AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22,AUGUST 6, 1999

REGISTRATION NO. 333-333-76843
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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NETSCOUT SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 7373 04-2837575
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)

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

NETSCOUT SYSTEMS, INC.
4 TECHNOLOGY PARK DRIVE
WESTFORD, MASSACHUSETTS 01886
(978) 614-4000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------

ANIL K. SINGHAL, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
NARENDRA POPAT, PRESIDENT AND CHIEF OPERATING OFFICER
NETSCOUT SYSTEMS, INC.
4 TECHNOLOGY PARK DRIVE
WESTFORD, MASSACHUSETTS 01886
(978) 614-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

COPIES TO:

JOHN A. MELTAUS, ESQ. PHILIP P. ROSSETTI, ESQ.
MIGUEL J. VEGA, ESQ. MICHAEL D. BAIN, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP HALE AND DORR LLP
125 High Street 60 State Street
Boston, Massachusetts 02110 Boston, Massachusetts 02109
(617) 248-7000 (617) 526-6000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
------------------------------

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

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

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

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

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

CALCULATION OF REGISTRATION FEE

PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE

Common Stock, $.001 par value $103,500,000 $28,773

(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares of common stock being registered and the proposed maximum offering
price per share are not included in this table. Estimated solely for the
purpose of calculating the registration fee in accordance with Rule 457(a)
under the Securities Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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DESCRIPTION OF INSIDE COVER OF THE PROSPECTUS FOR NETSCOUT SYSTEMS, INC.

Application Flow Management

Aligns computer network resources with the business

[The inside cover of the Prospectus (before unfolding) shows a stylized
representation of the interdependencies between the information technology
infrastructure (consisting of the 'devices' and the 'connectivity' layers) and a
company's business carried out by the business applications (represented by the
two upper layers: 'applications' and 'business processes'.]

DESCRIPTION OF GATEFOLD

NetScout [with NetScout logo]

Because the network is the business-TM-.

Proactive Network and Application Performance Management Solutions

Application Response Time Measurement provides detailed, current information
on application response time which can be used to optimize network configuration
and prioritize software applications.

Monitoring and Troubleshooting allows current monitoring and trend analysis
of network usage, performance and error conditions which helps network managers
prevent network malfunctions and expedite troubleshooting.

Capacity Planning measures trends in network usage by individual software
application to enable informed spending decisions.

Policy Enforcement allows network managers to identify inappropriate or
wasteful usage of the computer network to ensure adherence to corporate policies
and guidelines.

Accounting and Charge-Back provides network usage information by user,
department, or application, which can be used to charge for internal network
usage.

[The graphic in the center of the two-page inside spread consists of
multiple servers labeled "ERP", "eMail" and "Custom Applications", desktops
representing clients in another grouping, two remote routers accessing the
internet (represented by a cloud symbol) and a customer support extranet
(represented by another cloud symbol). The central interconnection of all these
segments of the network is represented by a symbolic network center. On each
part of the networks are NetScout Probes, designated as such, indicating likely
placement of probes in a real network. Additional elements of the graphic are
stylized computer screens for the following products: NetScout Manager Plus-TM-
console software, AppScout-TM- application flow monitor and NetScout WebCast-TM-
network and trend reports. NetScout's software products.]
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED April 22,AUGUST 6, 1999

4,000,000 Shares

[LOGO]

Common Stock

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

We are selling sharesall of common stock and the selling stockholders
identified on page 50 are selling shares of common stock. We will not
receive any of the proceeds from the shares of common stock sold by the selling
stockholders.offered. Prior to this
offering, there has been no public market for the common stock. The initial
public offering price is expected to be between $$14.00 and $$16.00 per share.

The selling stockholders identified on page 54 have granted the underwriters
an option to purchase a maximum of 600,000 additional shares of common stock to
cover over-allotments of shares. We will not receive any of the proceeds from
the shares of common stock sold by the selling stockholders.

Application has been made to list the common stock on The Nasdaq Stock
Market's National Market under the symbol "NSCT."NTCT."

We and the selling stockholders have granted the underwriters an option to
purchase a maximum of additional shares of common stock to cover
over-allotments of shares.

Investing in the common stock involves certain risks. See "Risk Factors" beginning
on page 5.7.

Underwriting Proceeds to
Price to Discounts and Proceeds to
Selling
Public Commissions NetScout
Stockholders
--------- ---------------- ---------------- ----------------

Per Share......................................Share......................................................... $ $ $
$
Total.......................................... $Total............................................................. $ $ $

Delivery of the shares of common stock will be made on or about
, 1999.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Credit Suisse First BostonDeutsche Banc Alex. Brown
Bear, Stearns & Co. Inc.
BT Alex. Brown
Dain Rauscher Wessels
a division
of Dain Rauscher Incorporated

The date of this prospectus is , 1999

TABLE OF CONTENTS

PAGE
---------

Prospectus Summary............................ 35
Risk Factors.................................. 57
Special Note Regarding Forward-Looking
Statements.................................. 1517
Use Of Proceeds............................... 1618
Dividend Policy............................... 1618
Capitalization................................ 1719
Dilution...................................... 1820
Selected Consolidated Financial Data.......... 1921
Management's Discussion And Analysis Of
Financial Condition And Results Of
Operations.................................. 20
Business...................................... 3122

PAGE
---------

Business...................................... 34
Management.................................... 4145
Certain Transactions.......................... 4852
Principal And Selling Stockholders............ 5054
Description Of Capital Stock.................. 5257
Shares Eligible For Future Sale............... 5661
Underwriting.................................. 58
Notice To Canadian Residents.................. 6063
Legal Matters................................. 6165
Experts....................................... 6165
Where You Can Find More Information........... 6165
Index To Consolidated Financial Statements.... F-1

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
------------------------

EXCEPT AS SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS OR AS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS:

- ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED;

- REFLECTS THE CONVERSION OF ALL OUTSTANDING SHARES OF OUR SERIES A
PREFERRED STOCK, NON-VOTING COMMON STOCK AND CLASS B CONVERTIBLE COMMON
STOCK INTO SHARES OF OUR COMMON STOCK UPON THE CLOSING OF THIS OFFERING;

- ASSUMES A THREE-FOR-TWO STOCK SPLIT OF OUR COMMON STOCK PRIOR TO THE
EFFECTIVENESS OF THIS OFFERING;

- REFLECTS THE FILING, AS OF THE CLOSING OF THIS OFFERING, OF OUR AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION AND THE ADOPTION OF OUR AMENDED
AND RESTATED BY-LAWS IMPLEMENTING CERTAIN PROVISIONS DESCRIBED BELOW UNDER
"DESCRIPTION OF CAPITAL STOCK," AND THE RECEIPT OF STOCKHOLDER APPROVAL
THEREFOR; AND

- REFLECTS THE ADOPTION OF NEW STOCK PLANS, WHICH OCCURRED IN APRIL 1999.

OUR VOTING COMMON STOCK WILL BE RENAMED UPON THE CLOSING OF THIS OFFERING, AND
IS REFERRED TO HEREIN AS "COMMON STOCK." SEE "MANAGEMENT--STOCK PLANS,"
"DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING."
------------------------

DEALER PROSPECTUS DELIVERY OBLIGATION

Until , 1999 (25 days after the commencement of this offering),
all dealers that effect transactions in the common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

NetScout is a registered trademark and the NetScout logo, AppScout, WebCast,
NetScout Server, NetFlow Monitor, Resource Monitor, VLAN Monitor, NetScout
Manager Plus and ART MIB are trademarks of NetScout. TrafficDirector and
SwitchProbe are trademarks of Cisco Systems, Inc. All other trade names and
trademarks referred to in this prospectus are the property of their respective
owners.

(This page intentionally left blank)

PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY.

NETSCOUT SYSTEMS, INC.

We design, develop, manufacture, market and support an integrateda family of products
that enable businesses and network service providers to manage the performance
of their computer networks and important business software applications. Our Application Flow
Management ("AFM") solution tracks and provides information regarding the flow of
software applications, such as e-mail, order entry and Web-based applications,
across the network and the performance of the underlying computer network.
Application Flow Management consists of data collection devices
andproducts as well as
analysis and presentation software. AFM collects, aggregatesOur data collection products collect,
aggregate and analyzesanalyze network and application data from a wide range of network
technologies. Using this data, AFM provides real-time information regarding the performance of
computer networksour presentation and analysis software applications, such as e-mail, order entry and
Web-based applications. Our solution provides thisproducts
provide current information to computer network managers and business managersexecutives
in a user-friendly,an easy-to-use, graphical format.

Business enterprises increasingly rely on their software applications and
computer networks as strategic assets that are essential to business operations.
Even minor computer network malfunctions can result in significant business
interruptions, lost revenue, decreased productivity and customer
dissatisfaction. As a result, businesses are recognizing the critical importance
of effective network and application performance management.

To support the growing number of users and demand for faster and more
reliable computer network access, new network technologies and products have
been introduced. This has resulted in highly-complex multi-vendor computer networks, which
are more difficult to manage.

Our solution provides a proactive approach to network and application
performance management that enables managersbusinesses to anticipate and address network
and application performance problems and align their computer resources with
their business strategies. AFMApplication Flow Management provides the following
key functions:

- APPLICATION RESPONSE TIME MEASUREMENT. AFM providesMEASUREMENT-Provides detailed, real-timecurrent
information on application response time which can be used to optimize
network configuration and prioritize software applications.

- MONITORING AND TROUBLESHOOTING. AFM allows real-timeTROUBLESHOOTING-Allows current monitoring and trend
analysis of network usage, performance and error conditions which helps
network managers prevent network malfunctions and expedite
troubleshooting.

- CAPACITY PLANNING. AFM measuresPLANNING-Measures trends in network usage by individual software
application to enable informed network spending decisions.

- POLICY ENFORCEMENT. AFM helpsENFORCEMENT-Allows network managers to identify inappropriate or
wasteful usage of the computer network to ensure adherence to corporate
policies and guidelines.

- ACCOUNTING AND CHARGE-BACK. AFM providesCHARGE-BACK-Provides network usage information by user,
department or application, which can be used to charge for internal
network usage.

Our AFMApplication Flow Management solution is used by businesses and
organizations with large and medium-sized computer networks, as well as service
providers that offer computer network infrastructure and software application management
services. We sell our products through indirect distribution channels and a
direct sales force. Cisco Systems, Inc. is our largest indirect channel partner
and sells our products under its private label.

NetScout was incorporated in Massachusetts in June 1984 under the name
Frontier Software Development, Inc. We were primarily an engineering consulting
company until 1992 when we began developing the NetScout family of products. In
April 1993, we reincorporated in Delaware and, in March 1997, we changed our
name to NetScout Systems, Inc. Our principal offices are located at 4 Technology
Park Drive, Westford, Massachusetts 01886, and our telephone number is (978)
614-4000.

THE OFFERING

Common stock offered by NetScout................... shares
Common stock offered by the selling stockholders...4,000,000 shares
Common stock to be outstanding after the 26,588,637 shares
offering.........................................
Use of proceeds.................................... For general corporate purposes,
including working capital.
Proposed Nasdaq National Market symbol............. NSCTNTCT

Common stock outstanding is based on 33,843,25822,588,637 shares of common stock
outstanding as of March 31,June 30, 1999 and excludes 4,640,4383,239,451 shares issuable upon the
exercise of outstanding stock options as of March 31,June 30, 1999 and 7,500,0004,712,250 shares
available for future grant under our stock plans.

SUMMARY CONSOLIDATED FINANCIAL DATA

The pro forma data in the tables below givegives effect to (1) our issuance of
shares of Class B Convertible Common Stock and our repurchase of shares of
common stock, Non-Voting Common Stock and Series A Preferred Stock in the fourth
quarter of fiscal 1999 and (2) the conversion of all outstanding
shares of Series A Preferred Stock, Class B Convertible Common Stock and
Non-Voting Common Stock into common stock upon the closing of this offering. The
pro forma as adjusted balance sheet data as of December 31, 1998June 30, 1999 also givegives effect
to the sale of 4,000,000 shares of common stock that we are offering under this
prospectus at an assumed initial public offering price of $$15.00 per share,
after deducting estimated underwriting discounts and commissions and offering
expenses. See "Capitalization."

NINETHREE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------ENDED JUNE 30,
----------------------------------------------------- --------------------

1995 1996 1997 1998 19971999 1998 1999
--------- --------- --------- --------- --------- --------- ---------

(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Total revenue....................................revenue.................................. $ 5,877 $ 15,683 $ 30,648 $ 42,829 $ 29,17167,551 $ 48,88015,263 $ 19,071
Total cost of revenue............................revenue.......................... 1,962 6,035 9,955 13,422 8,809 14,45220,485 4,636 5,227
Gross margin.....................................margin................................... 3,915 9,648 20,693 29,407 20,362 34,42847,066 10,627 13,844
Total operating expenses.........................expenses....................... 3,214 6,287 11,596 21,662 14,833 22,77932,005 7,555 9,218
Income from operations...........................operations......................... 701 3,361 9,097 7,745 5,529 11,64915,061 3,072 4,626
Provision for income taxes.......................taxes..................... 136 1,355 3,640 3,056 2,191 4,4355,715 1,178 1,764
Net income.......................................income..................................... $ 555 $ 2,003 $ 5,918 $ 5,432 $ 3,89310,272 $ 7,8812,094 $ 3,134

Basic net income per share....................... $ 0.02 $ 0.07 $ 0.21 $ 0.19 $ 0.13 $ 0.27
Diluted net income per share..................... $ 0.02 $ 0.06 $ 0.17 $ 0.160.03 $ 0.11 $ 0.31 $ 0.28 $ 0.55 $ 0.11 $ 0.22
Diluted net income per share................... $ 0.03 $ 0.09 $ 0.26 $ 0.23 $ 0.43 $ 0.09 $ 0.13
Shares used in computing:
Basic net income per share..................... 27,064 27,814 28,514 28,934 28,909 29,353share................... 18,043 18,542 19,010 19,289 18,586 19,304 14,331
Diluted net income per share................... 28,982 33,690 34,378 34,748 34,450 35,694share................. 19,321 22,460 22,919 23,166 23,706 23,578 24,909
Pro forma basic net income per share.............share........... $ 0.170.46 $ 0.240.14
Pro forma diluted net income per share...........share......... $ 0.160.43 $ 0.220.13
Shares used in computing:
Pro forma basic net income per share........... 32,723 33,142share......... 22,301 22,572
Pro forma diluted net income per
share......... 34,748 35,694share...................................... 23,706 24,909

DECEMBER 31, 1998JUNE 30, 1999
-----------------------------------
MARCH 31, PRO FORMA
1998
ACTUAL PRO FORMA AS ADJUSTED
----------- --------- ----------- -----------

(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................................equivalents.................................................... $ 6,34122,918 $ 22,02422,918 $ 21,614 $78,207
Working capital.................................................. 14,163 21,830 21,420capital.............................................................. 26,483 26,483 81,483
Total assets..................................................... 31,220 40,195 39,785assets................................................................. 43,748 43,748 98,748
Class B redeemable convertible common stock...................... --stock.................................. 44,161 -- --
Total stockholders' equity....................................... 20,400 28,518 28,108equity (deficit)......................................... (9,830) 34,331 89,331

RISK FACTORS

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES
DESCRIBED BELOW ARE NOT THE ONLY RISKS WE FACE. IF ANY OF THE FOLLOWING RISKS
ACTUALLY OCCURS, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION
COULD BE MATERIALLY ADVERSELY AFFECTED, THE TRADING PRICE OF OUR COMMON STOCK
COULD DECLINE, AND YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT. PLEASE ALSO
SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."

RISKS RELATED TO OUR BUSINESS

A REDUCTION IN ORDERS FROM Our operating results and financial condition for a
CISCO SYSTEMS, INC. WOULD particular fiscal period would be materially adversely
MATERIALLY ADVERSELY AFFECT affected if there is a substantial reduction in orders
OUR BUSINESS from Cisco Systems, Inc. or if we are unable to complete
one or more Cisco orders planned for that period. We
derive a significant portion of our revenue from Cisco,
which distributes some of our products under its private
label and incorporates some of our software in its
products. ForCisco accounted for 24%, 40% and 51% of our
total revenue for the fiscal years ended March 31, 1997,
and
1998 and the nine months ended December 31, 1998, Cisco
accounted for 24%, 40%1999, and 49%44% of our total revenue.revenue for each of
the three months ended June 30, 1998 and 1999. Our future
performance is significantly dependent upon Cisco's
continued promotion of our products. Cisco has no
obligation to purchase any products from us. Further, we
do not control Cisco's distribution of our products,
whether incorporated into Cisco's products or sold under
private label. Finally, Cisco may decide to internally
develop products that compete with our solution or partner
with our competitors or bundle or resell competitors'
solutions, possibly at lower prices. If our relationship
with Cisco were terminated or adversely affected for any
reason, our business, operating results and financial
condition would be materially adversely affected.

DISAPPOINTING QUARTERLY Our quarterly revenue and operating results are difficult
OPERATING RESULTS COULD CAUSE to predict and may fluctuate significantly from quarter to
OUR COMMON STOCK PRICE TO quarter. If our quarterly revenue or operating results
DECREASE fall below the expectations of investors or securities
analysts, the price of our common stock could decrease
substantially. Most of our expenses, such as employee
compensation and rent, are relatively fixed in the short
term. Moreover, our expense levels are based, in part, on
our expectations regarding future revenue levels. As a
result, if revenue for a particular quarter is below our
expectations, we may not be able to reduce operating
expenses proportionately for that quarter, and therefore
this revenue shortfall would have a disproportionately
negative effect on our operating results for that quarter.

Our quarterly revenue may fluctuate as a result of a
variety of factors, many of which are outside our control,
including the following:

- the market for network and application performance
management solutions is in an early stage of
development and therefore demand for our solutions may
be uneven;
- the timing and receipt of orders from customers,
particularly Cisco, especially in light of our lengthy
sales cycle;
- the timing and market acceptance of new products or
product enhancements by us or our competitors;
- distribution channels through which our products are
sold could change;
- the timing of hiring sales personnel and the speed at
which such personnel become productive;
- we may not be able to anticipate or adapt effectively
to developing markets and rapidly changing technologies;
and
- our prices or the prices of our competitors' products
may change.

We operate with minimal backlog because our products
typically are shipped shortly after orders are received.
Therefore, product revenue in any quarter is substantially
dependent on orders booked and shipped in that quarter,
and revenue for any future quarter is not predictable to
any degree of certainty. Therefore, any significant
deferral of orders for our products would cause a
shortfall in revenue for that quarter.

OUR RELIANCE ON SOLE SOURCE Many components that are necessary for the assembly of our
SUPPLIERS COULD ADVERSELY probes including the network interface cards, are
AFFECT OUR BUSINESS obtained from separate sole source suppliers or
AFFECT OUR BUSINESS a limited group of suppliers. These components include
some of our network interface cards, which are produced
for us solely by SDL Communications, Inc. Our reliance on
sole or limited suppliers involves several risks,
including a potential inability to obtain an adequate
supply of required components and reduced control over
pricing, quality and timely delivery of components. We do
not generally maintain long-term agreements with any of
our suppliers or large volumes of inventory. Our inability
to obtain adequate deliveries or the occurrence of any
other circumstance that would require us to seek
alternative sources of these components would affect our
ability to ship our products on a timely basis. This could
damage relationships with current and prospective
customers, cause shortfalls in expected revenue and
materially adversely affect our business, operating
results and financial condition.

OUR CONTINUED GROWTH DEPENDS We must increase the size of our sales force in order to
ON OUR ABILITY TO EXPAND OUR increase our direct sales and support our indirect sales
SALES FORCE channels. Because our products are very technical, sales
people require a long period of time to become productive,
typically three to six months. This lag in productivity,
as well as the challenge of attracting qualified
candidates, may make it difficult to meet our sales force
growth targets. Further, we may not generate sufficient
sales to offset the increased expense resulting from
growing our sales force or we may be unable to manage a
larger sales force. If we are unable to successfully
expand our sales capability, our business, operating
results and financial condition could be materially
adversely affected.

OUR SUCCESS DEPENDS ON OUR To increase our sales, we must further expand and manage
ABILITY TO EXPAND AND MANAGE our indirect distribution channels, including OEMs,original
INDIRECT DISTRIBUTION equipment manufacturers, distributors, resellers, systems
CHANNELS integrators and service
CHANNELS providers. Sales to our indirect
distribution channels accounted for 73%, 76% and 81% of
our total revenue for the fiscal years ended March 31,
1997, 1998 and 1999, and 82% of our total revenue for each
of the three months ended June 30, 1998 and 1999. Sales to
Cisco accounted for 24%, 40% and 51% of our total revenue
for the fiscal yearyears ended March 31, 1997, 1998 and the nine months ended
December 31, 1998. During these periods, Cisco accounted
for 40%1999,
and 49%44% of our total revenue.revenue for each of the three months
ended June 30, 1998 and 1999. Our indirect channel
partners have no obligation to purchase any products from
us. In addition, they could internally develop products
which compete with our solutions or partner with our
competitors or bundle or resell competitors' solutions,
possibly at lower prices. Our inability to expand and
manage our relationships with our partners, the inability
or unwillingness of our partners to effectively market and
sell our products or the loss of existing partnerships
could have a material adverse effect on our business,
operating results and financial condition.

IF WE FAIL TO INTRODUCE NEW The market for network and application performance
PRODUCTS AND ENHANCE OUR management solutions is relatively new and is
EXISTING PRODUCTS TO KEEP UP characterized by rapid changes in technology, evolving
WITH RAPID TECHNOLOGICAL industry standards, changes in customer requirements and
CHANGE, DEMAND FOR OUR frequent product introductions and enhancements. Our
PRODUCTS MAY DECLINE success is dependent upon our ability to meet our
customers' needs, which are driven by changes in computer
networking technologies and the emergence of new industry
standards. In addition, new technologies may shorten the
life cycle for our products or could render our existing
or planned products obsolete. If we are unable to develop
and introduce new network and application performance
management products or enhancements to existing products
in a timely and successful manner, it would have a
material adverse effect on our business, operating results
and financial condition.

WE FACE SIGNIFICANT The market for network and application performance
COMPETITION FROM OTHER management solutions is intensely competitive. We believe
TECHNOLOGY COMPANIES customers make network management system purchasing
decisions based primarily upon the following factors:

- product performance, functionality and price;

- name and reputation of vendor;
- distribution strength; and
- alliances with industry partners.

We compete with probe vendors, such as Hewlett-Packard
Company, providers of network performance management
solutions, such as Concord Communications, Inc. and
Micromuse, Inc., providers of application performance
management solutions, such as International Network
Services, and providers of portable network traffic
analyzers, such as Network Associates, Inc. In addition,
leading network equipment providers could offer their own
or competitors' solutions in the future. Many of our
current and potential competitors have longer operating
histories, greater name recognition and substantially
greater financial, management, marketing, service,
support, technical, distribution and other resources than
we do. Therefore, they may be able to respond more quickly
than we can to new or changing opportunities,
technologies, standards or customer requirements.

As a result of these and other factors, we may not be able
to compete effectively with current or future competitors,
which would have a material adverse effect on our
business, operating results and financial condition.

THE SUCCESS OF OUR BUSINESS We derive all of our revenue from the sale of products and
DEPENDS ON THE CONTINUED services that are designed to allow our customers to
GROWTH IN THE MARKET FOR AND manage the performance of computer networks and importantsoftware
COMMERCIAL ACCEPTANCE OF business software applications. The market for network and application
NETWORK AND APPLICATION application performance management solutions is in an PERFORMANCE MANAGEMENT early stage of
PERFORMANCE MANAGEMENT development. Therefore, we cannot SOLUTIONS accurately assess the
SOLUTIONS size of the market and may be unable to predict the
appropriate features and prices for products to address
the market, the optimal distribution strategy and the
competitive environment that will develop. In order for us
to be successful, our potential customers must recognize
the value of more sophisticated network and application
performance management solutions, decide to invest in the
management of their networks and the performance of
important business software applications and, in particular, adopt our
management solution. Any failure of this market to
continue to develop would materially adversely affect our
business, operating results and financial condition.

Businesses may choose to outsource the management of their
networks and applications to service providers. Our
business may depend on our ability to develop
relationships with these service providers and
successfully market our products to them.

FAILURE TO PROPERLY MANAGE We have been experiencing a period of rapid growth over
GROWTH COULD ADVERSELY AFFECT the past several years. We plan to continue to expand our
OUR BUSINESS business by hiring additional personnel. The growth in
size and complexity of our business and our customer base
has been and will continue to be a significant challenge
to our management and operations.

To manage future growth effectively we must enhance our
financial and accounting systems and controls, integrate
new personnel and manage expanded operations. We
anticipate that our financial and accounting systems will
be upgraded during the third calendar quarter in 1999. If
we are unable to successfully integrate these systems and
controls and to effectively manage our growth, our costs,
the quality of our products, the effectiveness of our
sales organization, our ability to retain key personnel
and our business, operating results and financial
condition could be materially adversely affected.

LOSS OF KEY PERSONNEL COULD Our future success depends to a significant degree on the
ADVERSELY AFFECT OUR BUSINESS skills, experience and efforts of Anil Singhal, our
Chairman of the Board, Chief Executive Officer and
co-founder, and Narendra Popat, our President, Chief
Operating Officer and co-founder. We also depend on the
ability of our other executive officers and senior
managers to work effectively as a team. The loss of one or
more of our key personnel could have a material adverse
effect on our business, operating results and financial
condition.

WE MUST HIRE AND RETAIN Qualified personnel are in great demand throughout the
SKILLED PERSONNEL IN A TIGHT computer software, hardware and networking industries. The
LABOR MARKET demand for qualified personnel is particularly acute in
the New England area due to the large number of software
and other high technology companies and the low
unemployment in the region. Our success depends in large
part upon our ability to attract, train, motivate and
retain highly-skilled employees, particularly sales and
marketing personnel, software engineers, and technical
support personnel. We have had difficulty hiring and
retaining these highly-skilled employees in the past. If
we are unable to attract and retain the highly-skilled
technical personnel that are integral to our sales,
marketing, product development and customer support teams,
the rate at which we can generate sales and develop new
products or product enhancements may be limited. This
inability could have a material adverse effect on our
business, operating results and financial condition.

911

OUR SUCCESS DEPENDS ON OUR Our business is heavily dependent on our intellectual
ABILITY TO PROTECT OUR property. We rely upon a combination of copyright,
INTELLECTUAL PROPERTY RIGHTS trademark and trade secret laws and non-disclosure and
other contractual arrangements to protect our proprietary
rights. The reverse engineering, unauthorized copying or
other misappropriation of our intellectual property could
enable third parties to benefit from our technology
without compensating us. Legal proceedings to enforce our
intellectual property rights could be burdensome and
expensive and could involve a high degree of uncertainty.
In addition, legal proceedings may divert management's
attention from growing our business. There can be no
assurance that the steps we have taken to protect our
intellectual property rights will be adequate to deter
misappropriation of proprietary information, or that we
will be able to detect unauthorized use by third parties
and take appropriate steps to enforce our intellectual
property rights. Further, we also license software from
third parties for use as part of our products, and if any
of these licenses were to terminate, we may experience
delays in product shipment until we develop or license
alternative software.

OTHERS MAY CLAIM THAT WE We may be subject to claims by others that our products
INFRINGE ON THEIR infringe on their intellectual property rights. These
INTELLECTUAL PROPERTY RIGHTS claims, whether or not valid, could require us to spend
significant sums in litigation, pay damages, delay product
shipments, reengineer our products or acquire licenses to
such third-party intellectual property. We may not be able
to secure any required licenses on commercially reasonable
terms or at all. We expect that these claims will become
more frequent as more companies enter the market for
network and application performance management solutions.
Any of these claims or resulting events could have a
material adverse effect on our business, operating results
and financial condition.

