SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
NETSCOUT SYSTEMS, INC.
--------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
not applicable
--------------
(2) Aggregate number of securities to which transactions applies:
not applicable
--------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
not applicable
--------------
(4) Proposed maximum aggregate value of transaction: not applicable
--------------
(5) Total fee paid: not applicable
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: not applicable
--------------
(2) Form, Schedule or Registration Statement No.: not applicable
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(3) Filing Party: not applicable
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(4) Date Filed: not applicable
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<Page>
[LOGO]
August 30, 2001
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
NetScout Systems, Inc. to be held at 10:00 a.m., Eastern Standard time, on
Friday, September 28, 2001, at Testa, Hurwitz & Thibeault, LLP, High Street
Tower, 125 High Street, Boston, Massachusetts.
At this Annual Meeting, you will be asked to elect two directors to a
three-year term and to amend NetScout's 1999 Stock Option and Incentive Plan to
increase the number of shares issuable under such plan to 9,500,000 shares, as
described in NetScout's Proxy Statement dated as of August 30, 2001, and ratify
the 1999 Stock Option and Incentive Plan, as amended, for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended.
Details regarding the matters to be acted upon at this meeting appear in the
accompanying Proxy Statement. Please give this material your careful attention.
If you are a stockholder of record, please vote in one of the following
three ways whether or not you plan to attend the meeting: (1) by completing,
signing and dating the accompanying proxy card and returning it in the enclosed
postage-prepaid envelope, (2) by completing your proxy using the toll-free
telephone number listed on the proxy card, or (3) by completing your proxy on
the Internet at the address listed on the proxy card. It is important that your
shares be voted whether or not you attend the meeting in person. If you attend
the meeting, you may vote in person even if you have previously returned your
proxy card or voted by phone or on the Internet. Your prompt cooperation will be
greatly appreciated.
Very truly yours,
ANIL K. SINGHAL
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<Page>
NETSCOUT SYSTEMS, INC.
4 TECHNOLOGY PARK DRIVE
WESTFORD, MA 01886
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 28, 2001
To the Stockholders of NetScout Systems, Inc.:
The Annual Meeting of Stockholders of NetScout Systems, Inc., a Delaware
corporation, will be held on Friday, September 28, 2001 at 10:00 a.m., Eastern
Standard time, at Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High
Street, Boston, Massachusetts, for the following purposes:
1. To elect two (2) Class II directors to serve for a three-year term or until
their respective successors are elected and qualified.
2. To amend the Corporation's 1999 Stock Option and Incentive Plan to increase
the number of shares issuable under such plan to 9,500,000 shares, as
described in NetScout's Proxy Statement dated as of August 30, 2001, and
ratify the 1999 Stock Option and Incentive Plan, as amended, for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended.
3. To transact such other business as may properly come before the meeting or
any adjournments thereof.
Only stockholders of record at the close of business on August 6, 2001 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to vote in
one of the following three ways whether or not you plan to attend the meeting:
(1) by completing, signing and dating the accompanying proxy card and returning
it in the postage-prepaid envelope enclosed for that purpose, (2) by completing
your proxy using the toll-free number listed on the proxy card, or (3) by
completing your proxy on the Internet at the address listed on the proxy card.
If you attend the meeting, you may vote in person even if you have previously
returned your proxy card or voted by telephone or on the Internet.
By Order of the Board of Directors,
ANIL K. SINGHAL
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Westford, Massachusetts
August 30, 2001
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE: (1) COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE,
(2) COMPLETE YOUR PROXY USING THE TOLL-FREE TELEPHONE NUMBER LISTED IN THE
ENCLOSED PROXY CARD, OR (3) COMPLETE YOUR PROXY ON THE INTERNET AT THE ADDRESS
LISTED ON THE PROXY CARD IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO
POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<Page>
NETSCOUT SYSTEMS, INC.
4 TECHNOLOGY PARK DRIVE
WESTFORD, MA 01886
------------------------
PROXY STATEMENT
------------------------
AUGUST 30, 2001
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of NetScout Systems, Inc., a Delaware corporation (the
"Corporation"), for use at the Annual Meeting of Stockholders to be held on
Friday, September 28, 2001, at 10:00 a.m., Eastern Standard time, at Testa,
Hurwitz & Thibeault, High Street Tower, 125 High Street, Boston, Massachusetts,
or at any adjournments thereof (the "Meeting"). An Annual Report to
Stockholders, containing financial statements for the fiscal year ended
March 31, 2001 is being mailed together with this proxy statement to all
stockholders entitled to vote at the Meeting. This proxy statement and the form
of proxy were first mailed to stockholders on or about August 30, 2001.
The purpose of the Meeting is to elect two Class II directors to the
Corporation's Board of Directors and to amend the Corporation's 1999 Stock
Option and Incentive Plan (the "1999 Stock Option Plan") and ratify the 1999
Stock Option Plan, as amended. A copy of the 1999 Stock Option Plan is attached
to this Proxy Statement as Annex A. Only stockholders of record at the close of
business on August 6, 2001 (the "Record Date") will be entitled to receive
notice of and to vote at the Meeting. As of that date, 29,563,874 shares of
Common Stock of the Corporation were issued and outstanding. The holders of
Common Stock are entitled to one vote per share on any proposal presented at the
Meeting. Stockholders may vote in one of the following three ways whether or not
you plan to attend the Meeting: (1) by completing, signing and dating the
accompanying proxy card and returning it in the postage-prepaid envelope
enclosed for that purpose, (2) by completing your proxy using the toll-free
telephone number listed on the proxy card, or (3) by completing your proxy on
the Internet at the address listed on the proxy card. If you attend the Meeting,
you may vote in person even if you have previously returned your proxy card or
voted by phone or on the Internet. Any proxy given pursuant to this solicitation
may be revoked by the person giving it at any time before it is voted. Proxies
may be revoked by (i) filing with the Secretary of the Corporation, before the
taking of the vote at the Meeting, a written notice of revocation bearing a
later date than the proxy, (ii) duly completing a later-dated proxy relating to
the same shares and delivering it to the Secretary of the Corporation before the
taking of the vote at the Meeting or (iii) attending the Meeting and voting in
person (although attendance at the Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to NetScout Systems, Inc., Attention:
Secretary, at or before the taking of the vote at the Meeting. PLEASE NOTE THAT
ANY WRITTEN NOTICE OF REVOCATION OR SUBSEQUENT PROXY SENT BEFORE SEPTEMBER 14,
2001 SHOULD BE SENT TO NETSCOUT SYSTEMS, INC., 4 TECHNOLOGY PARK DRIVE,
WESTFORD, MA 01886 AND THAT ON OR AFTER SEPTEMBER 14, 2001, ANY WRITTEN NOTICE
OF REVOCATION OR SUBSEQUENT PROXY SHOULD BE SENT TO THE CORPORATION'S NEW
ADDRESS: NETSCOUT SYSTEMS, INC., 310 LITTLETON ROAD, WESTFORD, MA 01886.
The representation in person or by proxy of at least a majority of the
outstanding Common Stock entitled to vote at the Meeting is necessary to
constitute a quorum for the transaction of business. Votes withheld from any
nominee, abstentions and broker "non-votes" are counted as present or
represented for purposes of determining the presence or absence of a quorum for
the Meeting. A "non-vote" occurs when a nominee holding shares for a beneficial
owner votes on one proposal, but does not vote on another proposal because, in
respect of such other proposal, the nominee does not have discretionary voting
power and has not received instructions from the beneficial owner.
In the election of directors, the nominees receiving the highest number of
affirmative votes of the shares present or represented and entitled to vote at
the Meeting shall be elected as directors. On all other matters being submitted
to stockholders, an affirmative vote of a majority of the shares present or
represented and voting on each such matter is required for approval. An
automated system
<Page>
administered by the Corporation's transfer agent tabulates the votes. The vote
on each matter submitted to stockholders is tabulated separately. Abstentions
are included in the number of shares present or represented and voting on each
matter and, therefore, with respect to votes on specific proposals, will have
the effect of negative votes. Broker "non-votes" are not so included.
The persons named as attorneys-in-fact in the proxies, Anil K. Singhal,
Narendra Popat and David P. Sommers, were selected by the Board of Directors and
are officers of the Corporation. All properly executed proxies returned in time
to be counted at the Meeting will be voted. Where a choice has been specified on
the proxy with respect to the foregoing matters, the shares represented by the
proxy will be voted in accordance with the specifications. If no such
specifications are indicated, such proxies will be voted FOR the nominees to the
Board of Directors, and FOR amending the 1999 Stock Option Plan and ratifying
the 1999 Stock Option Plan, as amended.
The Board of Directors knows of no other matters to be presented at the
Meeting. If any other matter should be presented at the Meeting upon which a
vote properly may be taken, shares represented by all proxies received by the
Board of Directors will be voted with respect thereto in accordance with the
judgment of the persons named as attorneys in the proxies.
2
<Page>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Corporation's common stock as of the Record Date by (i) each
beneficial owner of more than 5% of the Corporation's common stock, (ii) each
present or former executive officer named in the Summary Compensation Table,
(iii) each director, and (iv) all executive officers and directors as a group.
Unless otherwise noted, the address of each person listed on the table is
c/o NetScout Systems, Inc., 4 Technology Park Drive, Westford, MA 01886, and
each person has sole voting and investment power over the shares shown as
beneficially owned, except to the extent authority is shared by spouses under
applicable law or as unless otherwise noted below.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Shares of common stock issuable by the
Corporation to a person or entity named below pursuant to options which may be
exercised within 60 days after the Record Date are deemed to be beneficially
owned and outstanding for purposes of calculating the number of shares and the
percentage beneficially owned by that person or entity. However, these shares
are not deemed to be beneficially owned and outstanding for purposes of
computing the percentage beneficially owned by any other person or entity.
<Table>
<Caption>
NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------ ------------------ ------------------
Anil K. Singhal(1).......................................... 2,949,682 10.0%
Narendra Popat(2)........................................... 1,517,317 5.1
David P. Sommers(3)......................................... 81,750 *
Michael Szabados(4)......................................... 184,212 *
John Downing (5)............................................ 32,188 *
Ashwani Singhal(6).......................................... 693,109 2.3
John R. Egan................................................ -- --
c/o Egan-Managed Capital, L.P.
30 Federal Street
Boston, MA 02110-2508
Joseph G. Hadzima, Jr.(7)................................... 270,428 *
c/o Main Street Partners LLC
238 Main Street, Suite 400
Cambridge, MA 02142
Kenneth T. Schiciano(8)..................................... 26,263 *
c/o TA Associates, Inc.
125 High Street
Boston, MA 02110
Vincent J. Mullarkey........................................ -- --
2 Wingate Lane
Acton, MA 01720
TA Entities(9).............................................. 6,499,170 22.0
c/o TA Associates, Inc.
125 High Street
Boston, MA 02110
Brown Capital Management.................................... 1,481,300 5.0
1201 N. Calvert Street
Baltimore, MD 21201
Abha Singhal(10)............................................ 1,590,000 5.4
Jyoti Popat(11)............................................. 2,226,056 7.5
All executive officers and directors as a group (12
persons)(12).............................................. 5,267,908 17.5
</Table>
- --------------------------
* Less than 1% of the outstanding common stock.
3
<Page>
(1) Includes 13,964 shares issuable upon the exercise of options exercisable
within 60 days of the Record Date. Includes an aggregate of 15,350 shares
held in trust for the benefit of Mr. Singhal's children; Mr. Singhal is one
of two trustees of each such trust. Includes 340,000 shares held by a family
limited partnership of which Mr. Singhal and Abha Singhal, Mr. Singhal's
spouse, are the general partners and trusts for the benefit of their
children are the limited partners. Does not include 339,023 shares held in a
grantor retained annuity trust for the benefit of Mr. Singhal. Does not
include 1,250,000 shares held directly by Mrs. Singhal and 1,000,000 shares
held in a grantor retained annuity trust for the benefit of Mrs. Singhal.
(2) Includes 13,964 shares issuable upon the exercise of options exercisable
within 60 days of the Record Date. Includes 340,000 shares held by a family
limited partnership of which Mr. Popat and Jyoti Popat, Mr. Popat's spouse,
are the general partners and trusts for the benefit of their children are
the limited partners. Does not include 136,056 shares held in trust for the
benefit of Mr. Popat's children; Mrs. Popat and Mr. Hadzima are the two
trustees of such trust. Does not include 330,842 shares held in a grantor
retained annuity trust for the benefit of Mr. Popat; Mr. Hadzima is the sole
trustee of such trust. Does not include 1,750,000 shares held directly by
Mrs. Popat and 500,000 shares held in a grantor retained annuity trust for
the benefit of Mrs. Popat.
