any, filed with the
SEC.  Exclusion of shares held by any person should not be construed
to indicate that such person possesses the power, direct or indirect, to direct
or cause the direction of the management or policies of the registrant, that
such person is controlled by or under common control with the Registrant, or
that such persons are affiliates for any other purpose.













DOCUMENTS
INCORPORATED BY REFERENCE




None.





Explanatory
Note





This
Amendment No. 1 on Form 10-K/A amends the Annual Report on Form 10-K of Procera
Networks, Inc. (the “Company”, “we,” “us,” or “our”) for the year ended December
31, 2007 filed with the Securities and Exchange Commission on April 2, 2008 (the
“Original Report”).  This Form 10-K/A replaces the information
previously incorporated by reference in Part III of the Original Report with the
actual text for Part III of the Form 10-K.  The reference on the cover
of the Original Report to the incorporation by reference of the registrant’s
Definitive Proxy Statement into Part III of the Original Report is hereby
amended to delete that reference.




Except
for the additions and modifications described above, the Company has not
modified or updated disclosures presented in the Original Report in this Form
10-K/A.  Accordingly, this Form 10-K/A does not reflect events
occurring after the filing of the Original Report or modify or update those
disclosures affected by subsequent events. Information not affected by this
amendment remains unchanged and reflects the disclosures made at the time the
Original Report was filed.




This
Amendment No. 1 should be read in conjunction with our periodic filings made
with the Securities and Exchange Commission, or the SEC, subsequent to the date
of the Original Filing, including any amendments to those filings, as well as
any Current Reports filed on Form 8-K subsequent to the date of the Original
Filing.  In addition, as required by Rule 12b-15 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), new certifications by our
principal executive officer and principal financial officer are filed as
exhibits to this Amendment no. 1 to our Annual Report on Form 10-K/A as Exhibits
31.3 and 31.4.











PROCERA NETWORKS, INC.


AMENDMENT
NO. 1 TO ANNUAL REPORT ON FORM 10-K/A


FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007




TABLE
OF CONTENTS




PART
III





Item
      10.
            
            Directors, Executive Officers and Corporate
      Governance
            2Item
      11.
            
            Executive Compensation
            6Item
      12.
            
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholders Matters
            12Item
      13.
            
            Certain Relationships and Related Transactions, and
      Director Independence
            15Item
      14.
            
            Principal Accounting Fees and Services
            17


Table of Contents


Forward-Looking
Statements:




This
Form 10-K/A and the documents incorporated herein by reference, include
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements, other than statements of historical fact, are
statements that could be deemed forward-looking statements, including, but not
limited to, statements regarding our future financial position, business
strategy and plans and objectives of management for future operations. Words
such as “believe,” “may,” “could” “will,” “estimate,” “continue,” “anticipate,”
“intend,” “expect” and similar expressions are intended to identify
forward-looking statements.




Forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this Form 10-K/A, and in particular, the risks discussed under Item 1. “Risk
Factors” in our Annual Report on Form 10-K for fiscal year ended December 31,
2007 filed with the Securities and Exchange Commission on April 2, 2008
and those discussed in
other documents we file with the Securities and Exchange Commission. In light of
these risks, uncertainties and assumptions, readers are cautioned not to place
undue reliance on such forward-looking statements. The forward-looking
statements contained in this Form 10 K/A represent beliefs and assumptions only
as of the date of this Form 10-K/A. Except as required by applicable law, we do
not intend to update or revise forward-looking statements contained in this Form
10-K/A to reflect future events or circumstances.




This
Form 10-K/A contains market data and industry forecasts that were obtained from
industry publications, third-party market research and publicly available
information.  These publications generally state that the information
contained therein has been obtained from sources believed to be reliable, but
the accuracy and completeness of such information is not guaranteed. While we
believe that the information from these publications is reliable, we have not
independently verified, and make no representation as to the accuracy of, such
information.





1
 Table of Contents





PART
III


Item
10.   Directors, Executive Officers and
Corporate Governance.




Our
Directors




The name,
age, position(s), term and board committee membership for each member of our
Board of Directors is set forth below as of March 29, 2008:




DirectorName
            
            Age
            
            Position(s)
            
            SinceScott
      McClendon (1*, 2)
            
            68
            
            Chairman
      of the Board and Director
            
            2004James
      F. Brear
            
            42
            
            President,
      Chief Executive Officer and Director
            
            2008Thomas
      H. Williams
            
            69
            
            Chief
      Financial Officer, Secretary and Director
            
            2003Staffan
      Hillberg (2, 3)
            
            43
            
            Director
            
            2007Mary
      Losty (1, 3*)
            
            48
            
            Director
            
            2007Thomas
      Saponas (1, 2*)
            
            58
            
            Director
            
            2004






(1)
            Member
      of the Audit Committee of the Board of
  Directors.





(2)
            Member
      of the Compensation Committee of the Board of
  Directors.





(3)
            Member
      of the Nominating and Corporate Governance Committee of the Board of
      Directors.





*
            Committee
      Chairperson




The terms
of all directors will expire at the next annual meeting of stockholders, or when
their successors are elected and qualified.  Directors are elected
each year, and all directors serve one-year terms.  Officers serve at
the pleasure of the Board of Directors.  There are no arrangements or
understandings between any director and any other person pursuant to which he or
she was or is to be selected as a director or nominee. We have, however, entered
into employment agreements with certain of our named executive officers
described in Part III, Item 11 below under the subheading “Employment,
Severance, Separation and Change of Control Agreements.”





Biographical
Information





Mr. Scott
McClendon has served as a member of Board of Directors since March 1,
2004 and as Chairman of the Board since November 2, 2007. He is currently a
member of the Audit and Compensation Committees.  Mr. McClendon has
been the Chairman of the Board for Overland Storage (NASDAQ OVRL) since March
2001.  He also served as Overland's interim CEO from November 2006 to
August 2007 and its President and CEO from October 1991 to March 2001, and was
an officer and employee until June 2001.  Prior to his tenure with
Overland, he was employed by Hewlett Packard Company, a global manufacturer of
computing, communications and measurement products and services, for over 32
years in various positions in engineering, manufacturing, sales and
marketing.  He last served as the General Manager of the San Diego
Technical Graphics Division and Site Manager of Hewlett Packard in San Diego,
California.  Mr. McClendon is a director of SpaceDev, Inc., an
aerospace development company.  Mr. McClendon has a BSEE and MSEE from
Stanford University.





James F. Brearjoined Procera as its President, Chief Executive Officer and a member of
its Board of Directors on February 6, 2008.  Mr. Brear is an industry
veteran with more than 18 years of experience in the networking industry, most
recently as vice president of worldwide sales and support for Bivio Networks, a
maker of deep packet inspection platform technology from July 2006 to January
2008.  From September 2004 to July 2006 Mr. Brear was Vice President
of Worldwide Sales for Tasman Networks (acquired by Nortel) a maker of converged
WAN solutions for enterprise branch offices and service providers for managed
WAN services.  From April 2004 to July 2004, Mr. Brear served as Vice
President of Sales at Foundry Networks, a provider of switching, routing,
security, and application traffic management solutions.  Earlier in
his career, Mr. Brear was the vice president of worldwide sales for Force10
Networks from March 2002 to April 2004, during which time the company grew from
a pre-revenue start-up to the industry leader in switch routers for high
performance Gigabit and 10 Gigabit Ethernet.  In addition, he spent
five years with Cisco Systems from July 1997 to March 2002 where he held senior
management positions in Europe and North America with responsibility for
delivering more than $750M in annual revenues selling into the world’s largest
service providers.   Previously, Mr. Brear held a variety of
sales management positions at both IBM and Sprint
Communications.   He holds a Bachelor of Arts degree from the
University of California at Berkeley.





2
 Table of Contents





Mr. Thomas H.
Williams has served as a member of Procera’s Board of Directors since
October 2003.  From November 2007 to February 2008, he served as our
interim Chief Executive Officer   Mr. Williams has been Procera’s
Chief Financial Officer and Secretary since March 20, 2006, and continues to
serve in those capacities.  Mr. Williams has 30 years experience as a
CFO and General Counsel in start-up and medium-sized venture capital-backed
technology companies.  Prior to his service with Procera, Mr. Williams
served as interim CEO of TeleCIS Wireless, Inc. from November 2004 to March
2005.  He served as CFO and later CEO at Bandwidth9, a company
developing tunable lasers for the fiber optics industry from 1999 through
November 2004 (Bandwidth filed for protection under Chapter 11 of the US
Bankruptcy code in August 2004).  Previously, Mr. Williams has held
senior financial management and legal positions with IBM, Shell Oil, Greyhawk
Systems and IC Works.   Mr. Williams holds a B.S. degree in
electrical engineering, a law degree from the University of Minnesota and an
M.B.A. from the University of California at Berkeley.  He is a member of
the California, New York (inactive), Federal and Patent bars.





Mr. Staffan
Hillberg has served as a member of our Board of Directors since
January 11, 2007 and is currently a member of our Nominating and Compensation
committees.  Mr. Hillberg is currently the managing CEO of Scandinavian
Financial Management AB, a private equity group based in Sweden since October
2003.  Since September 2004 he has also held the position of Managing
Partner at the MVI Group, one of the largest and oldest business angel networks
in Europe with over 175 million Euros invested in 75 companies
internationally.  While at MVI he has overseen a number of successful exits
among them, two IPO's in 2006 on the AIM exchange in London as well as an IPO on
the Swiss Stock Exchange.   Prior to Scandinavian Financial
Management, he ran a local venture capital company from June 2000 to July 2003
as well as co-founded and was the CEO of the computer security company AppGate
from August 1998 to June 2000, with operations in Europe and the USA, raising
US$20M from ABN Amro, Deutsche Telecom and GE Equity.  Before this he
was responsible for the online activities of the Bonnier Group, the largest
media group in Scandinavia, spearheading their internet activities and heading
up their sponsorship of MIT Media Lab.  Earlier he was the QuickTime
Product Manager at Apple in Cupertino and before this Multimedia Evangelist with
Apple Computer Europe in Paris, France. He has extensive experience as an
investor and business angel having been involved in the listing of two companies
in Sweden, Mirror Image and Digital Illusions where the later was acquired by
Electronic Arts. Mr. Hillberg attended the M.Sc. program at Chalmers University
of Technology in Sweden and has an MBA from INSEAD in France.