IF OUR PRODUCTS CONTAIN Despite testing by us and our customers, errors may be
ERRORS, THEY MAY BE COSTLY TO found in our products after commencement of commercial
CORRECT, REVENUE MAY BE shipments. If errors are discovered, we may not be able to
DELAYED, WE COULD GET SUED successfully correct them in a timely manner or at all. In
AND OUR REPUTATION COULD BE addition, we may need to make significant expenditures of
HARMED capital resources in order to eliminate errors and
failures. Errors and failures in our products could result
in loss of or delay in market acceptance of our products
and could damage our reputation. If one or more of our
products fails, a customer may assert warranty and other
claims for substantial damages against us. The occurrence
or discovery of these types of errors or failures could
have a material adverse effect on our business, operating
results and financial condition.

1012

OUR SUCCESS DEPENDS ON OUR In the fiscal year ended March 31, 1998 and the nineSales outside North America accounted for 12% of our total
ABILITY TO EXPAND AND MANAGE monthsrevenue for each of the three fiscal years ended DecemberMarch 31,
OUR INTERNATIONAL OPERATIONS 1997, 1998 12% and 11%1999, and 14% and 19% of our total OUR INTERNATIONAL OPERATIONS revenue
were from sales outside North America.for the three months ended June 30, 1998 and 1999. We
currently expect international revenue to continue to
account for a significant percentage of total revenue in
the future. We believe that we must continue to expand our
international sales activities in order to be successful.
Our international sales growth will be limited if we are
unable to:

- expand international indirect distribution channels;
- hire additional sales personnel;
- adapt products for local markets; or
- manage geographically dispersed operations.

In addition,The major countries outside of North America in which we
do, or intend to do, business are the United Kingdom,
Germany and Japan. Our international operations, including
our operations in the United Kingdom, Germany and Japan,
are generally subject to a number of risks, including:

- failure of local laws to provide the same degree of
protection against infringement of our intellectual
property;
- protectionist laws and business practices that favor
local competitors;
- dependence on local vendors;indirect channel partners;
- multiple, conflicting and changing governmental laws
and regulations;
- longer sales cycles;
- greater difficulty in collecting accounts receivable;
- foreign currency exchange rate fluctuations; and
- political and economic instability.

OUR BUSINESS MAY BE AFFECTED Many existing computer systems and software products do
BY UNEXPECTED YEAR 2000 not properly recognize dates after December 31, 1999. This
PROBLEMS "Year 2000"year 2000 problem could result in miscalculations, data
corruption, system failures or disruptions of operations.
Our products, our internal systems, our customers'
systems, our distributors' systems and our suppliers'
systems may experience Yearyear 2000 problems, any of which
could have a material adverse effect on our business,
operating results and financial condition. Under the
reasonably, likely worst case scenario:

- we may not be able to deliver year 2000 problems, any of which
could have a material adverse effect oncompliant
products;
- our business,
operating results and financial condition.indirect channel partners, our customers or we may
not be able to process orders; or
- our suppliers may not be able to supply us with
critical components needed to make our products.

1113

Year 2000 errors or defects in our products could give
rise to warranty and other claims by our customers. In
addition, there can be no assurance that Yearyear 2000 errors
or defects will not be discovered in our internal software
systems and, if errors or defects are present, there can
be no assurance that the costs of making such systems Yearyear
2000 compliant will not be material. We have determined
that some of our products and internal systems are not
Yearyear 2000 compliant, and other of our products or internal
systems may contain undetected errors or defects. If we
are unable to make our products and internal systems Yearyear
2000 compliant in a timely manner, our business, operating
results and financial condition could be materially
adversely affected.

Changing purchasing patterns of customers impacted by Yearyear
2000 issues may result in reduced purchases of our
solutions. Any Yearyear 2000 errors or defects in our
distributors' systems or the products of our OEMoriginal
equipment manufacturer partners could cause a reduction in
their orders from us. Finally, Yearyear 2000 errors or defects
in the internal systems of our suppliers, including our
sole and limited source suppliers, could require us to
incur significant unanticipated expenses to remedy any
problems or replace affected vendors and could cause
cancellations or delays in product shipments.

RISKS ASSOCIATED WITH THIS OFFERING OF OUR COMMON STOCK

THE PRICE OF OUR COMMON STOCK Prior to this offering, there has been no public market
AFTER THIS OFFERING MAY BE for our common stock. After this offering, an active
LOWER THAN THE PRICE YOU PAY trading market in our common stock might not develop or
IN THIS OFFERING continue. If you purchase shares of our common stock in
the offering, you will pay a price that was not
established in a competitive market. Rather, you will pay
a price that we negotiated with the representatives of the
underwriters based upon several factors. See
"Underwriting." The price of our common stock that will
prevail in the market after the offering may be higher or
lower than the price you pay.

The stock market in general has recently experienced
extreme price and volume fluctuations. In addition, the
market prices of securities of technology companies have
been extremely volatile, and have experienced fluctuations
that often have been unrelated or disproportionate to the
operating performance of these companies. These broad
market fluctuations could adversely affect the market
price of our common stock.

1214

Recently, when the market price of a stock has been
volatile, holders of that stock have occasionally
instituted securities class action litigation against the
company that issued the stock. If any of our stockholders
brought such a lawsuit against us, even if the lawsuit is
without merit, we could incur substantial costs defending
the lawsuit. The lawsuit could also divert the time and
attention of our management.

OUR EXECUTIVE OFFICERS AND After this offering, our executive officers and directors
DIRECTORS WILL BE ABLE TO and their affiliates will together control approximately
CONTROL ALL MATTERS REQUIRING %48.2% of the outstanding common stock. As a result, these
STOCKHOLDER APPROVAL stockholders, if they act together, will be able to
control all matters requiring stockholder approval,
including the election of directors and approval of
significant corporate transactions. This concentration of
ownership may have the effect of delaying, preventing or
deterring a change in control of NetScout, could deprive
our stockholders of an opportunity to receive a premium
for their common stock as part of a sale of NetScout and
might affect the market price of our common stock.

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

FUTURE SALES BY EXISTING If our existing stockholders sell a large number of shares
SECURITY HOLDERS COULD of our common stock or the public market perceives that
DEPRESS THE MARKET PRICE OF existing stockholders might sell shares of common stock,
THE COMMON STOCK the market price of the common stock could significantly
decline. All of the shares offered under this prospectus
will be freely tradable in the open market, and

- 83,10095,400 additional shares may be sold immediately after
this offering;
- 392,974711,023 additional shares may be sold 90 days after the
effective date of this offering; and
- 20,901,30323,618,047 additional shares may be sold upon the
expiration of 180-day lock-up agreements; and
- 10,465,881 additional shares may be sold commencing on
January 15, 2000.

Credit Suisse First Boston Corporation,agreements.

Deutsche Bank Securities Inc., as representative of the
underwriters, may release any or all shares from the
lock-up agreements at any time and without notice.

1315

Existing stockholders holding an aggregate of 10,465,8816,977,254
shares of common stock have the right to require us to
register their shares of common stock with the Securities
and Exchange Commission. If we register their shares of
common stock, they can sell those shares in the public
market.

After this offering, we intend to register approximately
12,140,4387,951,701 shares of our common stock that we have issued
or may issue under our stock plans. Once we register these
shares, they can be freely sold in the public market upon
issuance, subject to the "lock-up" agreements described
above.

WE WILL HAVE BROAD DISCRETION We have not identified specific uses for our proceeds from
IN USING OUR PROCEEDS FROM this offering, and we will have broad discretion in how we
THIS OFFERING use them. You will not have the opportunity to evaluate
the economic, financial or other information on which we
base our decisions on how to use these proceeds.

INVESTORS WILL EXPERIENCE If you purchase shares of our common stock in this
IMMEDIATE AND SUBSTANTIAL offering, you will experience immediate and substantial
DILUTION IN THE BOOK VALUE OF dilution of $$11.64 in the pro forma net tangible book
value
THEIR INVESTMENT value per share of common stock. You will experience
additional dilution upon the exercise of outstanding stock
options to purchase common stock. See "Dilution."

1416

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance and are identified by terminology such as "may,"
"will," "could," "should," "expects," "plans," "intends," "seeks,"
"anticipates," "believes," "estimates," "potential," or "continue" or the
negative of such terms or other comparable terminology. These statements are
only predictions. You should not place undue reliance on these forward-looking
statements. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various important factors,
including the risks outlined under "Risk Factors." These factors may cause our
actual results to differ materially from any forward-looking statement.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform such
statements to actual results.
15------------------------

EXCEPT AS SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS OR AS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS:

- ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED;

OUR VOTING COMMON STOCK WILL BE RENAMED UPON THE CLOSING OF THIS OFFERING, AND
IS REFERRED TO HEREIN AS COMMON STOCK. SEE "MANAGEMENT--STOCK PLANS,"
"DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING."
------------------------

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock that we are offering hereby will be approximately $ ,$55,000,000, at
an assumed initial public offering price of $$15.00 per share, after deducting
estimated underwriting discounts and commissions and offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that such
net proceeds will be approximately $ . We will
not receive any proceeds from the sale of common stock by the selling
stockholders. See "Principal and Selling Stockholders."

The principal purposes of this offering are toto:

- obtain additional working capital,capital;

- create a public market for our common stock,stock;

- increase our visibility in the marketplace,marketplace;

- facilitate future access to public capital marketsmarkets; and

- provide liquidity to existing stockholders.

We intend to use our net proceeds forfor:

- general corporate purposes, including working capital, product development
and expansion of our international operationsoperations; and

- sales and marketing capabilities.

We may also use a portion of our net proceeds toto:

- acquire or invest in complementary businesses or products or
toproducts; and

- obtain the right to use complementary technologies.

We have no specific understandings, commitments or agreements with respect
to any such acquisition or investment. Pending such uses, we intend to invest
our net proceeds from this offering in short-term, interest-bearing,
investment-grade securities, certificates of deposit or direct or guaranteed
obligations of the United States.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying cash dividends in the foreseeable future. In
addition, the terms of our bank loan agreement prohibit the payment of cash
dividends on our capital stock. We currently intend to retain future earnings,
if any, to fund the expansion and growth of our business. Payment of future cash
dividends, if any, will be at the discretion of our Board of Directors after
taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for expansion.

1618

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1998:June 30, 1999:

- on an actual basis;

- on a pro forma basis giving effect to (1) our issuancethe conversion of all shares of
Series A Preferred Stock, Class B Convertible Common Stock and our repurchase of shares of common stock,
Non-Voting Common Stock and Series A Preferred Stock in the fourth quarter
of fiscal 1999, and (2) the conversion of all outstanding shares of Series
A Preferred Stock, Non-Voting Common Stock and Class B Convertible
Common Stock into common stock upon the closing of this offering; and

- on a pro forma as adjusted basis to reflect the sale by us of 4,000,000
shares of common stock offered under this prospectus at an assumed initial
public offering price of $$15.00 per share, after deducting estimated
underwriting discounts and commissions and offering expenses.

This information should be read in conjunction with our consolidated financial
statements and notes thereto appearing elsewhere in this prospectus. This
information also gives effect to the filing of a certificate of amendment to our
Second Amended and Restated Certificate of Incorporation. This information
excludes 4,620,5443,239,451 shares of common stock issuable upon exercise of outstanding
options as of December 31, 1998,June 30, 1999, of which options to purchase 1,816,6541,384,533 shares were
then exercisable, and 1,773,425 shares of common stock
reserved for future issuance under our 1990 Stock Option Plan.exercisable. An additional 7,500,0004,712,250 shares of common stock have been
reserved for issuance under our 1999 Stock Option and Incentive Plan and our
1999 Employee Stock Purchase Plan. See "Management--Stock Plans" and Note 9 to
the consolidated financial statements.Consolidated Financial Statements.

DECEMBER 31, 1998JUNE 30, 1999
------------------------------------

PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------

(IN THOUSANDS, EXCEPT SHARE DATA)

Redeemable convertible common stock:
Class B redeemable convertible common stock, $.001 par value; no shares
authorized, issued and outstanding, actual; 6,977,254 shares authorized,
no shares issued or outstanding, pro forma and pro forma as adjusted.... $ -- $ -- $ --
---------- ----------- -----------
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value; 631,5796,977,254
shares authorized, issued and outstanding, actual; no shares issued or
outstanding, pro forma and pro forma as adjusted........................ 5,964$44,161 $ -- $ --
Common---------- ----------- -----------
Stockholders' equity (deficit):
Series A convertible preferred stock, $0.001 par value:
Voting, 39,918,273value; 631,579 shares
authorized 24,000,000 sharesand issued and outstanding, actual; 50,384,154315,790 shares authorized, 43,990,185 and
shares issued and 33,524,304 and shares
outstanding, pro forma and pro forma as adjusted, respectively........ 24 44
Non-voting, 39,918,273 shares authorized, 5,734,830 shares issued and outstanding, actual; no shares
issued or outstanding, pro forma and pro forma as adjusted................................................. 6adjusted.............. 5,964 -- --
Common stock, $0.001 par value:
Voting, 121,798,382 shares authorized, 16,000,000 shares issued and
11,250,502 shares outstanding, actual; 29,565,891 shares issued and
22,588,637 shares outstanding, pro forma; and 29,565,891 shares issued
and 26,588,637 shares outstanding, pro forma as adjusted.............. 16 30 30
Non-voting, 21,224,364 shares authorized, 4,062,321 shares issued and
3,097,721 shares outstanding, actual; no shares issued or outstanding,
pro forma and pro forma as adjusted................................... 4 -- --
Additional paid-in capital.............................................. 1,010 51,1212,211 52,326 81,875
Deferred compensation..................................................... (550) (550) (550)(1,220) (1,220 ) (1,220 )
Treasury stock............................................................ -- (44,394) (44,394)(44,394 ) (18,943 )
Retained earnings......................................................... 22,064 21,887 21,88727,589 27,589 27,589
---------- ----------- -----------
Total stockholders' equity.............................................. 28,518 28,108equity (deficit).................................... (9,830) 34,331 89,331
---------- ----------- -----------
Total capitalization................................................ $34,331 $34,331 $ 28,518 $ 28,108 $89,331
---------- ----------- -----------
---------- ----------- -----------

1719

DILUTION

The pro forma net tangible book value of NetScout at December 31, 1998June 30, 1999 was
$28,108,000,$34,331,000, or $0.84$1.52 per share of common stock, assuming the conversion of all
outstanding
shares of Series A Preferred Stock, Class B Convertible Common Stock and
Non-Voting Common Stock into shares of common stock (giving effect to the
issuance of shares of Class B Convertible Common Stock and the related
repurchase of shares of Series A Preferred Stock, Non-Voting Common Stock and
Voting Common Stock in the fourth quarter of fiscal 1999).stock. Pro forma net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by the pro forma number of outstanding shares of common
stock. After giving effect to the sale of 4,000,000 shares of common stock
offered hereby by NetScout at an assumed initial public offering price of $$15.00
per share and after deducting estimated underwriting discounts and commissions
and offering expenses, NetScout's pro forma net tangible book value as of December 31, 1998June
30, 1999 would have been approximately $ ,$89,331,000, or $$3.36 per share. This
represents an immediate increase in pro forma net tangible book value of $$1.84
per share to existing stockholders and an immediate dilution of $$11.64 per share
to new investors purchasing shares of common stock in this offering. The
following table illustrates this dilution:

Assumed initial public offering price per share.............. $ 15.00
Pro forma net tangible book value per share
at December 31, 1998...................................June 30, 1999....................................... $ 0.841.52
Increase attributable to this offering................... 1.84
Pro forma net tangible book value per share after this
offering................................................... 3.36
---------
Net tangible book value dilution per share to new investors
in this offering........................................... $ 11.64
---------
---------

The following table summarizes, as of December 31, 1998,June 30, 1999, on the pro forma basis
described above, the total number of shares of common stock purchased, and the
consideration paid to NetScout and the average price per share paid by the
existing stockholders for their shares and by new investors purchasing shares of
common stock in this offering at an assumed initial public offering price of
$$15.00 per share, (beforebefore deducting estimated underwriting discounts and
commissions and offering expenses payable by us):us:

SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ----------------------------------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- --------------------------- ----------- -------------

Existing stockholders.......... 33,843,258 %stockholders......... 22,588,637 85.0% $ 50,241,000 %47,415,000 44.1% $ 1.482.10
New investors..................investors................. 4,000,000 15.0 60,000,000 55.9 $ 15.00
------------ ----- --------------------------- -----
Totals...................Totals.................. 26,588,637 100.0% $ 107,415,000 100.0%
------------ ----- --------------------------- -----
------------ ----- --------------------------- -----

TheIf the underwriters' over-allotment option is exercised in full, the sales
by the selling stockholders in this offering will reduce the number of shares of
common stock held by existing stockholders to ,21,988,637, or approximately %82.7%
of the total shares of common stock outstanding immediately after this offering,
and will increase the number of shares of common stock held by new investors to
,4,600,000, or %17.3% of the total number of shares of common stock outstanding
immediately after this offering. See "Principal and Selling Stockholders."

The foregoing discussion and tables assume no exercise of any stock options
after December 31, 1998.June 30, 1999. As of December 31, 1998,June 30, 1999, there were 4,620,5443,239,451 shares of common
stock issuable upon exercise of outstanding stock options, at a weighted average
exercise price of $1.58$4.21 per share; and 1,773,425 shares of common stock
reserved for issuance under NetScout's 1990 Stock Option Plan.share. To the extent that these options are
exercised, there will be further dilution to new investors. In addition, in
April 1999, we adopted our 1999 Stock Option and Incentive Plan, pursuant to
which 6,750,0004,500,000 shares of common stock are reserved for issuance, and our 1999
Employee Stock Purchase Plan, pursuant to which 750,000500,000 shares of common stock
are reserved for issuance. See "Management-Stock Plans" and Note 9 to the
consolidated financial statements.

18Consolidated Financial Statements.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read in
conjunction with our consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
income data for the years ended March 31, 1996, 1997, 1998 and 1998,1999, and the
consolidated balance sheet data as of March 31, 19971998 and 1998,1999, are derived from
and are qualified by reference to the audited consolidated financial statements
included elsewhere in this prospectus. The consolidated statement of income data
for the years ended March 31, 19941995 and 1995,1996, and the consolidated balance sheet
data as of March 31, 1994, 1995, 1996 and 1996,1997, have been derived from audited
consolidated financial statements of NetScout that do not appear in this
prospectus. The consolidated statement of income data for the ninethree months ended
December 31, 1997June 30, 1998 and 19981999 and the consolidated balance sheet data as of December 31, 1998June 30,
1999 are derived from unaudited consolidated financial statements included
elsewhere in this prospectus. The unaudited consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of our management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information set forth therein. The historical results are
not necessarily indicative of the operating results to be expected in the
future.

The pro forma data in the following tables give effect to (1) our issuancethe conversion of
all shares of Class B Convertible Common Stock and our repurchase of shares of
Series A Preferred Stock, Non-Voting Common Stock and common stock in the fourth
quarter of fiscal 1999 and (2) the conversion of Series A Preferred Stock, Class B Convertible Common Stock and
Non-Voting Common Stock into common stock upon the closing of this offering.

THREE
MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------------------------------- 1994--------------------
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenue:
Product................................................................... $ 1,416Product....................................... $ 4,035 $ 13,276 $ 25,159 $ 34,990 Service................................................................... 68$ 50,374 $ 11,547 $ 12,814
Service....................................... 341 1,521 3,888 5,143 8,710 1,873 2,465
License and royalty....................................................... 1,009royalty........................... 1,501 886 1,601 2,696 8,467 1,843 3,792
--------- --------- --------- --------- --------- --------- ---------
Total revenue........................................................... 2,493revenue............................... 5,877 15,683 30,648 42,829 67,551 15,263 19,071
--------- --------- --------- --------- --------- --------- ---------
Cost of revenue:
Product................................................................... 687Product....................................... 1,962 5,897 9,427 12,638 Service................................................................... --19,250 4,340 4,814
Service....................................... -- 138 528 784 1,235 296 413
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenue................................................... 687revenue....................... 1,962 6,035 9,955 13,422 20,485 4,636 5,227
--------- --------- --------- --------- --------- --------- ---------
Gross margin................................................................ 1,806margin.................................... 3,915 9,648 20,693 29,407 47,066 10,627 13,844
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development.................................................. 369development...................... 1,008 1,208 3,003 5,129 7,526 1,732 2,241
Sales and marketing....................................................... 744marketing........................... 1,765 4,384 6,778 13,583 20,375 5,008 6,040
General and administrative................................................ 181administrative.................... 441 695 1,815 2,950 4,104 815 937
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses................................................ 1,294expenses.................... 3,214 6,287 11,596 21,662 32,005 7,555 9,218
--------- --------- --------- --------- --------- --------- ---------
Income from operations...................................................... 512operations.......................... 701 3,361 9,097 7,745 15,061 3,072 4,626
Interest income (expense), net.............................................. (2)net.................. (10) (3) 461 743 926 200 272
--------- --------- --------- --------- --------- --------- ---------
Income before provision for income taxes.................................... 510taxes........ 691 3,358 9,558 8,488 15,987 3,272 4,898
Provision for income taxes.................................................. 66taxes...................... 136 1,355 3,640 3,056 5,715 1,178 1,764
--------- --------- --------- --------- --------- --------- ---------
Net income.................................................................. $ 444income...................................... $ 555 $ 2,003 $ 5,918 $ 5,432 $ 10,272 $ 2,094 $ 3,134
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic net income per share..................................................share...................... $ 0.020.03 $ 0.020.11 $ 0.070.31 $ 0.210.28 $ 0.190.55 $ 0.11 $ 0.22
Diluted net income per share................................................share.................... $ 0.010.03 $ 0.020.09 $ 0.060.26 $ 0.170.23 $ 0.160.43 $ 0.09 $ 0.13
Shares used in computing:
Basic net income per share................................................ 24,215 27,064 27,814 28,514 28,934share.................... 18,043 18,542 19,010 19,289 18,586 19,304 14,331
Diluted net income per share.............................................. 28,890 28,982 33,690 34,378 34,748share.................. 19,321 22,460 22,919 23,166 23,706 23,578 24,909
Pro forma basic net income per share........................................share............ $ 0.170.46 $ 0.14
Pro forma diluted net income per share......................................share.......... $ 0.160.43 $ 0.13
Shares used in computing:
Pro forma basic net income per share...................................... 32,723share.......... 22,301 22,572
Pro forma diluted net income per share.................................... 34,748

NINE MONTHS ENDED
DECEMBER 31,
--------------------
1997 1998
--------- ---------

STATEMENT OF INCOME DATA:
Revenue:
Product................................................................... $ 23,944 $ 36,737
Service................................................................... 3,455 6,329
License and royalty....................................................... 1,772 5,814
--------- ---------
Total revenue........................................................... 29,171 48,880
--------- ---------
Cost of revenue:
Product................................................................... 8,299 13,614
Service................................................................... 510 838
--------- ---------
Total cost of revenue................................................... 8,809 14,452
--------- ---------
Gross margin................................................................ 20,362 34,428
--------- ---------
Operating expenses:
Research and development.................................................. 3,543 5,295
Sales and marketing....................................................... 9,378 14,726
General and administrative................................................ 1,912 2,758
--------- ---------
Total operating expenses................................................ 14,833 22,779
--------- ---------
Income from operations...................................................... 5,529 11,649
Interest income (expense), net.............................................. 555 667
--------- ---------
Income before provision for income taxes.................................... 6,084 12,316
Provision for income taxes.................................................. 2,191 4,435
--------- ---------
Net income.................................................................. $ 3,893 $ 7,881
--------- ---------
--------- ---------
Basic net income per share.................................................. $ 0.13 $ 0.27
Diluted net income per share................................................ $ 0.11 $ 0.22
Shares used in computing:
Basic net income per share................................................ 28,909 29,353
Diluted net income per share.............................................. 34,450 35,694
Pro forma basic net income per share........................................ $ 0.24
Pro forma diluted net income per share...................................... $ 0.22
Shares used in computing:
Pro forma basic net income per share...................................... 33,142
Pro forma diluted net income per share.................................... 35,694share........ 23,706 24,909

MARCH 31, JUNE 30, 1999
----------------------------------------------------- 1994----------------------
1995 1996 1997 1998 1999 ACTUAL PRO FORMA
--------- --------- --------- --------- --------- --------- -----------

(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 358equivalents................... $ 346 $ 7,797 $ 6,514 $ 6,341 $ 25,477 $22,918 $ 22,918
Working capital........................................................... 125capital............................. 324 7,837 11,140 14,163 24,489 26,483 26,483
Total assets.............................................................. 1,100assets................................ 2,781 14,328 21,703 31,220 43,974 43,748 43,748
Class B redeemable convertible common
stock...............................stock..................................... -- -- -- -- 44,161 44,161 --
Total stockholders' equity................................................ 322equity (deficit)........ 878 8,848 14,809 20,400
DECEMBER 31, 1998
----------------------
ACTUAL PRO FORMA
--------- -----------

BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 22,024 $ 21,614
Working capital........................................................... 21,830 21,420
Total assets.............................................................. 40,195 39,785
Class B redeemable convertible common stock............................... -- --
Total stockholders' equity................................................ 28,518 28,108(13,124) (9,830) 34,331

1921

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

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF NETSCOUT SHOULD BE READ IN CONJUNCTION WITH "SELECTED
CONSOLIDATED FINANCIAL DATA" AND NETSCOUT'S CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND
ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN IMPORTANT FACTORS,
INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

NetScout designs, develops, manufactures, markets and supports an integrateda family of
products that enable businesses and network service providers to manage the
performance of their computer networks and important business software applications. Our products
include data collection devices, consisting of probes and software agents, which
collect, aggregate and perform detailed analysis of computer network and
application data, and analytical and presentation software, which provides
real-timecurrent network and application performance information in an user-friendly,easy-to-use,
graphical format.

We were incorporated in 1984 and primarily provided consulting services
until 1992, when we began to develop and market our first computer network
performance management products. Our operations have been financed principally
through cash provided by operations and we have been profitable for each of the
last 20
quarters.six years.

Product revenue consists of sales of our networkhardware products and application performance
managementlicensing of
our software products. Product revenue is recognized upon shipment, provided
that fees are fixed and determinable and collection of the related receivable is
probable. Sales to indirect channel partners that are subject to return
privileges are recognized upon shipment, net of an allowance for estimated
product returns which is based on our return policy and historical experience.
Customer payments received in advance of product shipments are recorded as
customer deposits.

Service revenue consists primarily of customer fees from support agreements,
installation and training. We generally provide three-months software and
service support and 12-months hardware support as part of our product sales.
Revenue from software and service support is deferred and recognized over the
three-month support period. Revenue from hardware support is deferred and
recognized over the 12-month support period. In addition, customers can elect to
purchase extended support agreements, typically for 12-month periods. Revenue
from supportthese agreements is deferred and recognized ratably over the support
period. Revenue from installation and training is recognized as the work is
performed.

License and royalty revenue consists primarily of royalties paid under
license agreements by OEMsoriginal equipment manufacturers who incorporate
components of our data collection technology in their own products or who
reproduce and sell our software products. License revenue is recognized when
delivery has occurred and when we become contractually entitled to receive
license fees, provided that such fees are fixed and determinable and collection
is probable. Royalty revenue is recognized based upon product shipment by the
license holder.