(3) Includes 81,250 shares issuable upon the exercise of options exercisable
within 60 days of the Record Date.
(4) Includes 170,812 shares issuable upon the exercise of options exercisable
within 60 days of the Record Date. Includes 1,400 shares owned by
Mr. Szabados' daughters.
(5) Consists of shares issuable upon the exercise of options exercisable within
60 days of the Record Date.
(6) Includes 20,509 shares issuable upon the exercise of options exercisable
within 60 days of the Record Date. Does not include 40,300 shares directly
held by Mr. Singhal's spouse.
(7) Includes 55,000 shares issuable upon the exercise of options exercisable
within 60 days of the Record Date. Includes 136,056 shares held in trust for
the benefit of Mr. Popat's children; Mrs. Popat and Mr. Hadzima are the two
trustees of such trust. Does not include 330,842 shares held in a grantor
retained annuity trust for the benefit of Mr. Popat; Mr. Hadzima is the sole
trustee of such trust. Mr. Hadzima disclaims beneficial ownership of all
shares held in trust for the benefit of either Mr. Popat's children or
Mr. Popat. The shares deemed to be beneficially owned by Mr. Hadzima do not
include 53,328 shares held in trust for the benefit of Mr. Hadzima's
children.
(8) Includes 10,000 shares issuable upon the exercise of options exercisable
within 60 days of the Record Date. Includes 16,263 shares of TA Investors
LLC beneficially owned by Mr. Schiciano. Mr. Schiciano is a Managing
Director of TA Associates, Inc. Mr. Schiciano disclaims beneficial ownership
of the shares held by the TA Entities, except to the extent of his pecuniary
interest therein.
(9) Includes 5,298,950 shares held by TA/Advent VIII L.P.; 993,561 shares held
by Advent Atlantic and Pacific III L.P.; 100,680 shares held by TA
Executives Fund LLC; and 105,979 shares held by TA Investors LLC. TA/ Advent
VIII L.P., Advent Atlantic and Pacific III L.P., TA Executives Fund LLC and
TA Investors LLC are part of an affiliated group of investment partnerships
referred to, collectively, as the "TA Entities." The general partner of
TA/Advent VIII L.P. is TA Associates VIII LLC. The general partner of Advent
Atlantic and Pacific III L.P. is TA Associates AAP III Partners L.P. TA
Associates, Inc. is the general partner of TA Associates AAP III Partners
L.P. and is the sole manager of TA Associates VIII LLC, TA Executives Fund
LLC and TA Investors LLC. In such capacity, TA Associates, Inc., through an
executive committee, exercises sole voting and investment power with respect
to all shares held of record by the named investment partnerships;
individually, no stockholder, director or officer of TA Associates, Inc. is
deemed to have or share such voting or investment power.
(10) Includes 340,000 shares held by a family limited partnership of which
Mr. and Mrs. Singhal are the general partners and trusts for the benefit of
their children are the limited partners. Does not include 1,000,000 shares
held in a grantor retained annuity trust for the benefit of Mrs. Singhal.
Does not include 2,580,368 shares held directly by Mr. Singhal and 13,964
shares issuable upon the exercise of options exercisable by Mr. Singhal
within 60 days of the Record Date. Does not include an aggregate of 15,350
shares held in trust for the benefit of Mrs. Singhal's children;
Mr. Singhal is one of two trustees of each such trust.
(11) Includes 340,000 shares held by a family limited partnership of which
Mr. and Mrs. Popat are the general partners and trusts for the benefit of
their children are the limited partners. Includes 136,056 shares held in
trust for the benefit of Mrs. Popat's children; Mrs. Popat and Mr. Hadzima
are the two trustees of such trust. Does not include 500,000 shares held in
a grantor retained annuity trust for the benefit of Mrs. Popat. Does not
include 1,163,353 shares held directly by Mr. Popat and 13,964 shares
issuable upon the exercise of options exercisable by Mr. Popat within
60 days of the Record Date.
(12) Includes an aggregate of 471,970 shares issuable upon exercise of options
exercisable within 60 days of the Record Date. Does not include shares held
by Ashwani Singhal.
4
<Page>
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
The size of the Board of Directors is currently fixed at six members. The
Corporation's by-laws and its certificate of incorporation divide the Board of
Directors into three classes. The members of each class of directors serve for
staggered three-year terms. Messrs. Singhal and Egan are the Class II directors
whose terms expire at this Annual Meeting of Stockholders and are nominees for
re-election as directors of the Corporation. The Board of Directors is also
composed of (i) two Class I directors (Messrs. Schiciano and Mullarkey), whose
terms expire upon the election and qualification of directors at the Annual
Meeting of Stockholders to be held in 2003, and (ii) two Class III directors
(Messrs. Popat and Hadzima), whose terms expire upon the election and
qualification of directors at the Annual Meeting of Stockholders to be held in
2002.
The Board of Directors has nominated and recommended that Messrs. Singhal
and Egan who are currently members of the Board of Directors be re-elected as
Class II directors, to hold office until the Annual Meeting of Stockholders to
be held in the year 2004 or until their successors have been duly elected and
qualified or until their earlier resignation or removal. The Board of Directors
knows of no reason why the nominees would be unable or unwilling to serve, but
if either should for any reason be unable or unwilling to serve, the proxies
will be voted for the election of such other person for the office of director
as the Board of Directors may recommend in the place of such nominee. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the nominees named below.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE NOMINEES LISTED BELOW.
The following table sets forth the nominees to be elected at the Meeting
and, for each director whose term of office will extend beyond the Meeting, the
year such nominee or director was first elected a director, the positions
currently held by the nominee and each director with the Corporation, the year
each nominee's or director's term will expire and class of director of each
nominee and each director:
<Table>
<Caption>
NOMINEE'S OR DIRECTOR'S
NAME AND YEAR YEAR TERM CLASS OF
FIRST BECAME A DIRECTOR POSITION(S) WITH THE CORPORATION WILL EXPIRE DIRECTOR
- ----------------------- -------------------------------------------------- ----------- --------
NOMINEES:
Anil K. Singhal President, Chief Executive Officer and Director
1984 2004 II
John R. Egan Director
2000 2004 II
CONTINUING DIRECTORS
Vincent J. Mullarkey Director
2000 2003 I
Kenneth T. Schiciano Director
1999 2003 I
Narendra Popat Chairman of the Board and Secretary
1984 2002 III
Joseph G. Hadzima, Jr. Director
1998 2002 III
</Table>
5
<Page>
OCCUPATIONS OF DIRECTORS AND OFFICERS
The following table sets forth the director nominees to be elected at the
Meeting, the directors and the officers of the Corporation, their ages, and the
positions currently held by each such person with the Corporation.
<Table>
<Caption>
NAME AGE POSITION
- ---- -------- ------------------------------------------
Anil K. Singhal........................... 47 President, Chief Executive Officer,
Treasurer and Director
Narendra Popat............................ 52 Chairman of the Board and Secretary
David P. Sommers.......................... 54 Senior Vice President, General Operations
and Chief Financial Officer
John Downing.............................. 43 Vice President, Sales Operations
Lisa Fiorentino........................... 35 Vice President, Finance and Administration
Michelle Flaherty......................... 50 Vice President, Human Resources
Daniel Gingras............................ 50 Chief Information Officer
Bruce Kelley, Jr.......................... 38 Chief Technology Officer
Ashwani Singhal........................... 40 Vice President, Engineering and Product
Development
Tracy Steele.............................. 41 Vice President, Manufacturing and Business
Operations
Bruce Sweet............................... 40 Vice President, Engineering Services and
Customer Satisfaction
Michael Szabados.......................... 49 Senior Vice President, Product Operations
John R. Egan.............................. 43 Director
Joseph G. Hadzima, Jr..................... 49 Director
Vincent J. Mullarkey...................... 53 Director
Kenneth T. Schiciano...................... 38 Director
</Table>
- ------------------------
ANIL K. SINGHAL co-founded NetScout in June 1984 and has served as
NetScout's President, Chief Executive Officer, Treasurer and Director since
January 2001. Prior to this, Mr. Singhal had served as Chairman of the Board,
Chief Executive Officer and Treasurer from July 1993 to December 2000. From
NetScout's inception until July 1993, Mr. Singhal was President of NetScout.
Mr. Singhal has served as a director of NetScout since its inception. Prior to
founding NetScout, he was a Senior Architect and Project Manager at Wang
Laboratories, a provider of computer systems, from 1979 until June 1984.
Mr. Singhal is the brother of Ashwani Singhal, NetScout's Vice President,
Engineering and Product Development.
NARENDRA POPAT co-founded NetScout in June 1984 and has served as NetScout's
Chairman of the Board and Secretary since January 2001. Prior to that,
Mr. Popat had served as President, Chief Operating Officer and Secretary from
July 1993 to December 2000. From NetScout's inception until July 1993,
Mr. Popat was Chairman of the Board and Treasurer of NetScout. Mr. Popat has
served as a director of NetScout since its inception. Prior to founding
NetScout, Mr. Popat was a Senior Software Engineer at Wang Laboratories from
1980 until June 1984.
6
<Page>
DAVID P. SOMMERS has served as NetScout's Senior Vice President, General
Operations and Chief Financial Officer since January 2001. Prior to this,
Mr. Sommers served as NetScout's Vice President and Chief Financial Officer from
April 2000 to December 2000. From November 1998 until January 2000, Mr. Sommers
was Senior Vice President and Chief Financial Officer of FlexiInternational
Software, Inc., a publicly-held developer and marketer of financial accounting
software. During 1998, Mr. Sommers was a consultant on mergers and acquisitions
to the Senior Vice President and Chief Financial Officer of Lotus Development
Corporation, an IBM subsidiary, which develops group collaboration software.
From January 1996 through August 1997, he was Chief Financial Officer of
SystemSoft Corporation, a publicly-held developer and marketer of system level
firmware. He also served as Vice President and Chief Financial Officer of
Advanced Media, Inc., a publicly-held developer and marketer of interactive
multimedia systems, from September 1993 through December 1996.
JOHN DOWNING has served as NetScout's Vice President, Sales Operations since
September 2000, when he joined the Corporation. Prior to joining NetScout, he
was Vice President of Sales at Genrad Corporation, a manufacturer of electronic
testing equipment and production solutions, from April 1998 until
September 2000 and was Vice President of North American Sales from January 1996
until March 1998.
LISA FIORENTINO has served as NetScout's Vice President, Finance and
Administration since January 2001. Ms. Fiorentino joined NetScout in
August 1995 and served as Vice President, Finance from January 2000 until
December 2000, as Director of Finance from May 1997 until January, 2000 and as
Controller from August 1995 until April 1997. Prior to joining NetScout, she
served as Finance Manager and held various other financial management positions
for Orbotech, Inc., a manufacturer of automated optical inspection equipment for
the printed circuit board industry, from January 1989 until August 1995.
MICHELLE FLAHERTY has served as NetScout's Vice President, Human Resources
since September 2000, when she joined the Corporation. Prior to joining
NetScout, she was Vice President of Business Development for Lee Hecht
Harrison, Inc. from November 1997 to September 2000. Prior to that, she operated
her own business, M & M Solutions, an Executive Search and Recruitment firm from
January 1990 to January 2000. Also, she served as President of the Metrowest
Chamber of Commerce from June 1979 to December 1990.
DANIEL GINGRAS joined the Corporation in April 2001 as NetScout's Chief
Information Officer. Prior to joining NetScout, he was Chief Executive Officer
of iDolls.com, a venture backed internet retailer from July 1999 to April 2001.
Prior to that, he served as Vice President and Chief Information Officer at
Polymedica, a national medical products and services company, from March 1998 to
March 1999. Prior to that, he served as Vice President and Chief Information
Officer at Watts Industries, a manufacturer of water quality, safety and
conservation products, from July 1996 to March 1998.
BRUCE KELLEY, JR. co-founded NextPoint Networks, Inc. in November 1996 and
served as a Director and as Vice President and Chief Technology Officer. Since
the acquisition of NextPoint by NetScout in July 2000, Mr. Kelley had served as
Vice President, Engineering, Service Level Management of NetScout from
July 2000 to December 2000. In January 2001, Mr. Kelley assumed the position of
NetScout's Chief Technology Officer. Prior to founding NextPoint, he held
various engineering positions at Digital Equipment Corporation from 1982 to
1996, including Consultant Software Engineer and Network Management Technical
Director within Digital's Network Management Engineering Group.