Ms. Mary
Losty has served as a member of our Board of Directors since March,
2007. She is currently a member of the Audit and Nominating
committees. Ms. Losty is currently the General Partner at Cornwall Asset
Management, LLC, a portfolio management firm located in Baltimore, Maryland,
where she is responsible for the firm's investment in numerous
companies. Ms. Losty's prior experience includes working as a portfolio
manager at Duggan & Associates and as an equity research analyst at M.
Kimelman & Company. Prior to that she worked as an investment banker at
Morgan Stanley and Co., and for several years prior to that she was the top aide
to James R. Schlesinger, a five-time U.S. cabinet secretary. Ms. Losty
received both her B.S. and Juris Doctorate degrees from Georgetown University,
the latter with magna cum laude distinction. She is a member of the
American Bar Association and a commissioner for Cambridge, Maryland's Planning
and Zoning Commission. Ms. Losty also sits on the board of directors of the
American Board of the United Nations University for Peace, an institution which
enjoys the exclusive status of being sanctioned by all 192 member states of the
United Nations.





Mr.Thomas
Saponas has served as a member of Board of Directors since April 22, 2004
and is currently a member of the Audit and Compensations committees. Mr.
Saponas served as the Senior Vice President and Chief Technology Officer of
Agilent Technologies, Inc. (NYSE: A) from August 1999 until he retired in
October 2003.  Prior to being named Chief Technology Officer, from
June 1998 to April 1999, Mr. Saponas was Vice President and General Manager of
Hewlett-Packard's Electronic Instruments Group. Mr. Saponas has held a
number of positions since the time he joined Hewlett-Packard.  Mr.
Saponas served as General Manager of the Lake Stevens Division from August 1997
to June 1998 and General Manager of the Colorado Springs Division from August
1989 to August 1997. In 1986, he was a White House Fellow in Washington,
D.C. Mr. Saponas has a BSEE/CS (Electrical Engineering and Computer Science) and
an MSEE from the University of Colorado. Mr. Saponas is a director of
nGimat, a nanotechnology company, a director of Time Domain, an ultra wideband
communications company, and a director of Keithley Instruments (KEI on NYSE), an
electronic instruments company. He also serves on the Visiting Committee on
Advanced Technology at the National Institute of Standards and
Technology.





3
 Table of Contents


Our
Executive Officers and Significant Employees




Set forth
below are the name, age, position(s), and a brief account of the business
experience of each of our executive officers and significant employees as of
March 29, 2008:





Name
            
            Age
            
            Position(s)
            
            Officer
                SinceJames F.
      Brear
            
            42
            
            President
      and Chief Executive Officer (Principal Executive Officer)
            
            2008Thomas
      H. Williams
            
            69
            
            Chief
      Financial Officer and Secretary
            
            2006David
      Stepner
            
            63
            
            Chief
      Operating Officer
            
            2007Paul
      Eovino
            
            59
            
            VP,
      Corporate Controller (Principal Accounting Officer)
            
            2006Alexander
      Hävang
            
            29
            
            Chief
      Technical Officer
            
            2006John
      Pirillo
            
            45
            
            Vice
      President — Sales-AmericasDavid
      Green
            
            41
            
            Vice
      President — Sales-Europe, Middle East, Africa (EMEA)Jon
      Lindén
            
            33
            
            Vice
      President — Marketing





There are
no arrangements or understandings between any executive officer and any other
person pursuant to which he or she was or is to be selected as an executive
officer or nominee. We have, however, entered into employment agreements with
certain of our named executive officers described in Part III, Item 11 below
under the subheading “Employment, Severance, Separation and Change of Control
Agreements.”




The brief
accounts of the business experience of Mr. Brear and Mr. Williams are set forth
above in “Our Directors” in this Item 10.




David
Stepner is
a Silicon Valley veteran with extensive experience in aggressively growing a
variety of successful high-tech companies.  From June 2001 to March 2007,
Dr. Stepner was CEO of Teja Technologies, a software company targeting the
networking equipment market. Prior to that, he was general manager of the
platforms business unit of Wind River Systems, developer of the Tornado
development environment and VxWorks operating system  from 1999
through 2000. He came to Wind River via its acquisition of Integrated
Systems Inc. (ISI), where he served as president of its Diab-SDS subsidiary, and
earlier as vice president of R&D from 1993 to 1999. Dr. Stepner also
held executive positions at Greyhawk Systems, which he co-founded, and
Diasonics, which conducted the largest IPO in history up to its time, and was
vice president of R&D at Measurex Corp. Dr. Stepner received a B.S.
from Brown University, and an M.S. and Ph.D. in electrical engineering from
Stanford.




Paul
EovinoMr.
Eovino has over 30 years experience in executive and managerial financial
positions in companies ranging in size from startup to over $2
billion in annual sales. Mr. Eovino joined Procera
Networks in September 2006 in a consulting role and became our Corporate
Controller and Principal Accounting Officer in March 2007. From February
2004 to January 2007, Mr. Eovino held the dual positions of CFO for Expresso
Fitness, a virtual reality exercise bicycle manufacturer, and Synfora, an EDA
Software developer. From December 2000 to January 2004, Mr. Eovino was the
Corporate Controller for Bandwidth9, a MEMS manufacturer of tunable lasers for
the fiber optic market. Mr. Eovino’s early career included over 15 years
experience in various international financial management positions with NCR,
GenRad, and BICC-Boschert as well as 8 years with Greyhawk Systems. Mr.
Eovino graduated from Rider University with a degree in Accounting and Financial
Management.




Alexander
Haväng is the CTO of Procera Networks since August 2006 and was a
founding owner of Netintact, a wholly owned subsidiary of Procera since August
2000.  Mr Haväng and is responsible for the company’s strategic
technology direction.   Mr. Haväng is widely known and a
respected authority in the open source community, and is the lead architect for
Procera’s industry-recognized, deep packet inspection-based network traffic and
service management solution, PacketLogicTM. Earlier in his career, Haväng was one
of the chief architects for the open source streaming server software Icecast,
along with the secure file transfer protocol GSTP. He spent the early part of
his career at IDA systems, an IT solution provider for the Swedish government,
along with a stint in the Swedish military.   Mr. Haväng studied
computer science at the Linköping University in Sweden.




John
Pirillo has been Procera’s Vice President of Sales for Americas
since February 25, 2008.  He has managed revenue responsibilities
across all segments of network service providers, including wireline, wireless,
cable multi-system operators (MSOs), ISPs, universities, enterprises and the
federal government.  Most recently, he was vice president of sales –
Americas for Ellacoya Networks, a maker of deep packet inspection technology
(sold to Arbor Networks in 2008). from May 2006 to February
2008.    Previously, he served as vice president of sales
for ECI Telecom from May 2005 to May 2006, Caspian Networks from September 2002
to October 2003, and Amber Networks (sold to Nokia in 2001) from January 2000 to
September 2001.  He also held sales management positions at Ascend
Communications (sold to Lucent Technologies in 1999) from 1994 to 1999 and
Network Systems Corp from 1989 to 1994.  He holds an M.B.A. degree from
Rollins College and a B.S. degree from the University of Central
Florida.




David
Greenhas
developed extensive industry knowledge and relationships with Tier-1 telco broadband
providers, wireless providers, ISPs and channel partners. Prior to joining
Procera in March, 2008, he was most recently general manager – EMEA for Ellacoya
(now Arbor Networks) from August 2004 to March 2008, a maker of deep packet
inspection technology.  Previously from November 1996 to July 2004, he was
sales management for the cable and service-provider segment for Cisco Systems
and earlier in his career he held sales and management positions for 3Com from
1995 to 1996 and for Cabletron Systems from 1992 to 1995.





4
 Table of Contents





Jon Lindén
joined Netintact (acquired by Procera) in 2001 and has been our Vice President
of Product Management since January 2008.  Mr. Lindén is responsible for
Procera’s overall global product strategy and execution.  He has a
background in sales and business development with extensive experience in
managing networking products throughout their lifecycle.  Prior to joining
Netintact, Mr. Lindén was the CEO of the venture-funded company
TheSchoolbook.com from 1999 to 2001, and headed-up sales and marketing at a
content management software company from 1998 to 1999.  Early in his
career, he was project manager at the Swedish Trade Council in Chicago from 1997
to 1998.




Family
Relationships




There are
no family relationships among any of our directors and executive
officers.




Section
16(a) Beneficial Ownership Reporting Compliance




Under
Section 16(a) of the Securities Exchange Act of 1934, as amended and the rules
and regulations promulgated by the Securities and Exchange Commission, or SEC,
our directors, executive officers and beneficial owners of more than ten percent
of any class of equity security are required to file periodic reports of their
ownership, and changes in that ownership, with the SEC.  To the
Company’s knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended December 31, 2007, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with except that for fiscal year 2007
and previous fiscal years, Form 4 reports (i) covering an aggregate of 5
transactions, was not filed by Thomas H. Williams, (ii) covering an aggregate of
3 reports were not filed by each of Scott McClendon and Mary Losty, (iii)
covering an aggregate of 2 transactions, were not filed by each of Thomas
Saponas, Paul Eovino and David Stepner, and (iv) covering 1 transaction was not
filed by Stephan Hillberg.  Form 3 reports were not filed for fiscal
year 2007 by each of David Stepner, Paul Eovino, Mary Losty and Stephan
Hillberg.