Revenue from indirect distribution channels, including OEMs,original equipment
manufacturers, distributors, resellers, system integrators and service
providers, represented 73%, 76% and 82%81% of total revenue for the fiscal years
ended March 31, 1997, and 1998 and 1999, and 82% of total revenue for each of the
ninethree months ended December 31, 1998.June 30, 1998 and 1999. Cisco resells our products to
customers under its own private label and incorporates components of our
technology into its products. Our revenue from Cisco represented 24%, 40% and
49%51% of our total revenue in the fiscal years ended March 31, 1997,

and22

1998 and 1999, and 44% of our total revenue for each of the ninethree months ended
December 31, 1998.June 30, 1998 and 1999. We expect revenue from Cisco to account for a
significant portion of our revenue for the foreseeable future. Network
Associates, a reseller, accounted for 12% of our total revenue in the fiscal
year ended March 31, 1998. No other customer or indirect channel partner
accounted for 10% or more of our total 20
revenue during the fiscal years ended
March 31, 1997, or 1998 or 1999 or during the ninethree months ended December 31, 1998.June 30, 1999.

Revenue from sales outside North America represented 12%, 12% and 11% of our total
revenue in each of the fiscal years ended March 31, 1997, and 1998 and 1999, and 14%
and 19% for the ninethree months ended December 31, 1998.June 30, 1998 and 1999. Sales outside North
America are primarily to indirect channel partners, which are generally
responsible for importing products and providing installation and technical
support and service to customers within their territory. Our reported
international revenue does not include any revenue from sales to customers
outside North America made by any of our North American-based indirect channel
partners, including Cisco. We expect revenue from sales outside North America to
continue to account for a significant portion of our revenue in the future.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of
total revenue of certain line items included in our statement of income:

NINETHREE
MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,JUNE 30,
------------------------------- --------------------

1996 1997 1998 19971999 1998 1999
--------- --------- --------- --------- ---------
Revenue:
Product.............................................................. 84.7% 82.1% 81.7% 82.1% 75.2%74.6% 75.7% 67.2%
Service.............................................................. 9.7 12.7 12.0 11.812.9 12.3 12.9
License and royalty.................................................. 5.6 5.2 6.3 6.1 11.912.5 12.0 19.9
--------- --------- --------- --------- ---------
Total revenue...................................................... 100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- ---------
Cost of revenue:
Product.............................................................. 37.6 30.8 29.5 28.5 27.928.4 25.2
Service.............................................................. 0.9 1.7 1.8 1.7 1.71.8 2.0 2.2
--------- --------- --------- --------- ---------
Total cost of revenue.............................................. 38.5 32.5 31.3 30.2 29.630.3 30.4 27.4
--------- --------- --------- --------- ---------
Gross margin........................................................... 61.5 67.5 68.7 69.8 70.469.7 69.6 72.6
--------- --------- --------- --------- ---------
Operating expenses:
Research and development............................................. 7.7 9.8 12.0 12.1 10.811.1 11.4 11.8
Sales and marketing.................................................. 28.0 22.1 31.7 32.1 30.130.2 32.8 31.7
General and administrative........................................... 4.4 5.9 6.9 6.6 5.76.1 5.3 4.9
--------- --------- --------- --------- ---------
Total operating expenses........................................... 40.1 37.8 50.6 50.8 46.647.4 49.5 48.4
--------- --------- --------- --------- ---------
Income from operations................................................. 21.4 29.7 18.1 19.0 23.822.3 20.1 24.2
Interest income, net................................................... -- 1.5 1.7 1.91.4 1.3 1.4
--------- --------- --------- --------- ---------
Income before provision for income taxes............................... 21.4 31.2 19.8 20.9 25.223.7 21.4 25.6
Provision for income taxes............................................. 8.6 11.9 7.1 7.5 9.18.5 7.7 9.2
--------- --------- --------- --------- ---------
Net income............................................................. 12.8% 19.3% 12.7% 13.4% 16.1%15.2% 13.7% 16.4%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

NINETHREE MONTHS ENDED DECEMBER 31, 1997JUNE 30, 1998 AND 19981999

REVENUE

Total revenue increased 68%25% from $29.2$15.3 million for the ninethree months ended
December 31, 1997June 30, 1998 to $48.9$19.1 million for the ninethree months ended December 31, 1998.June 30, 1999.

PRODUCT. Product revenue increased 53%11% from $23.9$11.5 million for the ninethree
months ended December 31, 1997June 30, 1998 to $36.7$12.8 million for the ninethree months ended December 31, 1998.June 30,
1999. This increase was primarily due to growth in unit sales
attributable to an increase in the number of sales personnel, an

increase in shipments to existing indirect channel partners and, to a lesser
extent, an expansion of indirect distribution channels. This increase was also
due to an21% increase in average selling price due to
larger volumes of WAN, ATMWide Area Network and Fast EthernetAsynchronous Transfer Mode probes.

SERVICE. Service revenue increased 83%32% from $3.5$1.9 million for the ninethree
months ended December 31, 1997June 30, 1998 to $6.3$2.5 million for the ninethree months ended December 31, 1998.June 30,
1999. This increase was primarily due to growthan increase in support agreements
attributable to new product sales and an increase in the sale of support
agreements to new and existing customers attributable to increased sales and
marketing efforts and a reduction of our software and service support period
accompanying product sales from 12 months to three months in January 1998.efforts.

LICENSE AND ROYALTY. License and royalty revenue increased 228%106% from $1.8
million for the ninethree months ended December 31, 1997June 30, 1998 to $5.8$3.8 million for the ninethree
months ended December 31, 1998.June 30, 1999. This increase was primarily due to a proportionate
growth in unit sales of our software and embedded software products by Cisco, as
well as the introduction of a new embedded software product by Cisco. We
anticipate that license and royalty revenue will remain relatively constant in
absolute dollars and will decrease as a percentage of total revenue.

COST OF REVENUE

PRODUCT. Cost of product revenue consists primarily of components,
personnel costs, media duplication, manuals, packaging materials, licensed
technology fees and overhead. Cost of product revenue increased 64%11% from $8.3$4.3
million for the ninethree months ended December 31, 1997June 30, 1998 to $13.6$4.8 million for the ninethree
months ended December 31, 1998.June 30, 1999. This increase was primarily due to ana 20% increase in
unit sales and a shift in product mix.the average cost per unit. Product gross margins decreased from 65%were 62% for each of the ninethree
months ended December 31, 1997 to 63% for the
nine months ended December 31, 1998. This decrease was primarily due to a shift
toward indirect sales which tend to have lower gross margins than direct salesJune 30, 1998 and to a lesser extent, the pricing of larger direct sales transactions,
partially offset by a decrease in component costs and an increase in operating
efficiencies.1999.

SERVICE. Cost of service revenue consists primarily of personnel costs.
Cost of service revenue increased 64%40% from $510,000$296,000 for the ninethree months ended
December 31, 1997June 30, 1998 to $838,000$413,000 for the ninethree months ended December 31, 1998.June 30, 1999. This
increase was primarily due to the hiring of additional service personnelincreased hardware repair and software updates to
support anthe increase in our installed customer base. Service gross margins
increaseddecreased from 85%84% for the ninethree months ended December 31, 1997June 30, 1998 to 87%83% for the ninethree
months ended December 31, 1998.June 30, 1999. This increasedecrease was primarily due to timing of
personnel replacements and additions. We anticipate that service gross margins
will decrease as a percentage of service revenue as staffing reaches planned
levels.

Overall gross margins areGross margin increased 30% from $10.6 million for the three months ended
June 30, 1998 to $13.8 million for the three months ended June 30, 1999. Gross
margin is primarily affected by the mix of product, service and license and
royalty revenue and by the proportion of sales through direct versus indirect
distribution channels. We typically realize higher gross margins on license and
royalty revenue relative to product and service revenue and on direct sales
relative to indirect distribution channel sales. This increase was primarily due
to an increase in license and royalty revenue as a percentage of total revenue.
We anticipate that gross margin will decrease as a percentage of total revenue.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel costs, fees for outside consultants and related costs
associated with the development of new products and the enhancement of existing
products, quality assurance and testing.products. Research and development expenses increased 49%29% from $3.5$1.7 million for
the ninethree months ended December 31, 1997June 30, 1998 to $5.3$2.2 million for the ninethree months ended
December 31, 1998.June 30, 1999. This increase was primarily due to the hiring of additional researcha 27% increase in personnel
costs and development personnel and
higherto a lesser degree a 12% increase in consulting costs.expenses. We
anticipate that research and development expenses will increase in absolute
dollars and as a percentage of total revenuerevenues as staffing reaches planned
levels.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
personnel costs and costs associated with marketing programs such as trade
shows, seminars, advertising and new product launch activities. Sales and
marketing expenses increased 57%21% from $9.4$5.0 million for the ninethree months ended
22

December 31, 1997June 30, 1998 to $14.7$6.0 million for the ninethree months ended December 31, 1998.June 30, 1999. This
increase was primarily due to costs associated with hiring of additionalan 18% increase in sales and marketing personnel
and an increase in marketing programs.costs. We anticipate that sales and marketing expenses will increase in absolute
dollars and as a percentage of total revenue as we expand our sales force and
marketing programs to support international expansion, increased sales efforts
to major accounts, brand awareness and product launches.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel costs for executive, financial, information services and
human resource employees. General and administrative expenses increased 44%15% from
$1.9 million$815,000 for the ninethree months ended December 31, 1997June 30, 1998 to $2.8 million$937,000 for the ninethree
months ended December 31, 1998.June 30, 1999. This increase was primarily due to the
hiring of additionala 21% increase in
general and administrative personnel costs and increases in other costs
associated with our growth. We expect that our general and administrative
expenses will increase in absolute dollars as we continue to expand our staff to
support expanded operations and facilities, and incur expenses relating to our
new responsibilities as a public company.

INTEREST INCOME, NET. Interest income, net of interest expense, increased
20%36% from $555,000$200,000 for the ninethree months ended December 31, 1997June 30, 1998 to $667,000$272,000 for the
ninethree months ended December 31, 1998.June 30, 1999. This increase was primarily due to an increase
in our cash balances.

PROVISION FOR INCOME TAXES. The provision for income taxes increased from
$2.2$1.2 million for the ninethree months ended December 31, 1997June 30, 1998 to $4.4$1.8 million for the
ninethree months ended December 31, 1998,June 30, 1999, primarily due to higher pre-tax income. Our
effective tax rate remained constant at 36% for the ninethree months ended December
31, 1997June 30,
1998 and for the ninethree months ended DecemberJune 30, 1999.

YEARS ENDED MARCH 31, 1998 AND 1999

REVENUE

Total revenue increased 58% from $42.8 million for the fiscal year ended
March 31, 1998 to $67.6 million for the fiscal year ended March 31, 1999.

PRODUCT. Product revenue increased 44% from $35.0 million for the fiscal
year ended March 31, 1998 to $50.4 million for the fiscal year ended March 31,
1999. This increase was primarily due to a 25% growth in unit sales attributable
to a 51% increase in the number of sales personnel, an increase in shipments to
existing indirect channel partners and, to a lesser extent, the addition of 50
indirect channel partners. This increase was also due to an 18% increase in
average selling price due to larger volumes of Wide Area Network, Asynchronous
Transfer Mode and Fast Ethernet probes.

SERVICE. Service revenue increased 69% from $5.1 million for the fiscal
year ended March 31, 1998 to $8.7 million for the fiscal year ended March 31,
1999. This increase was primarily due to an increase in support agreements
attributable to new product sales and, to a lesser degree, an increase in the
sale of support agreements to new and existing customers attributable to
increased sales and marketing efforts. This increase was also due to a reduction
of our software and service support period accompanying product sales from 12
months to three months in January 1998.

LICENSE AND ROYALTY. License and royalty revenue increased 214% from $2.7
million for the fiscal year ended March 31, 1998 to $8.5 million for the fiscal
year ended March 31, 1999. This increase was primarily due to a proportionate
growth in unit sales of our software and embedded software products by Cisco.

COST OF REVENUE

PRODUCT. Cost of product revenue increased 52% from $12.6 million for the
fiscal year ended March 31, 1998 to $19.3 million for the fiscal year ended
March 31, 1999. This increase was primarily due to the increase in unit sales
and a 22% increase in the average cost per unit. Product gross margins decreased
from 64% for the fiscal year ended March 31, 1998 to 62% for the fiscal year
ended March 31, 1999. This decrease was primarily due to a shift toward indirect
sales which tend to have higher discounts than direct sales and, to a lesser
extent, larger direct sales transactions which also tend to have higher
discounts. These factors were partially offset by an increase in operating
efficiencies.

SERVICE. Cost of service revenue increased 58% from $784,000 for the fiscal
year ended March 31, 1998 to $1.2 million for the fiscal year ended March 31,
1999. This increase was primarily due to a 65% increase in service personnel
costs to support the increase in our installed customer base. Service gross
margins increased from 85% for the fiscal year ended March 31, 1998 to 86% for
the fiscal year ended March 31, 1999. This increase was primarily due to timing
of personnel replacements and additions.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. Research and development expenses increased 47%
from $5.1 million for the fiscal year ended March 31, 1998 to $7.5 million for
the fiscal year ended March 31, 1999. This increase was primarily due to a 40%
increase in research and development personnel costs and a 49% increase in
consulting costs.

SALES AND MARKETING. Sales and marketing expenses increased 50% from $13.6
million for the fiscal year ended March 31, 1998 to $20.4 million for the fiscal
year ended March 31, 1999. This increase was primarily due to a 53% increase in
sales and marketing personnel costs and a 114% increase in marketing programs.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
39% from $3.0 million for the fiscal year ended March 31, 1998 to $4.1 million
for the fiscal year ended March 31, 1999. This increase was primarily due to a
30% increase in general and administrative personnel costs and increases in
other costs associated with our growth.

INTEREST INCOME, NET. Interest income, net of interest expense, increased
25% from $743,000 for the fiscal year ended March 31, 1998 to $926,000 for the
fiscal year ended March 31, 1999. This increase was primarily due to an increase
in our cash balances.

PROVISION FOR INCOME TAXES. The provision for income taxes increased from
$3.1 million for the fiscal year ended March 31, 1998 to $5.7 million for the
fiscal year ended March 31, 1999, primarily due to higher pre-tax income. Our
effective tax rate remained constant at 36% for the fiscal year ended March 31,
1998 and for the fiscal year ended March 31, 1999.

YEARS ENDED MARCH 31, 1997 AND 1998

REVENUE

Total revenue increased 40% from $30.6 million for the fiscal year ended
March 31, 1997 to $42.8 million for the fiscal year ended March 31, 1998.

PRODUCT. Product revenue increased 39% from $25.2 million for the fiscal
year ended March 31, 1997 to $35.0 million for the fiscal year ended March 31,
1998. This increase was primarily due to 26% growth in unit sales attributable
to ana 27% increase in the number of sales personnel and an increase in shipments
to existing indirect channel partners and, to a lesser extent, an expansionthe addition of
42 indirect distribution channels.partners. This increase was also due to an 11% increase
in the average selling price

attributable to an increase in the sale of WAN,Wide Area Network, Fast Ethernet and
multi-port probes and the introduction of the HSSI probe.

SERVICE. Service revenue increased 32% from $3.9 million for the fiscal
year ended March 31, 1997 to $5.1 million for the fiscal year ended March 31,
1998. This increase was primarily due to growthan increase in support agreements
attributable to new product sales and, to a lesser degree, an increase in the
sale of support agreements to new and existing customers attributable to
increased sales and marketing efforts.

LICENSE AND ROYALTY. License and royalty revenue increased 68% from $1.6
million for the fiscal year ended March 31, 1997 to $2.7 million for the fiscal
year ended March 31, 1998. This increase was primarily due to a proportionate
growth in unit sales of our software and embedded software products by Cisco.

COST OF REVENUE

PRODUCT. Cost of product revenue increased 34% from $9.4 million for the
fiscal year ended March 31, 1997 to $12.6 million for the fiscal year ended
March 31, 1998. The increase was primarily due to anthe increase in unit sales and
a shift12% increase in product mix.average cost per unit. Product gross margins increased from
63%

23
for the fiscal year ended March 31, 1997 to 64% for the fiscal year ended
March 31, 1998. This was primarily due to a decrease in component costs and an increase in operational
efficiencies.

SERVICE. Cost of service revenue increased 48% from $528,000 for the fiscal
year ended March 31, 1997 to $784,000 for the fiscal year ended March 31, 1998.
This increase was primarily due to the hiring of additionala 48% increase in service personnel costs to
support anthe increase in the installed customer base. Service gross margins
decreased from 86% for the fiscal year ended March 31, 1997 to 85% for the
fiscal year ended March 31, 1998. This was primarily due to the increase in
service personnel.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. Research and development expenses increased 71%
from $3.0 million for the fiscal year ended March 31, 1997 to $5.1 million for
the fiscal year ended March 31, 1998. This increase was primarily due to the
hiring of additionalan 82%
increase in research and development personnel costs and highera 27% increase in
consulting costs related to development of new products and enhancements to
existing products.

SALES AND MARKETING. Sales and marketing expenses increased 100% from $6.8
million for the fiscal year ended March 31, 1997 to $13.6 million for the fiscal
year ended March 31, 1998. This increase was primarily due to the hiring of
additionala 116% increase in
sales and marketing personnel costs and an 89% increase in marketing programs,
including trade shows, seminars and advertising.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
63% from $1.8 million for the fiscal year ended March 31, 1997 to $3.0 million
for the fiscal year ended March 31, 1998. This increase was primarily due to the
hiring of additionalan
81% increase in general and administrative personnel costs and increases in
other costs to support our growth and the related move to new facilities in
November 1997.

INTEREST INCOME, NET. Interest income, net of interest expense, increased
61% from $461,000 for the fiscal year ended March 31, 1997 to $743,000 for the
fiscal year ended March 31, 1998. The increase was primarily due to an increase
in our cash balances.

PROVISION FOR INCOME TAXES. The provision for income taxes decreased from
$3.6 million for the fiscal year ended March 31, 1997 to $3.1 million for the
fiscal year ended March 31, 1998. This decrease was primarily due to lower
pre-tax income and, to a lesser degree, a decrease in our effective

27
tax rate. Our effective tax rate decreased from 38% for the fiscal year ended
March 31, 1997 to 36% for the fiscal year ended March 31, 1998 primarily due to
the reinstatement of the Research and Development Tax Credit in 1998.

INCOME FROM OPERATIONS. Income from operations decreased 15% from $9.1
million for the fiscal year ended March 31, 1997 to $7.7 million for the fiscal
year ended March 31, 1998. Income from operations during the fiscal year ended
March 31, 1997 was favorably impacted by higher than anticipated revenue coupled
with expenses that did not increase proportionately.

YEARS ENDED MARCH 31, 1996 AND 1997

REVENUE

Total revenue increased 95% from $15.7 million for the fiscal year ended
March 31, 1996 to $30.6 million for the fiscal year ended March 31, 1997.

PRODUCT. Product revenue increased 90% from $13.3 million for the fiscal
year ended March 31, 1996 to $25.2 million for the fiscal year ended March 31,
1997. This increase was primarily due to growth in unit sales which was
attributable to an increase in shipments to existing indirect channel partners
and an increase in the number of sales personnel and, to a lesser extent, an
expansion of indirect distribution channels. This increase was also due to an
increase in the average selling price attributable to an increase in the sale of
FDDI and Fast Ethernet probes.

SERVICE. Service revenue increased 156% from $1.5 million for the fiscal
year ended March 31, 1996 to $3.9 million for the fiscal year ended March 31,
1997. This increase was primarily due to growth in sales of support agreements
to new and existing customers attributable to increased sales and marketing
efforts.

LICENSE AND ROYALTY. License and royalty revenue increased 81% from
$886,000 for the fiscal year ended March 31, 1996 to $1.6 million for the fiscal
year ended March 31, 1997. This increase was primarily due to a growth in unit
sales of our software and embedded software products by Cisco.

COST OF REVENUE

PRODUCT. Cost of product revenue increased 60% from $5.9 million for the
fiscal year ended March 31, 1996 to $9.4 million for the fiscal year ended March
31, 1997. This increase was primarily due to an increase in unit sales and a
shift in product mix. Product gross margins increased from 56% for the fiscal
year ended March 31, 1996 to 63% for the fiscal year ended March 31, 1997. This
increase was primarily due to a shift in product mix to higher margin products,
a decrease in component costs and increases in operating efficiencies.

SERVICE. Cost of service revenue increased 283% from $138,000 for the
fiscal year ended March 31, 1996 to $528,000 for the fiscal year ended March 31,
1997. This increase was primarily due to the hiring of additional service
personnel to support an increase in the customer base. Service gross margins
decreased from 91% for the fiscal year ended March 31, 1996 to 86% for the
fiscal year ended March 31, 1997. This decrease was primarily due to the
increase in service personnel.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT. Research and development expenses increased 149%
from $1.2 million for the fiscal year ended March 31, 1996 to $3.0 million for
the fiscal year ended March 31, 1997. This increase was primarily due to the
hiring of additional research and development personnel and higher consulting
costs related to development of new products and enhancements to existing
products.

SALES AND MARKETING. Sales and marketing expenses increased 55% from $4.4
million for the fiscal year ended March 31, 1996 to $6.8 million for the fiscal
year ended March 31, 1997. This increase was primarily due to the hiring of
additional sales and marketing personnel and increases in marketing programs,
including trade shows, direct mail programs and seminars.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
161% from $695,000 for the fiscal year ended March 31, 1996 to $1.8 million for
the fiscal year ended March 31, 1997. This increase was primarily due to the
hiring of additional general and administrative personnel and costs to support
our growth.

INTEREST INCOME (EXPENSE), NET. Interest income, net of interest expense,
increased from an expense of $3,000 for the fiscal year ended March 31, 1996 to
income of $461,000 for the fiscal year ended March 31, 1997. This increase was
primarily due to an increase in our cash balances.

PROVISION FOR INCOME TAXES. The provision for income taxes increased from
$1.4 million for the fiscal year ended March 31, 1996 to $3.6 million for the
fiscal year ended March 31, 1997. This increase was primarily due to higher
pre-tax income. Our effective tax rate decreased from 40% for the fiscal year
ended March 31, 1996 to 38% for the fiscal year ended March 31, 1997 primarily
due to the reduction of non-deductible expenses.

25
QUARTERLY RESULTS OF OPERATIONS

The following tables set forth a summary of NetScout's unaudited quarterly
operating results for each of the seveneight quarters included in the period ended
December 31, 1998.June 30, 1999. This information has been derived from unaudited interim
consolidated financial statements that, in the opinion of management, have been
prepared on a basis consistent with the audited consolidated financial
statements contained elsewhere in this prospectus and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information when read in conjunction with our audited
consolidated financial statements and notes thereto. The operating results for
any quarter are not necessarily indicative of results for any future period.

QUARTER ENDED
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
JUNE 30,
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1997MAR. 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
----------- -------------------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
STATEMENT OF INCOME DATA:
Revenue:
Product........................................ $ 6,512Product............................. $ 7,710 $ 9,722 $ 11,046 $ 11,547 $ 11,863 $ 13,327 Service........................................ 1,192$ 13,637 $ 12,814
Service............................. 1,033 1,230 1,688 1,873 2,284 2,172 2,381 2,465
License and royalty............................ 298royalty................. 788 686 924 1,843 1,999 1,972 -----------2,653 3,792
----------- --------- --------- --------- --------- --------- --------- ---------
Total revenue................................ 8,002revenue..................... 9,531 11,638 13,658 15,263 16,146 17,471 18,671 19,071
----------- -------------------- --------- --------- --------- --------- --------- ---------
Cost of revenue:
Product........................................ 2,162Product............................. 2,649 3,488 4,339 4,340 4,347 4,927 Service........................................ 1365,636 4,814
Service............................. 152 222 274 296 320 222 397 413
----------- -------------------- --------- --------- --------- --------- --------- ---------
Total cost of revenue........................ 2,298revenue............. 2,801 3,710 4,613 4,636 4,667 5,149 -----------6,033 5,227
----------- --------- --------- --------- --------- --------- --------- ---------
Gross margin..................................... 5,704margin.......................... 6,730 7,928 9,045 10,627 11,479 12,322 12,638 13,844
----------- -------------------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development....................... 1,070development............ 1,196 1,277 1,586 1,732 1,760 1,803 2,231 2,241
Sales and marketing............................ 2,557marketing................. 2,984 3,837 4,205 5,008 4,527 5,191 5,649 6,040
General and administrative..................... 580administrative.......... 586 746 1,038 815 9131,213 1,030 1,046 937
----------- -------------------- --------- --------- --------- --------- --------- ---------
Total operating expenses..................... 4,207expenses.......... 4,766 5,860 6,829 7,555 7,2007,500 8,024 8,926 9,218
----------- -------------------- --------- --------- --------- --------- --------- ---------
Income from operations........................... 1,497operations................ 1,964 2,068 2,216 3,072 4,2793,979 4,298 3,712 4,626
Interest income, net............................. 185net.................. 176 194 188 200 243 224 259 272
----------- -------------------- --------- --------- --------- --------- --------- ---------
Income before provision for income
taxes......... 1,682taxes............................... 2,140 2,262 2,404 3,272 4,222 4,522 4,5223,971 4,898
Provision for income taxes....................... 606taxes............ 771 814 865 1,178 1,6281,520 1,629 -----------1,388 1,764
----------- --------- --------- --------- --------- --------- --------- ---------
Net income....................................... $ 1,076income............................ $ 1,369 $ 1,448 $ 1,539 $ 2,094 $ 2,8942,702 $ 2,893 -----------$ 2,583 $ 3,134
----------- --------- --------- --------- --------- --------- --------- ---------
----------- -------------------- --------- --------- --------- --------- --------- ---------

2628

AS A PERCENTAGE OF TOTAL REVENUE:

QUARTER ENDED
----------------------------------------------------------------------------

JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 19971998 1998 1998 1998
----------- ----------- ----------- ----------- ----------- -----------
Revenue:
Product............................................ 81.4%Product................................... 80.9% 83.5% 80.9% 75.7% 73.5% Service............................................ 14.976.3%
Service................................... 10.8 10.6 12.4 12.3 14.1 12.4
License and royalty................................ 3.7royalty....................... 8.3 5.9 6.7 12.0 12.4 11.3
----- ----- ----- ----- ----- -----
Total revenue....................................revenue........................... 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- -----
Cost of revenue:
Product............................................ 27.0Product................................... 27.8 30.0 31.8 28.4 26.9 Service............................................ 1.728.2
Service................................... 1.6 1.9 2.0 2.0 2.0 1.3
----- ----- ----- ----- ----- -----
Total cost of revenue............................ 28.7revenue................... 29.4 31.9 33.8 30.4 28.9 29.5
----- ----- ----- ----- ----- -----
Gross margin......................................... 71.3margin................................ 70.6 68.1 66.2 69.6 71.1 70.5
----- ----- ----- ----- ----- -----
Operating expenses:
Research and development........................... 13.4development.................. 12.5 11.0 11.6 11.4 10.9 10.3
Sales and marketing................................ 31.9marketing....................... 31.3 33.0 30.8 32.8 28.0 29.7
General and administrative......................... 7.3administrative................ 6.1 6.4 7.6 5.3 5.77.5 5.9
----- ----- ----- ----- ----- -----
Total operating expenses......................... 52.6expenses................ 49.9 50.4 50.0 49.5 44.646.4 45.9
----- ----- ----- ----- ----- -----
Income from operations............................... 18.7operations...................... 20.7 17.7 16.2 20.1 26.524.7 24.6
Interest income, net................................. 2.3net........................ 1.8 1.7 1.4 1.3 1.5 1.3
----- ----- ----- ----- ----- -----
Income before provision for income taxes............. 21.0taxes.... 22.5 19.4 17.6 21.4 28.026.2 25.9
Provision for income taxes........................... 7.6taxes.................. 8.1 7.0 6.3 7.7 10.19.4 9.3
----- ----- ----- ----- ----- -----
Net income........................................... 13.4%income.................................. 14.4% 12.4% 11.3% 13.7% 17.9%16.8% 16.6%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----

DEC.
MAR. 31, 1998JUNE 30,
1999 1999
----------- -----------
Revenue:
Product............................................ 76.3%
Service............................................ 12.4Product................................... 73.0% 67.2%
Service................................... 12.8 12.9
License and royalty................................ 11.3royalty....................... 14.2 19.9
----- -----
Total revenue....................................revenue........................... 100.0 100.0
----- -----
Cost of revenue:
Product............................................ 28.2
Service............................................ 1.3Product................................... 30.2 25.2
Service................................... 2.1 2.2
----- -----
Total cost of revenue............................ 29.5revenue................... 32.3 27.4
----- -----
Gross margin......................................... 70.5margin................................ 67.7 72.6
----- -----
Operating expenses:
Research and development........................... 10.3development.................. 11.9 11.8
Sales and marketing................................ 29.7marketing....................... 30.3 31.7
General and administrative......................... 5.9administrative................ 5.6 4.9
----- -----
Total operating expenses......................... 45.9expenses................ 47.8 48.4
----- -----
Income from operations............................... 24.6operations...................... 19.9 24.2
Interest income, net................................. 1.3net........................ 1.4 1.4
----- -----
Income before provision for income taxes............. 25.9taxes.... 21.3 25.6
Provision for income taxes........................... 9.3taxes.................. 7.5 9.2
----- -----
Net income........................................... 16.6%income.................................. 13.8% 16.4%
----- -----
----- -----

NetScout's total revenue has increased each of the seveneight consecutive
quarters in the period ended December 31, 1998.June 30, 1999. Product revenue increased in
absolute dollars in each consecutive quarter, other than the quarter ended June
30, 1999, due to increased market acceptance of our products and diversification
of our sales channels, including expansion of our sales force and relationships
with indirect channel partners. Product revenue was negatively impacted in the
quarter ended June 30, 1999 by the timing of sales personnel additions, as well
as the restructuring of our sales force. Service revenue generally increased due
to the growth in our customer base and new initiatives to sell extended support
agreements. License and royalty revenue generally increased but fluctuated due
to variability in the salesales of software products by, and royalty revenue from,
Cisco.