7
<Page>
ASHWANI SINGHAL has served as Vice President, Engineering and Product
Development since January 2001. Mr. Singhal joined NetScout in 1987 and served
as a Senior Software Engineer and Project Manager from 1987 until
February 1997, as Director of Engineering from February 1997 until October 1998
and as Vice President, Engineering from October 1998 through December 2000.
Prior to joining NetScout, he was a Senior Software Engineer at Symmetrix, an
artificial intelligence systems company, from 1982 until 1987. Mr. Singhal is
the brother of Anil Singhal, NetScout's President, Chief Executive Officer,
Treasurer and Director.
TRACY STEELE has served as Vice President, Manufacturing and Business
Operations since January 2001. Mr. Steele joined NetScout in November 1995 and
served as Director of Manufacturing from November 1995 until May 1997, and as
Vice President, Manufacturing from May 1997 to December 2000. Prior to joining
NetScout, he served as Director of Manufacturing for Scope Communications, a
developer of hand-held network tools from 1993 to November 1995. He also served
in various manufacturing and management positions at NBase-Xyplex, Inc., a
computer networking company, from 1985 to February 1993.
BRUCE SWEET co-founded NextPoint Networks, Inc. in December 1996 and served
as a Director and as Vice President of Engineering and Product Development.
Since the acquisition of NextPoint by NetScout in July 2000, Mr. Sweet had
served as Vice President, Engineering, Capacity Management, from July 2000 to
December 2000. In January 2001, Mr. Sweet assumed the position of Vice
President, Engineering Services and Customer Satisfaction. Prior to founding
NextPoint, he was the Director of Network Management within Digital Equipment
Corporation's Network Business Unit from 1995 to 1996. Mr. Sweet held various
engineering positions of increasing responsibility within Digital Equipment
Corporation beginning in 1983.
MICHAEL SZABADOS has served as NetScout's Senior Vice President, Product
Operations since January 2001. Mr. Szabados joined NetScout in August 1997 and
served as Vice President, Marketing from August 1997 to December 2000. Prior to
joining NetScout, he served as Chief Executive Officer of Jupiter
Technology, Inc., a developer of frame relay access drives, from March 1997 to
August 1997. He also served as Vice President, Product Management/Marketing at
UB Networks, a computer networking company, from July 1994 until March 1997 and
served as Director of Marketing at SynOptics Communications, a computer
networking company, from 1991 until July 1994.
JOHN R. EGAN has been a director of NetScout since October 2000. Mr. Egan is
a founding managing partner of Egan-Managed Capital, a Boston based venture
capital fund specializing in New England, information technology, early stage
investments, which began in the fall of 1996. Since 1992, he has been a member
of the Board of Directors at EMC Corporation, a provider of computer storage
systems and software. Mr. Egan is also a member of the Board of Trustees at
Children's Hospital Trust, and serves as director for four privately held
companies.
JOSEPH G. HADZIMA, JR. has been a director of NetScout since July 1998.
Mr. Hadzima has been a Managing Director of Main Street Partners LLC, a venture
capital investing and technology commercialization company, since April 1998.
Since June 1996, he has also served as Of Counsel at Sullivan & Worcester LLP, a
law firm where he was a partner from October 1987 to June 1996. Mr. Hadzima
served as Senior Vice President and General Counsel of Quantum Energy
Technologies Corporation, an energy and environmental products research and
development company, from June 1996 to December 1998. Mr. Hadzima is also a
Senior Lecturer at MIT Sloan School of Management.
VINCENT J. MULLARKEY has been a director of NetScout since November 2000.
Mr. Mullarkey was the Senior Vice President, Finance and Chief Financial Officer
of Digital Equipment Corporation from 1994 until his retirement in
September 1998. From 1971 until 1994, Mr. Mullarkey held various positions
within Digital Equipment Corporation including Vice President, Corporate
Controller.
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KENNETH T. SCHICIANO has been a director of NetScout since January 1999.
Mr. Schiciano has been a Managing Director of TA Associates, Inc., a venture
capital firm, since December 1999. Mr. Schiciano served as a Vice President of
TA Associates from August 1989 to December 1994, and as Principal from
January 1995 to December 1999. Prior to that, Mr. Schiciano was a member of the
technical staff of AT&T Bell Laboratories, a telecommunications company.
Mr. Schiciano serves as a Director of Galaxy Telecom L.P., Datek Online
Holdings, The Island ECN and several privately held companies.
Except as noted above, there are no family relationships among any of our
officers and directors. The following persons are subject to the reporting
requirements of Section 16 of the Securities Exchange Act of 1934: Anil K.
Singhal, Narendra Popat, David P. Sommers, John Downing, Lisa Fiorentino,
Michelle Flaherty, Bruce Kelley, Jr., Michael Szabados, John R. Egan, Joseph G.
Hadzima, Jr., Vincent J. Mullarkey and Kenneth T. Schiciano.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met nine times and took action by unanimous written
consent eight times during the fiscal year ended March 31, 2001. Each of the
directors attended at least 75% of the total number of meetings of the Board of
Directors and the committees on which they served during fiscal year 2001. The
Audit Committee of the Board of Directors, of which Messrs. Egan, Hadzima and
Mullarkey are currently the only members, is responsible for reviewing the
results and scope of audits and other services provided by the Corporation's
independent public accountants and reviewing the Corporation's system of
internal accounting and financial controls. The Audit Committee also reviews
such other matters with respect to the Corporation's accounting, auditing and
financial reporting practices and procedures as it may find appropriate or may
be brought to its attention. The Audit Committee met six times during the fiscal
year ended March 31, 2001. The Compensation Committee, of which Messrs. Egan and
Hadzima are currently the only members, is responsible for reviewing and
evaluating the salaries and incentive compensation of the Corporation's
management and employees and administering the Corporation's 1990 Stock Option
Plan, 1999 Stock Option Plan and 1999 Employee Stock Purchase Plan and the 1997
Stock Incentive Plan and 2000 Stock Incentive Plan, both of which were assumed
by the Corporation upon its acquisition of NextPoint Networks, Inc.
("NextPoint"). The Compensation Committee met two times and took action by
unanimous written consent two times during the fiscal year ended March 31, 2001.
The Stock Option Committee of the Board of Directors, of which Mr. Singhal, is
currently the only member, was established by the Board of Directors on
September 22, 2000. The Stock Option Committee is responsible for granting stock
options to employees and consultants of the Corporation who are not executive
officers or directors of the Corporation. The Stock Option Committee operates
under guidelines established by the Board of Directors and reports all options
granted at each regularly scheduled meeting of the Board of Directors. The Stock
Option Committee took action by written consent five times during the fiscal
year ended March 31, 2001. The Board of Directors does not currently have a
standing nominating committee.
REPORT OF AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
This report is submitted by the Audit Committee of the Board of Directors,
which reviews with the independent accountants and management the annual
financial statements and independent auditors' opinion, reviews the results of
the audit of the Corporation's financial statements by the independent auditors,
recommends the retention of the independent auditors to the Board of Directors
and periodically reviews the Corporation's accounting policies and internal
accounting and financial controls, during the fiscal year ended March 31, 2001.
The Audit Committee of the Board of Directors is currently comprised of
Messrs. Egan, Hadzima and Mullarkey, three non-employee directors of the
Corporation and, aside from being a director of the Corporation, each is
otherwise independent of the Corporation (as independence is defined in the
listing standards of the Nasdaq Stock Market). The Audit Committee operates
under a written charter adopted by the Board of Directors, a copy of which is
attached as Annex B to this Proxy Statement.
The Audit Committee oversees the Corporation's financial reporting process
on behalf of the Board of Directors. Management has the primary responsibility
for the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Audit
Committee reviewed the audited financial statements in the Corporation's Annual
Report on Form 10-K with management including a discussion of the quality, not
just the acceptability, of the implementation of accounting principles, the
reasonableness of significant judgments, and the clarity of disclosures in the
financial statements.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Corporation's
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implementation of accounting principles and such other matters as are required
to be discussed with the Audit Committee under generally accepted auditing
standards. In addition, the Audit Committee has discussed with the independent
auditors the auditors' independence from management and the Corporation
including the matters in the written disclosures required by the Independence
Standards Board and considered the compatibility of any nonaudit services with
the auditors' independence.
The Audit Committee discussed with the Corporation's management and
independent auditors the overall scope and plans for their respective audits.
The Audit Committee meets with the independent auditors, with and without
management present, to discuss the results of their examinations, their
evaluations of the Corporation's internal controls, and the overall quality of
the Corporation's financial reporting. The Audit Committee held six meetings
during fiscal year 2001.
The Audit Committee has reviewed the audited financial statements of the
Corporation at March 31, 2001 and for each of the two prior years ended
March 31, and has discussed them with both management and Pricewaterhouse
Coopers LLP, the Corporation's independent accountants. The Audit Committee has
also discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communications with Audit
Committees), as currently in effect. The Audit Committee has received the
written disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), as currently in effect, and has discussed with Pricewaterhouse
Coopers LLP that firm's independence. Based on its review of the financial
statements and these discussions, the Audit Committee concluded that it would be
reasonable to recommend, and on that basis did recommend, to the Board of
Directors that the audited financial statements be included in the Corporation's
Annual Report on Form 10-K for the fiscal year ended March 31, 2001.
RESPECTFULLY SUBMITTED BY THE AUDIT COMMITTEE
Vincent J. Mullarkey, Chairman
John R. Egan
Joseph G. Hadzima, Jr.
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COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION SUMMARY
The following summary compensation table sets forth the total compensation
paid or accrued for the fiscal years ended March 31, 2001, 2000 and 1999 to
(i) the Chief Executive Officer of the Corporation during the fiscal year ended
March 31, 2001; (ii) each of the four other most highly compensated executive
officers of the Corporation during the fiscal year ended March 31, 2001; and
(iii) Ashwani Singhal who would have been one of the four most highly
compensated executive officers of the Corporation for the fiscal year ended
March 31, 2001 but for the fact that he was no longer serving as an executive
officer as of the end of such fiscal year. The Chief Executive Officer and the
four other most highly compensated executive officers of the Corporation listed
below and Ashwani Singhal are collectively referred to below as the "Named
Officers." The dollar amounts listed in the column entitled "All Other
Compensation" are comprised of contributions to a defined contribution plan with
the exception of the amount set forth opposite David P. Sommers' name, of which
$169,083 was reimbursement for moving expenses and payment of taxes due on the
reimbursement amount and of which $2,583 were contributions to a defined
contribution plan.
<Table>
<Caption>
LONG-TERM
COMPENSATION
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTION (#) COMPENSATION ($)
- --------------------------------------- -------- ---------- --------- ------------ ----------------
Anil K. Singhal........................ 2001 250,000 240,000 -- 2,404
President, Chief Executive 2000 250,000 325,000 37,236 1,442
Officer, Director and Treasurer 1999 250,000 325,000 -- 2,144
Narendra Popat......................... 2001 250,000 240,000 -- 2,404
Chairman of the Board and 2000 250,000 325,000 37,236 1,442
Secretary 1999 250,000 325,000 -- 2,144
David P. Sommers....................... 2001 200,000 75,000 250,000 171,621
Senior Vice President, General 2000 -- -- -- --
Operations and Chief Financial 1999 -- -- -- --
Officer
Michael Szabados....................... 2001 200,000 75,000 75,000 1,154
Senior Vice President, 2000 160,000 92,500 32,188 2,570
Product Operations 1999 137,500 82,500 -- 2,452
John Downing........................... 2001 157,450 -- 125,000 --
Vice President, Sales Operations 2000 -- -- -- --
1999 -- -- -- --
Ashwani Singhal........................ 2001 199,000 66,375 25,000 2,879
Vice President, Engineering 2000 175,000 60,000 32,188 1,211
and Product Development 1999 160,000 50,000 -- 1,620
</Table>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding option grants made
during the fiscal year ended March 31, 2001 pursuant to the Corporation's 1999
Stock Option Plan to each of the Named Officers. The 5% and 10% appreciation
rates are set forth in the Securities and Exchange Commission rules and no
representation is made that the common stock will appreciate at these assumed
rates or at all. Actual gains, if any, on stock option exercises and common
stock holdings are dependent on the timing of such exercises and the future
performance of the Corporation's common stock. There can be
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no assurance that the rates of appreciation assumed in this table can be
achieved or that the amounts reflected below will be received by the
individuals.