Corporate
Governance




The
Company has adopted corporate governance guidelines including a Code of Conduct
and Ethics, and charters for its Audit Committee, Compensation Committee and
Governance Committee. The text of these materials are posted on our website
(www.proceranetworks.com) in connection with “Investor Relations” materials;
however, information found on our website is not incorporated by reference into
this report. In addition, copies of these materials can be requested by any
stockholder and will be provided free of charge by writing to: Corporate
Secretary, Procera Networks, Inc., 100 Cooper Court, Los Gatos, California
95032.




Code
of Business Conduct and Ethics




We have
adopted a Code of Business Conduct and Ethics that applies to our directors and
employees (including our principal executive officer, principal financial
officer, principal accounting officer and controller. In addition, we intend to
promptly disclose (i) the nature of any amendment to the policy that applies to
our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions and
(ii) the nature of any waiver, including an implicit waiver, from a provision of
the policy that is granted to one of these specified individuals, the name of
such person who is granted the waiver and the date of the waiver on our website
in the future.





Nominating
and Corporate Governance Committee





There
have been no material changes to the procedures by which security holders may
recommend nominees to our Board of Directors.





Audit
Committee





The Audit
Committee of the Board of Directors, established in accordance with section
3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, oversees our
corporate accounting and financial reporting process.  Three directors
comprise the Audit Committee:  Scott McClendon, Mary Losty and Thomas
Saponas.  The Board of Directors annually reviews the American Stock
Exchange Company Guide definition of independence for Audit Committee members
and financial sophistication criteria.  The Board of Directors has
determined that all members of the Company’s Audit Committee are independent (as
independence is currently defined in Section 803A of the Company Guide) and that
at least one member of the Audit Committee qualifies as financially
sophisticated (as financially sophisticated is defined by Section
803B(2)(a)(iii) of the Company Guide).





5
 Table of Contents





Our Board
of Directors has determined that Procera does not have an audit committee
financial expert serving on its Audit Committee as defined under the applicable
Securities and Exchange Commission standard and is actively pursuing corrective
action.




Item 11.   Executive
Compensation.







Compensation
Discussion and Analysis





Overview
of Compensation Program





The goal
of our executive compensation program is to provide a structure of incentives
and rewards that will drive behavior and performance in a way that builds long
term value for our stockholders.  In support of this goal we have
implemented compensation and benefit programs that are designed
to:





•
            Reward
      performance





•
            Align
      the interests of management and
stockholders





•
            Enable
      the recruitment and retention of high quality executives
    and





•
            Provide
      fair and reasonable levels of
compensation





Compensation
Objectives





The
following are the principal objectives of our compensation
programs;





Performance
– We strive to maintain a performance-oriented culture. Each of our compensation
elements are designed to encourage performance improvement of our executive
officers. We expect our executive officers to perform to high standards of
competence.





Alignment
with stockholders – We set our goals based on the business milestones that we
believe are most likely to drive long term stockholder value and by tying
significant elements of executive compensation to our business
success.  Cash bonuses are designed to acknowledge short term goal
accomplishment while over the long term, executive officers expect to benefit
directly from increases in the value of our common stock through equity
participation, primarily stock options.





Recruiting
and retention – Building an outstanding organization and delivering excellence
in all aspects of our performance requires that we hire, and retain, high
quality executives.   We believe that an environment in which
employees are able to have an enjoyable, challenging and rewarding work
experience is critical to our ability to recruit and retain the right
people.  A crucial aspect of that environment is the structure of
incentives and rewards that are embedded in the compensation
structure.  We strive to keep this structure competitive so that
qualified people are motivated to join our team and to continue to grow and
succeed at Procera.





Fair and
reasonable compensation – We strive to make our compensation programs fair in
relation to other executives within the organization and in relation to
comparable positions in other companies. We set compensation levels that are
reasonable in terms of our overall financial and competitive condition as a
company and that reflect the experience, skills and level of responsibility of
the executive. We utilize executive compensation resources to aid in
benchmarking all components of our executive compensation levels to outside
market conditions.





Compensation
Process





The
Compensation Committee of the Board of Directors operates under a board-approved
charter.  This charter specifies the principal responsibilities of the
committee as follows: (i) to review and approve the overall compensation
strategy (including performance goals, compensation plans, programs and
policies, employment and similar agreements with executive officers); (ii) to
determine the compensation and terms of employment of the chief executive
officer and the other executive officers; (iii) to administer and to recommend
adoption, change or termination of plans, including option plans, bonus plans,
deferred compensation plans, pension plans and (iv) to establish appropriate
insurance for the directors and officers.  The committee consists of
three directors, each of whom satisfies the independence requirements of the
American Stock Exchange Company Guide as well as applicable SEC and IRS
regulations.





6
 Table of Contents





The
performance of each of our executive officers is evaluated annually at the end
of the calendar year. The chief executive officer’s performance is evaluated by
the Compensation Committee and the performance of the other executive officers
is evaluated by the chief executive officer and reviewed with the Compensation
Committee. The factors taken into account in the evaluation of performance
include the extent to which pre-established goals and business plans were
accomplished and the extent to which the executive demonstrated leadership,
creativity, teamwork and commitment, and embodied our company
values.  Other factors that are considered in making compensation
determinations are the experience, skill level and level of responsibility of
the executive and competitive market conditions.





All
options or restricted stock awards granted to executive officers and directors
must be approved by either the Compensation Committee or the Board of
Directors.  At the time of hire, options and/or restricted stock
awards are granted effective on the employment start date for the
executive.  Generally, we assess all of our executive officers on an
annual basis for potential additional stock option grants.  These
annual awards are approved by the Compensation Committee or by the Board of
Directors.





Our
compensation committee considers relevant market data in setting the
compensation for our executive Officers.  During 2007 the compensation
committee selected Radford Surveys and Consulting to provide competitive data
for establishing officer and director compensation.  Radford was
selected because of their experience and number of companies
surveyed.  They also showed considerable experience with Silicon
Valley high technology companies.  A broad survey was used of
companies with similar revenue, headcount and market
capitalization.  Specific comparable companies were not used as the
resources required for selecting and conducting a narrow survey were not
justified by the total compensation budget and stage of development of the
company.





Compensation
Elements





General –
We have implemented specific compensation elements to address our objectives
including base salary, equity participation, benefits and a cash bonus
plan.  These elements combine short term and longer term incentives
and rewards in meeting our executive compensation goals.





Market
Compensation Data – Our Compensation Committee considers relevant market data in
setting the compensation for our executive Officers.  During 2007 the
Compensation Committee selected Radford Surveys and Consulting to provide
competitive data for establishing officer and director
compensation.  Radford was selected because of their experience and
quantity of companies surveyed.  They also showed considerable
experience with Silicon Valley high technology companies.  A broad
survey was used of companies with similar revenue, headcount and market
capitalization.  Specific comparable companies were not used as the
resources required for selecting and conducting a narrow survey were not
justified by the total compensation budget and stage of development of the
company.





Base
Salary – In determining base salaries for our executive officers, we benchmark
each of our executive positions using the Radford Surveys and Consulting. We use
the 50th percentile as a general benchmark for salary
levels.  However, many factors affect the determination of the salary
level for individual executives, including performance, experience, skill,
responsibilities and competitive market factors.  In general, we seek
to provide a fair, reasonable and competitive level of base
salary.





Cash
Bonus – While we believe that the provision of short-term cash incentives is
important to aligning the interests of executive officers and stockholders, and
to the rewarding of performance, we also take into account the overall financial
situation of the company.   Since the survey process occurred
during 2007, a bonus program with specific measures for 2007 was not
implemented.  The cash bonuses for 2007 were all discretionary awards
recommended by the compensation committed based on the committee’s assessment of
executive officers’ performance and accomplishments during the year with input
from the Chief Executive Officer.  The committee has recommended
target cash bonus incentives for 2008 based on the survey conducted in
2007.   The chief executive officer will receive an initial bonus
of 50% of his annual base salary after his first six months of his employment
with the Company and is eligible for a discretionary performance bonus of up to
80% for the remainder of 2008 provided, however that for 2008, the annual bonus
will be prorated over the time between the end of the first six months of Mr.
Brear’s employment and the end of calendar year 2008.  For 2008, the
other executive officers are each eligible for a total target bonus of up to 80%
of base salary.





Equity
Incentive – We utilize stock options as the primary method of equity
participation for our executive officers. Equity awards are made for reward and
recognition of long term contribution to the shareholders.  We
determine option grants by reference to our own capitalization structure, the
Radford Surveys and to internally generated benchmarks that we have established
to determine appropriate levels of stock option grants for our
employees.  Because of the long term nature of this incentive, the
awards were evaluated over a multiyear period.  The committee
determined that all of the officers had significant recent awards either as
hiring incentives or retention awards in 2006 or 2007 except the former
CEO.  As a result the committee recommended only the CEO received an
equity award in the form of stock options in 2007.





7
 Table of Contents





Benefits
– We provide a competitive range of health and other benefit programs to our
executive officers.  These are provided on the same basis to executive
officers and all employees.  These include health and dental
insurance, life and disability insurance, and a 401(k) plan.





Relocation
– When necessary and appropriate, upon the hire of new executives, we may pay
additional amounts in reimbursement of relocation costs and/or as additional
compensation to assist with the high cost of housing in the San Francisco Bay
Area.