Cost of product revenue increased in absolute dollars in each consecutive
quarter, other than the quarter ended June 30, 1999, primarily due to higher
unit volumes but fluctuated as a percentage of product revenue primarily due to
changes in the distribution channel and, to a lesser degree, variability of
component costs.costs and the product mix. Cost of product revenue decreased in the
quarter ended June 30, 1999 due to lower product revenue. Cost of service
revenue generally increased in absolute dollars primarily due to the hiring of
additional support personnel and related costs for customer support with the
exception of the quarter ended December 31, 1998, when timing of personnel
replacements and additions resulted in lower expenses. Cost of service revenue
fluctuated as a percentage of service revenue primarily due to variability in
staffing levels.

Operating expenses generallyGross margin increased in absolute dollars primarily due to
increased spending in all areas. Operating expenses generally declinedeach consecutive quarter.
Gross margin as a percentage of total revenue primarilyfluctuated due to our limited ability to hire
researchthe mix of
product, service and development personnellicense and royalty revenue and by the proportion of sales
through direct versus indirect distribution channels. Gross

margin, as wella percentage of total revenue, was favorably impacted during the
quarter ended June 30, 1999 as salesa result of an increase in license and marketing personnel.royalty
revenue as a percentage of total revenue.

Research and development expenses increased in absolute dollars each quarter
primarily due to the hiring of additional research and development personnel and
higher consulting costs associated with enhancing existing products and
developing new products. Research and development expenses generally declinedfluctuated as a
percentage of total revenue primarily due to the timing of research and
development staffing.personnel additions.

Sales and marketing expenses generally increased in absolute dollars each
quarter primarily due to the hiring of additional sales and marketing personnel
and an increase in marketing program activities. A reduction in marketing
activities for the quarter ended September 30, 1998 resulted in a decrease in
27
overall sales and marketing expenses for that quarter. Sales and marketing
expenses fluctuated as a percentage of total revenue primarily due to
variability in marketing expenditures and our internal hiring cycles for sales
and marketing personnel.

General and administrative expenses fluctuated but generally increased in
absolute dollars primarily due to the hiring of additional financial,
information services and human resources personnel, as well as increased use of
outside services. General
and administrative expenses were unusually high in the quarter ended March 31,
1998 primarily due to expenses related to our move to a new facility. General and administrative expenses have fluctuated as a
percentage of total revenue primarily due to variability in purchases of outside
services.

Our operating results have varied on a quarterly basis during our operating
history and are expected to fluctuate significantly in the future. A variety of
important factors, many of which are outside of our control, may affect our
quarterly operating results. See "Risk Factors--Disappointing quarterly
operating results could cause our common stock price to decrease."

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have funded operations primarily through cash provided
by operating activities. At December 31, 1998,June 30, 1999, we had cash and cash equivalents
totaling $22.0$22.9 million. In March 1999, we extended and increased ourWe have a line of credit with a bank which allows us to
borrow up to $5.0 million for working capital purposes and to obtain of letters of
credit. The line of credit expires in March 2000. Amounts available under the
line of credit are a function of eligible accounts receivable and bear interest
at the bank's prime rate, which was 7.75% on March 31,June 30, 1999. At March 31,June 30, 1999, we
had letters of credit outstanding under the line aggregating $561,000. The bank
line of credit is secured by our inventory and accounts receivable.

Cash provided by operating activities was $2.3 million, $8.4 million, $6.7 million and
$8.8$12.8 million for the fiscal years ended March 31, 1996, 1997, and 1998 and 1999, and $1.1
million for the ninethree months ended December 31,June 30, 1998. Cash provided by operating
activities was primarily derived from net income generated and, to a lesser degree,
increases in deferred revenue, accrued expenses, and depreciation and
amortization in each period. This was partially offset by increases in accounts
receivable in fiscal 19961998, 1999 and fiscal 1998 and for the ninethree months ended December
31,June 30, 1998, and
increases in inventories in fiscal 1996, fiscal 1997 and fiscal 1998. All of these increases were
due to the growth of our business.

Cash used by operating activities was $1.0 million for the three months
ended June 30, 1999. Cash used by operating activities was the result of an
increase in accounts receivable and a decrease in accounts payable, which were
offset by net income.

Cash used by investing activities was $788,000, $9.7 million and $6.9 million for the
fiscal years ended March 31, 1996, 1997 and 1998. Cash used by investing activities in
fiscal 1996, fiscal 1997 and fiscal 1998 was primarily due to purchases of marketable securities and
purchases of fixed assets and, in fiscal 1997, also due to loans that were made
to stockholders. Cash provided by investing activities was $6.9$6.3 million for
the nine months ended December 31,
1998,fiscal 1999, which was primarily due to the maturity of marketable securities,
partially offset by purchases of fixed assets. Cash used by investing activities
was $1.6 million for the three months ended June 30, 1999 due to the purchase of
fixed assets.

Cash provided by financing activities was $5.9 million$2,000, $22,000 and $22,000 for
the fiscal yearyears ended March 31, 1996, which represent1997, 1998 and 1999, and $68,000 for the netthree
months ended June 30, 1999, all primarily due to proceeds derived fromreceived upon the
saleexercise of Series A Preferred Stock.stock options. In January 1999, we received gross proceeds of $44.5
million from the sale of Class B Convertible Common Stock, and all of the
proceeds were used to redeem shares of Series A Preferred Stock, Non-Voting
Common Stock and common stock.

Cash provided by financing activities was $2,000,
$22,000 and $43,000 for the fiscal years ended March 31, 1997 and 1998 and for
the nine months ended December 31, 1998, which was primarily due to proceeds
received upon the exercise of stock options.

As of December 31, 1998,June 30, 1999, our primary commitments consisted of obligations
outstanding under operating leases. Future noncancelable minimum lease
commitments are $861,000, $959,000, $1.0 million, and $683,000 for fiscal years
2000, 2001, 2002 and 2003.

We expect to experience growth in our working capital needs for the
foreseeable future in order to execute our business plan. We anticipate that
operating activities, as well as planned capital

28
expenditures, will constitute a
material use of our cash resources. In addition, we may utilize cash resources
to fund acquisitions or investments in complementary businesses, technologies or
products. We believe that the net proceeds from this offering, together with our
current cash and cash equivalents and cash generated from operations, will be
sufficient to meet our anticipated cash requirements for working capital and
capital expenditures for at least the next 12 months.

YEAR 2000 READINESS DISCLOSURE

Many computers and software products accept only two digit entries in date
fields which could cause problems distinguishing 21st century dates from 20th
century dates. The use of computers and software products that are not "Year
2000"year 2000
compliant could result in system failures or miscalculations causing business
disruptions including the inability to process transactions, send invoices or
perform other business activities. As a result, many computers and software
products may need to be upgraded or replaced in order to meet Yearyear 2000
requirements.

We believe that we have reviewedthree general areas of potential exposure with
respect to the year 2000 problem:

- our own products;

- our internal information systems and equipment-related systems; and

- the effects of third party compliance efforts.

We have completed our review of our products to determine whether they are
Yearyear 2000 compliant. Based on this review, we believe that, most ofexcept as set forth
in the next sentence, our products are Yearyear 2000 compliant. The NetScout WebCast
Unix and Windows NT products are not currently Yearyear 2000 compliant but are
expected to be made Yearyear 2000 compliant in the next product release, (version 2.1), which is
planned for the third calendar quarter of 1999. WeThere can be no assurance that
our products will not interact with non-year 2000 compliant products, which
could cause our products to malfunction. This malfunction could expose us to
claims from our customers or third parties or result in the reduction in market
acceptance of our products and services and increased service costs to us.

With respect to our internal information systems, we believe our current
financial and accounting system is Yearyear 2000 compliant. We anticipate that our
financial and accounting systems will be upgraded during the third calendar
quarter of 1999 and that such systems will also be Yearyear 2000 compliant. All
other commercially available internal systems used in our daily operations, including our computers,
software packages, telephones, security systems and shipping systems, have
either been determined to be compliant, have been certified compliant by the
commercial provider or are in the process of being tested and upgraded. We
believe that our review of our internal information systems and
equipment-related systems is 90% complete. We expect that our review of our
internal systems and equipment related systems will be finalized prior to the
end of the third calendar quarter and that such systems will be

fully compliant by the end of the third calendar quarter of 1999. We do not
expect the costs of making our internal information systems and
equipment-related systems year 2000 compliant to be material.

The third aspect of our year 2000 analysis involves evaluating the year 2000
efforts of third parties, including suppliers and indirect channel partners. To
date, we have not conducted a year 2000 review of our suppliers or indirect
channel partners. We are currently evaluating the need to conduct a review of
our suppliers' and indirect channel partners' year 2000 compliance issues.
Failure of our suppliers' systems to operate properly could require us to incur
significant expenses to remedy problems or replace suppliers. Failure of our
indirect channel partners' systems to operate properly could reduce our revenue
from our indirect channel partners. Problems with our suppliers or indirect
channel partners could have a material adverse effect on our business, operating
results and financial condition.

To date, we have not incurred significant costs in connection with
identifying and evaluating year 2000 issues or complying with year 2000
requirements. We have not experienced any significant year 2000 problems and
have not deferred the release of any of our products or any IT projects as a
result of year 2000 complications. We have not used any independent verification
or validation processes to support our assertions regarding year 2000 risks and
cost estimates. We do not expect to incur significant costs in the foreseeable
future. However, since the identification and evaluation process is ongoing and
year 2000 complications are not fully known, there can be no assurance that year
2000 errors or defects will not be discovered in our products or internal
software systems. If such errors or defects are discovered, there can be no
assurance that the costs of making such systems year 2000 compliant will not
have a material adverse effect on our business, operating results and financial
condition.

Purchasing patterns of our customers or potential customers may be affected
by Yearyear 2000 issues. They may expend significant resources to correct their
current systems for Yearyear 2000 compliance which could result in reduced funds
available for network management products. Year 2000 complications could also
disrupt the operations of our customers which could delay purchases of network
management products. Reduced funds or delayed purchases could have a material
adverse effect on our business, operating results and financial condition.

In addition, we rely on suppliers and indirect channel partners who may be
impacted by Year 2000 complications. To date, we have not conducted a Year 2000
review of our suppliers or indirect channel partners. We are currently
evaluating the need to conduct a review of our suppliers' and indirect channel
partners' Year 2000 compliance issues. Failure of our suppliers' systems to
operate properly could require us to incur significant expenses to remedy
problems or replace suppliers. Failure of our indirect channel partners' systems
to operate properly could reduce our revenue from indirect distribution
channels. Problems with our suppliers or indirect channel partners could have a
material adverse effect on our business, operating results and financial
condition.

Some of our products are sold to OEMsoriginal equipment manufacturers who
incorporate them into their own product offerings. We do not know whether
OEMoriginal equipment manufacturer products incorporating our products are or will
be Yearyear 2000 complaint. If such OEMoriginal equipment manufacturer products are not
Yearyear 2000 complaint, their customers could cancel or delay orders which, in
time, would affect the orders that we receive from our OEMoriginal equipment
manufacturer partners. Therefore, the failure of our OEMoriginal equipment
manufacturer partners to be Yearyear 2000 complaint could have a material adverse
effect on our business, results of operations and financial condition.

To date,Under the reasonably, likely worst case scenario:

- we have not incurred significant incremental costs in order to
comply with Year 2000 requirements and do not expect to incur significant
incremental costs in the foreseeable future. However, there can be no assurance
that Year 2000 errors or defects willmay not be discovered in our products or our
internal software systems. If such errors or defects are discovered, there can
be no

assurance that the costs of making such systems Yearable to deliver year 2000 compliant willproducts;

- our indirect channel partners, our customers or we may not have a material adverse effect onbe able to
process orders; or

- our business, operating results and financial
condition.suppliers may not be able to supply us with critical components
needed to make our products.

We do not currently have any Yearyear 2000 contingency plans. If we discover
Yearyear 2000 compliance issues, we intend to evaluate the need for one or more
contingency plans relating to such issues.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We consider all highly-liquid investments purchased with a maturity of three
months or less to be cash equivalents, and those with maturities greater than
three months are considered to be marketable securities. Cash equivalents and
marketable securities are stated at amortized cost plus accrued interest,

32
which approximates fair value. Cash equivalents and marketable securities
consist primarily of money market instruments and U.S. Treasury bills. We
currently do not hedge interest rate exposure, but do not believe that an
increase in interest rates would have a material effect on the value of our
marketable securities.

EUROPEAN MONETARY UNION

On January 1, 1999, eleven of the existing members of the European Union
("EU") joined the European Monetary Union. Ultimately, there will be a single currency
within certain countries of the EU,European Union, known as the Euro, and one
organization, the European Central Bank, responsible for setting European
monetary policy. We have reviewed the impact the Euro will have on our business
and whether this will give rise to a need for significant changes in our
commercial operations or treasury management functions. Because our transactions
are denominated in U.S. dollars, we do not believe that the Euro conversion will
have any material effect on our business, financial condition or result of
operations.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statement
of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 establishes the accounting for costs of
software products developed or purchased for internal use, including when such
costs should be capitalized. We do not expect SOP 98-1, which is effective for
us beginning April 1, 1999, to have a material effect on our financial condition
or results of operations.

In April 1998, the AcSECAccounting Standards Executive Committee issued SOP 98-5,
"Reporting on the Costs of Start-Up Activities." Start-up activities are defined
broadly as those one-time activities relating to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer, commencing some new operation
or organizing a new entity. Under SOP 98-5, the cost of start-up activities
should be expensed as incurred. SOP 98-5 is effective for our fiscal year 2000
financial statements and we do not expect its adoption to have a material effect
on our financial condition or results of operations.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The new standard establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal year quarters of fiscal years beginning after June 15,
1999. We do not expect SFAS No. 133 to have a material effect on our financial
condition or results of operations.

3033

BUSINESS

INTRODUCTION

We design, develop, manufacture, market and support an integrateda family of products
that enable businesses and network service providers to manage the performance
of their computer networks and important business software applications. Our Application Flow
Management ("AFM") solution tracks and provides information regarding the flow of
software applications, such as e-mail, order entry and Web-based applications,
across the network and the performance of the underlying computer network.
Application Flow Management consists of data collection devices
andproducts as well as
analysis and presentation software. AFM collects, aggregatesOur data collection products collect,
aggregate and analyzesanalyze network and application data from a wide range of network
technologies. Using this data, AFM provides real-time information regarding the performance of
computer networksour presentation and individualanalysis software applications, such as e-mail, order
entry and Web-based applications. Our solution provides thisproducts
provide current information to computer network managers and business managersexecutives
in a user-friendly,an easy-to-use, graphical format.

INDUSTRY BACKGROUND

Business enterprises increasingly rely on software applications and computer
networks as strategic assets that are essential to business operations. Computer
networks are being expanded to deliver important software applications, such as
enterprise resource planning, e-mail, order entry, accounting and Web-based
applications, to employees, suppliers, distributors and customers. Because of
the dramatic increase in the number of users who depend on fast and reliable
computer network access, even minor computer network malfunctions can result in
significant business interruptions, lost revenue, decreased productivity and
customer dissatisfaction. As a result, businesses are recognizing the critical
importance of effective network and application performance management.

To support the growing number of users and demand for faster and more
reliable computer network access, both business enterprises and service providers of
outsourced network and application management services are making significant
investments in advanced networking technology. The Gartner Group, a leading
networking industry research company, estimates that the world-wide enterprise
networking equipment market, excluding Internet remote access equipment, was
$37.4 billion in 1998, growing at a five-year compounded
annual rate of 28.2%.1998. This growth has resulted in the introduction of new
technologies addressing network speed and access, such as Fast Ethernet, Gigabit
Ethernet, ATMAsynchronous Transfer Mode and IP/Internet, and new network products
addressing quality of service and security. The implementation of these new
technologies and products from a variety of vendors has resulted in
highly-complex multi-vendor computer networks, which are more difficult to manage.

Traditional network performance management is a reactive process in which
computer network managers respond to problems only after computer network
performance has been impacted. This type of network performance management is
based on receiving alerts from malfunctioning computer network devices or calls
from computers network users indicating that performance has degraded.
Highly-skilled technicians with portable network traffic analyzers are then
dispatched to diagnose and resolve the computer network problems. While this
approach helps computer network managers respond to technical problems, it does
not provide sufficient information to proactively manage the overall computer
network, measure the performance of software applications, or address issues
with computer network design. A further drawback of this approach is that
network problems are often addressed by adding costly network capacity instead
of identifying and correcting inefficiencies.

A new, proactive approach is emerging that is designed to anticipate and
help prevent computer network problems before performance is degraded. This
approach is based on analytical software that retrieves and analyzes information
from data sources located on the computer network. These data sources include
existing computer network devices, such as routers, switches and hubs, data
collection software agents, and dedicated data collection devices, known as
probes.

34
One class of proactive network management products relies on retrieving data
from existing computer network devices. These products generally report on
computer network utilization for use in network capacity planning and device
status monitoring which can help prevent certain types of failures. 31
Because this
class of products relies on limited, predefined data, originally intended for
device management, it provides minimal information regarding network users or
software application performance. These solutions typically provide only
historical and end-of-period reports because providing real-timecurrent information would
significantly increase network traffic.

A second class of proactive network management products relies on retrieving
data from proprietary software installed on users' desktop computers. These
solutions provide information regarding software application performance, but
offer limited insight into the performance of the network. In addition, these
solutions can be difficult to administer and can burden the processing power of
desktop computers.

A third class of proactive network management products relies on placing
probes on key parts of the computer network to provide continuous monitoring of
computer network traffic. Comprised of dedicated computer hardware and software,
most probes are based on the remote monitoring ("RMON") standard. In contrast with
approaches that utilize existing network devices, probes contain proprietary
software which allows the capture of a richer set of network information. In
contrast with approaches that require the installation of software on desktop
computers, probes contain processors which can capture, store and analyze
traffic data on a computer network segment without impacting any existing
devices on the computer network. Although probes provide the most robust data
about network performance, most probes are unable to provide information
regarding application performance, such as response time.

Business executives and computer network managers need a comprehensive
approach to network and application performance management that enables them to
anticipate and address network performance problems and align their computer
resources to their business strategies. Although each of the new, proactive
network management approaches provides better solutions than the traditional
reactive approach, none of these approaches provides the ability to manage both
network and application performance.

NETSCOUT SOLUTION

We design, develop, manufacture, market and support an integrateda family of products to
enable business managers to manage both network and application performance,
which together comprise our Application Flow Management ("AFM")
solution. AFMApplication
Flow Management uses proprietary technology to deliver more functionality than
other solutions. Our probes collect, aggregate and perform detailed analysis on
a wide range of computer network data, including data from individual software
applications. We believe that we currently offer the industry's most extensive
family of probes, with models for a wide range of network technologies. In
addition, our robust analytical software provides real-timecurrent network and
application performance information in a user-friendly,an easy-to-use, graphical format.
AFMApplication Flow Management addresses the following key aspects of network
management:

- APPLICATION RESPONSE TIME MEASUREMENT. AFM measuresMEASUREMENT-Measures and provides detailed,
real-timecurrent information on application response time over the computer
network. This information enables network managers to optimize applicationnetwork
configuration, prioritize software applications and proactively manage the
computer network.

- MONITORING AND TROUBLESHOOTING. AFM allows real-timeTROUBLESHOOTING-Allows current monitoring and trend
analysis of network usage, performance and error conditions which help
network managers prevent network malfunctions. When network problems do
occur, detailed information expedites troubleshooting to minimize the
impact.

35
- CAPACITY PLANNING. AFM measuresPLANNING-Measures trends in network usage by individual software
application. Helps network managers make informed network spending
decisions.

32
- POLICY ENFORCEMENT. AFM allowsENFORCEMENT-Allows network managers to identify inappropriate or
wasteful usage of the computer network. Network managers can use this
information to ensure adherence to corporate policies and guidelines.

- ACCOUNTING AND CHARGE-BACK. AFM providesCHARGE-BACK-Provides network usage information by user,
department or application. When used in conjunction with accounting
software packages, it allows customers to charge for internal network
usage.

STRATEGY

Our objective is to enhance our leadership position in the network and
application performance management market. Key elements of our strategy include:

EXTEND TECHNOLOGY LEADERSHIP IN INSTRUMENTATION.LEADERSHIP. We intend to continue to devote significant
resources to the development of new and innovative products, capitalizing on our
extensive experience with large computer networks and our understanding of
customer needs. As computer networks evolve, we intend to incorporate new
technologies and provide solutions to enable businesses to manage and optimize
the performance of their computer networks and critical software applications.
We have an extensive track record of innovation, including the introduction of
Ethernet probes in 1992, WANWide Area Network probes in 1993, switch embedded
probes and CDDI/FDDI probes in 1995, Fast Ethernet probes in 1996, WANWide Area
Network (T3) probes in 1997, ATMAsynchronous Transfer Mode probes in 1998, and
Channelized WANWide Area Network and Fast EtherChannel probes in 1999. We are
currently developing a Gigabit Ethernet probe that is planned for release later
in 1999.

EXPAND REPORTING AND ANALYSIS SOFTWARE SUITE. We plan to develop new
analysis, presentation and reporting software to leverage the extensive
information collected by our probes. Our product family is designed to permit
easy integration of enhanced analysis and reporting functions, as demonstrated
by the release of Resource Monitor in 1994, NetScout Server and WebCast in 1997
and AppScout in 1999.

LEVERAGE INSTALLED BASE OPPORTUNITIES. We have sold a majority of our
products through indirect distribution channels and have also sold our products
directly to over 600 customers. Our installed base consists of over 25,000
hardware probes and over 50,000 switch-embedded agents. We intend to target
existing users of our products with marketing and sales programs designed to
promote the more extensive use of our data collection devices throughout their
computer networks and the adoption of our management software options.

TARGET NEW MARKET OPPORTUNITIES. We market our products to potential
customers in markets which we believe have the potential for growth. We have
identified the following markets as having the potential for strong demand for
our products:

- network management outsourcing companies, such as Compaq and WANG Global;

- connectivity service providers, such as MCI Worldcom and Concert
Communications Company; and

- application service providers,management outsourcing companies, which we believe is an
emerging market.

CONTINUE TO LEVERAGE CISCO RELATIONSHIP. Since 1994, we have had a
strategic relationship with Cisco. Our strategy is to further synchronize our
product development and marketing activities with Cisco's business strategy, and
to support Cisco's distribution of our products. Through our relationship with
this computer networking industry leader, we have significantly increased the
sale of our products and enhanced the market acceptance of our network and
application performance management solutions.

36
EXPAND DISTRIBUTION CHANNELS. We plan to substantially increase the number
of our field sales representatives. We also seek to develop additional indirect
distribution channels to promote our

33
products, including computer networking
equipment and software application vendors, system integrators, distributors,
resellers and service providers. We have strategic relationships with Paradyne
Corporation, WaveTek Wandel Goltermann, Inc., FORE Systems, Inc. and Compaq
Computer Corporation designed to facilitate the distribution and market
acceptance of our solutions. We are striving to increase sales outside of North
America through the addition of sales personnel and increased marketing
activities to support our indirect channel partners, including Cisco.

FACILITATE DEVELOPMENT OF COMPLEMENTARY THIRD-PARTY PRODUCTS. Our probes
provide a rich source of data that can be used by third-party software products.
As a means to increase demand for our products, we encourage the development of
applications that leverage our solutions. For example, we have partnered with
Concord Communications, Inc., DeskTalk Systems, Inc. and Apogee Networks, Inc.
to develop interoperable, expanded solutions. We supply a developer's toolkit,
which includes interfaces to our products, to enable the development of
complementary products.

PRODUCTS AND TECHNOLOGY

Our AFMApplication Flow Management solution provides computer network and
application performance management through three layers of products:

Graphic depicting the three layers of our products: Data Collection, Data
Aggregation and Information and Presentation Analysis

Our products are generally purchased as a complete system, consisting of
multiple data sources, presentation and analysis software and optional data
aggregation software for larger networks. A representative new customer would be
a multinational corporation that deploys 25 to 50 probes, data aggregation
software and our full suite of presentation and analysis software over a
12-month period. Depending on the type of network, such a deployment would
typically cost between $100,000 and $300,000. After initial deployment of our
solution, a customer can add additional probes and management software options
on an individual basis. Our solution has been deployed in networks employing
more than 500 probes.

DATA COLLECTION

Our data sources are based on the RMONremote monitoring standard and implement
proprietary enhancements for additional functionality, such as application
response time and switched network monitoring. We offer the following family of
data sources:

PROBES. NetScout probes are dedicated data collection devices comprised
of a standard hardware platform and proprietary software. Probes contain
processors that capture, store and analyze data on a computer network. Our
probes are best suited for parts of the computer network that require
continuous monitoring and support a wide range of computer network
technologies, including the following:

- Ethernet, Fast Ethernet, Fast EtherChannel and Token Ring;

- Sub-rate, T1/E1, T3/E3 WANWide Area Network and Frame Relay;

- FDDI/CDDI; and

- Oc3 ATM.