STOCK OPTION GRANTS 2001
INDIVIDUAL GRANTS
<Table>
<Caption>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL EXERCISE APPRECIATION FOR OPTION
UNDERLYING OPTION GRANTED OF BASE TERM
OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (# OF SHARES) 2001 ($/SH) DATE 5% 10%
- ----------------------------- --------------- --------------- -------- ---------- ---------- ----------
Anil Singhal................. -- -- -- -- -- --
Narendra Popat............... -- -- -- -- -- --
David P. Sommers............. 250,000 9.7% $13.44 4/25/10 $2,113,086 $5,354,975
Michael Szabados............. 75,000 2.9% $13.44 4/25/10 $ 633,926 $1,606,492
John Downing................. 100,000 4.0% $23.13 9/25/10 $1,454,633 $3,686,326
25,000 1.0% $16.75 12/1/10 $ 263,350 $ 667,380
Ashwani Singhal.............. 25,000 1.0% $13.44 4/25/10 $ 211,309 $ 535,497
</Table>
YEAR-END OPTION TABLE
The following table sets forth information regarding exercisable and
unexercisable stock options held as of March 31, 2001 by each of the Named
Officers. The value realized upon exercise of stock options is calculated by
determining the difference between the exercise price per share and the fair
market value on the date of exercise. The value of unexercised in-the-money
options has been calculated by multiplying the number of shares underlying the
option by the difference between the exercise price per share payable upon
exercise of such options and the fair market value at March 31, 2001 of $5.13
per share.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES VALUE YEAR-END AT FISCAL YEAR-END ($)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ----------- -------- ----------- ------------- ----------- -------------
Anil K. Singhal.................. -- -- 9,309 27,927 -- --
Narendra Popat................... -- -- 9,309 27,927 -- --
David P. Sommers................. -- -- 46,875 203,125 -- --
Michael Szabados................. 52,000 $693,297 136,710 115,078 $300,825 $78,750
John Downing..................... -- -- 1,563 123,437 -- --
Ashwani Singhal.................. -- -- 12,735 44,453 -- --
</Table>
STOCK PLANS
1990 STOCK OPTION PLAN. The 1990 Stock Option Plan was adopted by the Board
of Directors and approved by the stockholders on October 4, 1990. In general,
options granted pursuant to the 1990 Stock Option Plan are exercisable within
ten years of the original grant date and become exercisable over a period of
four years from a specific date; and 25% of all unexercisable options shall
become exercisable immediately prior to the closing of a merger, acquisition,
business combination or similar transaction which results in the Corporation's
existing stockholders owning less than 50% of the Corporation's equity
securities or assets. Options are not assignable or transferable except by will
or the
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laws of descent or distribution. The Corporation has a right of repurchase for
shares issued upon the exercise of options under certain circumstances,
including unauthorized transfers of the shares and termination of the optionees
relationship with the Corporation in certain situations. As of the Record Date
options to purchase an aggregate of 843,387 shares of Common Stock at a weighted
average exercise price of $3.17 per share were outstanding under the 1990 Stock
Option Plan. No additional option grants will be made under the 1990 Stock
Option Plan.
1999 STOCK OPTION AND INCENTIVE PLAN. Please see Proposal II.
1999 EMPLOYEE STOCK PURCHASE PLAN. The 1999 Employee Stock Purchase Plan
("1999 Purchase Plan") was adopted by the Board of Directors in April 1999 and
was approved by the Corporation's stockholders in June 1999. The plan was
amended by the Board of Directors on January 17, 2001 and July 18, 2001. The
1999 Purchase Plan provides for the issuance of a maximum of 500,000 shares of
Common Stock.
The 1999 Purchase Plan is administered by the Compensation Committee. All
employees of the Corporation whose customary employment is for more than
20 hours per week and for more than five months in any calendar year are
eligible to participate in the 1999 Purchase Plan. Employees who would own 5% or
more of the total combined voting power or value of the Corporation's stock
immediately after the grant of the option may not participate in the 1999
Purchase Plan. To participate in the 1999 Purchase Plan, an employee must
authorize the Corporation to deduct an amount not less than one percent nor more
than 10 percent of a participant's total cash compensation from his or her pay
during six-month payment periods. The first period commenced on October 1, 1999
and ended on March 31, 2000. The second and third payment periods consisted of
six-month periods commencing on April 1, 2000 and October 1, 2000 and ending on
September 30, 2000 and March 31, 2001, respectively. The fourth payment period
commenced on April 1, 2001 and will end on October 31, 2001. For the remainder
of the duration of the plan, payment periods will consists of six-month periods
commencing on May 1 and November 1 and ending on October 31 and April 30 of each
calendar year, respectively. Currently, an employee may purchase a maximum of
500 shares in any one payment period. Commencing on November 1, 2001, an
employee may purchase a maximum of 1,000 shares in any one payment period. The
exercise price for the option granted in each payment period is 85% of the
lesser of the last reported sale price of the Common Stock on the first or last
business day of the payment period, in either event rounded up to the nearest
cent. If an employee is not a participant on the last day of the payment period,
such employee is not entitled to exercise his or her option, and the amount of
his or her accumulated payroll deductions will be refunded. Options granted
under the 1999 Purchase Plan may not be transferred or assigned. An employee's
rights under the 1999 Purchase Plan terminate upon his or her voluntary
withdrawal from the plan at any time or upon termination of employment. As of
the Record Date an aggregate of 75,948 shares of Common Stock were issued under
the 1999 Purchase Plan.
1997 STOCK INCENTIVE PLAN AND 2000 STOCK INCENTIVE PLAN. Upon the
consummation of the Corporation's acquisition of NextPoint, the Corporation
assumed NextPoint's 1997 Stock Incentive Plan and 2000 Stock Incentive Plan (the
"NextPoint Plans") and all outstanding options which had been issued pursuant to
each plan. Options to purchase shares of NextPoint common stock were converted
into options to purchase shares of the Corporation's Common Stock. In general,
options granted pursuant to the NextPoint Plans are not transferable or
assignable except by will or the laws of descent and distribution. The 1997
Stock Incentive Plan provided that all outstanding options become immediately
exercisable upon the consummation of the NextPoint acquisition. However, certain
NextPoint option holders executed an agreement providing that only (i) fifty
percent (50%) of such option holder's options would become exercisable
immediately following the acquisition and (ii) the remainder of the
unexercisable options would become exercisable in equal quarterly amounts over
the two years following the acquisition. Under the 2000 Stock Incentive Plan,
options generally become
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exercisable over a four year period from a specific date. As of the Record Date,
options to purchase an aggregate of 99,813 shares of the Corporation's Common
Stock at a weighted average exercise price of $3.05 were outstanding under the
1997 Stock Incentive Plan and options to purchase an aggregate of 20,015 shares
of the Corporation's common stock at a weighted average exercise price of $10.43
were outstanding under the 2000 Stock Incentive Plan. No additional option
grants will be made under the NextPoint Plans.
401(K) PLAN
The Corporation maintains a 401(k) plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended, (the "Code"). All of the
Corporation's employees who are at least 21 years of age are eligible to
participate in the 401(k) plan. Under the 401(k) plan, a participant may
contribute a maximum of 15% of his or her pre-tax salary, commissions and
bonuses through payroll deductions, up to the statutorily prescribed annual
limit which was $10,500 in calendar year 2000, to the 401(k) plan. The
percentage elected by more highly compensated participants may be required to be
lower. At the discretion of the Board of Directors, the Corporation may make
matching contributions to the 401(k) plan. During the plan year ending
December 31, 2000, the Corporation matched $.25 for each $1.00 of employee
contributions up to 6% of compensation. Commencing on January 1, 2001, the
Corporation will match up to $.50 for each $1.00 of employee contributions up to
6% of compensation. In addition, at the discretion of the Board of Directors,
the Corporation may make profit-sharing contributions to the 401(k) plan for all
eligible employees. During the plan year ending December 31, 2000, the
Corporation made no profit-sharing contributions to the 401(k) plan.
EMPLOYMENT AGREEMENTS
Anil Singhal and Narendra Popat entered into employment agreements with the
Corporation on June 1, 1994, which were amended on January 14, 1999. Under the
terms of these employment agreements, each of Messrs. Singhal and Popat receive
a base salary of at least $250,000 and a year-end, non-discretionary bonus of at
least $250,000. For the fiscal year ended March 31, 2001, the year-end bonus for
each of Messrs. Singhal and Popat (with their consent) was $240,000. In the
event that either Mr. Singhal or Mr. Popat is terminated without cause, or
either decides to terminate his own employment for "good reason" each is
entitled to receive severance benefits for three years as follows:
- for the first twelve months following termination, the greater of $175,000
or base salary as of the date of termination; and
- for each of the subsequent twelve month periods, an amount equal to 120%
of the amount received in the immediately preceding twelve months.
"GOOD REASON" INCLUDES A CHANGE IN EXECUTIVE RESPONSIBILITIES OR A REDUCTION IN
SALARY OR BENEFITS. SEVERANCE BENEFITS WILL BE DISCONTINUED IF THE EXECUTIVE
SECURES ALTERNATIVE EMPLOYMENT THAT IS COMPARABLE AS TO POSITION AND PAY. DURING
ANY PERIOD IN WHICH MR. SINGHAL OR MR. POPAT IS ENTITLED TO RECEIVE SEVERANCE
BENEFITS, HE SHALL ALSO CONTINUE TO RECEIVE ALL OTHER BENEFITS UNDER THE
EMPLOYMENT AGREEMENTS INCLUDING LIFE INSURANCE, MEDICAL INSURANCE, AND
REIMBURSEMENT FOR COMPANY CAR EXPENSES. EACH OF MESSRS. SINGHAL AND POPAT ARE
ALSO ENTITLED TO REIMBURSEMENT OF JOB PLACEMENT EXPENSES OF UP TO $25,000 PLUS
RELATED TRAVEL EXPENSES. IF EITHER MR. SINGHAL OR MR. POPAT IS TERMINATED WITH
CAUSE, HE WILL NOT BE ENTITLED TO ANY SEVERANCE PAYMENTS OR OTHER BENEFITS
EXCEPT AS REQUIRED BY LAW. EACH EMPLOYMENT AGREEMENT PROVIDES FOR A FIVE-YEAR
TERM COMMENCING JUNE 1, 1994 WITH AUTOMATIC ONE-YEAR RENEWALS.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
On March 15, 2001, NetScout Systems India Pvt. Ltd. and Frontier Software
Development (India) Pvt. Ltd. entered into a Leave and License Agreement
pursuant to which NetScout Systems India
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Pvt. Ltd. leases office space owned by Frontier Software Development (India)
Pvt. Ltd. The term of the agreement is from March 15, 2001 through March 15,
2006 and NetScout Systems India Pvt. Ltd. will continue to make monthly payments
of approximately $1,350 per month to Frontier Software Development (India)
Pvt. Ltd. during the term. Anil Singhal, the Corporation's President and Chief
Executive Officer and a member of the Corporation's Board of Directors, and
Narendra Popat, the Corporation's Chairman of the Board, each own 33 1/3% of
Frontier Software Development (India) Pvt. Ltd. NetScout Systems India
Pvt. Ltd. was organized under the laws of India to serve as a wholly owned
subsidiary of the Corporation; and in accordance with the laws of India, its
shares were issued to two individuals who are residents of India. Upon approval
of the government of India, the shares of NetScout Systems India Pvt. Ltd. will
be transferred to the Corporation.
The Corporation believes that the transaction described above was made on
terms no less favorable to it than would have been obtained from unaffiliated
third parties. All future transactions, if any, with our executive officers,
directors and affiliates will be on terms no less favorable to the Corporation
than could be obtained from unrelated third parties and will be approved by a
majority of the Board of Directors and by a majority of the disinterested
members of the Board of Directors.
REPORT OF COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ABOUT EXECUTIVE
COMPENSATION
This report is submitted by the Compensation Committee of the Board of
Directors, which administered the Corporation's executive compensation program
during the fiscal year ended March 31, 2001. The Compensation Committee of the
Board of Directors is currently comprised of Messrs. Egan and Hadzima. Pursuant
to authority delegated by the Board of Directors, the Compensation Committee's
duties are to review and evaluate the salaries and incentive compensation of the
Corporation's management and employees and administer the Corporation's 1990
Stock Option Plan, 1999 Stock Option Plan, 1999 Purchase Plan and the NextPoint
Plans.