Severance
and Change of Control – Under provisions of our chief executive officer’s
employment agreement, in the event of a termination of employment for reasons
other than cause, he is entitled to receive salary payments and continuation of
certain healthcare benefits for six months together with his initial bonus, if
not yet paid, all bonuses awarded during the prior calendar year, if not yet
paid, and a pro-rated bonus for the calendar year in which his employment is
terminated.  In the event of an actual or constructive termination of
employment of our chief executive officer, or certain of our other executive
officers as described below under “Employment, Severance, Separation and Change
of Control Agreements,” other than for cause, within twelve months after a
change of control of the company, the unvested portion of any equity awards
granted will immediately become fully vested.  We entered into these
arrangements to attract and retain the service of our executive officers. 
Under provisions of our former chief executive officer’s retirement agreement,
he is entitled to receive salary payments and continuation of certain healthcare
benefits for the 18 month period ending April 2009.





Section
162(m) Treatment Regarding Performance-Based Equity Awards





Under
Section 162(m) of the Internal Revenue Code of 1986, as amended, a public
company is generally denied deductions for compensation paid to the chief
executive officer and the next four most highly compensated executive officers
to the extent the compensation for any such individual exceeds one million
dollars for the taxable year. Our executive compensation programs are designed
to preserve the deductibility of compensation payable to executive officers,
although deductibility will be only one among a number of factors considered in
determining appropriate levels or types of compensation.





Components
of Director Compensation





Directors
who are also Procera’s employees received no additional compensation for serving
on the Board during 2007.  Procera reimbursed non-employee Directors
for all travel and other expenses incurred in connection with attending meetings
of the Board of Directors.  In addition, Directors were awarded
options to purchase 12,500 shares of common stock at current market price for
each quarter of service provided.  The 2007 option awards were based
on an option methodology established in 2004.





As a
result of the data from the Radford Surveys & Consulting, the Compensation
Committee developed a more comprehensive methodology of compensating
non-employee Directors for 2008.  The 2008 compensation plan includes
elements which recognize increased responsibilities for committee participation
and general board meeting demands and combine elements of compensation for
meeting attendance, committee participation as well as equity
incentives.





Compensation
of the Named Executive Officers in 2007





The table
below summarizes the total compensation paid or earned by our Chief Executive
Officer, Chief Financial Officer and each of our three other most highly
compensated executive officers for the fiscal year ended December 31, 2007
(representing all of our executive officers serving at that date who earned over
$100,000 in salary and bonus for the fiscal year ending on that date), and one
additional individual that served as an executive officer during the fiscal year
ended December 31, 2007 but was no longer serving at December 31,
2007.  We refer to each of such persons as a “named executive
officer.”





8
 Table of Contents




Name
      and Principal Position
                
                Fiscal
                  Year
                
                Salary
                
                
                Bonus
                
                
                Stock
                  Awards(1)
                
                
                Option
                  Awards(1)
                
                
                All
      Other
                  Compensation
                
                
                TotalThomas
      H. Williams,
                
                2007
                
                $
                181,458
                
                
                $
                25,000
                
                
                
                —
                
                
                $
                177,120
                
                
                
                —
                
                
                $
                383,608Chief
      Financial Officer, Interim Chief Executive Officer, Secretary and
      Director
                
                2006
                
                
                126,154
                (7)
                
                
                —
                
                
                
                —
                
                
                
                95,407
                
                
                
                —
                
                
                
                221,561David
      Stepner,
                
                2007
                
                $
                98,333
                (4)
                
                
                —
                
                
                $
                304,893
                
                
                $
                96,223
                
                
                
                —
                
                
                $
                499,449Chief
      Operating Officer
                
                2006
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Paul
      Eovino,
                
                2007
                
                $
                138,588
                
                
                $
                15,000
                
                
                
                —
                
                
                $
                162,089
                
                
                
                —
                
                
                $
                315,677Vice
      President , Corporate Controller, Chief Accounting
      Officer
                
                2006
                
                
                15,000
                (5)
                
                
                —
                
                
                
                —
                
                
                
                27,533
                
                
                
                —
                
                
                
                42,533Sven
      Nowicki,
                
                2007
                
                $
                97,924
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                $
                35,851
                (2)
                
                $
                133,772General
      Manager, Netintact, Director
                
                2006
                
                
                33,710
                (6)
                
                
                —
                
                
                
                —
                
                
                
                —Douglas
      Glader,
                
                2007
                
                $
                231,133
                
                
                $
                50,000
                
                
                
                —
                
                
                $
                3,244
                
                
                $
                39,472
                (3)
                
                $
                323,849Retired
      Chief Executive Officer
                
                2006
                
                
                245,000
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                245,000





(1)
            The
      amounts in this column reflect the dollar amount recognized for financial
      statement reporting purposes for the fiscal years ended December 31, 2007
      and 2006, in accordance with Statement of Financial Accounting Standards
      No. 123R (SFAS 123R).  Pursuant to SEC rules, the amounts shown
      exclude the impact of estimated forfeitures related to service-based
      vesting conditions.  Assumptions used in the calculation of
      these amounts are included in the notes to our audited financial
      statements for the fiscal year ended December 31, 2007, included in our
      Annual Report on Form 10-K filed with the Securities and Exchange
      Commission on April 2, 2008.  These amounts reflect the
      company’s accounting expense for these awards, and do not correspond to
      the actual value that will be recognized by the named
      executives.





(2)
            Mr.
      Nowicki earned compensation related to commissions on
  sales





(3)
            Mr.
      Glader retired effective November 2, 2007.  Other compensation
      represents retirement compensation and continuing health benefit
      reimbursements which continue for 18
months.





(4)
            For
      the partial year May 7, 2007 through December 31,
  2007





(5)
            For
      the partial year October 1, 2006 through December 31, 2006 as a part time
      employee.





(6)
            For
      the partial year August 18, 2006 through December 31,
  2006





(7)
            For
      the partial year March 20, 2006 through December 31,
  2006





Fiscal
2007 Grant of Plan-Based Awards





The
following table contains information regarding options granted during the fiscal
year ended December 31, 2007 to the named executive officers.





Name
            
            Grant
              Date
            
            
            All
      Other Stock
              Awards:
      Number of
              Shares
      of Stock or
              Units
      (#)
            
            
            All
      Other Option
              Awards:
      Number of
              Securities
      Underlying
              Options
      (#)
            
            
            Exercise
      or Base
              Price
      of Option
              Awards
      ($/Sh)
            
            
            Grant
      Date Fair
              Value
      of Stock
              Option
              Awards
      (1)David
      Stepner
            
            07/11/07
            
            
            
            300,000
            
            
            
            —
            
            
            $
            3.00
            
            
            $
            304,893David
      Stepner
            
            07/11/07
            
            
            
            —
            
            
            
            250,000
            
            
            $
            3.00
            
            
            
            81,790Thomas
      H. Williams
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Paul
      Eovino
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Sven
      Nowicki
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Douglas
      Glader
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —





(1)
            Represents
      the full grant date fair value of each individual equity award (on a
      grant-by-grant basis) as computed under SFAS
  123R.





Discussion
of Summary Compensation and Grants of Plan-Based Awards
Tables





Our
executive compensation policies and practices, pursuant to which the
compensation set forth in the Summary Compensation Table and the Grants of
Plan-Based Awards table was paid or awarded, are described above under
“Compensation Discussion and Analysis.” A summary of certain material terms of
our compensation plans and arrangements is set forth below.





Employment,
Severance, Separation and Change of Control Agreements





We have
entered into the following employment arrangements with each of the named
executive officers reflected in the Summary Compensation
Table.





James F.
Brear  On February 11, 2008, the Company entered into an
executive employment agreement with James F. Brear, as Chief Executive Officer,
President and a member of the Company’s Board of Directors.  Pursuant
to this agreement, Mr. Brear will receive an annual base salary of $240,000,
subject to annual review and increases at the discretion of the Board of
Directors.  Mr. Brear will receive an initial bonus of 50% of his
annual base salary after his first six months of employment with the Company
provided he remains an active employee through that time.  In
addition, Mr. Brear is eligible for an annual discretionary performance bonus
equal to 80% of his annual base salary as determined by the Board of Directors;
provided, however, that for calendar year 2008, the Annual bonus shall be
prorated over the time between the end of the first six months of Mr. Brear’s
employment and the end of Calendar year 2008.





9
 Table of Contents





The
Company also granted Mr. Brear an option to purchase 2,250,000 shares of the
Company’s common stock, which will vest over four years, with 25% of the shares
vesting on the one year anniversary of Mr. Brear’s first day of employment with
the Company and the remaining shares vesting in 36 equal monthly installments
thereafter.





Under the
Employment Agreement, either the Company or Mr. Brear may terminate his
employment at any time.  If the Company terminates Mr. Brear’s
employment without cause or Mr. Brear terminates his employment with good
reason, the Company will be obligated to pay Mr. Brear severance equal to six
months at his then current base salary, the maintenance of health insurance
coverage for Mr. Brear and his eligible dependents for a period of six months,
the full amount of his Initial Bonus if it has not previously been paid, the
full amount of any Annual Bonus awarded for the completed calendar preceding
termination if not already paid, and a pro-rated Annual Bonus for the calendar
year in which his employment terminates.  Finally, if the Company
terminates Mr. Brear’s employment without cause or Mr. Brear terminates his
employment with good reason within twelve months after a change in control, the
unvested portion of any equity awards granted to Mr. Brear prior to his
termination will immediately become fully vested.