34Asynchronous Transfer Mode.

SOFTWARE AGENTS. NetScout software agents are software-only data
sources that run on server or desktop computers running the Windows NT
operating system. This lower-cost alternative is best suited for parts of
the computer network with lower traffic volume, such as branch office
networks and remote user links.

SWITCH EMBEDDED AGENTS. Switch embedded agents are data sources
operating in third-party network switches. One version of our switch
embedded agent consists of our software embedded into the switch operating
system. Because the switch embedded agent must utilize the switch's
processor, it offers only a limited subset of our data collection
functionality. Another version which has been implemented with Cisco
requires the installation of a dedicated interface module into the switch.
Because the module has its own processor, it can offer the full range of our
data collection functionality.

DATA COLLECTION AGENT OPTIONS. Our data collection agent options are
proprietary software enhancements for our probes and software agents. These
options consist of:

- NetFlow Monitor. This enhancement allows certain types of our probes to
collect traffic information stored in Cisco routers in order to provide
a single, consolidated view of all traffic information to the network
manager.

- Resource Monitor. With this option, our probes are enabled to collect
information from network devices, including servers, to offer a more
complete, end-to-end view of the network.

- Application Response Time Management Information Base (ART MIB).Base. This option
enables our probes or agents to monitor application response times on a
given part of the network.

- VLANVirtual Local Area Network Monitor. With this option, users can collect
traffic information pertaining to a given subset of users within a
switched network, giving additional flexibility to the network manager
for troubleshooting and traffic accounting.

DATA AGGREGATION

NETSCOUT SERVER. NetScout Server is an optional data aggregation software
package that enables our AFMApplication Flow Management solution to effectively
manage large computer networks. NetScout Server reduces overall computer network
and application performance management traffic by aggregating, sorting,
simplifying and storing data collected at remote sites. It then transmits only
relevant periodic reports and real-time alarms through the WANwide area network to
the presentation and analysis software. This reduces consumption of costly WANwide
area network bandwidth. NetScout Server runs on the Microsoft Windows NT, Sun
Solaris, HP-UNIX and IBM AIX operating platforms.

INFORMATION PRESENTATION AND ANALYSIS

Our presentation and analysis software provides clear, meaningful, real-time
displays of relevant network and application performance data to network and
business managers in easy-to-read, graphical formats. We offer the following
family of data presentation and analysis software:

NETSCOUT MANAGER PLUS. NetScout Manager Plus presents management
reports based on data gathered from probes, embedded agents, software agents
and NetScout Server. NetScout Manager Plus provides a suite of over 40
integrated functions, which include application-level management, monitoring
and troubleshooting, capacity planning, policy enforcement and accounting.

APPSCOUT. AppScout uses our data sources to monitor the performance of
applications over the network, including response time and bandwidth
utilization by application or by user. 35
AppScout is a real-time,
browser-based reporting solution that is especially useful when measuring
service level conformance or deploying new applications.

WEBCAST. WebCast works in conjunction with NetScout Manager Plus and
provides a portfolio of secure, easy-to-access reports viewable by
authorized users from any Web browser.

SALES AND MARKETING

We sell our products through indirect distribution channels and a direct
sales force. Our indirect channel partners include OEMs,original equipment
manufacturers, distributors, resellers, system integrators and service
providers. ForRevenue from indirect distribution channels represented 73%, 76% and
81% of total revenue for the fiscal years ended March 31, 1997, and 1998 and 1999,
and 82% of total revenue for each of the ninethree months ended December 31,June 30, 1998 revenueand
1999. Revenue from indirect channels represented 73%, 76% and 82%, respectively, of total
revenue. Salessales to Cisco, our largest indirect channel partner,
represented 24%, 40% and 49%, respectively,51% of our total revenue duringfor the same periods.fiscal years ended March
31, 1997, 1998 and 1999, and 44% of total revenue for each of the three months
ended June 30, 1998 and 1999.

Our direct sales force works in cooperation with our indirect channel
partners and devotes significant efforts to support sales through indirect
distribution channels. We plan to substantially increase the number of our field sales
representatives, which we believe will promote additional direct and indirect
sales.

We use a consultative sales approach. Our inside sales representatives
pre-qualify opportunities and set up appointments for members of the field sales
team. An initial sales meeting will generally consist of a review of the
prospect's specific computer network and application performance management
needs and a demonstration of our products' capabilities. Often, the
demonstration will be followed by a product evaluation on the customer's
network. Our sales representative will often encourage one of our indirect
channel partners to participate in the sales process. In addition, our indirect
channel partners often request that we participate in sales presentations to
their customers.

International sales are accomplished primarily through indirect distribution
channels. Revenues from sales outside North America represented 12%, 12% and 11% of total
revenue for each of the fiscal years ended March 31, 1997, and 1998 and 1999, and
14% and 19% of total revenue for the ninethree months ended December 31,June 30, 1998 respectively.and 1999.
We believe that our North American indirect channel partners also resell a
significant amount of our products internationally.

As of March 31,June 30, 1999, our North American field sales organization consisted
of 4348 employees. Our international field sales organization consisted of 1011
employees with an office in the United Kingdom. In addition, we had 1621 employees
responsible for providing telesales and sales and administrative support. In
addition to our Westford, Massachusetts headquarters, we have sales offices in
Maryland, North Carolina, Texas, Minnesota, Illinois, California, Oregon, and
Ontario, Canada.

A key element of our market penetration strategy is the formation of
strategic relationships with industry-leading network equipment vendors and
software suppliers in various complementary areas. We believe these
relationships increase our market presence and generate qualified opportunities
to sell our solutions. As of March 31,June 30, 1999, our business development
organization consisted of 107 employees.

Our marketing organization utilizes a variety of programs to promote the
sale and acceptance of our solutions. As of March 31,June 30, 1999, our marketing
organization consisted of 1921 employees. Our marketing programs include:

- advertising;

- trade shows;

- public relations activities;

- direct mail;

- seminars and speaking engagements;

- brochures, data sheets and white papers; and

- Web marketing.

3639

STRATEGIC RELATIONSHIP WITH CISCO

Cisco is a significant distributor of our products under its private label.
We sell NetScout Manager and NetScout probes to Cisco, which are resold by Cisco
under the names TrafficDirector and SwitchProbes. We also license versions of
our software for use in a range of Cisco switches for which we receive royalty
payments and we provide development services to Cisco for which we receive
engineering fees. Cisco has a worldwide, non-exclusive right to market and
resell our products on a stand-alone basis and to incorporate certain components
of our technology into its products. This relationship is governed by a project
development and license agreement dated as of January 13, 1994 and a private
labeling agreement dated as of May 15, 1996. These agreements have been amended
and were extended until October 2000.

We work closely with Cisco on joint sales and marketing efforts. These
include collaboration on product marketing, our participation in Cisco seminars,
joint customer presentations, introductions to Cisco's international
distributors and links between our web sites. We devote significant time and
attention of senior management, as well as resources throughout our company, to
making this partnership successful and believe that we have a strong business
relationship.

40
CUSTOMERS

We sell our products to businesses and organizations with large and
medium-sized computer networks. We have sold a majority of our products through
indirect distribution channels and have also sold our products directly to over
600 customers. Our customers operate in a wide variety of industries, such as
financial services, transportation, manufacturing, insurance, retail and
software development. The following is a partial list of our customers:

3M Corporation Lockheed Martin Financial Services
Amoco Corporation Los Alamos National Laboratory
Amoco CorporationArmy & Air Force Exchange Service Lotus Development Corp.
AT&T Mid America Energy Co.
Cargill Financial Services Merrill Corporation
CIGNA Corporation Morgan Stanley
Consumers Energy Company NationsBank
Deutsche Bank AG London NCRNaviSite
Donaldson, Lufkin & Jenrette Northwest AirlinesNCR
The GAP, Inc. Northwest Airlines
Fidelity Investments Providian Financial Corp
Fidelity InvestmentsGTE Service Corporation State Street Bank and Trust
Global One Sun Microsystems, Inc.
Goldman Sachs & Co. Sun Microsystems, Inc.Teradyne
Harvard Pilgrim Health Care TeradyneToys-R-Us
Lehman Brothers Toys-R-Us
Liberty Mutual Group Xerox
Lockheed Martin Financial ServicesLiberty Mutual Group

3741

The following are examples of selected client applications of our products:

THE PROBLEM NETSCOUT'S SOLUTION THE RESULT

Troubleshooting

ATektronix, Inc., a Using NetScout's solution, the Tektronix reconfigured its
manufacturing firm with 8,400 Using our AFM solution, the The WAN was properlycompany monitored its network equipment and, as a result,
employees at 75 networked company monitored its network reconfigured and asidentified a result,design issue order entry response times
locations in 23 countries, was and identified a configuration order entry response times
experiencing sluggish order problem that originated with returnedthe improved.
wanted to normal, and usersimprove order entry wide-area network service
response times which the WAN service provider. stopped complaining of slow
compromised theand quality of service.provider.
customer service.

Capacity Planning

ACharles Schwab Corporation, a Using NetScout's Application The company identified baseline
leading financial services Using our AFMFlow Management solution, the The company identified baselineusage patterns, which helped
company with 10,000 employees company was able to understand usage patterns, which helpedthem to intelligently plan and
at 350 sites, depended on its current and profile future them to intelligently plan andimplement infrastructure
network to process 200,000 capacity requirements for their implement infrastructureexpenditures. Our Application
online financial trades and network. expenditures. Our AFMFlow Management solution also
support up to 20 million Web also identified remnants of a
site hits a day. This volumeKnowing the software test that was slowing
caused business-criticalcurrent and future capacity down a remote server.server,
requirements of this vast unnecessarily consuming network
network was essential to capacity. As a applications to slow down. result, the
business. company avoided purchasing $90,000 in
unnecessary bandwidth capacity.

Usage-based Accounting

ANCR, a large technology enterprise had a Using our AFM solution, theApplication Flow The program has just been
enterprise, had a network with 12,500 users network operations centerManagement solution, the implemented in Europe and is
12,500 users spanning 715 sites. The CEO designed a charge-back programnetwork operations center expected to be rolled out in
sites. The CEO wanted to designed a charge-back program the U.S. in the summer of 1999.
economize and challenged the for network usage. The program the U.S. in June 1999. The challenged thecompany anticipates
network operations center to was based on quantifying company anticipates substantial operations center toreductions in
control network costs. bandwidth usage and response reductions in overhead with network costs.access
times by user and by network access tied to business goals.
application throughout the
goals.
network.

Application Deployment

ALockheed Martin, a large aerospace defense Our AFMUsing the NetScout solution was installedto The network team was able to
aerospace defense contractor provide both application-level confirm that the wide-area
wanted to move its to provide both confirm that the WANe-mail data and network-wide bandwidth network had emailadequate capacity.
system from a local application-level data and adequate capacity. Our solution
server to a usage information, the company Our solution minimized the
remote server. This network-wide bandwidth usage minimizedcritical was able to determine the risks involved in criticala major
application had to information. The company was a majorcontinue current local server load and application continuedeployment.
running smoothly, and able to determine the current re-deployment.
thecalculate how much data would
network team was unsure if local server load and calculate
the WANflow across the wide-area
wide-area network could handle network to the how much data would flow across
additional load.remote server.
the WAN to the remote server.additional load.

3842

SUPPORT SERVICES

We believe that providing a high level of customer service and technical support is
critical to achieving effective product implementation and ensuring customer
satisfaction. We offer a broad range of support and training services to our
customers and work closely with our indirect channel partners to provide
pre-sales and post-sales support.

We offer a toll-free technical support hotline to our customers under
support agreements and to our indirect channel partners. This hotline is staffed
by customer support engineers from 8:00 a.m. to 8:00 p.m., Eastern time, Monday
through Friday, from our corporate headquarters in Westford, Massachusetts. As
of March 31,June 30, 1999, our support services organization consisted of 1112 employees.

RESEARCH AND DEVELOPMENT

We devote substantial resources to developing new products and enhancing
existing products. Our market is characterized by rapid technological change,
frequent product introductions and enhancements, evolving industry standards and
rapidly changing customer requirements. We have a long record of product
innovation, including:

INFORMATION AGGREGATION
CALENDAR YEAR AND
INTRODUCED PROBES AND AGENTS PRESENTATION SOFTWARE

1992 Ethernet, Token Ring NetScout Manager
1993 -- --
1994 WANWide Area Network Resource Monitor
1995 CDDI/FDDI, Switch Embedded --
1996 Fast Ethernet NetScout Manager Plus
1997 WANWide Area Network (T3) NetScout Server, WebCast
1998 ATMAsynchronous Transfer Mode --
1999 Channelized WAN,Wide Area Network, Fast AppScout
Fast EtherChannel --
1999 (Planned) Gigabit Ethernet --

As of March 31,June 30, 1999, our research and development organization consisted of
5258 employees. In addition, we contract with third parties to perform specific
development projects. Research and development expenditures for the fiscal years
ended March 31, 1997, and 1998 and for the nine months ended December 31, 19981999 were approximately $3.0 million, $5.1
million and $5.3$7.5 million, and research and development expenditures for the
three months ended June 30, 1998 and 1999 were approximately $1.7 million and
$2.2 million. To date, all research and development expenses have been expensed
as incurred.

COMPETITION

The market for our products is new and rapidly evolving, and is expected to
become increasingly competitive as current competitors expand their product
offerings and new companies enter the market. Our principal competitors include
a number of companies offering one or more solutions for the network and
applicationsapplication performance management market, some of which compete directly with
our products. For example, we compete with probe vendors, such as
Hewlett-Packard, providers of network performance management solutions, such as
Concord Communications and Micromuse, providers of application performance
management solutions, such as International Network Services, and providers of
portable network traffic analyzers, such as Network Associates. In addition,
leading network equipment providers could offer their own or competitors'
solutions in the future. We believe that the principal competitive factors in
the network and applications performance management solutions market include:

- product performance, functionality and price;

- name and reputation of vendor;

39
- distribution strength; and

- alliances with industry partners.

Although we believe that we currently compete favorably with respect to
these factors, there can be no assurance that we can maintain our competitive
position against current and potential competitors, especially those with
greater financial, management, marketing, service, support, technical,
distribution and other resources.

MANUFACTURING

Our manufacturing operations consist primarily of final product assembly,
configuration and testing. We purchase components and subassemblies from
suppliers and configureconstruct our hardware products toin accordance with individual
customer requirements. We inspect, test and use statistical process control to ensure the
quality and reliability of our products. In February 1998, we obtained ISO 9001
quality systems registration, a certification showing that our procedures and
manufacturing facilities comply with standards for quality assurance and
manufacturing process control. As of March 31,June 30, 1999, our manufacturing
organization consisted of 2022 employees.

Although we generally use standard parts and components for our products,
each of the computer network interface cards used in our probes is currently
available only from separate single source suppliers. We have generally been
able to obtain adequate supplies of components in a timely manner from current
suppliers. We have no supply commitments with our suppliers but believe that, in
most cases, alternate suppliers can be identified if current suppliers are
unable to fulfill our needs.

INTELLECTUAL PROPERTY RIGHTS

Our success and competitiveness are dependent to a significant degree on the
protection of our proprietary technology. We rely primarily on a combination of
copyrights, trademarks, licenses, trade secret laws and restrictions on
disclosure to protect our intellectual property and proprietary rights. We also
enter into confidentiality agreements with our employees and consultants, and
generally control access to and distribution of our documentation and other
proprietary information.

We pursue registration of some of our trademarks in the U.S. and in other
countries. We have registered the trademark NetScout in the U.S. and the
European Union. We have filed applications for the NetScout trademark in Canada
and Japan, and those applications are still pending. In addition, we have
applications pending for the NetScout Logo and AppScout, in the U.S., Canada,
Europe and Japan. We are also pursuing registration in the U.S. for the
markstrademarks ART MIB, FrameScout and WebScout.

EMPLOYEES

As of March 31,June 30, 1999, we had 209231 employees, 160172 of whom were based at our
headquarters in Westford, Massachusetts. None of our employees is subject to a
collective bargaining agreement. We believe that our relations with our
employees are good.

FACILITIES

We lease approximately 97,500 square feet of space in an office building in
Westford, Massachusetts for our headquarters. The lease expires in November
2002, and we have an option to extend the lease for an additional five-year
term. We also lease office space in nine other cities for our sales and support
personnel. We believe that these existing facilities are adequate to meet our
foreseeable requirements or that suitable additional or substitute space will be
available on commercially reasonable terms.

LEGAL PROCEEDINGS

From time to time we may be subject to legal proceedings and claims in the
ordinary course of our business, including claims of alleged infringement of
third party trademarks and other intellectual property rights by us. We are not
aware of any legal proceedings or claims that we believe will have, individually
or in the aggregate, a material adverse effect on our business, financial
condition or results of operations.

4044

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of NetScout are as follows:

NAME AGE POSITION
- ----------------------------------------------- --- -----------------------------------------------------------

Anil K. Singhal................................ 45 Chairman of the Board, Chief Executive Officer and
Treasurer
Narendra Popat(1)..............................Popat................................. 50 President, Chief Operating Officer, Secretary and Director
Charles W. Tillett............................. 42 Vice President, Finance and Administration and Chief
Financial Officer
Nathan Kalowski................................ 5354 Vice President, Business Development
Ashwani Singhal................................ 38 Vice President, Engineering
Gerald Stabile................................. 39 Vice President, Worldwide Sales and Services
Tracy Steele................................... 39 Vice President, Manufacturing
Michael Szabados............................... 47 Vice President, Marketing
Richard J. Egan(1).............................Egan................................ 63 Director
Joseph G. Hadzima, Jr.(1)(2)...................Jr.......................... 47 Director
Kenneth T. Schiciano(2)........................Schiciano........................... 36 Director

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

(1) Member of the Compensation Committee

(2) Member of the Audit Committee

ANIL K. SINGHAL co-founded NetScout in June 1984 and has served as
NetScout's Chairman of the Board, Chief Executive Officer and Treasurer since
July 1993. From NetScout's inception until July 1993, Mr. Singhal was President
of NetScout. Mr. Singhal has served as a director of NetScout since 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.

NARENDRA POPAT co-founded NetScout in June 1984 and has served as NetScout's
President, Chief Operating Officer and Secretary since July 1993. 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
inception. Prior to founding NetScout, he was a Senior Software Engineer at Wang
Laboratories from 1980 until June 1984.

CHARLES W. TILLETT has served as NetScout's Vice President, Finance and
Administration since May 1995 and Chief Financial Officer since April 1999. Mr.
Tillett joined NetScout in July 1991 and served as Director of Finance and
Administration from July 1991 until May 1995. Prior to joining NetScout, he
served Fidelity Investments, a financial services firm, in various capacities,
most recently as Project Manager.

NATHAN KALOWSKI has served as NetScout's Vice President, Business
Development since August 1997. Mr. Kalowski joined NetScout in July 1993 and
served as Vice President, Marketing from July 1993 until August 1997. Prior to
joining NetScout, he was Vice President, Marketing for Proteon, a computer
networking company, from 1988 until May 1993. He has also held various
engineering, product management, marketing and executive positions at Texas
Instruments, a diversified electronics company, General Electric, a diversified
electronics company, and Digital Equipment Corporation, a computer hardware
company.

ASHWANI SINGHAL has served as NetScout's Vice President, Engineering since
October 1998. Mr. Singhal joined NetScout in 1987 and served as a Senior
Software Engineer and Project Manager 41
from 1987 until February 1997 and as
Director of Engineering from February 1997 until October 1998. Prior to joining
NetScout, he was a Senior Software Engineer at Symmetrix, an artificial
intelligence

45
systems company, from 19841982 until 1987. Mr. Singhal is the brother of Anil
Singhal, NetScout's Chairman of the Board and Chief Executive Officer.

GERALD STABILE has served as NetScout's Vice President, Worldwide Sales and
Services since October 1998. Mr. Stabile joined NetScout in September 1997 and
served as Vice President, Worldwide Sales from March 1998 until October 1998 and
as Vice President, North American Sales from September 1997 until March 1998.
Prior to joining NetScout, he served Olicom, (formerlyformerly CrossComm Corporation),Corporation, a
developer of networking and infrastructure software, as Vice President, Americas
from 1996 until September 1997 and as Sales Director from 1992 through 1995.

TRACY STEELE has served as NetScout's Vice President, Manufacturing since
May 1997. Mr. Steele joined NetScout in November 1995 and served as Director of
Manufacturing from November 1995 until May 1997. Prior to joining NetScout, he
served as Director of Manufacturing for Scope Communications, a developer of
hand-held network tools, from 1993 until November 1995. He also served in
various manufacturing and management positions at NBase-Xyplex, Inc., a computer
networking company, from 1985 to February 1993.

MICHAEL SZABADOS has served as NetScout's Vice President, Marketing since
August 1997. Prior to joining NetScout, he served as Chief Executive Officer of
Jupiter Technology, Inc., a developer of frame relay access devices, from March
1997 until 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.

RICHARD J. EGAN has served as a director of NetScout since January 1999. Mr.
Egan is a founder of EMC Corporation, a provider of computer storage systems and
software. Mr. Egan has served EMC Corporation, a publicly-held company, as
Chairman of the Board since January 1988, as a director since inception in 1979,
as Chief Executive Officer from 1979 until January 1992 and as President from
1979 until January 1988. Mr. Egan is also a director of BEC Energy Company, a
public utility.

JOSEPH G. HADZIMA, JR. has served as a director of NetScout since July 1998.
Mr. Hadzima has been a Managing Director of Technology Enabling Company, LLC, a
venture capital investment 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 until 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 until December 1998. Mr. Hadzima is also a
Senior Lecturer at MIT Sloan School of Management.

KENNETH T. SCHICIANO has served as a director of NetScout since January
1999. Mr. Schiciano has been a Principal of TA Associates, Inc., a venture
capital firm, since December 1994. Mr. Schiciano served as a Vice President of
TA Associates from August 1989 until December 1994. Prior to that, Mr. Schiciano
was a member of the technical staff of AT&T Bell Laboratories, a
telecommunications company. Mr. Schiciano is also a director of Galaxy Telecom
L.P. and several privately-held companies.

The Board of Directors is currently fixed at five members. NetScout's
amended and restated certificate of incorporation, as in effect immediately
following this offering, divides the Board of Directors into three classes. The
members of each class of directors serve for staggered three-year terms. The
Board of Directors is composed of (i)of:

- one Class I director (Mr. Schiciano),
whosedirector-Mr. Schiciano-whose term expires upon the election
and qualification of directors at the annual meeting of stockholders to be
held in 2000, (ii)2000;

- two Class II directors
(Messrs.directors-Messrs. Singhal and Egan), whoseEgan-whose terms expire upon
the election and qualification of directors at the annual meeting of
stockholders to be held in 20012001; and

(iii)46

- two Class III directors (Messrs.directors-Messrs. Popat and Hadzima), whoseHadzima-whose terms expire upon
the election and qualification of directors at the annual meeting of
stockholders to be held in 2002.

Our executive officers are elected by and serve at the discretion of the
Board of Directors. Except as noted above, there are no family relationships
among any of our executive officers and directors.

COMMITTEES OF THE BOARD OF DIRECTORS

We have a standing Compensation Committee and Audit Committee of the Board
of Directors. The current members of the Compensation Committee are Messrs.
Egan, Hadzima and Popat. The Compensation Committee's duties are to review and
evaluate the salaries and incentive compensation of our management and employees
and administer our 1990 Stock Option Plan, 1999 Stock Option and Incentive Plan
and 1999 Employee Stock Purchase Plan.

The current members of the Audit Committee are Messrs. Hadzima and
Schiciano. The Audit Committee is responsible for reviewing the results and
scope of audits and other services provided by our independent public
accountants and reviewing our system of internal accounting and financial
controls. The Audit Committee also reviews such other matters with respect to
our accounting, auditing and financial reporting practices and procedures as it
may find appropriate or as may be brought to its attention.

DIRECTOR COMPENSATION

After this offering, non-employee directors will be reimbursed for their
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors or of any committee thereof. On July 14, 1998, we granted to Joseph
Hadzima, a member of the board of directors, an option to purchase 90,00060,000 shares
of common stock vesting over a four-year period, at an exercise price of $2.67$4.00
per share. No director who is an employee of NetScout will receive separate
compensation for services rendered as a director.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In January 1999, NetScout's Board of Directors established the Compensation
Committee and appointed Messrs. Popat, Egan and Hadzima to serve on the
Compensation Committee. Messrs. Popat, Egan and Hadzima each had certain
transactions with NetScout which we described in the "Certain Transactions"
section of this prospectus.

The Compensation Committee evaluates the salaries and incentive compensation
of management and employees of NetScout and administers our equity incentive
plans. Other than Mr. Popat and as described under "Certain Transactions," no
member of this committee was at any time during the past year an officer or
employee of NetScout, was formerly an officer of NetScout or any of its
subsidiaries, or had any relationship with NetScout. During the last year, none
of our executive officers served as:

- a member of the compensation committee, (oror other committee of the Board of
Directors performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors)Directors, of another entity, one of whose
executive officers served on the Compensation Committee of NetScout;

- a director of another entity, one of whose executive officers served on
the Compensation Committee of NetScout; or

See "Certain Transactions."

4347

EXECUTIVE COMPENSATION

The following summary compensation table sets forth the total compensation
paid or accrued for the fiscal year ended March 31, 1999 for (i) the Chief Executive
Officer of NetScout and (ii) the four other most highly compensated executive
officers of NetScout other than the Chief Executive Officer, (collectively,which are
collectively referred to below as the "NamedNamed Executive Officers").Officers. The dollar
amounts listed in the column entitled "All other compensation" are comprised of
contributions to a defined contribution plan.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION(1)COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(2)
- --------------------------------------------------------------------- --------- --------- -------------------

Anil K. Singhal...................................................... 250,000 325,000 2,144
Chairman of the Board and
Chief Executive Officer
Narendra Popat....................................................... 250,000 325,000 2,144
President and Chief
Operating Officer
Charles W. Tillett................................................... 150,000 100,000 2,462
Vice President, Finance and
Administration and
Chief Financial Officer
Gerald Stabile....................................................... 136,800 152,500 --
Vice President, Worldwide
Sales and Services
Michael Szabados..................................................... 137,500 75,00082,500 2,452
Vice President, Marketing

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

(1) NetScout did not make any restricted stock awards, grant any stock
appreciation rights or stock options or make any long-term incentive
payments during the fiscal year ended March 31, 1999 to its Named Executive
Officers. In accordance with the rules of the Securities and Exchange
Commission, the compensation set forth in the table does not include certain
perquisites and other benefits which do not exceed the lesser of $50,000 or
10% of the person's salary and bonus shown in the table.

(2) Composed of contributions to a defined contribution plan.

OPTION GRANTS IN LAST FISCAL YEAR

No stock option or stock appreciation rights were granted to any of the
Named Executive Officers during the fiscal year ended March 31, 1999.

48
YEAR-END OPTION TABLE

The following table sets forth information regarding exercisable and
unexercisable stock options held as of March 31, 1999 by each of the Named
Executive 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. There was no public trading
market for our common stock as of March 31, 1999. Accordingly, the value of
unexercised in-the-money options has been calculated by determining the
difference between the exercise price per share and an assumed initial public
offering price of $ .

44
$15.00.