OVERVIEW AND PHILOSOPHY. The Corporation uses its compensation program to
achieve the following objectives:
- To provide compensation that attracts, motivates and retains the best
talent and highest caliber people to serve the Corporation's customers and
achieve its strategic objectives.
- To align management's interest with the success of the Corporation.
- To align management's interest with stockholders by including long-term
equity incentives.
- To increase profitability of the Corporation and, accordingly, increase
stockholder value.
Compensation under the executive compensation program is comprised of cash
compensation in the form of base salary and, in the case of certain executive
officers, annual incentive bonuses and long-term incentive awards in the form of
stock option grants. In addition, the compensation program is comprised of
various benefits, including medical and insurance plans, the Corporation's
401(k) Plan, the 1990 Stock Option Plan, the 1999 Stock Option Plan and the 1999
Purchase Plan, which plans are generally available to all employees of the
Corporation.
BASE SALARY. Compensation levels for each of the Corporation's executive
officers, including the Chief Executive Officer, are generally set within the
range of salaries that the Compensation Committee believes are paid to executive
officers with comparable qualifications, experience and responsibilities at
similar companies. In setting compensation levels, the Compensation Committee
takes into account such factors as (i) the Corporation's past financial
performance and future expectations, (ii) individual performance and experience
and (iii) past salary levels. The Compensation Committee does not assign
relative weights or rankings to these factors, but instead makes a determination
based upon the consideration of all of these factors as well as the progress
made with
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respect to the Corporation's long-term goals and strategies. Generally, salary
decisions for the Corporation's executive officers are made near the beginning
of each fiscal year.
Fiscal year 2001 base salaries were determined by the Compensation Committee
after considering the base salary level of the executive officers in prior years
and taking into account for each executive officer the amount of base salary as
a component of total compensation. Base salary, while reviewed annually, is only
adjusted as deemed necessary by the Compensation Committee in determining total
compensation to each executive officer. Base salary levels for each of the
Corporation's executive officers, other than the Chief Executive Officer and
Chairman of the Board, were also based upon evaluations and recommendations made
by the Chief Executive Officer. Pursuant to their respective employment
agreements with the Corporation, Anil Singhal, the Corporation's Chief Executive
Officer, and Narendra Popat, the Corporation's Chairman of the Board, each
receive an annual base salary of at least $250,000.
INCENTIVE COMPENSATION. The Compensation Committee determined the amount of
incentive compensation paid to each of the executive officers in fiscal year
2001 based upon a consideration of a number of factors which it deemed relevant
to the executive officer's performance. These factors in fiscal year 2001
included the Corporation's sales growth in fiscal year 2001, the increase in the
Corporation's profitability during fiscal year 2001 and the executive officer's
individual performance.
STOCK OPTIONS. The Compensation Committee periodically reviews the
Corporation's guidelines for stock option grants in comparison to option grant
practices of other companies in the same industry. The Compensation Committee
believes that long-term incentive compensation in the form of stock options,
helps to align the interests of management and stockholders and enables
executives to develop a long-term stock ownership in the Corporation. In
addition to an executive's past performance, the Corporation's desire to retain
an individual is of paramount importance in the determination of stock option
grants.
When establishing stock option grant levels for executive officers, the
Compensation Committee considered the existing levels of stock ownership,
previous grants of stock options, vesting schedules of previously granted
options and the current stock price. Options granted in fiscal year 2001 were
granted at an exercise price per share equal to or greater than the fair market
value of the Common Stock, as determined by the Compensation Committee. The
Compensation Committee reviews option grants to executive officers on an annual
basis and considers the level of outstanding options as a factor in its
determinations with respect to overall compensation for each of the executive
officers. For additional information regarding the grant of options, see the
table under the section heading "Option Grants in Last Fiscal Year."
OTHER BENEFITS. The Corporation also has various broad-based employee
benefit plans. Executive officers participate in these plans on the same terms
as eligible, non-executive employees, subject to any legal limits on the amounts
that may be contributed or paid to executive officers under these plans. The
Corporation offers a stock purchase plan, under which employees may purchase
Common Stock at a discount, and a 401(k) plan, which allows employees to invest
in a wide array of funds on a pre-tax basis. The Corporation also maintains
insurance and other benefit plans for its employees.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. In fiscal year 2001, the
Corporation's Chief Executive Officer, Anil K. Singhal, received salary
compensation of $250,000 and a bonus of $240,000.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. In general, under
Section 162(m) of the Code, the Corporation cannot deduct, for federal income
tax purposes, compensation in excess of $1,000,000 paid to certain executive
officers. This deduction limitation does not apply, however, to compensation
that constitutes "qualified performance-based compensation" within the meaning
of Section 162(m) of the Code and the regulations promulgated thereunder. The
Compensation Committee has considered the limitations on deductions imposed by
Section 162(m) of the Code and it is the Compensation
17
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Committee's present intention, for so long as it is consistent with its overall
compensation objective, to structure executive compensation to minimize
application of the deduction limitations of Section 162(m) of the Code.
RESPECTFULLY SUBMITTED BY THE COMPENSATION COMMITTEE
Joseph G. Hadzima, Jr., Chairman
John R. Egan
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Egan and
Hadzima. Other than Mr. Popat, who served on the Compensation Committee until
January 17, 2001, no member of this committee was at any time during the past
year an officer or employee of the Corporation, was formerly an officer of the
Corporation or any of its subsidiaries, or had any relationship with the
Corporation. During the last year, none of the Corporation's executive officers
served as:
- a member of the compensation committee (or other committee of the Board of
Directors performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors of another entity) one of whose
executive officers served on the Compensation Committee of the
Corporation;
- a director of another entity, one of whose executive officers served on
the Compensation Committee of the Corporation; or
- a member of the compensation committee (or other committee of the Board of
Directors performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors of another entity) one of whose
executive officers served as a director of the Corporation.
COMPENSATION OF DIRECTORS
Non-employee directors are compensated $12,500 annually for their services
and also receive compensation of $1,500 for each regular Board of Directors
meeting attended and $2,000 annually for serving on a committee of the Board of
Directors. They are also reimbursed for their reasonable out-of-pocket expenses
incurred in attending meetings of the Board of Directors or of any committee
thereof. In addition, in fiscal year 2001, non-employee directors were granted
options to purchase 30,000 shares of common stock of the Corporation, vesting in
three equal installments over three years. No director who is an employee of the
Corporation will receive separate compensation for services rendered as a
director.
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STOCK PERFORMANCE GRAPH
The Stock Performance Graph set forth below compares the yearly change in
the cumulative total stockholder return on the Corporation's Common Stock during
the period from the Corporation's initial public offering on August 12, 1999
through March 31, 2001, with the cumulative total return of the Nasdaq Stock
Market National Market Index ("Nasdaq National Market Index") and the S&P
Communications Equipment Index. The comparison assumes $100 was invested on
August 12, 1999 in the Corporation's Common Stock, the Nasdaq National Market
Index and the S&P Communications Equipment Index and assumes reinvestment of
dividends, if any.
COMPARISON OF 19 MONTH CUMULATIVE TOTAL RETURN*
AMONG NETSCOUT SYSTEMS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE S&P COMMUNICATIONS EQUIPMENT INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<Table>
<Caption>
NETSCOUT NASDAQ STOCK S & P COMMUNICATIONS
SYSTEMS, INC. MARKET (U.S.) EQUIPMENT
8/12/99 100 100 100
Mar-00 152.27 173.16 157.86
Mar-01 46.59 69.32 39.99
</Table>
* $100 INVESTED ON 8/12/99 IN STOCK OR ON 7/31/99
IN INDEX--INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING MARCH 31.
(1) Prior to August 12, 1999 the Corporation's Common Stock was not publicly
traded. Comparative data is provided only for the period since that date.
The stock price performance shown on the graph above is not necessarily
indicative of future price performance. Information used in the graph was
obtained from Research Data Group, Inc., a source believed to be reliable, but
the Corporation is not responsible for any errors or omissions in such
information.
19
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PROPOSAL II
PROPOSAL TO AMEND THE 1999 STOCK OPTION AND INCENTIVE PLAN AND RATIFY THE 1999
STOCK OPTION AND INCENTIVE PLAN, AS AMENDED
INCREASE IN NUMBER OF SHARES ISSUABLE UNDER THE 1999 STOCK OPTION AND INCENTIVE
PLAN
The 1999 Stock Option and Incentive Plan (the "1999 Stock Option Plan") was
originally adopted by the Corporation's Board of Directors on April 14, 1999 and
was approved by the Corporation's stockholders in June 1999. The 1999 Stock
Option Plan provides for the grant of stock-based awards, including options that
are intended to qualify as incentive stock options within the meaning of
Section 422 of the Code, options not intended to qualify as incentive stock
options and restricted stock ("Awards") to the Corporation's employees, officers
and directors, consultants or advisors. Incentive stock options may be granted
only to employees of the Corporation. A maximum of 4,500,000 shares of common
stock are currently reserved for issuance under the 1999 Stock Option Plan upon
the exercise of options or in connection with Awards. If any Award expires, or
is terminated, surrendered or forfeited, in whole or in part, the unissued
Common Stock covered by such Award shall again be available for the grant of
Awards under the Plan. If shares of common stock issued pursuant to the 1999
Stock Option Plan are repurchased by, or are surrendered or forfeited to, the
Corporation at no more than cost, such shares of common stock shall again be
available for the grant of Awards under the 1999 Stock Option Plan. However, the
cumulative number of such shares that may be so reissued under the 1999 Stock
Option Plan will not exceed 4,500,000 shares. The maximum number of shares with
respect to which Awards may be granted to any employee under the 1999 Stock
Option Plan will not exceed 1,000,000 shares of common stock during any fiscal
year. The Board of Directors has approved, and recommended to the stockholders
that they approve, an amendment of the 1999 Stock Option Plan to increase the
number of shares authorized for issuance pursuant to the 1999 Stock Option Plan
to 9,500,000 shares, subject to adjustment as set forth in Section 3(a) of the
attached 1999 Stock Option Plan, and inclusive of Awards currently outstanding
or previously exercised. The Board of Directors has also determined that the
stockholders should ratify and approve the 1999 Stock Option Plan so that
certain Awards granted under the 1999 Stock Option Plan on or after the date of
the Meeting may qualify as performance-based compensation for purposes of
Section 162(m) of the Code.
The Corporation's management relies on stock options as essential parts of
the compensation packages necessary for the Corporation to attract and retain
experienced officers and employees. The Board of Directors of the Corporation
believes that the proposed increase in the number of shares available under the
1999 Stock Option Plan is essential to permit the Corporation to continue to
provide long-term, equity-based incentives to present and future key employees.
Since the 1999 Stock Option Plan's initial adoption and approval in April of
1999, the Corporation has granted options under the 1999 Stock Option Plan as
follows: to the Named Officers, Mr. Anil Singhal, 37,236 shares; Mr. Popat,
37,236 shares; Mr. Sommers, 300,000 shares; Mr. Szabados, 118,438 shares;
Mr. Downing, 165,000 shares; and Mr. Ashwani Singhal, 67,188 shares; all current
executive officers as a group, 870,410 shares; all current non-employee
directors as a group, 120,000 shares which includes Mr. Egan's, 30,000 shares;
and all other employees who are not executive officers, as a group, 2,926,435
shares. Options granted to Mr. Anil Singhal and Mr. Popat were granted with
exercise prices at 110% of fair market value. All other options were granted
with fair market value exercise prices.