Thomas H.
Williams  In March 2006, Procera entered into an offer letter
with Mr. Thomas H. Williams employing him as Chief Financial
Officer.  The agreement provides for a base salary of $160,000 per
annum.  In addition, Procera granted to Mr. Williams an option to
purchase 450,000 shares of Procera common stock at a price of $.69 per
share.  In August, 2006 Mr. Williams was granted an option to purchase
an additional 750,000 shares at an option price of $.52 per share.  In
August 2007, Mr. Williams’ base salary was increased to $190,000 per
annum.  On November 2, 2007, in connection with his promotion to
interim Chief Executive Officer, Mr. Williams’ salary was increased to
$245,000.  Mr. Williams is eligible to participate in any executive
bonus programs adopted by the Company’s board of directors.  There are
no severance provisions.  If the Company terminates Mr. Williams’s
employment without cause or if Mr. Williams terminates his employment with good
reason within twelve months after a change in control, the unvested portion of
any equity awards granted to Mr. Williams prior to his termination will
immediately become fully vested





David
Stepner  In May 2007, Procera entered into an offer letter with
Mr. David Stepner employing him as Chief Operating Officer.  The
agreement provides for a base salary of $160,000 per annum.  The
company granted Mr. Stepner an option to purchase 250,000 shares of Procera
common stock at a price of $3.00 per share with a vesting period of three years
The options vest over a three year period with one-sixth vesting 6 months after
his start date and the remaining shares vesting in 30 equal monthly installments
thereafter.  Mr. Stepner was also granted 300,000 shares of common
stock with a vesting date of November 7, 2008.  Mr. Stepner is
eligible to participate in any executive bonus program adopted by the Company’s
board of directors.  There are no Severance provisions.  If
the Company terminates Mr. Stepner’s employment without cause or if Mr. Stepner
terminates his employment with good reason within twelve months after a change
in control, the unvested portion of any equity awards granted to Mr. Stepner
prior to his termination will immediately become fully vested





Paul
EovinoIn October 2006, the Company entered into a letter
agreement with Paul Eovino employing him as Vice President of Finance and
Corporate Controller.  The agreement provides for a base salary of
$150,000 per annum on a full time basis.  Mr Eovino worked on a part
time basis at a rate of 60% of full time for the period October 1, 2006 through
March 31, 2007 and became a full time employee on March 1,
2007.   Mr. Eovino was also granted an option to purchase 500,000
shares of common stock; 250,000 of these shares commenced vesting in October
2006 and the remaining 250,000 commenced vesting in March 2007.  Mr.
Eovino is eligible to participate in any executive bonus program adopted by the
Company’s board of directors.  There are no Severance
provisions.  If the Company terminates Mr. Eovino’s employment without
cause or if Mr. Eovino terminates his employment with good reason within twelve
months after a change in control, the unvested portion of any equity awards
granted to Mr. Eovino prior to his termination will immediately become fully
vested





Douglas
Glader  In November 2007, the company entered into a retirement
and separation agreement with Douglas Glader, former Chief Executive Officer,
Chairman of the Board of Directors and Director.  Pursuant to this
agreement, Mr. Glader is entitled to receive benefits equal to 18 months of his
base salary as well as a maximum of 18 months health care continuation under the
Consolidated Omnibus Budget Reconciliation Act (“COBRA”) paid for by the
Company.  The salary portion of the retirement agreement is valued at
$39,472, $245,000 and $83,028 in 2007, 2008 and 2009
respectively.  The health care continuation benefit is valued at
$1,056, $12,675 and $5,281 in 2007, 2008 and 2009
respectively.





Potential payouts
upon termination or Change of ControlOther than the
provisions of the executive severance benefits to which our Named Executive
Officer’s would be entitled to at the end of our fiscal year ending December 31,
2007 as set forth above, the Company has no liabilities under termination or
change of control conditions.





Under the
terms of option agreements with our Named Executive Officers, the value of
equity award acceleration, in the event of a change of control of
Procera, as of December 31, 2007, is valued at $322,808 for Thomas H.
Williams, $513,377 for David Stepner and $459,178 for Paul Eovino.  The
amounts computed by person assume the termination was effective as of December
31, 2007 and that all eligibility requirements under the equity award agreement
were met.  The values represent the portion of the stock option that is
assumed to be accelerated, calculated using a Black-Scholes option
valuation method without taking into effect estimated
forfeiture.





10
 Table of Contents




Option
      Awards
            
            
            Stock
    AwardsMarketNumber
      of
            
            
            Value
      ofShares
      or
            
            
            Shares
      orUnits
      of
            
            
            Units
      ofNumber of Securities
      Underlying
            
            
            Option
            
            
            
            
            
            Stock
      That
            
            
            Stock
      ThatUnexercised
      Options(1)
            
            
            Exercise
            
            
            Option
            
            
            Have
      Not
            
            
            Have
      Not(#)
            
            (#)
            
            
            Price
            
            
            Expiration
            
            
            Vested
            
            
            VestedName
            
            Exercisable(2)
            
            Unexercisable
            
            
            ($)
            
            
            Date
            
            
            (#)
            
            
            ($)(5)(3)Thomas
      H. Williams
            (1)
            10,000
            
            
            —
            
            
            
            1.86
            
            
            
            04/12/2008
            
            
            
            —
            
            
            $
            —(2)
            75,000
            
            
            —
            
            
            
            1.42
            
            
            
            06/13/2008
            
            
            
            —
            
            
            
            —(3)
            16,000
            
            
            —
            
            
            
            1.67
            
            
            
            04/19/2015
            
            
            
            —
            
            
            
            —(4)
            16,000
            
            
            —
            
            
            
            3.35
            
            
            
            03/08/2014
            
            
            
            —
            
            
            
            —(5)
            196,875
            
            
            253,125
            
            
            
            0.69
            
            
            
            03/19/2016
            
            
            
            —
            
            
            
            —(6)
            333,334
            
            
            416,666
            
            
            
            0.52
            
            
            
            08/10/2016
            
            
            
            —
            
            
            
            —David
      Stepner
            (7)
            —
            
            
            250,000
            
            
            
            3.00
            
            
            
            07/10/2017
            
            
            
            —
            
            
            
            —(8)
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            300,000
            
            
            $
            304,893Paul
      Eovino
            (9)
            72,917
            
            
            177,083
            
            
            
            1.52
            
            
            
            10/29/2016
            
            
            
            —
            
            
            
            —(10)
            —
            
            
            250,000
            
            
            
            1.52
            
            
            
            10/29/2016
            
            
            
            —
            
            
            
            —Sven
      Nowicki
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Douglas
      Glader
            
            —
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —





(1)
            The
      warrant vests 100% on the date of grant of April 13,
  2005.





(2)
            The
      warrant vests as to 1/2 of the shares on October 14, 2005 and 1/2 on
      February 28, 2006.





(3)
            The
      option vests as to 1/4 of the shares on March 31, 2005 and 1/4 quarterly
      thereafter until fully vested.





(4)
            The
      option vests as to 1/4 of the shares on March 31, 2004 and
      1/4   quarterly thereafter until fully
    vested.





(5)
            The
      option vests as to 1/4 of the shares on the first anniversary of the date
      of hire of March 20, 2006 and 1/48 per month thereafter until fully
      vested.





(6)
            The
      option vests as to 1/3 of the shares on the date of grant of August 11,
      2006 and 1/36 per month thereafter until fully
  vested.





(7)
            The
      option vests as to 1/6 of the shares 6 months from the date of grant of
      July 11, 2007 and 1/36 per month thereafter until fully
      vested.





(8)
            The
      unrestricted stock vests 100% on November 7,
  2008.





(9)
            The
      option vests as to 1/4 of the shares on the first anniversary of the date
      of hire of October 30, 2006 and 1/48 per month thereafter until fully
      vested.





(10)
            The
      option vests as to 1/4 of the shares on the first anniversary of the date
      of full time employment of March 1, 2007 and 1/48 per month thereafter
      until fully vested.





2007
Option Exercises





There
were no options exercised by any named executive officer during the fiscal year
ended December 31, 2007. We do not have any stock appreciation rights plans in
effect and we have no long-term incentive plans, as those terms are defined in
SEC regulations. During the fiscal year ended December 31, 2007, we did not
adjust or amend the exercise price of stock options awarded to the named
executive officers. We have no defined benefit or actuarial plans covering any
named executive officer.





Director
Compensation





During
fiscal year 2007, each of our non-employee directors received a grant of option
to purchase 50,000 shares of our common stock.  The members of the
Board of Directors are also eligible for reimbursement for their expenses
incurred in connection with attendance at Board meetings in accordance with our
policy on reimbursement of business expenses.





In
December 2007, the Compensation Committee approved a revised compensation
structure for each of our non-employee directors and was approved by the full
Board of Directors in January 2008.  Beginning in fiscal year 2008,
each of our non-employee directors will receive an annual retainer of
$10,000.  The chair of each of the Audit, Compensation and
Nominating/Governance Committees will receive an additional annual retainer of
$5,000, $2,500 and $2,500, respectively.  In addition the Compensation
Committee approved an additional annual retainer of $10,000 for our Chairman of
the Board.  All annual cash compensation amounts are earned on a
quarterly basis.  Each director will also receive $1,000 for attending
each Board of Directors or Committee meeting in person or $500 for attending
telephonically.  Each non-employee director may make the annual
election to forego the cash compensation payable to non-employee directors and
to instead receive an additional option grant, equivalent in value to such cash
compensation.The
members of the Board of Directors are also eligible for reimbursement for their
expenses incurred in connection with attendance at Board meetings in accordance
with our policy. Each of our non-employee directors will also receive a grant of
option to purchase 3,750 shares of our common stock each quarter at the fair
market value on the first day of each quarter.  Such options are not
intended by us to qualify as incentive stock options under the
Code.