AGGREGATED FISCAL YEAR-END OPTION VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END ($)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------------ ------------ ------------ ------------- ------------ -------------

Anil K. Singhal............ -- -- -- -- -- --
Narendra Popat............. -- -- -- -- -- --
Charles W. Tillett......... 175,312 1,043,107(1)116,875 1,043,107 -- 79,68753,125 -- 757,031
Gerald Stabile............. 21,900 56,721(2) 90,600 187,50014,600 56,721 60,400 125,000 755,000 1,562,500
Michael Szabados........... 33,000 85,470(2) 102,000 225,00022,000 85,470 68,000 150,000 850,000 1,875,000

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

(1) Calculated by determining the difference between the exercise price per
share and the fair market value on the date of exercise.

(2) Calculated by determining the difference between the exercise price per
share and the fair market value of $4.26 on the date of exercise, which was
also the redemption date for these shares.

STOCK PLANS

1990 STOCK OPTION PLAN. The 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. Under the 1990
Stock Option Plan, we are authorized to grant options to purchase shares of
common stock intended to qualify as incentive stock options as defined under
Section 422 of the Internal Revenue Code of 1986, as amended, (the "Code"), to our employees.
In addition, we are authorized to grant non-qualified stock options to purchase
shares of common stock to employees, consultants and directors. 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 an additional 25% of the unexercisable
options shall become exercisable immediately prior to the closing of a merger,
acquisition, business combination or similar transaction which results in our
existing stockholders owning less than 50% of NetScout's equity securities or
assets. Options are not assignable or transferable except by will or the laws of
descent or distribution. We have 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 optionee's relationship with
NetScout in certain situations. As of March 31,June 30, 1999, an aggregate of 4,640,4382,951,701
shares of common stock at a weighted average exercise price of $1.90$2.78 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. Our 1999 Stock Option and Incentive
Plan ("1999 Stock Option Plan") was adopted by our Board of Directors in April 1999 and is
expected to bewas approved by our
stockholders in AprilJune 1999. The 1999 Stock Option Plan provides for the grant of
stock-based awards to our employees, officers and directors, consultants or
advisors. Under the 1999 Stock Option Plan, we may grant options that are
intended to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code, options not intended to qualify as incentive stock
options, restricted stock and other stock-based awards. Incentive stock options
may be granted only to employees of NetScout. A total of 6,750,0004,500,000 shares of
common stock have been reserved for issuance under the 1999 Stock Option Plan.
The maximum number of shares with respect to which awards may be granted to any
employee under

the 1999 Stock Option Plan shall not exceed 1,000,000 shares of common stock
during any calendar year.

The 1999 Stock Option Plan is administered by the Compensation Committee.
Subject to the provisions of the 1999 Stock Option Plan, the Compensation
Committee has the authority to select the persons to whom awards are granted and
determine the terms of each award, including the number of

45
shares of common
stock subject to the award. Payment of the exercise price of an award may be
made in cash or, if approved by the Compensation Committee, shares of common
stock, a combination of cash and stock, a promissory note or by any other method
approved by the Compensation Committee. Unless otherwise permitted by the
Compensation Committee, awards are not assignable or transferable except by will
or the laws of descent and distribution, and, during the participant's lifetime,
may be exercised only by the participant.

The 1999 Stock Option Plan provides, subject to certain conditions, that
upon an acquisition of NetScout the vesting25% of alleach unvested portion of any awards will
accelerate by a
periodand become exercisable, with the remaining 75% of one year.each unvested
portion to continue vesting throughout the term of the Award.

The Compensation Committee may, in its sole discretion, amend, modify or
terminate any award granted or made under the 1999 Stock Option Plan, so long as
such amendment, modification or termination would not materially and adversely
affect the participant. The Compensation Committee may also provide that any
option shall become immediately exercisable, in full or in part, or that any
restricted stock granted under the 1999 Stock Option Plan shall be free of some
or all restrictions.

As of June 30, 1999, an aggregate of 287,750 shares of common stock, each at
an exercise price of $18.90 per share, were outstanding under the 1999 Stock
Option Plan.

1999 EMPLOYEE STOCK PURCHASE PLAN. The 1999 Employee Stock Purchase Plan
(the "1999 Purchase Plan") was adopted by our Board of Directors in April 1999 and is expected
to bewas approved by our
stockholders in AprilJune 1999, to be effective upon the closing of this offering.
The 1999 Purchase Plan provides for the issuance of a maximum of 750,000500,000 shares
of common stock.

The 1999 Purchase Plan will be administered by the Compensation Committee.
All employees of NetScout whose customary employment is for more than 20 hours
per week and for more than three 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 NetScout'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 us to deduct
an amount (notnot less than one percent nor more than 10 percent of a participant's
total cash compensation)compensation from his or her pay during six-month payment periods
(each, a "Payment Period").periods.
The first Payment Periodpayment period will commence on the earlier to occur of (1) October 1,
1999 and (2) the first day of the first calendar month following the effective date
of the Registration Statement on Form S-8 filed with respect to the shares
issued under the 1999 Purchase Plan and shall end March 31, 2000. Thereafter,
the Payment Periodspayment periods will commence on the six-month periods commencing on April 1
and October 1, respectively, and ending on the following September 30 and March
31, respectively, of each year. In no case shall an employee be entitled to
purchase more than 500 shares in any one Payment Period.payment period. The exercise price for
the option granted in each Payment
Periodpayment 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,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,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. No options have been granted to date
under the 1999 Purchase Plan.

50
401(K) PLAN

We maintain a 401(k) plan qualified under Section 401 of the Internal
Revenue Code. All of our 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, (upup to the statutorily prescribed annual
limit of $10,000 in calendar year 1999)1999, 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, we may make matching contributions to
the 401(k) plan. During the plan year ending December 31, 1998, we matched $.25
for each $1.00 of

46
employee contributions up to 6% of salary. In addition, at the
discretion of the Board of Directors, we may make profit-sharing contributions
to the 401(k) plan for all eligible employees. During the plan year ending
December 31, 1998, we made no profit-sharing contributions to the 401(k) plan.

EMPLOYMENT AGREEMENTS

Anil Singhal and Narendra Popat entered into employment agreements with
NetScout 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. 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 following twelve month periods, an amount equal to 120% of
the amount received in the immediately preceding twelve months.

"Good reason" means 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 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.

4751

CERTAIN TRANSACTIONS

In February 1996, NetScout issued 631,579 shares of its Series A Preferred
Stock to Greylock Equity Limited Partnership, ("Greylock"), at a purchase price of $9.50 per
share, for an aggregate of $6,000,000. Roger Evans, a general partner of the
general partner of Greylock, served as a member of the Board of Directors of
NetScout from February 1996 until January 1999. In January 1999, we redeemed
315,789 shares of Series A Preferred Stock as described below. Upon the closing
of this offering, the 315,790 outstanding shares of Series A Preferred Stock
will automatically convert, at a conversion price of $2.375 per share, into
1,894,7401,263,160 shares of common stock.

In January 1999, NetScout issued 6,977,254 shares of its Class B Convertible
Common Stock at a purchase price of $6.388051 per share to certain affiliates of
TA Associates, Inc. (the "TA Entities") for an aggregate consideration of $42,571,057 and to
Egan-Managed Capital, L.P. for an aggregate consideration of $1,999,997. In
connection with this transaction, Kenneth Schiciano and Richard Egan were
elected to the Board of Directors. Mr. Schiciano is a Principal of TA
Associates, Inc., which is either the manager or the general partner of the
general partner of the TA Entities.entities. Mr. Egan and his children own substantially
all of the equity interests in Egan-Managed Capital, L.P. All of the proceeds
from the Class B Convertible Common Stock financing were used to redeem shares
of Series A Preferred Stock, Non-Voting Common Stock and common stock from the
officers, directors and 5% stockholders and certain other persons as set forth
below:below.

TYPE OF NUMBER OF AGGREGATE
SECURITY SHARES AGGREGATEPAYMENT RECEIVED
NAME POSITION REDEEMED REDEEMED REDEMPTION PAYMENTBY NAMED PARTY
- ------------------------ ------------------------ ------------------------------------------------- ------------------------- ------------------------- ------------- -----------------------------------

Greylock Equity Limited 5% stockholder and Series A Preferred Stock 315,789 $ 8,069,105
Partnership formerly represented on (1,894,734(1,263,156
the Board of Directors common stock
equivalents)

Anil K. Singhal Chairman of the Board, Voting Common Stock 3,562,1242,374,749 $ 15,170,018
Chief Executive Officer
and Treasurer

Narendra Popat President, Chief Voting Common Stock 3,562,1242,374,749 $ 15,170,018
Operating Officer,
Secretary and Director

Charles W. Tillett Vice President, Finance Non-Voting Common Stock 285,000190,000 $ 1,213,730
and Administration and
Chief Financial Officer

Nathan Kalowski Vice President, Business Non-Voting Common Stock 285,000190,000 $ 1,213,730
Development

Ashwani Singhal Vice President, Non-Voting Common Stock 528,000352,000 $ 2,248,594
Engineering

Gerald Stabile Vice President, Worldwide Non-Voting Common Stock 21,90014,600 $ 93,266
Worldwide
Sales and Services

4852

Tracy Steele Vice President, Non-Voting Common Stock 9,0006,000 $ 38,328
Manufacturing

Michael Szabados Vice President, Marketing Non-Voting Common Stock 33,00022,000 $ 140,537
Marketing

Ralph Lowry Former Vice President, Non-Voting Common Stock 285,000190,000 $ 1,213,730
International Sales

Anil K. Singhal and Ashwani Singhal are brothers.

Upon closing of the offering, all of the 6,977,254 outstanding shares of
Class B Convertible Common Stock will automatically convert, at a conversion
price of $6.388051 per share, into an aggregate of 10,465,8816,977,254 shares of common
stock. The holders of shares of common stock issuable upon conversion of the
Class B Convertible Common Stock have certain rights with respect to the
registration by NetScout of their shares. See "Description of Capital
Stock--Registration Rights."

On June 28, 1996, Anil K. Singhal borrowed $1,100,000 and Narendra Popat
borrowed $900,000 from NetScout. In connection with the loans, Mr. Singhal
pledged 851,616567,744 shares of Voting Common Stock, and Mr. Popat pledged 696,780464,520
shares of Voting Common Stock to NetScout. Each loan is evidenced by a
promissory note and bears interest at 6.48% per annum, compounded semi-annually.
Accrued interest is payable on an annual basis. Each of Mr. Singhal and Mr.
Popat have agreed to repay the entire outstanding principal and interest on
these loans upon the closing of this offering.

Joseph G. Hadzima, Jr., a member of the Board of Directors since July 1998,
was a partner at the law firm of Sullivan & Worcester LLP until June 1996 and
since June 1996 has served as Of Counsel at Sullivan & Worcester. Sullivan &
Worcester was NetScout's counsel until October 1996.

Anil K. Singhal, and Narendra Popat and Shirish Deodhar each own one-third ( 1/3)33.3% of the
voting capital stock of Frontier Software Development Pvt. Ltd., a private
company located in Bombay India ("and Pune, India. Frontier India").Software Development Pvt.
Ltd. provides software development services to NetScout for which we paid
approximately $352,000, $315,000 and $470,000 during fiscal years 1997, 1998 and
1999. Shirish Deodhar, a holder of
300,000 shares of Non-Voting Common Stock, oversawwho oversees the day-to-day operations of Frontier
India. Frontier India provided engineering consulting services to
NetScout from 1988 through 1999. Our payments to Frontier India were
approximately $20,000 during fiscal year 1996 (which represented 3%Software Development Pvt. Ltd., is a holder of Frontier
India's revenue), $352,000 during fiscal year 1997 (which represented 33%200,000 shares of Frontier India's revenue), $315,000 during fiscal year 1998 (which represented
19% of Frontier India's revenue) and $470,000 during fiscal year 1999. In 1991,
the Industrial Credit and Investment Corporation of India Limited (the "ICICI")
loaned $387,000 to NetScout and Frontier India to help finance the
NetScout-Frontier India engineering consulting services arrangement. The amounts
due to the ICICI have been paid in full.our Non-Voting
Common Stock. In February 1999, Frontier India sold substantially all of its assets to
Veritas Software Corporation USA, a Delaware corporation, and the Board of Directors of NetScout fully
accelerated the vesting schedule applicable to Mr. Deodhar's 300,000200,000 shares of
Non-Voting Common Stock. Frontier Software Development Pvt. Ltd. sold a majority
of its assets to Veritas Software Corporation USA, a Delaware corporation, in
February 1999.

In May 1996, NetScout Systems (UK) Limited ("NetScout UK") was organized under the laws of
England and Wales to serve as a wholly-owned subsidiary of NetScout. Messrs.
Popat and Singhal were issued the outstanding shares of stock of NetScout
UK.Systems (UK) Limited. The shares are currently in the process of being
transferred to NetScout.

NetScout believes that all transactions described above were 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 us 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.

4953

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 31,June 30, 1999, and as adjusted to reflect
the sale of the shares of common stock offered hereby, by:

(a)- each beneficial owner of more than 5% of our common stock;

(b)- each Named Executive Officer;

(c)- each director;

(d)- all executive officers and directors as a group; and

(e)- the selling stockholders.

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 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 NetScout
to a person or entity named below pursuant to options which may be exercised
within 60 days after March 31,June 30, 1999 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.

PERCENTAGE OF COMMON
STOCK OUTSTANDINGBENEFICIALLY
OWNED +
NUMBER OF SHARES -----------------------------------------------
BENEFICIALLY NUMBER OF SHARESOWNED BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED BEING OFFERED*+ OFFERING OFFERING
- ---------------------------------------------------- ----------------- ----------------------------------------------------------------------------------------- ------------------- ----------- ---------------------

Anil K. Singhal(1).................................. 7,844,250 *...................................................... 5,229,501 23.2% *19.7%
c/o NetScout Systems, Inc.
4 Technology Park Drive
Westford, MA 01886
Narendra Popat(2)................................... 7,844,251 *....................................................... 5,229,501 23.2 *19.7
c/o NetScout Systems, Inc.
4 Technology Park Drive
Westford, MA 01886
Charles W. Tillett(3)............................... 675,750 *................................................... 461,125 2.0 *1.7
Nathan Kalowski(4).................................. 651,279 *...................................................... 434,186 1.9 *1.6
Ashwani Singhal(5).................................. 1,272,000 *...................................................... 848,000 3.8 *3.2
Gerald Stabile(6)................................... 90,600 *....................................................... 72,900 * *
Tracy Steele(7)..................................... 77,250 *......................................................... 57,125 * *
Michael Szabados(8)................................. 124,500 *..................................................... 98,000 * *
Richard J. Egan(9)........................................................................................ -- * * *-- --
c/o Egan-Managed Capital, L.P.
30 Federal Street
Boston, MA 02110-2508
Joseph G. Hadzima, Jr.(10).......................... 944,892 *.............................................. 633,678 2.8 *2.4
c/o Technology Enabling Company, LLC
238 Main Street, Suite 400
Cambridge, MA 02142

PERCENTAGE BENEFICIALLY
OWNED +
NUMBER OF SHARES ------------------------
BENEFICIALLY OWNED BEFORE AFTER
NAME OF BENEFICIAL OWNER + OFFERING OFFERING
- ------------------------------------------------------------------------ ------------------- ----------- -----------

Kenneth T. Schiciano(11)............................ 25,021................................................ 16,680 * 29.5 *
c/o TA Associates, Inc.
125 High Street
Boston, MA 02110
TA Entities(12)..................................... 9,996,255 *......................................................... 6,664,170 29.5 *25.0
c/o TA Associates, Inc.
125 High Street
Boston, MA 02110
Greylock Equity Limited Partnership................. 1,894,740 *Partnership(13)................................. 1,263,160 5.6 *4.6
c/o Greylock Management Corporation
One Federal Street
Boston, MA 02110
All executive officers and directors as a group (11 persons)(13)...................................... 19,549,793 57.8% *
-----------------(14)........ 12,944,648 56.6% 48.2%

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

* Less than 1% of the outstanding common stock.

+ The numberabove table assumes no exercise of the over-allotment option to purchase
up to an aggregate of 600,000 shares of common stock. If the underwriters
exercise their over-allotment option in full, the stockholders identified
below will sell 600,000 shares of common stock pursuant to be sold in this offering and the selling
stockholders have not yet been determined.

50
such option.

(1) Includes an aggregate of 23,02415,350 shares held in trust for the benefit of Mr.
Singhal's children; Mr. Singhal's wifeSinghal is one of two trustees of each such trust.
Includes 510,000340,000 shares held by a family limited partnership of which Mr.
and Mrs. Singhal are the general partners and trusts for the benefit of Mr.
Singhal's children are the limited partners. Does not include 593,625395,750 shares
held in a grantor retained annuity trust for the benefit of Mr. Singhal.

(2) Includes 204,084136,056 shares held in trust for the benefit of Mr. Popat's
children; Mr. Popat's wife and Mr. Hadzima are the two trustees of such
trust. Includes 510,000340,000 shares held by a family limited partnership of which
Mr. and Mrs. Popat are the general partners and trusts for the benefit of
Mr. Popat's children are the limited partners. Does not include 593,625395,750
shares held in a grantor retained annuity trust for the benefit of Mr.
Popat; Mr. Hadzima is the sole trustee of such trust. If the underwriters'
over-allotment option is exercised in full, Mr. Popat will sell 200,000
shares of common stock.

(3) Includes 15,938 shares issuable upon exercise of options21,250 exercisable within 60 days of March 31,June 30, 1999. Excludes 63,75031,875
shares issuable upon the exercise of options that become exercisable upon
the closing of this offering. If the underwriters' over-allotment option is
exercised in full, Mr. Tillett will sell 35,000 shares of common stock.

(4) Does not include 88,22158,814 shares held in trusts for the benefit of Mr.
Kalowski's children. If the underwriters' over-allotment option is
excercised in full, Mr. Kalowski will sell 35,000 shares of common stock.

(5) Includes 60,45040,300 shares owned by Mr. Singhal's wife. If the underwriters'
over-allotment option is excercised in full, Mr. Singhal will sell 50,000
shares of common stock.

(6) Consists of shares issuable upon the exercise of options exercisable within
60 days of March 31,June 30, 1999. Excludes 18,75011,250 shares issuable upon the exercise
of options that become exercisable upon the closing of this offering.

(7) Consists of shares issuable upon the exercise of options exercisable within
60 days of March 31,June 30, 1999.

(8) Consists of shares issuable upon the exercise of options exercisable within
60 days of March 31,June 30, 1999.

(9) Egan-Managed Capital, L.P. owns 469,626313,084 shares. Although Mr. Egan does not
have any voting or investment powers over the shares, Mr. Egan and his
children own substantially all of the equity interest of Egan-Managed
Capital, L.P.

(10) Includes 16,87515,000 shares issuable upon the exercise of options exercisable
within 60 days of March 31,June 30, 1999. Includes 204,084136,056 shares held in trust for
the benefit of Mr. Popat's children; Mrs. Popat and Mr. Hadzima are the two
trustees of such trust. Includes 593,625395,750 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 does not include
79,99253,328 shares held in trust for the benefit of Mr. Hadzima's children. If
the underwriters' over-allotment option is exercised in full, Mr. Hadzima
will sell 10,000 shares of common stock.

(11) Consists of shares inof TA Executives Fund,Investors LLC beneficially owned by Mr. Schiciano.
Mr. Schiciano is a Principal 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.

(12) Includes 8,150,2205,433,480 shares held by TA/Advent VIII L.P., of which 179,373
shares are being offered hereby; 1,528,176will be sold if the underwriters' over-allotment option is exercised
in full; 1,018,784 shares held by Advent Atlantic &and Pacific III L.P., of
which 33,631 shares are being offered hereby; 154,854will be sold if the underwriters' over-allotment option
is exercised in full; 103,236 shares held by TA Executives Fund LLC, of
which 3,408 shares are being
offered hereby;will be sold if the underwriters' over-allotment option
is exercised in full; and 163,005108,670 shares held by TA Investors LLC, of which
3,588 shares are being offered hereby.will be sold if the underwriters' over-allotment option is
exercised in full. 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.

(13) Messrs. Henry F. McCance, Howard E. Cox, David N. Strohm, Roger L. Evans,
William W. Helman and William S. Kaiser, the general partners of the general
partner of Greylock Equity Limited Partnership, exercise shared voting and
investment power with respect to the 1,263,160 shares owned by Greylock
Equity Limited Partnership. Each of Messrs. McCance, Cox, Strohm, Evans,
Helman and Kaiser disclaims beneficial ownership of such shares except to
the extent of his respective proportionate pecuniary interest therein. If
the underwriters' over-allotment option is exercised in full, Greylock
Equity Limited Partnership will sell 50,000 shares of common stock.

(14) Includes an aggregate of 325,162264,275 shares issuable upon exercise of options
exercisable within 60 days of March 31,June 30, 1999. Excludes 82,50043,125 shares issuable
upon exercise of options that become exercisable upon the closing of this
offering.

If the underwriter's over-allotment option is exercised in full, NetScout
will sell an additional shares and the following selling stockholders will
sell an additional shares:

5156

DESCRIPTION OF CAPITAL STOCK

Effective upon the closing of this offering and the filing of NetScout's
Third Amended and Restated Certificate of Incorporation, the authorized capital
stock of NetScout will consist of 150,000,000 shares of common stock, par value
$.001 per share, and 5,000,000 shares of preferred stock, par value $.001 per
share.

The following summary description of NetScout's capital stock, as of the
closing of this offering, is not intended to be complete and is qualified by
reference to the provisions of applicable law and to NetScout's Third Amended
and Restated Certificate of Incorporation and Amended and Restated By-laws filed
as exhibits to the registration statement of which this prospectus is a part.

COMMON STOCK

As of March 31,June 30, 1999, there were 33,843,25822,588,637 shares of common stock
outstanding and held of record by 6674 stockholders, after giving effect to the
conversion of all outstanding shares of Non-Voting CommonSeries A Preferred Stock, Class B Common Stock and
Series A PreferredNon-Voting Common Stock upon the closing of this offering. Based upon the number
of shares outstanding as of March 31,June 30, 1999 and giving effect to the issuance of
the shares of common stock offered by NetScout hereby, there will be 26,588,637
shares of common stock outstanding upon the closing of this offering. In
addition, as of March 31,June 30, 1999, there were outstanding stock options for the
purchase of a total of 4,640,4383,239,451 shares of Non-Voting Common Stock which upon
the closing of the offering will be automatically converted into options to
purchase an aggregate of 4,640,4383,239,451 shares of common stock.

Holders of common stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Directors are elected by a plurality of the votes
of the shares present in person or by proxy at the meeting. The holders of
common stock are entitled to receive ratably such lawful dividends as may be
declared by the Board of Directors. However, such dividends are subject to
preferences that may be applicable to the holders of any outstanding shares of
preferred stock. In the event of a liquidation, dissolution or winding up of the
affairs of NetScout, whether voluntarily or involuntarily, the holders of common
stock will be entitled to receive pro rata all of the remaining assets of
NetScout available for distribution to its stockholders. Any such pro rata
distribution would be subject to the rights of the holders of any outstanding
shares of preferred stock. The common stock has no preemptive, redemption,
conversion or subscription rights. All outstanding shares of common stock are
fully paid and non-assessable. The shares of common stock to be issued by
NetScout in this offering will be fully paid and non-assessable. The rights,
powers, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock which NetScout may designate and issue in the future.
Upon the closing of this offering, there will be no shares of preferred stock
outstanding.

PREFERRED STOCK

The Board of Directors will be authorized, subject to any limitations
prescribed by Delaware law, without further stockholder approval, to issue from
time to time up to an aggregate of 5,000,000 shares of preferred stock, in one
or more series. The Board of Directors is also authorized, subject to the
limitations prescribed by Delaware law, to establish the number of shares to be
included in each series and to fix the voting powers, preferences,
qualifications and special or relative rights or privileges of each series. The
Board of Directors is authorized to issue preferred stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of common stock.

NetScout has no current plans to issue any preferred stock. However, the
issuance of preferred stock or of rights to purchase preferred stock could have
the effect of making it more difficult for a

5257

third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding common stock of NetScout.

REGISTRATION RIGHTS

The Amended and Restated Rights Agreement dated as of January 15, 1999,
provides that the holders (the "Registration Rights Holders") of 10,465,8816,977,254 shares of common stock, (afterafter giving
effect to the conversion of the Class B Common Stock) (the "Registrable Shares")Stock, are entitled to certain
rights with respect to the registration of such shares under the Securities Act.
If NetScout proposes to register any of its securities under the Securities Act,
either for its own account or for the account of another securityholder, the
Registration
Rights Holdersregistration rights holders are entitled to notice of such registration and to
include such Registrable Sharesregistrable shares in such registration. However, in the event of a
registration pursuant to an underwritten public offering of common stock, the
underwriters shall have the right, subject to certain conditions, to limit the
number of shares included in such registration.

In addition, after six months after this offering, the holders of at least
40% of the then outstanding Registrable Sharesregistrable shares issued are entitled to request
that NetScout file a registration statement under the Securities Act covering
the sale of some or all of the shares held by the requesting holder or holders.
Upon the receipt of such a request, NetScout is required to use its reasonable
best efforts to effect such registration, subject to certain conditions and
limitations. NetScout is not required to effect more than two such demand
registrations for the Registration Rights Holders,registration rights holders, and each such demand
registration must have an offering value of at least $2,500,000.

Once NetScout has qualified to use Form S-3 to register securities under the
Securities Act, the Registration Rights Holdersregistration rights holders have the right to request that
NetScout file a registration statement on Form S-3 or any successor thereto for
a public offering of all or any portion of their Registrable Shares,registrable shares, provided
that the reasonably anticipated aggregate price to the public of such offering
would not be less than $1,000,000. NetScout is not required to effect a
registration in this manner more than once in any twelve-month period.

In general, all fees, costs and expenses of such registrations, (otherother than
underwriting discounts and commissions and fees and disbursements of counsel to
the Registration Rights Holders)registration rights holders, will be borne by NetScout. We have agreed to
indemnify the Registration Rights Holdersregistration rights holders against, and provide contribution with
respect to, certain liabilities relating to any registration in which any
Registrable Sharesregistrable shares of Registration Rights Holdersregistration rights holders are sold under the Securities
Act.

The previously described registration rights shall terminate for a
Registration Rights Holderregistration rights holder at such time as such particular holder could sell all
of such holder's shares under the terms of Rule 144(k) under the Securities Act.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF NETSCOUT'S THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BY-LAWS AND DELAWARE LAW

NetScout's Third Amended and Restated Certificate of Incorporation, (the
"Charter"),known as
the Charter, NetScout's Amended and Restated By-Laws (the "By-Laws") and the Delaware General
Corporation Law contain certain provisions that could discourage, delay or
prevent a change in control of NetScout or an acquisition of NetScout at a price
which many stockholders may find attractive. The existence of these provisions
could limit the price that investors might be willing to pay in the future for
shares of common stock.

THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS

The Charter provides for the division of the Board of Directors into three
classes as nearly as equal in size as possible with staggered three-year terms.
In addition, the Charter provides that directors may be removed only for cause
by the affirmative vote of the holders of 75% of the shares of capital stock of
NetScout entitled to vote. The By-Laws provide that, except as otherwise
provided by

5358

law or the Charter, newly created directorships resulting from an increase in
the authorized number of directors or vacancies on the Board may be filled only
by:

- a majority of the directors then in office, even though less than a quorum
may then be in office; or

- the sole remaining director.

These provisions prevent a stockholder from enlarging the Board and filling
the new directorships with such stockholder's own nominees without Board
approval.

These provisions of the By-Laws may have the effect of discouraging a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of NetScout, or attempting to change the composition
or policies of the Board, even though such attempts might be beneficial to
NetScout or its stockholders.