As of August 6, 2001, approximately 4,455,783 shares remained authorized for
issuance under the 1999 Stock Option Plan of which approximately 3,872,628 were
already reserved for outstanding options, such that only approximately 583,155
were available for new grants of options, Awards or purchases. If the increase
in the number of shares authorized for issuance under the 1999 Stock Option Plan
is not approved, the Corporation may be unable to continue to provide suitable
long-term equity based incentives to present and future employees. If the
proposed increase in the number of shares of Common Stock issuable under the
1999 Stock Option Plan is not approved by the stockholders, the
20
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Corporation will not grant options, Awards, or opportunities to purchase shares
under the 1999 Stock Option Plan in excess of that number of shares of Common
Stock remaining available under the existing 1999 Stock Option Plan. The
Corporation has not at the present time determined who will receive the
remaining shares of Common Stock that will be authorized for issuance under the
1999 Stock Option Plan if the proposed amendment of the 1999 Stock Option Plan
is approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" AMENDING THE 1999 STOCK OPTION AND INCENTIVE PLAN, AS DESCRIBED IN
NETSCOUT'S PROXY STATEMENT DATED AS OF AUGUST 30, 2001, AND RATIFYING THE 1999
STOCK OPTION AND INCENTIVE PLAN, AS AMENDED, FOR PURPOSES OF SECTION 162(M) OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
DESCRIPTION OF THE 1999 STOCK OPTION PLAN
The purpose of the 1999 Stock Option Plan is to provide Awards to employees,
officers, directors, consultants and advisors of the Corporation and its
subsidiaries (each a "Participant"), all of whom are eligible to receive Awards
under the 1999 Stock Option Plan. A copy of the 1999 Stock Option Plan, amended
as proposed above, is attached to this proxy statement as Annex A. The following
is a summary of the 1999 Stock Option Plan and should be read together with the
1999 Stock Option Plan.
ADMINISTRATION. The 1999 Stock Option Plan is administered by the
Compensation Committee. The Compensation Committee has the power to interpret
and correct the 1999 Stock Option Plan and to adopt, amend and repeal such rules
for the administration of the 1999 Stock Option Plan as it may deem desirable.
In addition, the Stock Option Committee is responsible for granting stock
options to employees and consultants of the Corporation who are not executive
officers or directors of the Corporation. The Stock Option Committee operates
under guidelines established by the Board of Directors and reports all options
granted at each regularly scheduled meeting of the Board of Directors.
PER-PARTICIPANT LIMIT. No Participant may be granted Awards during any one
fiscal year to purchase more than 1,000,000 shares of Common Stock.
EXERCISE PRICE. The Compensation Committee establishes the exercise price
(or determines the method by which the exercise price shall be determined) at
the time each option is granted.
EXERCISE OF OPTIONS. Each option granted under the 1999 Stock Option Plan
shall either be fully exercisable at the time of grant or shall become
exercisable in such installments as the Compensation Committee may specify. Once
an installment becomes exercisable it shall remain exercisable until expiration
or termination of the option, unless otherwise specified by the Compensation
Committee. Each option or installment may be exercised at any time or from time
to time, in whole or in part, for up to the total number of shares with respect
to which it is then exercisable. During the Participant's lifetime, Awards may
be exercised only by the Participant.
PAYMENT FOR EXERCISE OF OPTIONS. Payment for the exercise of options under
the 1999 Stock Option Plan may be made by one or any combination of the
following forms of payment (a) by check payable to the order of the Corporation,
(b) except as otherwise explicitly provided in the applicable option agreement,
and only if the Common Stock is then publicly traded, delivery of an irrevocable
and unconditional undertaking by a creditworthy broker to deliver promptly to
the Corporation sufficient funds to pay the exercise price, or delivery by the
Participant to the Corporation of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Corporation
cash or a check sufficient to pay the exercise price, or (c) to the extent
explicitly provided in the applicable option agreement, by (x) delivery of
shares of Common Stock owned by the Participant valued at fair market value (as
determined by the Compensation Committee or as determined pursuant to the
applicable option agreement), (y) delivery of a promissory note of the
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Participant to the Corporation (and delivery to the Corporation by the
Participant of a check in an amount equal to the par value of the shares
purchased), or (z) payment of such other lawful consideration as the
Compensation Committee may determine.
TRANSFERABILITY. Options may be transferred by will or by the laws of
descent and distribution or pursuant to and in accordance with the Participant's
stock option agreement.
RESTRICTED STOCK. The Compensation Committee may grant Awards entitling
recipients to acquire shares of Common Stock, subject to (i) delivery to the
Corporation by the Participant of a check in an amount at least equal to the par
value of the shares purchased, and (ii) the right of the Corporation to
repurchase all or part of such shares at their issue price or other stated or
formula price from the Participant in the event that conditions specified by the
Compensation Committee in the applicable Award are not satisfied prior to the
end of the applicable restriction period or periods established by the
Compensation Committee for such Award (each, a "Restricted Stock Award"). To
date, no Restricted Stock Awards have been granted pursuant to the 1999 Stock
Option Plan.
OTHER STOCK-BASED AWARDS. The Compensation Committee shall have the right
to grant other Awards based upon the Common Stock having such terms and
conditions as the Compensation Committee may determine, including, without
limitation, the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights, phantom stock awards or stock units. To date, no such other Awards have
been granted pursuant to the 1999 Stock Option Plan.
ACQUISITION OF THE CORPORATION. The 1999 Stock Option Plan provides,
subject to certain conditions, that upon an acquisition of the Corporation, 25%
of each unvested portion of any Awards will accelerate and become exercisable,
with the remaining 75% of each unvested portion to continue vesting throughout
the term of the Award.
EFFECT OF TERMINATION, DISABILITY OR DEATH. The Compensation Committee
determines the effect on an Award of the disability, death, retirement,
authorized leave of absence or other change in the employment or other status of
a Participant and the extent to which, and the period during which, the
Participant, or the Participant's legal representative, conservator, guardian or
designated beneficiary, may exercise rights under the Award.
TERMINATION OF PLAN; AMENDMENTS. The Compensation Committee may amend,
suspend or terminate the 1999 Stock Option Plan or any portion thereof at any
time. Any shares subject to an option which for any reason expires or terminates
unexercised may again be available for option grants under the 1999 Stock Option
Plan. Unless terminated sooner, the 1999 Stock Option Plan will terminate on
April 14, 2009.
22
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THE ISSUANCE AND EXERCISE OF OPTIONS GRANTED UNDER THE 1999 STOCK OPTION PLAN IS
BASED UPON THE PROVISIONS OF THE CODE AS IN EFFECT ON THE DATE OF THIS PROXY
STATEMENT, CURRENT REGULATIONS, AND EXISTING ADMINISTRATIVE RULINGS OF THE
INTERNAL REVENUE SERVICE. THIS DISCUSSION IS NOT INTENDED TO BE A COMPLETE
DISCUSSION OF ALL OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE
1999 STOCK OPTION PLAN OR OF THE REQUIREMENTS THAT MUST BE MET IN ORDER TO
QUALIFY FOR THE DESCRIBED TAX TREATMENT.
A. INCENTIVE STOCK OPTIONS ("ISOs"). The following general rules are applicable
under current United States federal income tax law to ISOs granted under the
1999 Stock Option Plan:
1. In general, an optionee will not recognize any income upon the grant of
an ISO or upon the issuance of shares to him or her upon the exercise of
an ISO, and the Corporation will not be entitled to a federal income tax
deduction upon either the grant or the exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed of within
(i) two years from the date the ISO was granted or (ii) one year from the
date the shares are issued to the optionee pursuant to the exercise of
the ISO (the "Holding Periods"), the difference between the amount
realized on any subsequent disposition of the shares and the exercise
price generally will be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of and the
optionee does not satisfy the Holding Periods (a "Disqualifying
Disposition"), then in most cases the lesser of (i) any excess of the
fair market value of the shares at the time of exercise of the ISO over
the exercise price or (ii) the actual gain on disposition, will be
treated as compensation to the optionee and will be taxed as ordinary
income in the year of such disposition.
4. The difference between the amount realized by an optionee as the result
of a Disqualifying Disposition and the sum of (i) the exercise price and
(ii) the amount of ordinary income recognized under the above rules
generally will be treated as capital gain or loss to the optionee.
5. In any year that an optionee recognizes ordinary income on a
Disqualifying Disposition of shares acquired upon exercise of an ISO, the
Corporation generally will be entitled to a corresponding federal income
tax deduction.
6. An optionee may be entitled to exercise an ISO by delivering shares of
the Corporation's Common Stock to the Corporation in payment of the
exercise price, if the optionee's ISO agreement so provides. If an
optionee exercises an ISO in such fashion, special rules will apply.
7. In addition to the tax consequences described above, the exercise of an
ISO may result in an "alternative minimum tax." In general, the amount by
which the fair market value of the shares received upon exercise of the
ISO exceeds the exercise price is included in the optionee's alternative
minimum taxable income. A taxpayer is required to pay the greater of his
regular tax liability or the alternative minimum tax. A taxpayer who pays
alternative minimum tax attributable to the exercise of an ISO may be
entitled to a tax credit against his or her regular tax liability in
later years.
8. Capital gain or loss recognized by an optionee on a disposition of
shares will be long-term capital gain or loss if the optionee's holding
period for the shares exceeds one year.
9. Special rules apply if the shares acquired upon the exercise of an ISO
are subject to vesting, or are subject to certain reporting requirements
and restrictions on resale under federal securities laws applicable to
directors, certain officers or 10% stockholders.
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B. NON-QUALIFIED OPTIONS. The following general rules are applicable under
current United States federal income tax law to Non-Qualified Options
granted under the 1999 Stock Option Plan:
1. In general, an optionee will not recognize any taxable income upon the
grant of a Non-Qualified Option, and the Corporation will not be entitled
to a federal income tax deduction upon such grant.
2. An optionee generally will recognize ordinary income at the time of
exercise of the Non-Qualified Option in an amount equal to the excess, if
any, of the fair market value of the shares on the date of exercise over
the exercise price. The Corporation may be required to withhold tax on
this amount.
3. When an optionee sells the shares acquired upon the exercise of a
Non-Qualified Option, he or she generally will recognize capital gain or
loss in an amount equal to the difference between the amount realized
upon the sale of the shares and his or her basis in the shares
(generally, the exercise price plus the amount taxed to the optionee as
ordinary income). If the optionee's holding period for the shares exceeds
one year, such gain or loss will be a long-term capital gain or loss.
4. When an optionee recognizes ordinary income attributable to a
Non-Qualified Option, the Corporation generally should be entitled to a
corresponding federal income tax deduction.
5. An optionee may be entitled to exercise a Non-Qualified Option by
delivering shares of the Corporation's Common Stock to the Corporation in
payment of the exercise price, if the optionee's option agreement so
provides. If an optionee exercises a Non-Qualified Option in such
fashion, special rules will apply.
6. Special rules apply if the shares acquired upon the exercise of a
Non-Qualified Option are subject to vesting, or are subject to certain
reporting requirements and restrictions on resale under federal
securities laws applicable to directors, certain officers or 10%
stockholders.
C. STOCK AWARDS AND PURCHASES. The following general rules are applicable under
current United States federal income tax law to awards of stock of the
Corporation and opportunities to purchase shares directly from the
Corporation under the 1999 Stock Option Plan:
Persons receiving Common Stock under the under the 1999 Stock Option Plan
pursuant to an award or opportunity to purchase generally will recognize
ordinary income equal to the fair market value of the shares received in the
case of an award over the purchase price, if any, or the excess of the fair
market value of the shares (determined on the date of purchase) over the
purchase price, in the case of an opportunity to purchase. The Corporation
generally should be entitled to a corresponding federal income tax deduction.
When such shares are sold, the seller generally will recognize capital gain or
loss equal to the difference between the amount realized upon the sale of shares
and his or her tax basis in the shares (generally, the fair market value of the
shares when acquired). Special rules apply if the shares acquired pursuant to an
award or an opportunity to purchase are subject to vesting, or are subject to
certain restrictions on resale under federal securities laws applicable to
directors, officers or 10% stockholders.
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SECTION 16 REPORTING
Section 16(a) of the Exchange Act requires the Corporation's directors,
executive officers and holders of more than 10% of the Corporation's Common
Stock (collectively, "Reporting Persons") to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock of the
Corporation. Such persons are required by regulations of the Commission to
furnish the Corporation with copies of all such filings. Based on its review of
the copies of such filings received by it with respect to the fiscal year ended
March 31, 2001 and written representations from certain Reporting Persons, the
Corporation believes that all Section 16(a) filing requirements were complied
with during the fiscal year ended March 31, 2001, except for the following:
Vincent J. Mullarkey and John R. Egan each failed to file an Annual Statement of
Changes in Beneficial Ownership of Securities on Form 5 and subsequently filed a
late Form 5. Bruce Kelley, Jr. failed to file a Statement of Changes in
Beneficial Ownership of Securities on Form 4 during March 2001 for seventy-two
transactions and subsequently filed a late Form 4. Michael Szabados failed to
file a Statement of Changes in Beneficial Ownership of Securites on Form 4
during December 2000 for three transactions and subsequently filed a late
Form 4.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement to
be furnished to all Stockholders entitled to vote at the 2002 Annual Meeting of
Stockholders of the Corporation or otherwise intended to be brought up at such
Annual Meeting must be received at the Corporation's principal executive offices
between April 2, 2002 and May 2, 2002. In order to curtail controversy as to the
date on which a proposal was received by the Corporation, it is suggested that
proponents submit their proposals by Certified Mail, Return Receipt Requested to
NetScout Systems, Inc., 310 Littleton Road, Westford, MA 01886, Attention:
Secretary.