During
2007, we granted options to purchase an aggregate of 200,000 shares of common
stock to our non-employee directors at a weighted average exercise price per
share of $1.50.  As of March 31, 2008, no options have been exercised
to purchase any shares issued to Directors as compensation.





11
 Table of Contents





The
following table provides information regarding compensation of non-employee
directors who served during the fiscal year ended December 31,
2007.





Director
Compensation Fiscal Year 2007





Name
            
            Fees
      Earned or
              Paid
      in Cash
            
            
            Option
              Awards
      (1)
      (2)
            
            
            All
      Other
              Compensation
            
            
            TotalThomas
      Saponas
            
            $
            —
            
            
            $
            47,543
            
            
            
            —
            
            
            $
            47,543Scott
      McClendon
            
            
            —
            
            
            
            47,543
            
            
            
            —
            
            
            
            47,543Mary
      Losty (3)
            
            
            —
            
            
            
            92,888
            
            
            
            —
            
            
            
            92,888Staffan
      Hillberg (4)
            
            
            —
            
            
            
            73,053
            
            
            
            —
            
            
            
            73,053





(1)
            The
      amounts in this column reflect the dollar amount recognized for financial
      statement reporting purposes for the fiscal year ended December 31, 2007,
      in accordance with SFAS 123R.  This expense is determined by
      computing the fair value of each option on the grant date in accordance
      with SFAS 123R and recognizing that amount as expense ratably over the
      option vesting term and accordingly includes a portion of 2007 options
      granted in previous years that vest in 2007.  Assumptions used
      in the calculation of these amounts are included in the notes to our
      audited financial statements for the fiscal year ended December 31, 2007,
      included in our Annual Report on Form 10-K filed with the Securities and
      Exchange Commission on April 2,
2008.





(2)
            The
      following options were outstanding as of December 31, 2007; Mr. Saponas
      119,000 shares; Mr. McClendon 119,000; Ms. Losty 50,000 shares; Mr.
      Hillberg 50,000.





(3)
            Ms.
      Losty  joined the Board of Directors in March
    2007.





(4)
            Mr.
      Hillberg joined the Board of Directors in January
  2007.





Compensation
Committee Interlocks and Insider Participation




Tom
Saponas, Scott McClendon and Staffan Hillberg served as members of the
Compensation Committee of our Board of Directors in fiscal 2007.  None
of the aforementioned individuals was, during fiscal 2007, an officer or
employee of Procera, was formerly an officer of Procera or had any relationship
requiring disclosure by Procera under Item 404 of regulation S-K.  No
interlocking relationship exists between any of our executive officers or
Compensation Committee members, on the one hand, and the executive officers or
compensation committee members of any other entity, on the other hand, nor has
any such interlocking relationship existed in the past.




Report
of the Compensation Committee




The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management and
included in this Item 11. Based on these reviews and discussions, the
Compensation Committee recommended to the Board that the Compensation Discussion
and Analysis be included in our Annual Report on Form 10-K/A.


Thomas Saponas
      (Chair)Scott
      McClendonStaffan
      Hillberg







Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.





Security
Ownership




The
following table sets forth information regarding ownership of our common stock
as of March 31, 2008 (or such other date as provided below) by (a) each person
or beneficial ownership group known to us to own more than 5% of the outstanding
shares of our common stock, (b) each director of the Company, (c) our chief
executive officer, our chief financial officer and each other executive officer
named in the compensation tables appearing in Item 11 above and (d) all
directors and executive officers as a group. Each stockholder’s percentage
ownership is based on 76,416,883 shares of our common stock outstanding as of
March 31, 2008.  Options and warrants to purchase shares of the common
stock that are exercisable within 60 days of March 31, 2008 are deemed to be
beneficially owned by the persons holding these options and warrants for the
purpose of computing percentage ownership of that person, but are not treated as
outstanding for the purpose of computing any other person’s ownership
percentage.  The information in this table is based on statements in
filings with the SEC, or other reliable information.





12
 Table of Contents




Name
      and Address of Beneficial Owner(1)
            
            Amount
      and Nature of
              Beneficial
      Ownership(2)
            
            
            Percent of
              ClassPrincipal
      StockholdersCertain
      former shareholders of Netintact, an acquired company (3)
            
            
            14,692,600
            
            
            
            19.2
            %Directors
      and Executive OfficersJames
      F. Brear (4)
            
            
            —
            
            
            
            *Thomas
      H. Williams (5)
            
            
            1,417,000
            
            
            
            1.8
            %David
      Stepner (6)
            
            
            550,000
            
            
            
            *Paul
      Eovino (7)
            
            
            500,000
            
            
            
            *Scott
      McClendon (8)
            
            
            142,750
            
            
            
            *Tom
      Saponas (9)
            
            
            129,718
            
            
            
            *Mary
      Losty (10)
            
            
            2,213,750
            
            
            
            2.9
            %Staffan
      Hillberg (11)
            
            
            59,573
            
            
            
            *Sven
      Nowicki (12)
            
            
            3,149,871
            
            
            
            4.0
            %Douglas
      Glader (13)
            
            
            3,670,500
            
            
            
            4.8
            %All
      directors and executive officers as a group (8
persons)(12)
            
            
            7,262,791
            
            
            
            6.3
            %







*
            Represents
      beneficial ownership of less than 1% of the outstanding shares of our
      common stock.





(1)
            Unless
      otherwise indicated, the address of each beneficial owner is care of
      Procera Networks, Inc, 100 Cooper Court, Los Gatos,
      CA  95032.





(2)
            Beneficial
      ownership is determined in accordance with the rules of the SEC and
      generally includes voting or investment power with respect to
      securities.  Except as otherwise indicated below, this table is
      based on information supplied by officers, directors and principal
      stockholders.  The inclusion in this table of such shares does
      not constitute an admission that the named stockholder is a direct or
      indirect beneficial owner of, or receives the economic benefit of, such
      shares.  Except as otherwise stated below, each of the named
      persons has sole voting and investment power with respect to the shares
      shown (subject to community property
laws).





(3)
            The
      following former shareholders of Netintact may, pursuant to agreements
      among themselves, act in concert in the disposition of shares of our
      common stock; Alexander Haväng, Peter Alm, Anders Alneng, Joakim Ek, Olle
      Hallnäs, Mikael Herrlin, Jon Lindén, Tobias Rundström, Anders Wahldenberg,
      and Johan Wilkenstedt.  Includes 14,068,773 shares of our common
      stock and 623,827 warrants to purchase our common stock in exchange for
      the acquisition of all outstanding stock in Netintact, a Swedish and
      Australian company.





(4)
            Includes
      incentive stock options to acquire 2,250,000 shares of our common stock,
      none of which may be exercised within 60 days of March 31,
      2008.





(5)
            Includes
      100,000 shares of our common stock acquired through the purchase of
      founders’ shares, warrants to purchase 85,000 shares of our common stock
      which may be exercised, in whole or in part, within 60 days of March 31,
      2008, non-qualified stock options to acquire 32,000 shares of our common
      stock which may be exercised, in whole or in part, within 60 days of March
      31, 2008 and incentive stock options to acquire 1,200,000 shares of our
      common stock which may be exercised, in whole or in part, within 60 days
      of March 31, 2008.





(6)
            Includes
      incentive stock options to acquire 250,000 shares of our common stock
      which may be exercised, in whole or in part, within 60 days of March 31,
      2008 and the right to acquire 300,000 shares of our common
      stock.





(7)
            Includes
      incentive stock options to acquire 500,000 shares of our common stock
      which may be exercised, in whole or in part, within 60 days of March 31,
      2008.





(8)
            Includes
      non-qualified stock options to acquire 122,750 shares of our common stock
      which may be exercised, in whole or in part, within 60 days of March 31,
      2008 and 20,000 shares of common stock purchased in open market
      transactions.





(9)
            Includes
      non-qualified stock options to acquire 128,718 shares of our common stock
      which may be exercised, in whole or in part, within 60 days of March 31,
      2008 and 1,000 shares of common stock purchased in open market
      transactions.





(10)
            Includes
      1,500,000 shares of common stock acquired in our November 2006 private
      placement, warrants to purchase 300,000 shares of our common stock which
      may be exercised, in whole or in part, within 60 days of March 31, 2008,
      non-qualified options to acquire 53,750 shares of our common stock which
      may be exercised, in whole or in part, within 60 days of March 31,
      2008.  Includes 300,000 shares of common stock held by spouse
      acquired in our November 2006 private placement and warrants  to
      purchase 60,000 shares of our common stock held by spouse which may be
      exercised, in whole or in part, within 60 days of March 31,
      2008





(11)
            Includes
      non-qualified stock options to acquire  shares of our common
      stock which may be exercised, in whole or in part, within 60 days of March
      31, 2008


(12)
              Includes
      3,149,871 shares of our common stock in exchange for the acquisition of
      outstanding stock in Netintact, a Swedish and Australian
      company.


(13)
            Includes
      3,251,530 shares or our common stock purchased as founders’ shares and
      148,970 shares of our common stock acquired as compensation in lieu of
      salary.





13
 Table of Contents





Equity
Compensation Plan Information




At
December 31, 2007, we had two equity incentive plans under which equity
securities are or have been authorized for issuance to our employees,
consultants or directors; The 2003 Stock Option Plan and the 2004 Stock Option
Plan.  These plans have been approved by our
stockholders.    From time to time we issue to employees,
directors and service providers special stock options, inducement grants and
warrants to purchase common shares, and these grants have not been approved by
stockholders. The following table sets forth information as of December 31,
2007.