The Charter and By-Laws provide that, unless otherwise prescribed by law,
only a majority of the Board, the Chairman of the Board or the President is able
to call a special meeting of stockholders. The Charter and the By-Laws also
provide that, unless otherwise prescribed by law, stockholder action may be
taken only at a duly called and convened annual or special meeting of
stockholders and may not be taken by written consent. These provisions, taken
together, prevent stockholders from forcing consideration by the stockholders of
stockholder proposals over the opposition of the Board, except at an annual
meeting.

The By-Laws provide that any action required or permitted to be taken by the
stockholders of NetScout at an annual meeting or special meeting of stockholders
may only be taken if NetScout is given proper advance notice of the action (the
"Notice Procedure"). The Notice Procedureaction. This
notice procedure affords the Board an opportunity to consider the qualifications
of proposed director nominees or the merit of stockholder proposals, and, to the
extent deemed appropriate by the Board, to inform stockholders about such
matters. The Notice Procedurenotice procedure also provides a more orderly procedure for
conducting annual meetings of stockholders. The By-Laws do not give the Board
any power to approve or disapprove stockholder nominations for the election of
directors or proposals for action. However, the Notice Procedurenotice procedure may prevent a
contest for the election of directors or the consideration of stockholder
proposals. This could deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal if
the proper advance notice procedures are not followed, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
NetScout and its stockholders.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares issued and outstanding is required
to amend a corporation's certificate of incorporation or by-laws, unless a
corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. The By-Laws require the affirmative vote of the
holders of at least 75% of the issued and outstanding shares of capital stock of
NetScout entitled to vote to amend or repeal any of the foregoing provisions of
the By-Laws. The 75% stockholder vote would be in addition to any separate class
vote that might be required pursuant to the terms of any series of preferred
stock that might be outstanding at the time any such amendments are submitted to
stockholders.

DELAWARE LAW

NetScout is subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder.

5459

Section 203 does not apply if:

- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;

- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or

- on or subsequent to such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.

The application of Section 203 may limit the ability of stockholders to approve
a transaction that they may deem to be in their best interests.

Section 203 defines "business combination" to include:

- any merger or consolidation involving the corporation and the interested
stockholder;

- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation to or with the interested stockholder;

- subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;

- any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or

- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or is an affiliate or associate of the corporation and was the owner
of 15% or more of the outstanding voting stock of the corporation at any time
within the past three years, and any entity or person associated with,
affiliated with or controlling or controlled by such entity or person.

LIMITATION OF LIABILITY

The Charter provides that no director of NetScout shall be personally liable
to NetScout or to its stockholders for monetary damages for breach of fiduciary
duty as a director, except that the limitation shall not eliminate or limit
liability to the extent that the elimination or limitation of such liability is
not permitted by the Delaware General Corporation Law as the same exists or may
hereafter be amended.

The Charter further provides for the indemnification of NetScout's directors
and officers to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, including circumstances in which indemnification is
otherwise discretionary. A principal effect of these provisions is to limit or
eliminate the potential liability of NetScout's directors for monetary damages
arising from breaches of their duty of care, subject to certain exceptions.
These provisions may also shield directors from liability under federal and
state securities laws.

STOCK TRANSFER AGENT

The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.

5560

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for NetScout's stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices from time to time. Furthermore, since
only a limited number of shares will be available for sale shortly after the
offering because of certain contractual and legal restrictions on resale (asas
described below),below, sales of substantial amounts of common stock of NetScout in the
public market after the restrictions lapse could adversely affect the prevailing
market price and the ability of NetScout to raise equity capital in the future.

Upon completion of this offering (basedand based on shares outstanding as of March
31, 1999),June
30, 1999, NetScout will have outstanding an aggregate of 26,588,637 shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, the
4,000,000 shares sold in the offering will be freely tradable without
restrictions or further registration under the Securities Act, unless such
shares are purchased by an "affiliate" of NetScout as that term is defined in
Rule 144 under the Securities Act (an "Affiliate").Act.

The remaining 22,588,637 shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act ("Restricted Shares") or are subject to the contractual restrictions
described below. Of these restricted securities:

- 83,10095,400 shares may be sold immediately after completion of this offering;

- 392,974711,023 additional shares may be sold 90 days after the effective date of
this offering; and

- 20,901,30323,618,047 additional shares may be sold upon expiration of the 180-day
lock-up agreement; and

- 10,465,881 additional shares may be sold commencing on January 15, 2000.agreement.

All of the officers and directors and certain stockholders and optionholders
of NetScout have signed lock-up agreements in favor of the underwriters. As a
result, these individuals are not permitted to offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of common
stock, other than shares purchased by certain securityholders of NetScout in the
open market post-offering or shares sold as part of this offering, for a period
of 180 days after the date of this prospectus, without the prior written consent
of Credit Suisse First Boston Corporation. Credit Suisse First Boston
CorporationDeutsche Bank Securities Inc. Deutsche Bank Securities Inc. currently has no
plans to release any portion of the securities subject to lock-up agreements,
but may do so without notice. When determining whether or not to release shares
from the lock-up agreements, Credit Suisse
First Boston CorporationDeutsche Bank Securities Inc. will consider, among
other factors, the stockholder's reasons for requesting the release, the number
of shares for which the release is being requested and market conditions at the
time.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, (oror persons whose shares are aggregated)aggregated,
who has beneficially owned Restricted Sharesrestricted shares for at least one year, (includingincluding
the holding period of any prior owner except when purchased from an Affiliate)affiliate,
would be entitled to sell a certain number of shares within any three-month
period. That certain number of shares cannot exceed the greater of one percent
of the number of shares of common stock then outstanding, (whichwhich will equal
approximately 265,886 shares immediately after the offering),offering, or the average
weekly trading volume of the common stock on the Nasdaq National Market during
the four calendar weeks preceding the filing of a notice on Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about NetScout. Rule 144 also provides that Affiliatesaffiliates of NetScout
who are selling shares of common stock that are not Restricted Sharesrestricted shares must
nonetheless comply with the same restrictions applicable to Restricted Sharesrestricted shares
with the exception of the holding-period requirement.

Under Rule 144(k), a person who is not deemed to have been an Affiliateaffiliate of
NetScout at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
(includingincluding the holding period of any prior owner except when purchased from an

Affiliate),61

affiliate, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Accordingly, unless otherwise restricted, "144(k) shares" may therefore be sold
immediately upon the completion of this offering.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from NetScout by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act").amended. To be eligible for resale under Rule 701, shares must have
been issued pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, along with the shares
acquired upon exercise of such options, (includingincluding exercises after the date of
the offering).offering. Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by persons
other than Affiliates, subject only to the manner of sale provisions of Rule
144, and by Affiliates, under Rule 144 without compliance with its one-year
minimum holding period requirements.

NetScout has agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of common stock or any securities convertible into or exercisable
or exchangeable for common stock, or publicly disclose the intention to make any
such offer, sale, pledge, disposition or filing, for a period of 180 days after
the date of this prospectus, without the prior written consent of Credit Suisse
First Boston,Deutsche Bank
Securities Inc., subject to certain limited exceptions.

Following the offering, NetScout intends to file registration statements
under the Securities Act covering approximately 12,140,4387,951,701 shares of common stock
issued pursuant to the exercise of stock options, subject to outstanding options
or reserved for issuance under NetScout's 1990 Stock Option Plan, 1999 Stock
Option and Incentive Plan and 1999 Employee Stock Purchase Plan. Accordingly,
shares registered under such registration statements will, subject to Rule 144
provisions applicable to Affiliates,affiliates, be available for sale in the open market,
except to the extent that such shares are subject to NetScout's vesting or
exercise restrictions or the contractual restrictions described above. See
"Management--Stock Plans."

5762

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, the underwriters named below, for whom
Credit Suisse First Boston Corporation,Deutsche Bank Securities Inc., Bear, Stearns & Co. Inc., BT Alex. Brown
Incorporated and Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, are acting as
representatives, have severally but not jointly agreed to purchase from NetScout
and the selling stockholders the following respective number of shares of common
stock:

UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------

Credit Suisse First Boston Corporation.....................................Deutsche Bank Securities Inc. .............................................
Bear, Stearns & Co. Inc....................................................
BT Alex. Brown Incorporated................................................
Dain Rauscher Wessels......................................................
-----------------
Total.................................................................. 4,000,000
-----------------
-----------------

The underwriting agreement provides that the obligations of the underwriters
are subject to approval of certain conditions precedent and that the
underwriters will be obligated to purchase all of the shares of the common stock
offered hereby, (otherother than those shares covered by the over-allotment option
described below)below, if any are purchased. The underwriting agreement provides that,
in the event of a default by an underwriter, in certain circumstances the
purchase commitments of non-defaulting underwriters may be increased or the
underwriting agreement may be terminated.

The following table summarizes the compensation to be paid to the
underwriters by NetScout and the selling stockholders and the expenses payable
by NetScout:

TOTAL
--------------------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------------- --------------------- ---------------------

Underwriting discounts and commissions payable by
NetScout.........................................
Expenses payable by NetScout.......................
Underwriting discounts and commissions payable by
the selling stockholders.........................

NetScout and certainCertain of the selling stockholders have granted to the underwriters an
option expiring on the 30th day after the date of this prospectus to purchase up
to 600,000 additional shares of common stock at the initial public offering
price, less the underwriting discounts and commissions. Such option may be
exercised only to cover over-allotments in the sale of shares of common stock.
To the extent such option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares of common stock as it was obligated to purchase pursuant
to the underwriting agreement.

NetScout and the selling stockholders have been advised by the
representatives that the underwriters propose to offer the shares of common
stock to the public initially at the public offering price set forth on the
cover page of this prospectus and, through the representatives, to selling group
members (who may include the underwriters) at such price less a concession of $ per share, and the
underwriters and such selling group members may allow a discount of $ per
share on sales to certain other broker-dealers. After the offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.

The representatives have informed NetScout that they do not expect
discretionary sales by the underwriters to exceed 5% of the shares being offered
hereby.

58
NetScout, its officers and directors, and certain other existing
stockholders and optionholders of NetScout have agreed that they will not offer,
sell, contract to sell, pledge or otherwise dispose of or

transfer, directly or indirectly, or, in the case of NetScout, file with the
Securities and Exchange Commission a registration statement relating to, any
shares of common stock or securities exchangeable or exercisable for or
convertible into shares of common stock or publicly disclose the intention to do
any of the foregoing without the prior written consent of Credit Suisse First Boston CorporationDeutsche Bank
Securities Inc. for a period of 180 days after the date of this prospectus,
except under certain circumstances.

The underwriters have reserved for sale, at the initial public offering
price, up to 200,000 shares of the common stock for employees, directors and
certain other persons associated with NetScout who have expressed an interest in
purchasing such shares of common stock in the offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same basis as other
shares offered hereby.

NetScout and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments which the underwriters may be
required to make in respect thereof.

NetScout has applied for listing of the common stock on The Nasdaq Stock
Market's National Market under the symbol "NSCT."NTCT."

Prior to the offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between
NetScout and the representatives. The principal factors to be considered in
determining the initial public offering price include:

- the information set forth in this prospectus and otherwise available to
the representatives;

- the history of, and the prospects for, NetScout and the industry in which
it competes;

- an assessment of NetScout's management;

- the prospects for, and the timing of, future earnings of NetScout;

- the present state of NetScout's development and its current financial
condition;

- the general condition of the securities markets at the time of the
offering;

- the recent market prices of, and the demand for, publicly-traded common
stock of companies in businesses similar to those of NetScout;

- market conditions for initial public offerings; and

- other relevant factors.

There can be no assurance that an active trading market will develop for the
common stock or that the common stock will trade in the market subsequent to the
offering at or above the initial public offering price.

The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
shares of the common stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when
shares of the common stock originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that NetScout prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to NetScout and the dealer from whom
such purchase confirmation is received that (1) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (2) where required
by law, that such purchaser is purchasing as principal and not as agent, and (3)
such purchaser has reviewed the text above under "Resale Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to the offering. Such a report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from NetScout. Only one such
report must be filed in respect of common stock acquired on the same date and
under the same prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
Legislation.

6064

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for NetScout by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
Additional legal matters will be passed upon for the underwriters by Hale and
Dorr LLP, Boston, Massachusetts.

EXPERTS

The consolidated financial statements of NetScout Systems, Inc. as of March
31, 19971998 and 1998,1999, and for each of the three years in the period ended March 31,
1998,1999, included in this prospectus, have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

NetScout has filed with the Securities and Exchange Commission (the
"Commission") a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to NetScout and the common stock, reference is made to the
registration statement. Statements containedSome of the contracts and other documents referred to in
this prospectus asare exhibits to the contents of any contract or any other document referred to are not necessarily
complete,registration statement. For further
information regarding these contracts and in each instance,documents, reference is made to the
copy of the contract
or documentcopies filed as an exhibitexhibits to the registration statement, and each such
statement is qualified in all respects by reference to such exhibit.statement. Copies of the
registration statement may be examined without charge at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Regional Offices of the
Commission at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7
World Trade Center, Thirteenth Floor, New York, New York 10048. Copies of all or
any portion of the registration statement may be obtained from the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington D.C.
20549, at prescribed rates. Information on the operation of the Public Reference
Room may be obtained by calling the Commission at 1-800-SEC-0330. The Commission
also maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants, such as
NetScout, that make electronic filings with the Commission.

NetScout intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm.

6165

NETSCOUT SYSTEMS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
-----

Report of Independent Accountants.......................................................................... F-2

Consolidated Balance Sheet as of March 31, 1997 and 1998 and December 31, 19981999 and June 30, 1999 (unaudited)................................................................................................................... F-3

Consolidated Statement of Income for the years ended March 31, 1996, 1997, and 1998 and 1999 and for the ninethree months
ended December 31, 1997June 30, 1998 and 19981999 (unaudited).............................................................................................................................. F-4

Consolidated Statement of Redeemable Convertible Common Stock and Stockholders' Equity (Deficit) for the
years ended March 31, 1996, 1997, and 1998 and 1999 and for the ninethree months ended December 31, 1998June 30, 1999 (unaudited)........................... F-5

Consolidated Statement of Cash Flows for the years ended March 31, 1996, 1997, and 1998 and 1999 and for the ninethree
months ended December 31, 1997June 30, 1998 and 19981999 (unaudited)....................................................................................................................... F-6

Notes to Consolidated Financial Statements................................................................. F-7

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of NetScout Systems, Inc.

The three-for-two stock split authorized on April 14, 1999 described in Note 8
to the consolidated financial statements has not been consummated at April 21,
1999. When it has been consummated, we will be in a position to furnish the
following report:

"InIn our opinion, the accompanying consolidated balance sheet and the related
statements of income, of redeemable convertible common stock and stockholders'
equity (deficit) and of cash flows present fairly, in all material respects, the
financial position of NetScout Systems, Inc. and its subsidiaries at March 31,
19971998 and 1998,1999, and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 1998,1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above."

PricewaterhouseCoopers LLP
Boston, Massachusetts
June 2, 1998, except for Note 8, as to
which the date is AprilJuly 14, 1999

F-2

NETSCOUT SYSTEMS, INC.

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

MARCH 31, PRO FORMAJUNE 30,
-------------------- DECEMBER 31, DECEMBER 31,
1997-----------
1998 1998 19981999 1999
--------- --------- ------------- ------------------------

(UNAUDITED) (NOTE 2)
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 6,514equivalents............................................................. $ 6,341 $ 22,02425,477 $ 21,61422,918
Marketable securities........................................... 5,841securities................................................................. 8,834 -- --
Accounts receivable, net of allowance for doubtful accounts and returns of $1,693, $1,063,
$1,036, and $1,021$1,048 at March 31, 1997 and
1998 and December 31, 19981999 and June 30, 1999 (unaudited),
respectively.......... 2,192respectively........................................................................ 4,295 7,118 7,118
Inventories..................................................... 2,2746,550 8,431
Inventories........................................................................... 3,054 2,632 2,6323,165 2,584
Refundable income taxes......................................... --taxes............................................................... 708 --217 --
Deferred income taxes........................................... 1,010taxes................................................................. 1,191 1,191 1,1911,196 1,196
Prepaids and other current assets............................... 203assets..................................................... 560 542 542821 771
--------- --------- ------------- ------------------------
Total current assets.......................................... 18,034assets.............................................................. 24,983 33,507 33,09737,426 35,900

Fixed assets, net................................................. 1,596net..................................................................... 3,841 4,292 4,2924,227 5,238
Notes receivable--stockholders.................................... 2,000receivable--stockholders........................................................ 2,000 2,000 2,000
Deferred income taxes............................................. 73taxes................................................................. 396 396 396321 321
Other assets.......................................................................... -- -- 289
--------- --------- ------------- ------------------------
Total assets.................................................. $ 21,703assets...................................................................... $ 31,220 $ 40,19543,974 $ 39,78543,748
--------- --------- ------------- ------------------------
--------- --------- ------------- ------------------------
LIABILITIES, REDEEMABLE CONVERTIBLE COMMON STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................ $ 1,183payable...................................................................... $ 2,951 $ 2,6353,945 $ 2,635500
Accrued compensation............................................ 1,758compensation.................................................................. 2,690 2,938 2,9383,539 2,417
Accrued other................................................... 369other......................................................................... 403 711 7111,165 1,130
Income tax payable.............................................. 84taxes payable.................................................................. -- 306 306-- 507
Customer deposits............................................... 1,262deposits..................................................................... 1,246 1,129 1,12934 34
Deferred revenue................................................ 2,238revenue...................................................................... 3,530 3,958 3,9584,254 4,829
--------- --------- ------------- ------------------------
Total current liabilities..................................... 6,894liabilities......................................................... 10,820 11,677 11,67712,937 9,417
--------- --------- ------------- ------------------------
Commitments and contingencies (Note 12)

Redeemable convertible common stock:
Class B redeemable convertible common stock, $.001$0.001 par value; No6,977,254 shares
authorized, issued orand outstanding at March 31, 19971999 and 1998 and December 31, 1998June 30, 1999 (unaudited); 6,977,254 shares
authorized,
no shares issued or outstanding at December 31,
1998 on aJune 30, 1999 pro forma basis (unaudited)....................................... -- -- -- --44,161 44,161
--------- --------- ------------- ------------------------
Stockholders' equity:equity (deficit):
Series A convertible preferred stock, $0.001 par value; 1,263,158631,579 shares authorized and
issued at March 31, 1998 and 1999 and June 30, 1999 (unaudited), 631,579, 315,790
and 315,790 shares issued and outstanding at March 31, 1997 and 1998 and December 31, 19981999 and June 30, 1999
(unaudited);, respectively; no shares issued andor outstanding at December 31,
1998 on aJune 30, 1999 pro
forma basis (unaudited)............................................................................................ 5,964 5,964 5,964 --
Common stock, $0.001 par value:
Voting, 39,918,27312,640,786, 121,798,382 and 121,798,382 shares authorized 24,000,000at March 31,
1998 and 1999 and June 30, 1999 (unaudited), respectively, 16,000,000 shares
issued, and 16,000,000, 11,250,502 and 11,250,502 shares outstanding at March 31,
1997 and 1998 and December 31,
19981999 and June 30, 1999 (unaudited); 50,384,154 shares authorized, 43,990,185, respectively; 29,565,891 shares
issued and 33,524,30422,588,637 shares outstanding at DecemberJune 30, 1999 pro forma
(unaudited)...................................................................... 16 16 16
Non-voting, 12,640,786, 21,224,364 and 21,224,364 shares authorized at March 31,
1998 on a pro forma basisand 1999 and June 30, 1999 (unaudited)................... 24 24 24 44
Non-voting, 39,918,273 shares authorized, 5,383,200, 5,412,000, respectively, 3,608,000, 4,035,858
and 5,734,8304,062,321 shares issued and 3,608,000, 3,071,258 and 3,097,721 shares
outstanding at March 31, 1997 and 1998 and December 31, 19981999 and June 30, 1999 (unaudited),
respectively; no shares issued andor outstanding at December
31, 1998 on aJune 30, 1999 pro forma
basis (unaudited)................... 5 5 6 --...................................................................... 4 4 4
Additional paid-in capital.................................... 238 896 1,010 51,121capital........................................................ 905 2,143 2,211
Deferred compensation........................................... (173)compensation................................................................. (672) (550) (550)(1,312) (1,220)
Treasury stock.................................................. -- --stock........................................................................ -- (44,394) (44,394)
Retained earnings............................................... 8,751earnings..................................................................... 14,183 22,064 21,88724,455 27,589
--------- --------- ------------- ------------------------
Total stockholders' equity.................................... 14,809equity (deficit).............................................. 20,400 28,518 28,108(13,124) (9,830)
--------- --------- ------------- ------------------------
Total liabilities, redeemable convertible common stock and
stockholders' equity........................................ $ 21,703equity (deficit).................................................. $ 31,220 $ 40,19543,974 $ 39,78543,748
--------- --------- ------------- ------------------------
--------- --------- ------------- ------------------------

PRO FORMA
JUNE 30,
1999
-----------

ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 22,918
Marketable securities................................................................. --
Accounts receivable, net of allowance for doubtful accounts and returns of $1,063,
$1,036, and $1,048 at March 31, 1998 and 1999 and June 30, 1999 (unaudited),
respectively........................................................................ 8,431
Inventories........................................................................... 2,584
Refundable income taxes............................................................... --
Deferred income taxes................................................................. 1,196
Prepaids and other current assets..................................................... 771
-----------
Total current assets.............................................................. 35,900
Fixed assets, net..................................................................... 5,238
Notes receivable--stockholders........................................................ 2,000
Deferred income taxes................................................................. 321
Other assets.......................................................................... 289
-----------
Total assets...................................................................... $ 43,748
-----------
-----------
LIABILITIES, REDEEMABLE CONVERTIBLE COMMON STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable...................................................................... $ 500
Accrued compensation.................................................................. 2,417
Accrued other......................................................................... 1,130
Income taxes payable.................................................................. 507
Customer deposits..................................................................... 34
Deferred revenue...................................................................... 4,829
-----------
Total current liabilities......................................................... 9,417
-----------
Commitments and contingencies (Note 12)
Redeemable convertible common stock:
Class B redeemable convertible common stock, $0.001 par value; 6,977,254 shares
authorized, issued and outstanding at March 31, 1999 and June 30, 1999 (unaudited);
no shares issued or outstanding at June 30, 1999 pro forma (unaudited).............. --
-----------
Stockholders' equity (deficit):
Series A convertible preferred stock, $0.001 par value; 631,579 shares authorized and
issued at March 31, 1998 and 1999 and June 30, 1999 (unaudited), 631,579, 315,790
and 315,790 shares outstanding at March 31, 1998 and 1999 and June 30, 1999
(unaudited), respectively; no shares issued or outstanding at June 30, 1999 pro
forma (unaudited)................................................................... --
Common stock, $0.001 par value:
Voting, 12,640,786, 121,798,382 and 121,798,382 shares authorized at March 31,
1998 and 1999 and June 30, 1999 (unaudited), respectively, 16,000,000 shares
issued, and 16,000,000, 11,250,502 and 11,250,502 shares outstanding at March 31,
1998 and 1999 and June 30, 1999 (unaudited), respectively; 29,565,891 shares
issued and 22,588,637 shares outstanding at June 30, 1999 pro forma
(unaudited)...................................................................... 30
Non-voting, 12,640,786, 21,224,364 and 21,224,364 shares authorized at March 31,
1998 and 1999 and June 30, 1999 (unaudited), respectively, 3,608,000, 4,035,858
and 4,062,321 shares issued and 3,608,000, 3,071,258 and 3,097,721 shares
outstanding at March 31, 1998 and 1999 and June 30, 1999 (unaudited),
respectively; no shares issued or outstanding at June 30, 1999 pro forma
(unaudited)...................................................................... --
Additional paid-in capital........................................................ 52,326
Deferred compensation................................................................. (1,220)
Treasury stock........................................................................ (44,394)
Retained earnings..................................................................... 27,589
-----------
Total stockholders' equity (deficit).............................................. 34,331
-----------
Total liabilities, redeemable convertible common stock and
stockholders' equity (deficit).................................................. $ 43,748
-----------
-----------

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

F-3

NETSCOUT SYSTEMS, INC.