INDEPENDENT AUDITORS
The Board of Directors has retained the firm of PricewaterhouseCoopers LLP
("PWC"), independent certified public accountants, to serve as auditors for the
fiscal year ending March 31, 2002. PWC has served as the Corporation's
accountants since 1993. It is expected that a member of PWC will be present at
the meeting with the opportunity to make a statement if so desired and will be
available to respond to appropriate questions.
FEES
The following table sets forth the fees billed by the Corporation's
independent auditors to the Corporation during the fiscal year ended March 31,
2001:
<Table>
<Caption>
FEE AMOUNT
--- --------
Audit Fee......................................................... $173,250
Financial Information Systems Design and Implementation Fees...... 0
All Other Fees
Audit Related Services................................ $482,122
All Other Non-Audit Services.......................... $ 990
Total Other Fees.............................................. $483,112
</Table>
The Corporation's Audit Committee did consider whether the provision of
audit-related services and all other non-audit services is compatible with the
principal accountant's independence.
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EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation and, in
addition to soliciting stockholders by mail through its regular employees, the
Corporation may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Corporation
registered in the names of a nominee and, if so, will reimburse such banks,
brokers and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket costs. Solicitation by officers and employees of the Corporation
may also be made of some stockholders in person or by mail, telephone or
telegraph following the original solicitation. The Corporation may retain a
proxy solicitation firm to assist in the solicitation of proxies. The
Corporation will bear all reasonable solicitation fees and expenses if such a
proxy solicitation firm is retained.
26
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ANNEX A
NETSCOUT SYSTEMS, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE AND ELIGIBILITY
The purpose of this 1999 Stock Option and Incentive Plan (the "Plan") of
NetScout Systems, Inc. (the "Company") is to provide stock options and other
equity interests in the Company (each an "Award") to employees, officers,
directors, consultants and advisors of the Company and its Subsidiaries, all of
whom are eligible to receive Awards under the Plan. Any person to whom an Award
has been granted under the Plan is called a "Participant". Additional
definitions are contained in Section 8.
2. ADMINISTRATION
a. ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board, in its
sole discretion, shall have the authority to grant and amend Awards, to
adopt, amend and repeal rules relating to the Plan and to interpret and
correct the provisions of the Plan and any Award. All decisions by the
Board shall be final and binding on all interested persons. Neither the
Company nor any member of the Board shall be liable for any action or
determination relating to the Plan.
b. APPOINTMENT OF COMMITTEES. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All
references in the Plan to the "Board" shall mean such Committee or the
Board.
c. DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by applicable
law, the Board may delegate to one or more executive officers of the
Company the power to grant Awards and exercise such other powers under
the Plan as the Board may determine, PROVIDED THAT the Board shall fix
the maximum number of Awards to be granted and the maximum number of
shares issuable to any one Participant pursuant to Awards granted by such
executive officers.
3. STOCK AVAILABLE FOR AWARDS
a. TYPE OF SECURITY; NUMBER OF SHARES. For purposes of this Plan, the term
"Common Stock" shall be deemed to refer to the Company's Non-Voting
Common Stock, par value $.001 per share, prior to the automatic
conversion of the Non-Voting Common Stock into the Company's Voting
Common Stock pursuant to the terms of the Company's certificate of
incorporation and, thereafter, shall be deemed to refer to the Company's
voting Common Stock, as constituted in the Company's certificate of
incorporation. Subject to adjustment under Section 3(c), the aggregate
number of shares of Common Stock of the Company (the "Common Stock") that
may be issued pursuant to the Plan is 9,500,000 shares. If any Award
expires, or is terminated, surrendered or forfeited, in whole or in part,
the unissued Common Stock covered by such Award shall again be available
for the grant of Awards under the Plan. If shares of Common Stock issued
pursuant to the Plan are repurchased by, or are surrendered or forfeited
to, the Company at no more than cost, such shares of Common Stock shall
again be available for the grant of Awards under the Plan; PROVIDED,
HOWEVER, that the cumulative number of such shares that may be so
reissued under the Plan will not exceed 9,500,000 shares. Shares issued
under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares.
b. PER-PARTICIPANT LIMIT. Subject to adjustment under Section 3(c), no
Participant may be granted Awards during any one fiscal year to purchase
more than 1,000,000 shares of Common Stock.
A-1
<Page>
c. ADJUSTMENT TO COMMON STOCK. In the event of any stock split, stock
dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, combination, exchange of shares, liquidation,
spin-off, split-up, or other similar change in capitalization or event,
(i) the number and class of securities available for Awards under the
Plan and the per-Participant share limit, (ii) the number and class of
securities, vesting schedule and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per security subject to
repurchase, and (iv) the terms of each other outstanding stock-based
Award shall be adjusted by the Company (or substituted Awards may be
made) to the extent the Board shall determine, in good faith, that such
an adjustment (or substitution) is appropriate. If
Section 7(e)(i) applies for any event, this Section 3(c) shall not be
applicable.
4. STOCK OPTIONS
a. GENERAL. The Board may grant options to purchase Common Stock (each, an
"Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the
conditions and limitations applicable to the exercise of each Option and
the Common Stock issued upon the exercise of each Option, including
vesting provisions, repurchase provisions and restrictions relating to
applicable federal or state securities laws, as it considers advisable.
b. INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an
"Incentive Stock Option") shall be granted only to employees of the
Company and shall be subject to and shall be construed consistently with
the requirements of Section 422 of the Code. The Board and the Company
shall have no liability if an Option or any part thereof that is intended
to be an Incentive Stock Option does not qualify as such. An Option or
any part thereof that does not qualify as an Incentive Stock Option is
referred to herein as a "Nonstatutory Stock Option".
c. EXERCISE PRICE. The Board shall establish the exercise price (or
determine the method by which the exercise price shall be determined) at
the time each Option is granted and specify it in the applicable option
agreement.
d. DURATION OF OPTIONS. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Board may specify in the
applicable option agreement.
e. EXERCISE OF OPTION. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person
together with payment in full as specified in Section 4(f) for the number
of shares for which the Option is exercised.
f. PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of an
Option shall be paid for by one or any combination of the following forms
of payment:
(i) by check payable to the order of the Company;
(ii) except as otherwise explicitly provided in the applicable option
agreement, and only if the Common Stock is then publicly traded,
delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient
funds to pay the exercise price, or delivery by the Participant to
the Company of a copy of irrevocable and unconditional instructions
to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price; or
(iii) to the extent explicitly provided in the applicable option
agreement, by (x) delivery of shares of Common Stock owned by the
Participant valued at fair market value (as determined by the Board
or as determined pursuant to the applicable option agreement),
(y) delivery of a promissory note of the Participant to the Company
(and delivery to the Company by the Participant of a check in an
amount equal to the par value of the shares
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purchased), or (z) payment of such other lawful consideration as
the Board may determine.
5. RESTRICTED STOCK
a. GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to (i) delivery to the Company by the
Participant of a check in an amount at least equal to the par value of
the shares purchased, and (ii) the right of the Company to repurchase all
or part of such shares at their issue price or other stated or formula
price from the Participant in the event that conditions specified by the
Board in the applicable Award are not satisfied prior to the end of the
applicable restriction period or periods established by the Board for
such Award (each, a "Restricted Stock Award").
b. TERMS AND CONDITIONS. The Board shall determine the terms and conditions
of any such Restricted Stock Award. Any stock certificates issued in
respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited
by the Participant, together with a stock power endorsed in blank, with
the Company (or its designee). After the expiration of the applicable
restriction periods, the Company (or such designee) shall deliver the
certificates no longer subject to such restrictions to the Participant
or, if the Participant has died, to the beneficiary designated by a
Participant, in a manner determined by the Board, to receive amounts due
or exercise rights of the Participant in the event of the Participant's
death (the "Designated Beneficiary"). In the absence of an effective
designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
6. OTHER STOCK-BASED AWARDS
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including,
without limitation, the grant of shares based upon certain conditions, the grant
of securities convertible into Common Stock and the grant of stock appreciation
rights, phantom stock awards or stock units.
7. GENERAL PROVISIONS APPLICABLE TO AWARDS
a. TRANSFERABILITY OF AWARDS. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred,
pledged or otherwise encumbered by the person to whom they are granted,
either voluntarily or by operation of law, except by will or the laws of
descent and distribution, and, during the life of the Participant, shall
be exercisable only by the Participant. References to a Participant, to
the extent relevant in the context, shall include references to
authorized transferees.
b. DOCUMENTATION. Each Award under the Plan shall be evidenced by a written
instrument in such form as the Board shall determine or as executed by an
officer of the Company pursuant to authority delegated by the Board. Each
Award may contain terms and conditions in addition to those set forth in
the Plan PROVIDED THAT such terms and conditions do not contravene the
provisions of the Plan.
c. BOARD DISCRETION. The terms of each type of Award need not be identical,
and the Board need not treat Participants uniformly.
d. TERMINATION OF STATUS. The Board shall determine the effect on an Award
of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the
extent to which, and the period during which, the Participant, or the
Participant's legal representative, conservator, guardian or Designated
Beneficiary, may exercise rights under the Award.
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e. ACQUISITION OF THE COMPANY
(i) CONSEQUENCES OF AN ACQUISITION.
(A) ACCELERATION OF VESTING. Upon the consummation of an Acquisition,
twenty-five percent (25%) of the portion of all Awards which are
unvested immediately prior to such Acquisition shall become
vested and immediately exercisable and the remaining seventy-five
percent (75%) of the unvested portion of all Awards shall become
vested in accordance with the pre-existing terms of such Awards,
it being the intent and purpose of this provision that upon the
consummation of an Acquisition 25% of each installment which is
unvested prior to the application of this provision shall become
vested and the remaining 75% of each such unvested installment
shall remain subject to the pre-existing vesting schedule. Unless
otherwise expressly provided in the applicable Option or Award,
upon the occurrence of an Acquisition, the Board or the board of
directors of the surviving or acquiring entity (as used in this
Section 7(e)(i)(A), also the "Board"), shall, as to outstanding
Awards (on the same basis or on different bases, as the Board
shall specify), make appropriate provision for the continuation
of such Awards by the Company or the assumption of such Awards by
the surviving or acquiring entity and by substituting on an
equitable basis for the shares then subject to such Awards either
(a) the consideration payable with respect to the outstanding
shares of Common Stock in connection with the Acquisition,
(b) shares of stock of the surviving or acquiring corporation or
(c) such other securities as the Board deems appropriate, the
fair market value of which (as determined by the Board in its
sole discretion) shall not materially differ from the fair market
value of the shares of Common Stock subject to such Awards
immediately preceding the Acquisition. In addition to or in lieu
of the foregoing, with respect to outstanding Options, the Board
may, upon written notice to the affected optionees, provide that
one or more Options must be exercised, to the extent then
exercisable or to be exercisable as a result of the Acquisition,
within a specified number of days of the date of such notice, at
the end of which period such Options shall terminate; or
terminate one or more Options in exchange for a cash payment
equal to the excess of the fair market value (as determined by
the Board in its sole discretion) of the shares subject to such
Options (to the extent then exercisable or to be exercisable as a
result of the Acquisition) over the exercise price thereof.
(B) ACQUISITION DEFINED. An "Acquisition" shall mean: (x) any merger
or consolidation after which the voting securities of the Company
outstanding immediately prior thereto represent (either by
remaining outstanding or by being converted into voting
securities of the surviving or acquiring entity) less than 50% of
the combined voting power of the voting securities of the Company
or such surviving or acquiring entity outstanding immediately
after such event; or (y) any sale of all or substantially all of
the assets or capital stock of the Company (other than in a
spin-off or similar transaction) or (z) any other acquisition of
the business of the Company, as determined by the Board.
(ii) ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. In connection with a
merger or consolidation of an entity with the Company or the
acquisition by the Company of property or stock of an entity, the
Board may grant Awards under the Plan in substitution for stock and
stock-based awards issued by such entity or an affiliate thereof.