Number
      of SecuritiesRemaining
      AvailableNumber
      of Securities
            
            
            Weighted
      Average
            
            
            for
      Future Issuanceto
      be Issued Upon
            
            
            Exercise
      Price of
            
            
            Under
      EquityExercise
      of Outstanding
            
            
            Outstanding
            
            
            Compensation
      PlansOptions,
      Warrants
            
            
            Options,
      Warrants
            
            
            (Excluding
      Securitiesand
      Rights
            
            
            and
      Rights
            
            
            Reflected
      in Column (a)Plan
      Category
            
            (a)
            
            
            (b)
            
            
            (c)Equity
      compensation plans approved by stockholders
            
            
            6,675,163
            (1)
            
            $
            1.37
            
            
            
            714,357
            (2)Equity
      compensation plans not approved by stockholders(3) (4)
            
            
            5,136,109
            
            
            $
            1.09
            
            
            
            —Total:
            
            
            11,811,272
            
            
            $
            1.25
            
            
            
            714,357





(1)
            Includes
      unexercised options issued pursuant to our 2003 and 2004 Stock Option
      Plan.





(2)
            Includes
      unissued options available pursuant to our 2003 and 2004 Stock Option
      Plan





(3)
            Includes
      (i) 201,268 shares subject to a warrant granted on December 20, 2002 to a
      financial advisor for consulting services rendered with an exercise price
      of $0.01 and an expiration date of June 19,
  2009.


(ii)
50,000 shares subject to a warrant granted on June 5, 2003 to a legal firm for
consulting services rendered with an exercise price of $0.50 and an expiration
date of June 6, 2008.


(iii)
100,000 shares subject to a warrant granted on February 23, 2005 to an
individual for sales services rendered with an exercise price of $1.78 and an
expiration date of February 23, 2010.


(iv)
10,000 shares subject to a warrant granted on April 13, 2005 to an individual
for financing services rendered with an exercise price of $1.86 and an
expiration date of April 13, 2008.


(v)
25,000 shares subject to a warrant granted on June 1, 2005 to an individual for
real estate services rendered with an exercise price of $1.42 and an expiration
date of July 12, 2008.


(vi)
75,000 shares subject to a warrant granted on June 14, 2005 to an individual for
financing services rendered with an exercise price of $1.42 and an expiration
date of June 14, 2008.


(vii)
15,000 shares subject to a warrant granted on September 13, 2005 to an
individual for product development services rendered with an exercise price of
$0.68 and an expiration date of June 14, 2008.


(viii)
1,163,875 shares subject to a warrant granted on February 28, 2006 to a group of
placement agents for fees associated with our February 2006 private placement
financing with an exercise price of $0.40 and an expiration date of July 12,
2008.


(ix)
400,000 shares subject to a warrant granted on August 2, 2006 to an individual
for investor relations services rendered with an exercise price of $1.40 and an
expiration date of August 2, 2008.


(x)
1,380,000 shares subject to a warrant granted on November 30, 2006 to a group of
placement agents for fees associated with our November 2006 private placement
financing with an exercise price of $1.50 and an expiration date of November 30,
2011.


(xi)
15,000 shares subject to a warrant granted on January 24, 2007 to an individual
for recruitment services rendered with an exercise price of $2.14 and an
expiration date of January 23, 2010.


(xii)
100,000 shares subject to a warrant granted on January 24, 2007 to an individual
for sales services rendered with an exercise price of $2.14 and an expiration
date of January 23, 2010.


(xiii)
199,998 shares subject to a warrant granted on July 16, 2007 to a group of
placement agents for fees associated with our July 2007 private placement
financing with an exercise price of $2.00 and an expiration date of July 17,
2012.


(xiv)
70,000 shares subject to a warrant granted on July 31, 2007 to an individual for
institutional investor relations services rendered with an exercise price of
$1.12 and an expiration date of July 31, 2010.


(4)
            Includes
      (i) 72,727 common shares granted on January 24, 2007 for financing
      services rendered with a fair market value of $1.65 per
    share.


(ii)
165,000 common shares granted on February 8, 2005 for investor relations
services to be provided with a fair market value of $0.51 per
share.


(iii)
825,000 common shares granted on November 30, 2005 for investor relations
services to be provided with a fair market value of $0.70 per share


(iv)
247,500 common shares granted on May 2, 2007 for investor relations services to
be provided with a fair market value of $2.47 per share.


(v)
11,000 common shares granted on October 11, 2004 for sales services rendered
with a fair market value of $0.92.


(vi)
9,741 common shares granted on December 11, 2007 for executive recruiting
services rendered with a fair market value of $3.08 per share.





14
 Table of Contents





Item
13. Certain Relationships and Related Transactions, and Director
Independence.




Certain
Relationships and Related Transactions




Since
January 1, 2007, there has not been nor are there currently proposed any
transactions or series of similar transactions to which we were or are to be a
party in which the amount involved exceeds $120,000 and in which any director,
executive officer, holder of more than 5% of our common stock or any member of
the immediate family of any of the foregoing persons had or will have a direct
or indirect material interest, other than the following
transactions:





Employment
Agreements




Information
on our executives employment agreements is located under the caption,
“Employment, Severance, Separation and Change of Control Agreements”
above.




Director
and Officer Indemnification Agreements




In
addition to the indemnification provisions contained in our restated certificate
of incorporation and bylaws, we generally enter into separate indemnification
agreements with our directors and officers.  These agreements require
us, among other things, to indemnify the director or officer against specified
expenses and liabilities, such as attorneys’ fees, judgments, fines and
settlements, paid by the individual in connection with any action, suit or
proceeding arising out of the individual’s status or service as our director or
officer, other than liabilities arising from willful misconduct or conduct that
is knowingly fraudulent or deliberately dishonest, and to advance expenses
incurred by the individual in connection with any proceeding against the
individual with respect to which the individual may be entitled to
indemnification by us.  We also intend to enter into these agreements
with our future directors and executive officers.




Company
Policy Regarding Related Party Transactions




It is our
policy that the Audit Committee approve or ratify transactions involving
directors, executive officers or principal shareholders or members of their
immediate families or entities controlled by any of them or in which they have a
substantial ownership interest in which the amount involved exceeds $120,000 and
that are otherwise reportable under SEC disclosure rules.  Such
transactions include employment of immediate family members of any director or
executive officer.  Management advises the Audit Committee on a regular
basis of any such transaction that is proposed to be entered into or continued
and seeks approval.  The company has not yet adopted a written
related-persons transaction policy.





15
 Table of Contents





Director
Independence




Our board
has determined that the following directors are “independent” under current
American Stock Exchange listing standards:





Thomas
    SaponasScott
      McClendonMary
  LostyStaffan
      Hillberg




Under
applicable SEC and American Stock Exchange rules, the existence of certain
“related party” transactions above certain thresholds between a director and the
Company are required to be disclosed and preclude a finding by the Board that
the director is independent.  In addition to transactions required to
be disclosed under SEC rules, the Board considered certain other relationships
in making its independence determinations, and determined in each case that such
other relationships did not impair the director’s ability to exercise
independent judgment on our behalf. Specifically, the Board considered the
following information:





Mary
Losty:   In November 2006, Mary Losty purchased shares of
our equity securities in a private placement financing and was granted warrants
associated with this financing.  Ms. Losty was appointed to the board
in March 2007.





16
 Table of Contents





Item
14. Principal Accountant Fees and Services.




The
following table presents the fees for professional audit services rendered by
PMB Helin Donovan LLP the Company’s principal accountant and related expert
services for fiscal years 2007 and 2006, and fees billed for other services
rendered by PMB Helin Donovan LLP  and related expert services for
fiscal years 2007 and 2006.




Fiscal
      Year
            
            
            Fiscal
      Year2007
            
            
            2006Audit
      Fees (1)
            
            $
            186,391
            
            
            $
            67,420Audit-Related
      Fees (2)
            
            
            65,380
            
            
            
            39,140Tax
      Fees (3)
            
            
            85,154
            
            
            
            26,015All
      Other Fees (4)
            
            
            50,134
            
            
            
            —Total
            
            $
            387,059
            
            
            $
            132,575





(1)
            Includes
      fees for the audit of the annual financial statements included in our Form
      10-K and the review of interim financial statements included on Forms 10-Q
      by our principal accounting firms.  Of the audit fees in 2007,
      approximately $158 thousand was related to services provided by PMB Helin
      Donovan and $7 thousand was related to services provided by Burr Pilger
      Meyer, our predecessor audit firm and $16 thousand related to quarterly
      evaluation of 123R expenses, and $5 thousand for an annual intangible
      valuation assessment .  Of the audit fees in 2006, approximately
      $55 thousand was related to services provided by PMB and $12 thousand was
      related to services provided by
BPM.





(2)
            Includes
      fees for expert services provided primarily by PWC in Sweden in support of
      the review and audit of our Swedish subsidiary, Netinact, including the
      annual financial statements included in our Form 10-K and the review of
      interim financial statements included on Forms
  10-Q.





(3)
            Includes
      fees for the preparation of statutory and regulatory filings associated
      with tax accounting, footnotes and returns.  These services were
      provided by Mohler, Nixon Williams, LLP in the US and PWC in Sweden during
      2007 and 2006.





(4)
            Includes
      fees for the preparation and review of our form SB-2 Registration, form
      S-8 Registration, Proxy statement, form 8-K’s as required and the annual
      review of Sarbanes-Oxley section 404
  implementation.





All fees
described above were approved by the Audit Committee.




Pre-Approval
Policies and Procedures




The Audit
Committee has adopted a policy that all audit, audit-related, tax and any other
non-audit service to be performed by our independent registered public
accounting firm must be pre-approved by the Audit Committee. Our company policy
is that all such services be pre-approved prior to the commencement of the
engagement. The Audit Committee is also required to pre-approve the estimated
fees for such services, as well as any subsequent changes to the terms of the
engagement. The Audit Committee has delegated the authority (within specified
limits) to the chair of the Audit Committee to pre-approve such services if it
is not practical to wait until the next Audit Committee meeting to seek such
approval. The Audit Committee chair is required to report to the Audit Committee
at the following Audit Committee meeting any such services approved by the chair
under such delegation.