The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
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(iii) POOLING-OF INTERESTS-ACCOUNTING. If the Company proposes to engage
in an Acquisition intended to be accounted for as a
pooling-of-interests, and in the event that the provisions of this
Plan or of any Award hereunder, or any actions of the Board taken
in connection with such Acquisition, are determined by the
Company's or the acquiring company's independent public accountants
to cause such Acquisition to fail to be accounted for as a
pooling-of-interests, then such provisions or actions shall be
amended or rescinded by the Board, without the consent of any
Participant, to be consistent with pooling-of-interests accounting
treatment for such Acquisition.
(iv) PARACHUTE AWARDS. Notwithstanding the provisions of
Section 7(e)(i)(A), if, in connection with an Acquisition described
therein, a tax under Section 4999 of the Code would be imposed on
the Participant (after taking into account the exceptions set forth
in Sections 280G(b)(4) and 280G(b)(5) of the Code), then the number
of Awards which shall become exercisable, realizable or vested as
provided in such section shall be reduced (or delayed), to the
minimum extent necessary, so that no such tax would be imposed on
the Participant (the Awards not becoming so accelerated, realizable
or vested, the "Parachute Awards"); PROVIDED, HOWEVER, that if the
"aggregate present value" of the Parachute Awards would exceed the
tax that, but for this sentence, would be imposed on the
Participant under Section 4999 of the Code in connection with the
Acquisition, then the Awards shall become immediately exercisable,
realizable and vested without regard to the provisions of this
sentence. For purposes of the preceding sentence, the "aggregate
present value" of an Award shall be calculated on an after-tax
basis (other than taxes imposed by Section 4999 of the Code) and
shall be based on economic principles rather than the principles
set forth under Section 280G of the Code and the regulations
promulgated thereunder. All determinations required to be made
under this Section 7(e)(iv) shall be made by the Company.
f. WITHHOLDING. Each Participant shall pay to the Company, or make
provisions satisfactory to the Company for payment of, any taxes required
by law to be withheld in connection with Awards to such Participant no
later than the date of the event creating the tax liability. The Board
may allow Participants to satisfy such tax obligations in whole or in
part by transferring shares of Common Stock, including shares retained
from the Award creating the tax obligation, valued at their fair market
value (as determined by the Board or as determined pursuant to the
applicable option agreement) to the extent permitted by law. The Company
may, to the extent permitted by law, deduct any such tax obligations from
any payment of any kind otherwise due to a Participant.
g. AMENDMENT OF AWARDS. The Board may amend, modify or terminate any
outstanding Award including, but not limited to, substituting therefor
another Award of the same or a different type, changing the date of
exercise or realization, and converting an Incentive Stock Option to a
Nonstatutory Stock Option, PROVIDED THAT, except as otherwise provided in
Section 7(e)(iii), the Participant's consent to such action shall be
required unless the Board determines that the action, taking into account
any related action, would not materially and adversely affect the
Participant.
h. CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until
(i) all conditions of the Award have been met or removed to the
satisfaction of the Company, (ii) in the opinion of the Company's
counsel, all other legal matters in connection with the issuance and
delivery of such shares have been satisfied, including any applicable
securities laws and any applicable stock exchange or stock market rules
and regulations, and (iii) the Participant has executed and delivered to
the Company
A-5
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such representations or agreements as the Company may consider
appropriate to satisfy the requirements of any applicable laws, rules or
regulations.
i. ACCELERATION. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of some or all restrictions, or that any other
stock-based Awards may become exercisable in full or in part or free of
some or all restrictions or conditions, or otherwise realizable in full
or in part, as the case may be, despite the fact that the foregoing
actions may (i) cause the application of Sections 280G and 4999 of the
Code if a change in control of the Company occurs, or (ii) disqualify all
or part of the Option as an Incentive Stock Option.
8. MISCELLANEOUS
a. DEFINITIONS.
(i) "Company," for purposes of eligibility under the Plan, shall include
any present or future subsidiary corporations of NetScout
Systems, Inc., as defined in Section 424(f) of the Code (a
"Subsidiary"), and any present or future parent corporation of
NetScout Systems, Inc., as defined in Section 424(e) of the Code.
For purposes of Awards other than Incentive Stock Options, the term
"Company" shall include any other business venture in which the
Company has a direct or indirect significant interest, as determined
by the Board in its sole discretion.
(ii) "Code" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
(iii) "employee" for purposes of eligibility under the Plan shall include
a person to whom an offer of employment has been extended by the
Company.
b. NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or
any other relationship with the Company. The Company expressly reserves
the right at any time to dismiss or otherwise terminate its relationship
with a Participant free from any liability or claim under the Plan.
c. NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as
a stockholder with respect to any shares of Common Stock to be
distributed with respect to an Award until becoming the record holder
thereof.
d. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on the
date on which it is adopted by the Board. No Awards shall be granted
under the Plan after the completion of ten years from the date on which
the Plan was adopted by the Board, but Awards previously granted may
extend beyond that date.
e. AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time.
f. GOVERNING LAW. The provisions of the Plan and all Awards made hereunder
shall be governed by and interpreted in accordance with the laws of
Delaware, without regard to any applicable conflicts of law.
A-6
<Page>
ANNEX B
NETSCOUT SYSTEMS, INC.
(THE "CORPORATION")
AUDIT COMMITTEE CHARTER
A. PURPOSE AND SCOPE
The primary function of the Audit Committee (the "Committee") is to assist
the Board of Directors (the "Board") in fulfilling its responsibilities by
reviewing: (i) the financial reports provided by the Corporation to the
Securities and Exchange Commission ("SEC"), the Corporation's shareholders or to
the general public, and (ii) the Corporation's internal financial and accounting
controls.
B. COMPOSITION
The Committee shall be comprised of a minimum of three directors as
appointed by the Board, who shall, on or prior to June 14, 2001, meet the
independence and audit committee composition requirements under any rules or
regulations of The Nasdaq National Market, as in effect from time to time, and
each such director shall be free from any relationship that, in the opinion of
the Board, would interfere with the exercise of his or her independent judgment
as a member of the Committee.
All members of the Committee shall either (i) be able to read and understand
fundamental financial statements, including a balance sheet, cash flow statement
and income statement, or (ii) be able to do so within a reasonable period of
time after appointment to the Committee. At least one member of the Committee
shall have employment experience in finance or accounting, requisite
professional certification in accounting, or other comparable experience or
background which results in the individual's financial sophistication, including
being or having been a chief executive officer, chief financial officer or other
senior officer with financial oversight responsibilities.
The Board may appoint one member who does not meet the independence
requirements set forth above and who is not a current employee of the
Corporation or an immediate family member of such employee if the Board, under
exceptional and limited circumstances, determines that membership on the
Committee by the individual is required in the best interests of the Corporation
and its shareholders. The Board shall disclose in the next proxy statement after
such determination the nature of the relationship and the reasons for the
determination.
The members of the Committee shall be elected by the Board at the Board
meeting following each annual meeting of stockholders and shall serve until
their successors shall be duly elected and qualified or until their earlier
resignation or removal. Unless a Chair is elected by the full Board, the members
of the Committee may designate a Chair by majority vote of the full Committee
membership.
C. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Committee shall:
DOCUMENT REVIEW
1. Review and assess the adequacy of this Charter periodically as conditions
dictate, but at least annually (and update this Charter if and when
appropriate).
2. Review with representatives of management and representatives of the
independent accounting firm the Corporation's audited annual financial
statements prior to their filing as part of the Annual Report on Form 10-K.
After such review and discussion, the Committee shall recommend to the Board
whether such audited financial statements should be published in the
Corporation's
B-1
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annual report on Form 10-K. The Committee shall also review the
Corporation's quarterly financial statements prior to their inclusion in the
Corporation's quarterly SEC filings on Form 10-Q.
3. Take steps designed to insure that the independent accounting firm reviews
the Corporation's interim financial statements prior to their inclusion in
the Corporation's quarterly reports on Form 10-Q.
INDEPENDENT ACCOUNTING FIRM
4. Recommend to the Board, the selection of the independent accounting firm,
and approve the fees and other compensation to be paid to the independent
accounting firm. The Committee and the Board shall have the ultimate
authority and responsibility to select, evaluate and, when warranted,
replace such independent accounting firm (or to recommend such replacement
for shareholder approval in any proxy statement).
5. On an annual basis, receive from the independent accounting firm a formal
written statement identifying all relationships between the independent
accounting firm and the Corporation consistent with Independence Standards
Board ("ISB") Standard 1, as it may be modified or supplemented. The
Committee shall actively engage in a dialogue with the independent
accounting firm as to any disclosed relationships or services that may
impact its independence. The Committee shall take, or recommend that the
Board take, appropriate action to oversee the independence of the
independent accounting firm.
6. On an annual basis, discuss with representatives of the independent
accounting firm the matters required to be discussed by Statement on
Auditing Standards ("SAS") 61, as it may be modified or supplemented.
7. Meet with the independent accounting firm prior to the audit to review the
planning and staffing of the audit.
8. Evaluate the performance of the independent accounting firm and recommend to
the Board any proposed discharge of the independent accounting firm when
circumstances warrant. The independent accounting firm shall be ultimately
accountable to the Board and the Committee.
FINANCIAL REPORTING PROCESSES
9. In consultation with the independent accounting firm and management, review
annually the adequacy of the Corporation's internal financial and accounting
controls.
COMPLIANCE
10. To the extent deemed necessary by the Committee, it shall have the authority
to engage outside counsel and/or independent accounting consultants to
review any matter under its responsibility.
REPORTING
11. Prepare, in accordance with the rules of the SEC as modified or supplemented
from time to time, a written report of the Committee to be included in the
Corporation's annual proxy statement for each annual meeting of stockholders
occurring after December 15, 2000.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Corporation's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles.
B-2
NETSCOUT SYSTEMS, INC.
Proxy for Annual Meeting of Stockholders
September 28, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Anil K. Singhal, Narendra
Popat and David P. Sommers, and each or all of them, proxies, with full
power of substitution, to vote all shares of common stock of NetScout
Systems, Inc. (the "Company") which the undersigned is entitled to vote
at the Annual Meeting of Stockholders of the Company to be held on
Friday, September 28, 2001, at 10:00 a.m. Eastern Standard time, at
Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street,
Boston, Massachusetts, and at any adjournments thereof, upon matters
set forth in the Notice of Annual Meeting of Stockholders and Proxy
Statement dated August 30, 2001, a copy of which has been received by
the undersigned.
--------------------
SEE REVERSE SIDE
--------------------
CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS AND FOR THE
PROPOSALS IN ITEM 2 AND ITEM 3.
[X] Please mark your votes as indicated in this example.
1. To elect two members to the Board of Directors to serve until the 2004
Annual Meeting of Stockholders or until their successors are duly elected
and qualified.
Nominees: (01) Anil K. Singhal; (02) John R. Egan
[ ] FOR the nominees [ ] WITHHOLD
listed above AUTHORITY
to vote for the nominees
listed above
(To withhold authority to vote for any individual nominee, write that nominee's
name in the space provided below.)
- ------------------------------------------------------
2. To amend the Company's 1999 Stock Option and Incentive Plan to increase the
number of shares issuable under such plan to 9,500,000 shares as described
in the Company's Proxy Statement dated as of August 30, 2001, and ratify
the 1999 Stock Option and Incentive Plan, as amended, for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To transact such other business as may properly come
before the meeting or any adjournments thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE, OR OTHERWISE PROVIDE YOUR PROXY BY TELEPHONE OR BY INTERNET.
MARK HERE [ ]
FOR ADDRESS
CHANGE AND
NOTE AT LEFT
Signature __________________________________ Date_____________
Signature __________________________________ Date_____________
(Please sign exactly as your name appears hereon. If signing as attorney,
executor, trustee or guardian, please give your full title as such. If stock is
held jointly, each owner should sign. Please read reverse side before signing.)
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 4PM EASTERN TIME
THE BUSINESS DAY PRIOR TO ANNUAL MEETING DAY.
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED,
SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET
http://www.proxyvoting.com/NTCT
- -------------------------------
Use the Internet to vote your proxy. Have your proxy card in hand when you
access the web site. You will be prompted to enter your control number, located
in the box below, to create and submit an electronic ballot.
OR
TELEPHONE
1-800-840-1208
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand
when you call. You will be prompted to enter your control number, located in the
box below, and then follow the directions given.
OR
MAIL
Mark, sign and date your proxy card and return it in the enclosed postage-paid
envelope.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.