The Audit
Committee will only approve those services that would not impair the
independence of the independent registered public accounting firm and which are
consistent with the rules of the SEC and the Public Company Accounting Oversight
Board.




Under
this policy, the Audit Committee meets at least annually to review and where
appropriate approve the audit and non-audit services to be performed by the
Company’s independent registered public accounting firm. Any subsequent requests
to have the independent registered public accounting firm perform any additional
services must be submitted in writing to the Audit Committee by our chief
financial officer, together with the independent registered public accounting
firm, which written request must include an affirmation from each that the
requested services are consistent with the SEC and Public Company Accounting
Oversight Board’s rules on auditor independence.





All fees
paid to PMB Helin Donovan for 2007 and 2006 were pre-approved by our Audit
Committee.





17
 Table of Contents


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.






PROCERA
      NETWORKS, INC.By:    /s/   James
      F. BrearJames
      F. BrearPresident and Chief Executive
Officer





Date:
April 29, 2008







Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:







Signature
            
            Title(s)
            
            Date/s/   James
      F. Brear
            
            President,
      Chief Executive Officer and
            
            April
      29, 2008James
      F. Brear
            
            Director
      (Principal executive officer)/s/   Thomas
      H. Williams
            
            Executive
      Vice President, Chief Financial
            
            April
      29, 2008Thomas
      H. Williams
            
            Officer
      and Director (Principal financialofficer)/s/  Paul
      Eovino
            
            VP,
      Corporate Controller (Principal
            
            April
      29, 2008Paul
      Eovino
            
            Accounting
      Officer)/s/   Scott
      McClendon*
            
            Chairman
      of the Board, Director
            
            April
      29, 2008Scott
      McClendon/s/   Tom
      Saponas*
            
            Director
            
            April
      29, 2008Tom
      Saponas/s/   Mary
      Losty*
            
            Director
            
            April
      29, 2008Mary
      Losty/s/   Staffan
      Hillberg*
            
            Director
            
            April
      29, 2008Staffan
      Hillberg*By:
            
            /s/   Thomas
      H. WilliamsThomas
      H. WilliamsAttorney-in-FactApril
      29, 2008


18
 Table of Contents


EXHIBIT
INDEX





2.1*
      Agreement and Plan of Merger dated June 24, 2003 included as Exhibit A to
      our Preliminary Proxy Statement on Schedule 14A filed on August 25, 2003
      and incorporated herein by reference.2.2*
      First Amended and Restated Stock Exchange Agreement and Plan of
      Reorganization by and between Procera the Company and the Sellers of
      Netintact dated August 18, 2006 included as exhibit 2.1 to our form 8-K
      filed on August 31, 2006 and incorporated herein by
    reference.2.3*
      Form of Closing Date Warrant Agreement dated August 18, 2006 included as
      exhibit 2.2 to our form 8-K filed on August 31, 2006 and incorporated
      herein by reference.2.4*
      Form of Incentive Warrant Agreement dated August 18, 2006 included as
      exhibit 2.3 to our form 8-K filed on August 31, 2006 and incorporated
      herein by reference.2.5*
      Lockup Agreement dated August 18, 2006 included as exhibit 2.4 to our form
      8-K filed on August 31, 2006 and incorporated herein by
      reference.2.6*
      Voting Agreement dated August 18, 2006 included as exhibit 2.5 to our form
      8-K filed on August 31, 2006 and incorporated herein by
      reference.2.7*
      Form of Escrow Agreement included as exhibit 2.6 to our form 8-K filed on
      August 31, 2006 and incorporated herein by reference.2.8*
      First Amendment to First Amended and Restated Stock Exchange Agreement and
      Plan of Reorganization by and between the Company  and the
      Sellers of Netintact dated November, 2006 included as exhibit 2.8 to our
      form 10-KSB filed on April 16, 2007 and incorporated herein by
      reference.3.1*
      Articles of Incorporation included as Exhibit 3.1 to our form SB-2 filed
      on February 11, 2002 and incorporated herein by
  reference.3.2*
      Certificate of Amendment to Articles of Incorporation included as Exhibit
      99.1 to our form 8-K filed on October 12, 2005 and incorporated herein by
      reference.3.3*
      Bylaws included as Exhibit 3.3 to our form SB-2 filed on February 11, 2002
      and incorporated herein by reference.4.1*Form
      of Subscription Agreement for July, 2007 offering included as Exhibit 10.1
      to our  form 8-K filed on July 17, 2007 and incorporated herein
      by reference.4.2*Form
      of Registration Rights Agreement for July, 2007 offering included as
      Exhibit 10.2 to our  form 8-K filed on July 17, 2007 and
      incorporated herein by reference.4.3*
      Form of Warrant Agreement for July, 2007 offering included as Exhibit 4.3
      to our form SB-2 filed on October 5, 2007 and incorporated herein by
      reference.4.4*
      Form of Subscription Agreement for November, 2006 offering included as
      Exhibit 2.1 to our  form 8-K filed on November 30, 2006 and
      incorporated herein by reference4.5*
      Form of Registration Rights Agreement for November, 2006 offering included
      as Exhibit 2.3 to our form 8-K filed on November 30, 2006 and incorporated
      herein by reference.4.6*Form
      of Warrant agreement for November, 2006 offering included as Exhibit 2.2
      to our form 8-K filed on November 30, 2006 and incorporated herein by
      reference.4.7*
      Form of Subscription Agreement for February, 2006 offering included as
      Exhibit 10.1 to our  form 8-K filed on March 1, 2006 and
      incorporated herein by reference.4.8*
      Form of Amendment to Stock Subscription Agreement for February, 2006
      offering included as Exhibit 10.2 to our form 8-K filed on March 1, 2006
      and incorporated herein by reference.4.9*
      Form of Registration Rights Agreement for February, 2006 offering included
      as Exhibit 10.4 to our Form 8-K filed on March 1, 2006 and incorporated
      herein by reference.4.10*
      Form of Subscription Agreement for December, 2004 offering included as
      Exhibit 10.1 to our  form 8-K filed on January 4, 2005 and
      incorporated herein by reference.4.11*
      Form of Registration Rights Agreement for December, 2004 offering included
      as Exhibit 10.2 to our  form 8-K filed on January 4, 2005 and
      incorporated herein by reference.4.12
      * From of Warrant agreement for December, 2004 offering included as
      Exhibit 10.3 to our current report form 8-K filed on January 4, 2005 and
      incorporated herein by reference.4.13*
      Form of Subscription Agreement for June, 2003 offering included as Exhibit
      4.13 to our form SB-2 filed on October 5, 2007 and incorporated herein by
      reference.4.14*
      Form of Registration Rights Agreement for June, 2003 offering included as
      Exhibit 4.14 to our form SB-2 filed on October 5, 2007 and incorporated
      herein by reference.4.15*
      Form of Warrant Agreement for June, 2003 offering included as Exhibit 4.15
      to our form SB-2 filed on October 5, 2007 and incorporated herein by
      reference.10.1*
      2003 Stock Option Plan included as Exhibit 10.1 to our form SB-2 filed on
      January 8, 2004 and incorporated herein by reference.10.2*
      Amended 2004 Stock Option Plan included as Exhibit 99.3 to
      our  form 8-K filed on October 12, 2005 and incorporated herein
      by reference.





19
 Table of Contents








10.3*
      Lease agreement by and between the Company and Vasona Business Park dated
      as of May 1, 2005 included as Exhibit 10.3 to our form SB-2 filed on
      October 5, 2007 and incorporated herein by reference.10.4*
      Employee Offer Letter for Douglas J. Glader dated September 17, 2003
      included as Exhibit 10.3 to our form SB-2 filed on January 8, 2004 and
      incorporated herein by reference.10.5*
      Employee Offer Letter for Thomas H. Williams dated March 6, 2006 included
      as Exhibit 99.1 to our  form 8-K filed on March 23, 2006 and
      incorporated herein by reference.10.6*
      Employee Offer Letter for Jay Zerfoss dated May 10, 2002 included as
      Exhibit 10.6 on our form 10KSB filed on April 3, 2006 and incorporated
      herein by reference.10.7*
      Employee Offer Letter for Gary Johnson dated October 18, 2004 included as
      Exhibit 10.8 on our form 10KSB filed on April 3, 2006 and incorporated
      herein by reference.10.8* Lease
      extension by and between the Company and Vasona Business Park dated
      November 20, 2007 included as Exhibit 10.8.10.9* Retirement
      agreement between the Company and Douglas J. Glader, dated November 29,
      2007 and included as Exhibit 10.9.16.1*
      Letter on changing registrants certifying accountant dated June 13, 2006
      included as Exhibit 16.1 to our   form 8-K filed on June 7,
      2006 and incorporated herein by reference.21.1*
      List of Subsidiaries included as Exhibit 21.1 to our form SB-2 filed on
      October 5, 2007 and incorporated herein by reference.23.1*
      Consent of Registered Public Accounting Firm – PMB Helin Donovan,
      LLP.23.2*
      Consent of Registered Public Accounting Firm– Burr, Pilger & Mayer
      LLP.31.1*
      Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
      and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
      to Section 302 of the Sarbanes-Oxley Act of 2002.31.2* Certification
      of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of
      the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.31.3  Certification
      of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of
      the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.31.4  Certification
      of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of
      the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1*  Certification
      of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2*  Certification
      of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.3  Certification
      of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.4  Certification
      of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.





*
Previously filed




20