CONSOLIDATED STATEMENT OF INCOME

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NINETHREE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
---------------------------------------- --------------------------JUNE 30,
---------------------------------- ----------------------

1996 1997 1998 19971999 1998 ------------ ------------ ------------ ------------ ------------1999
---------- ---------- ---------- ---------- ----------

(UNAUDITED)

Revenue:
Product.................................. $ 13,276Product........................................ $ 25,159 $ 34,990 $ 23,94450,374 $ 36,737
Service.................................. 1,52111,547 $ 12,814
Service........................................ 3,888 5,143 3,455 6,3298,710 1,873 2,465
License and royalty...................... 886royalty............................ 1,601 2,696 1,772 5,814
------------ ------------ ------------ ------------ ------------8,467 1,843 3,792
---------- ---------- ---------- ---------- ----------
Total revenue.......................... 15,683revenue................................ 30,648 42,829 29,171 48,880
------------ ------------ ------------ ------------ ------------67,551 15,263 19,071
---------- ---------- ---------- ---------- ----------
Cost of revenue:
Product.................................. 5,897Product........................................ 9,427 12,638 8,299 13,614
Service.................................. 13819,250 4,340 4,814
Service........................................ 528 784 510 838
------------ ------------ ------------ ------------ ------------1,235 296 413
---------- ---------- ---------- ---------- ----------
Total cost of revenue.................. 6,035revenue........................ 9,955 13,422 8,809 14,452
------------ ------------ ------------ ------------ ------------20,485 4,636 5,227
---------- ---------- ---------- ---------- ----------
Gross margin............................... 9,648margin..................................... 20,693 29,407 20,362 34,428
------------ ------------ ------------ ------------ ------------47,066 10,627 13,844
---------- ---------- ---------- ---------- ----------
Operating expenses:
Research and development................. 1,208development....................... 3,003 5,129 3,543 5,2957,526 1,732 2,241
Sales and marketing...................... 4,384marketing............................ 6,778 13,583 9,378 14,72620,375 5,008 6,040
General and administrative............... 695administrative..................... 1,815 2,950 1,912 2,758
------------ ------------ ------------ ------------ ------------4,104 815 937
---------- ---------- ---------- ---------- ----------
Total operating expenses............... 6,287expenses..................... 11,596 21,662 14,833 22,779
------------ ------------ ------------ ------------ ------------32,005 7,555 9,218
---------- ---------- ---------- ---------- ----------
Income from operations..................... 3,361operations........................... 9,097 7,745 5,529 11,64915,061 3,072 4,626
Interest income............................ 23income.................................. 471 750 561 669929 200 274
Interest expense........................... (26)expense................................. (10) (7) (6)(3) -- (2)
------------ ------------ ------------ ------------ ---------------------- ---------- ---------- ---------- ----------
Income before provision for income taxes... 3,358taxes......... 9,558 8,488 6,084 12,31615,987 3,272 4,898
Provision for income taxes................. 1,355taxes....................... 3,640 3,056 2,191 4,435
------------ ------------ ------------ ------------ ------------5,715 1,178 1,764
---------- ---------- ---------- ---------- ----------
Net income................................. $ 2,003income....................................... $ 5,918 $ 5,432 $ 3,89310,272 $ 7,881
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------2,094 $ 3,134
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Basic net income per share.................share....................... $ 0.070.31 $ 0.210.28 $ 0.190.55 $ 0.130.11 $ 0.270.22
Diluted net income per share...............share..................... $ 0.060.26 $ 0.170.23 $ 0.160.43 $ 0.110.09 $ 0.220.13
Shares used in computing:
Basic net income per share............... 27,813,702 28,514,402 28,933,752 28,909,404 25,352,740share..................... 19,009,601 19,289,168 18,585,676 19,304,432 14,331,206
Diluted net income per share............. 33,689,729 34,377,926 34,748,294 34,450,260 35,694,174share................... 22,918,617 23,165,529 23,705,999 23,578,435 24,908,625
Unaudited pro forma basic net income per share....................................share... $ 0.170.46 $ 0.240.14
Unaudited pro forma diluted net income per
share....................................share.......................................... $ 0.160.43 $ 0.220.13
Shares used in computing:
Unaudited pro forma basic net income per
share.................................. 32,723,226 33,142,214share........................................ 22,300,525 22,571,618
Unaudited pro forma diluted net income per
share.............................. 34,748,294 35,694,174share........................................ 23,705,999 24,908,625

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

F-4

NETSCOUT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE COMMON STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

COMMON STOCK
CLASS B REDEEMABLE -------------------------------------------------------------------------------------
CONVERTIBLE COMMON SERIES A CONVERTIBLE
STOCK PREFERRED STOCK VOTING NON-VOTING
-------------------- ---------------------- ------------------------ ---------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES PAR VALUE SHARES
PAR VALUE
--------- --------- --------- ----------- --------- ------------- --------- -------------
Balance, March 31, 1996....... -- $ -- 631,579 $ 5,964 24,000,000 $ 24 5,356,800 $ 5

Balance, March 31, 1996............ -- $ -- 631,579 $ 5,964 16,000,000 $ 16 3,571,200
Deferred compensation related to
stock options granted....granted............
Issuance of common stock pursuant
to exercise of options..................... 26,400 --options........... 17,600
Amortization of deferred
compensation................compensation.....................
Net income....................income.........................
--------- --------- --------- ----------- --------- --- ---------
---
Balance, March 31, 1997.......1997............ -- -- 631,579 5,964 24,000,000 24 5,383,200 516,000,000 16 3,588,800
Deferred compensation related to
stock options granted....granted............
Issuance of common stock pursuant
to exercise of options..................... 28,800 --options........... 19,200
Amortization of deferred
compensation................compensation.....................
Net income....................income.........................
--------- --------- --------- ----------- --------- --- ---------
---
Balance, March 31, 1998.......1998............ -- -- 631,579 5,964 24,000,000 24 5,412,000 5
Deferred compensation related
to stock options granted....
Issuance of common stock
pursuant to exercise of
options..................... 322,830 1
Amortization of deferred
compensation................
Net income....................
--------- --------- --------- ----------- --------- --- --------- ---
Balance, December 31, 1998
(unaudited)................. -- -- 631,579 5,964 24,000,000 24 5,734,830 616,000,000 16 3,608,000
Issuance of Class B redeemable
convertible common stock, net of
issuance costs of $410 (unaudited)............$410........... 6,977,254 44,161
Purchase of treasury stock.........
Deferred compensation related to
stock (unaudited).................
Conversionoptions granted............
Issuance of outstanding
shares into voting common stock (unaudited)........... (6,977,254) (44,161) (631,579) (5,964) 19,990,185 20 (5,734,830) (6)pursuant
to exercise of options........... 427,858
Amortization of deferred
compensation.....................
Net income.........................
--------- --------- --------- ----------- --------- --- ---------
Balance, March 31, 1999............ 6,977,254 44,161 631,579 5,964 16,000,000 16 4,035,858
Issuance of common stock pursuant
to exercise of options
(unaudited)...................... 26,463
Amortization of deferred
compensation (unaudited).........
Net income (unaudited).............
--------- --------- --------- ----------- --------- --- ---------
Balance, December 31, 1998 on
aJune 30, 1999 (unaudited) 6,977,154 44,161 631,579 5,964 16,000,000 16 4,062,321
Conversion of issued shares into
voting common stock
(unaudited)...................... (6,977,254) (44,161) (631,579) (5,964) 13,565,891 14 4,062,321
--------- --------- --------- ----------- --------- --- ---------
Balance, June 30, 1999 pro forma
basis
(unaudited)....................................... -- $ -- -- $ -- 43,990,18529,565,891 $ 44 -- $30 --
--------- --------- --------- ----------- --------- --- ---------
---
--------- --------- --------- ----------- --------- --- ---------

---

TOTAL
ADDITIONAL TOTALSTOCKHOLDERS'
PAID-IN DEFERRED TREASURY RETAINED STOCKHOLDERS'EQUITY
PAR VALUE CAPITAL COMPENSATION STOCK EARNINGS EQUITY(DEFICIT)
------------- ----------- ------------- ------------------- ----------- -----------------------

Balance, March 31, 1996.......1996............ $ 704 $ 79 $ (47) $ -- $ 2,833 $ 8,849
Deferred compensation related to
stock options granted....granted............ 166 (166) --
Issuance of common stock pursuant
to exercise of options.....................options........... -- 2 2
Amortization of deferred
compensation................compensation..................... 40 40
Net income....................income......................... 5,918 5,918
--- ----------- ----- ----------------------- --------- ----------- -----------------------
Balance, March 31, 1997....... 2381997............ 4 247 (173) -- 8,751 14,809
Deferred compensation related to
stock options granted....granted............ 636 (636) --
Issuance of common stock pursuant
to exercise of options.....................options........... -- 22 22
Amortization of deferred
compensation................compensation..................... 137 137
Net income....................income......................... 5,432 5,432
--- ----------- ----- ----------------------- --------- ----------- -----------------------
Balance, March 31, 1998....... 8961998............ 4 905 (672) -- 14,183 20,400
Deferred compensation related
to stock options granted.... 72 (72) --
Issuance of common stock
pursuant to exercise of
options..................... 42 43
Amortization of deferred
compensation................ 194 194
Net income.................... 7,881 7,881
----------- ----- ---------- ----------- -----------
Balance, December 31, 1998
(unaudited)................. 1,010 (550) -- 22,064 28,518
Issuance of Class B redeemable
convertible common stock, net of
issuance costs of $410 (unaudited)............ 44,161$410...........
Purchase of treasury stock......... (44,394) -- (44,394)
Deferred compensation related to
stock (unaudited).................options granted............ 983 (983) --
Issuance of common stock pursuant
to exercise of options........... -- 255 255
Amortization of deferred
compensation..................... 343 343
Net income......................... 10,272 10,272
--- ----------- ------------- --------- ----------- ------------
Balance, March 31, 1999............ 4 2,143 (1,312) (44,394) (177) (44,571)24,455 (13,124)
Issuance of common stock pursuant
to exercise of options
(unaudited)...................... -- 68 68
Amortization of deferred
compensation (unaudited)......... 92 92
Net income (unaudited)............. 3,134 3,134
--- ----------- ------------- --------- ----------- ------------
Balance, June 30, 1999 (unaudited) 4 2,211 (1,220) (44,394) 27,589 (9,830)
Conversion of outstandingissued shares into
voting common stock
(unaudited)........... 50,111 --...................... (4) 50,115 44,161
--- ----------- ----- ----------------------- --------- ----------- -----------------------
Balance, December 31, 1998 on
aJune 30, 1999 pro forma
basis
(unaudited)....................................... $ 51,121-- $ (550)52,326 $ (1,220) $ (44,394) $ 21,88727,589 $ 28,10834,331
--- ----------- ----- ----------------------- --------- ----------- ------------
--- ----------- ------------- --------- ----------- ----- ---------- ----------- -----------------------

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

F-5

NETSCOUT SYSTEMS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NINETHREE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,JUNE 30,
------------------------------- --------------------

1996 1997 1998 19971999 1998 1999
--------- --------- --------- --------- ---------

(UNAUDITED)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 2,003income................................................. $ 5,918 $ 5,432 $ 3,89310,272 $ 7,8812,094 $ 3,134
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 382amortization............................ 1,171 1,470 969 1,4542,069 409 580
Loss on disposal of fixed assets............................ 26assets......................... 78 171 95 5070 29 28
Compensation expense associated with equity awards.......... 3awards....... 40 137 67 194343 49 92
Deferred income taxes....................................... (68)taxes.................................... (848) (504) 70 -- --
Changes in assets and liabilities:
Accounts receivable....................................... (2,466)receivable.................................... 1,480 (2,103) (1,891) (2,823)
Inventories............................................... (1,114)(2,255) (1,928) (1,881)
Inventories............................................ (773) (780) (164) 422(111) 580 581
Refundable income taxes................................... --taxes................................ -- (708) (975) 708491 1,085 217
Prepaids and other current assets......................... (91)assets.............................. (82) (357) (195) 18(261) 210 (239)
Accounts payable.......................................... 1,169payable....................................... (405) 1,768 670 (316)994 (532) (3,445)
Accrued expenses.......................................... 590expenses....................................... 1,022 966 134 5561,611 (1,007) (1,157)
Income taxes payable...................................... 1,024payable................................... (1,122) (84) (84) 306-- -- 507
Customer deposits......................................... (133)deposits...................................... 1,227 (16) (123) (117)(1,212) (62) --
Deferred revenue.......................................... 1,003revenue....................................... 693 1,292 716 428724 209 575
--------- --------- --------- --------- ---------
Net cash provided by operating activities................. 2,328activities.............. 8,399 6,684 3,112 8,76112,805 1,136 (1,008)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities............................. --securities.......................... (5,841) (2,993) (1,910)-- 6,869 --
Proceeds from maturity of marketable securities............... -- --securities............ -- -- 8,834 -- --
Issuance of notes receivable--stockholders....................receivable--stockholders................. (2,000) -- (2,000) -- -- --
Purchase of fixed assets...................................... (788)assets................................... (1,844) (3,886) (3,092) (1,955)(2,525) (598) (1,619)
--------- --------- --------- --------- ---------
Net cash (used) provided by investing activities.......... (788)activities....... (9,685) (6,879) (5,002) 6,8796,309 6,271 (1,619)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series Anon-voting common stock.......... 2 22 255 3 68
Proceeds from the issuance of Class B redeemable
convertible preferredcommon stock, net of issuance costs................................ 5,964costs.......... -- -- 44,161 -- --
Proceeds from issuancePurchase of common stock........................treasury stock................................. -- 2 22 22 43
Repayments of mortgages payable............................... (52) -- --(44,394) -- --
--------- --------- --------- --------- ---------
Net cash provided by financing activities................. 5,912activities.............. 2 22 22 433 68
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents............ 7,452equivalents......... (1,284) (173) (1,868) 15,68319,136 7,410 (2,559)
Cash and cash equivalents, beginning of year.................... 346year................. 7,798 6,514 6,514 6,341 6,341 25,477
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period........................ $ 7,798year....................... $ 6,514 $ 6,341 $ 4,64625,477 $ 22,02413,751 $ 22,918
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................ $ 22interest..................................... $ 10 $ 7 $ 63 $ 2699 $ 1
Cash paid for income taxes.................................... 400taxes................................. 4,340 4,351 3,250 3,4215,158 93 1,053

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

F-6

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

NetScout Systems, Inc. ("NetScout") designs, develops, manufactures, markets
and supports an integrateda family of products that enable businesses and network service
providers to manage the performance of their computer networks and important business software
applications. NetScout's principal markets are the domestic and international
business markets. NetScout manages its business as a single segment.

The consolidated financial statements include the accounts of NetScout and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FINANCIAL INSTRUMENTS

The carrying value of NetScout's financial instruments, which include cash
and cash equivalents, marketable securities, accounts receivable, notes
receivable, accounts payable and accrued expenses, approximate their fair
values.

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

NetScout considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents, and those with maturities
greater than three months are considered to be marketable securities. Cash
equivalents and marketable securities are stated at amortized cost plus accrued
interest, which approximates fair value. Cash equivalents and marketable
securities consist primarily of money market instruments and U.S. Treasury
bills.

NetScout accounts for its investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under the provision of SFAS No. 115,
NetScout has classified its investments as "available-for-sale" and any
associated unrealized gains or losses, if material, are recorded as a separate
component of stockholders' equity until realized. At March 31, 19971998 and 1998,1999,
any unrealized gains or losses were immaterial.

At March 31, 19981999 and periodically throughout the year, NetScout has
maintained cash balances in various operating accounts in excess of federally
insured limits. NetScout limits the amount of credit exposure with any one
financial institution by evaluating the credit worthiness of the financial
institutions with which it invests.

REVENUE RECOGNITION

Product revenue consists of sales of hardware products and licensing
software products. Product revenue is recognized upon shipment, provided that
fees are fixed and determinable and collection of the related receivable is
probable. Sales to indirect channel partners that are subject to return
privileges are recognized upon shipment, net of an allowance for estimated
product returns which is based on NetScout's return policy and historical
experience. Customer payments received in advance of product shipments are
recorded as customer deposits.

Service revenue consists primarily of customer fees from support agreements,
installation and training. NetScout generally provides three-months software and
service support and 12-months hardware support as part of our product sales.
Revenue from software and service support agreements is deferred and
recognized ratably over the support period. Revenue from installation and
training is recognized as the work is performed.

F-7

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and recognized over the three-month support period. Revenue from hardware
support is deferred and recognized over the 12-month support period. In
addition, customers can elect to purchase extended support agreements, typically
for 12-month periods. Revenue from these agreements is deferred and recognized
ratably over the support period. Revenue from installation and training is
recognized as the work is performed.

License and royalty revenue consists primarily of royalties paid under
license agreements by OEMsoriginal equipment manufacturers who incorporate
components of NetScout's data collection technology in their own products or who
reproduce and sell NetScout's software products. License revenue is recognized
when delivery has occurred and when NetScout becomes contractually entitled to
receive license fees, provided that such fees are fixed and determinable and
collection is probable. Royalty revenue is recognized based upon product
shipment by the license holder.

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Concentration of credit risk is limited as NetScout sells its products to a
large number of customers in many different industries and geographic areas. At
March 31, 1998, two customers accounted for approximately 21% and 19%,
respectively, of NetScout's accounts receivable. Management believes its credit policies are prudent and reflect normal
industry terms and business risk. In addition, NetScout maintains reserves for
potential credit losses, and such losses historically have been minimal and
within management's expectations. At March 31, 1999, two customers accounted for
approximately 23% and 12%, respectively, of NetScout's accounts receivable.
NetScout does not anticipate non-performance by counterparties and, accordingly,
does not require collateral.

During the year ended March 31, 1996, three customers accounted for
approximately 17%, 14% and 10%, respectively, of NetScout's total revenue.

During the year ended March 31, 1997, one customer accounted for
approximately 24% of NetScout's total revenue. During the year ended March 31,
1998, two customers accounted for approximately 40% and 12%, respectively, of
NetScout's total revenue. (Unaudited)

During the nine monthsyear ended DecemberMarch 31, 1998,1999, one customer
accounted for 49%approximately 51% of NetScout's total revenue.

(UNAUDITED)

At June 30, 1999, one customer accounted for approximately 14% of NetScout's
accounts receivable. During the three months ended June 30, 1999, one customer
accounted for 44% of NetScout's total revenue.

INVENTORIES AND CONCENTRATIONS OF SUPPLIERS

Inventories are stated at the lower of cost or market with cost being
determined on the first-in, first-out method.

NetScout purchases the majority of its product components from a limited
number of vendors. Although there is a concentration of sources of supply,
management believes that the nature of its business requires sourcing and
marketing products from the limited number of vendors who have expertise in
manufacturing the components for NetScout's products. A change in or loss of one
or more of these vendors could cause a delay in filling customer orders and a
possible loss of sales, which could adversely affect results of operations.

FIXED ASSETS

Fixed assets are stated at cost and depreciated using the straight-line
method over their estimated useful lives.

F-8

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS

Fixed assets are stated at cost and depreciated using the straight-line
method over their estimated useful lives.

RESEARCH AND DEVELOPMENT AND COMPUTER SOFTWARE DEVELOPMENT COSTS

Costs incurred in the research and development of NetScout's products are
expensed as incurred, except for certain software development costs. Costs
associated with the development of computer software are expensed prior to
establishment of technological feasibility (as defined by SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed") and capitalized thereafter when material to NetScout's financial
position or results of operations. No software development costs were
capitalized during the years ended March 31, 1996, 1997, 1998 and 1998,1999, since costs
incurred subsequent to establishment of technological feasibility were not
material.

ACCOUNTING FOR STOCK-BASED COMPENSATION

NetScout accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employes,Employees," and related interpretations.
NetScout has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," through disclosure only (Note 9). All stock-based awards to
non-employees are accounted for at their fair value in accordance with SFAS No.
123 and, for awards made after November 16, 1998, in accordance with Emerging
Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services" ("EITF 96-18").

ADVERTISING EXPENSE

NetScout recognizes advertising expense as incurred. Advertising expense was
approximately $13, $70, $146 and $146$627 for the years ended March 31, 1996, 1997, 1998 and
1998,1999, respectively.

UNAUDITED PRO FORMA BALANCE SHEET AND UNAUDITED PRO FORMA STATEMENT OF
REDEEMABLE CONVERTIBLE COMMON STOCK AND STOCKHOLDERS' EQUITY As discussed in Note 8, NetScout issued 6,977,254 shares of Class B
Redeemable Convertible Common Stock ("Class B Convertible Common Stock") at
$6.39 per share in January 1999. NetScout used the proceeds from this financing
to repurchase 7,124,247, 1,446,900 and 315,789 shares of Voting Common Stock,
Non-Voting Common Stock and Series A Convertible Preferred Stock ("Series A
Preferred Stock"), respectively.(DEFICIT)

Upon the closing of NetScout's initial public offering, all of the
outstanding shares (including shares held in treasury) of Series A Preferred
Stock, Class B Convertible Common Stock, Series A Preferred Stock and Non-Voting Common Stock will
automatically convert into 10,465,881,
3,789,4742,526,316, 6,977,254 and 5,734,8304,062,321 shares,
respectively, of Voting Common Stock (Note 8). These transactions have been
reflected in the unaudited pro forma balance sheet and unaudited pro forma
statement of redeemable convertible common stock and stockholders' equity
(deficit) as of December 31, 1998.June 30, 1999.

NET INCOME PER SHARE

Basic net income per share is computed by dividing income available to
common stockholders by the weighted average number of shares of common stock
outstanding during the period, excluding shares of common stock subject to
repurchase. Diluted net income per share is computed by dividing income
available to common stockholders by the sum of the weighted average number of
shares of

F-9

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
income available to common stockholders by the sum of the weighted average
number of shares of
common stock outstanding during the period and the weighted average number of
potential common stock from the assumed exercise of stock options and common
stock subject to repurchase using the "treasury stock" method and the assumed
conversion of the Series A Preferred Stock and the Class B Convertible PreferredCommon
Stock.

UNAUDITED PRO FORMA NET INCOME PER SHARE

Pro forma basic and diluted net income per share have been computed assuming
the conversion of all outstanding shares of Series A Preferred Stock, Class B Convertible
Common Stock,
Series A Preferred Stock and Non-Voting Common Stock into common stock,Voting Common Stock, as if the
shares had converted immediately upon their issuance.

UNAUDITED INTERIM FINANCIAL STATEMENTS

Data and information as of December 31, 1998June 30, 1999 and for the ninethree months ended December 31, 1997June
30, 1998 and 19981999 is unaudited. In the opinion of NetScout's management, the
December 31, 1997June 30, 1998 and 19981999 unaudited interim consolidated financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and result of
operations for that period. The results of operations for the ninethree month period
ended December 31, 1998June 30, 1999 are not necessarily indicative of the results of operations
for the year ended March 31, 1999.2000.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at March 31, 19971998 and 19981999 and
the reported amounts of revenues and expenses during fiscal 1996, 1997, 1998 and 1998.1999.
Actual results could differ from those estimates.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. NetScout does not expect
SOP 98-1, which is effective for NetScout beginning April 1, 1999, to have a
material effect on its financial condition or results of operations.

In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities relating to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for NetScout's fiscal year 2000 financial statements and
NetScout does not expect its adoption to have a material effect on its financial
condition or results of operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The new standard
establishes accounting and reporting

F-10

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
NetScout does not expect SFAS No. 133 to have a material effect on its financial
condition or results of operations.

3. INVENTORIES

Inventories consist of the following:

MARCH 31,
-------------------- DECEMBER 31,
1997JUNE 30,
1998 19981999 1999
--------- --------- ------------------------

(UNAUDITED)
Raw materials............................................... $ 1,503materials................................................ $ 2,482 $ 1,862
Work-in-process............................................. 2292,620 $ 2,162
Work-in-process.............................................. 259 317348 228
Finished goods.............................................. 542goods............................................... 313 453197 194
--------- --------- ------
$ 2,274-----------
$ 3,054 $ 2,6323,165 $ 2,584
--------- --------- -----------------
--------- --------- -----------------

4. FIXED ASSETS

Fixed assets consist of the following:

JUNE 30,
ESTIMATED 1999
USEFUL MARCH 31, -----------
LIFE --------------------
IN YEARS 1997 1998 1999 (UNAUDITED)
--------- --------- ---------
Furniture and fixtures.........................................fixtures............................ 3-7 $ 286788 $ 788890 $ 925
Computer equipment and purchased software......................software......... 3 1,737 2,815 4,556 5,200
Demonstration units............................................units............................... 2 756 971 1,228 1,554
Leasehold improvements.........................................improvements............................ 5 244 1,815 1,831 2,336
--------- --------- 3,023-----------
6,389 8,505 10,015
Less--accumulated depreciation and amortization................ 1,427amortization... 2,548 4,278 4,777
--------- --------- $ 1,596-----------
$ 3,841 $ 4,227 $ 5,238
--------- --------- -----------
--------- --------- -----------

5. NOTES RECEIVABLE--STOCKHOLDERS

In June 1996, the Board of Directors approved $1,100 and $900 loans to two
voting stockholders ($2,000 in the aggregate). The loans are collateralized by
1,548,3961,032,264 shares of Voting Common Stock of NetScout. The loans have five-year
terms with an interest rate of 6.48%, compounded semi-annually and payable
annually.

F-11

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

6. LINE OF CREDIT

At March 31, 1998,1999, NetScout had a revolving line of credit with a bank under
which it can borrow up to $3,000$5,000 based upon a percentage of eligible accounts
receivable. This line of credit was set to expireexpires on March 11, 1999.10, 2000. Borrowings under the
line are payable on demand and bear interest at the bank's prime rate. Under the
terms of the agreement, NetScout is required to comply with certain

F-11

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

6. LINE OF CREDIT (CONTINUED) restrictive
covenants, which require that NetScout maintain minimum amounts of profitability
and liquidity. The line of credit is secured by NetScout's accounts receivable
and inventory. NetScout was in compliance with all restrictive covenants at
March 31, 1998.1999. No borrowings were outstanding under the line of credit at March
31, 19981999 (Note 12).

(Unaudited)

In March 1999, the revolving line of credit was modified to allow NetScout
to borrow up to $5,000 based on a percentage of eligible accounts receivable and
to extend the expiration date to March 2000.

7. NET INCOME PER SHARE

Below is a summary of the shares used in computing basic and diluted net
income per share for the years indicated:

NINETHREE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,JUNE 30,
---------------------------------------- --------------------------

1996 1997 1998 19971999 1998 1999
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
Weighted average number of shares
outstanding.............................. 27,813,702 28,514,402 28,933,752 28,909,404 29,352,74019,009,601 19,289,168 18,585,676 19,304,432 14,331,206
Shares attributable to Class B Convertible
Common Stock............................. -- -- 1,451,269 -- 6,977,254
Shares attributable to Series A Preferred
Stock.................................... 3,789,474 3,789,474 3,789,474 3,789,474 3,789,4742,526,316 2,526,316 2,263,579 2,526,316 1,263,158
Shares attributable to restricted Non-
Votingunvested Non-Voting
Common Stock...................... 1,258,602 823,104 440,430 456,174 232,613Stock............................. 548,736 293,620 22,769 291,763 --
Stock options.............................. 827,951 1,250,946 1,584,638 1,295,208 2,319,347833,964 1,056,425 1,382,706 1,455,924 2,337,007
------------ ------------ ------------ ------------ ------------
Shares used in computing diluted net income
per share................................ 33,689,729 34,377,926 34,748,294 34,450,260 35,694,17422,918,617 23,165,529 23,705,999 23,578,435 24,908,625
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------

Stock options to purchase 185,400, 98,051, 11,798123,600, 65,367, 73,985, and 141,644205,536 shares of
Non-Voting Common Stock for the years ended March 31, 1997, 1998 and 19981999 and
for the ninethree months ended December 31, 1997 and 1998June 30, 1999 (unaudited), respectively, were
outstanding at period end but were not included in the computation of diluted
net income per share because the exercise prices of the options were greater
than the average fair value of the common stock for the respective period.

8. CAPITAL STOCK

In January 1999, NetScout issued 6,977,254 shares of Class B Redeemable
Convertible Common Stock ("Class B Convertible Common Stock") to independent
financial investors at $6.39 per share ($4.26 per
common equivalent) for net proceeds of $44,161. NetScout
used the proceeds from this financing to repurchase shares of the Company's
capital stock--see Treasury Stock below.

The Class B Convertible Common Stock and Series A Convertible Preferred
Stock ("Series A Preferred Stock") have the following characteristics:

F-12

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

8. CAPITAL STOCK (CONTINUED)
VOTING RIGHTS

The holders of the Class B Convertible Common Stock shall be entitled to
that number of votes equal to the number of shares of Voting Common Stock into
which each share could be converted with regard to any matter submitted to the
shareholders for a vote. The holders of the Series A Preferred Stock have no
voting rights, except rights to elect board directors.rights.

DIVIDEND RIGHTS

The holders of the Class B Convertible Common Stock and Series A Preferred
Stock are entitled to receive, when and as declared by the Board of Directors
and out of funds legally available, noncumulative dividends at the rate of $.64
and $.95, respectively, per share per annum, payable in preference and priority
to any payment of any dividend on common stock. No dividends or other
distributions shall be made with respect to the common stock, until all declared
dividends on the Class B Convertible Common Stock and Series A Preferred Stock
have been paid. Through March 31, 1998,1999, no cash dividends have been declared or paid
by NetScout.

LIQUIDATION PREFERENCE

In the event of any liquidation, dissolution or winding up of the affairs of
NetScout, the holders of the then outstanding Class B Convertible Common Stock
and Series A Preferred Stock shall receive for each share an amount equal to the
sum of $6.39 and $9.50 per share of Class B Convertible Common Stock and Series
A Preferred Stock, respectively, plus all declared but unpaid dividends, payable
in preference and priority to any payments made to the holders of the then
outstanding common stock.

CONVERSION

Each share of Class B Convertible Common Stock shall be convertible at any
time, at the option of the stockholder, into one and one-half sharesshare of Voting Common Stock.
Each share of Class B Convertible Common Stock shall automatically be
convertible (i) into shares of Voting Common Stock upon the closing of an
initial public offering in which gross proceeds are at least $40,000 and in
which the price per common share to the public is at least $8.53$12.80 or (ii) into
Voting Common Stock upon the written election of holders of not less than a
majority of the then outstanding shares of Class B Convertible Common Stock, voting as a
class, at any other time. Each share of Series A Preferred Stock may be
converted at any time, at the option of the stockholder, into sixfour shares of
Non-Voting Common Stock. Each share of Series A Preferred Stock shall
automatically be converted (i) into shares of Voting Common Stock upon the
closing of an initial public stock offering in which gross proceeds are at least
$10,000, and in which the price per common share to the public is at least
$3.17,$4.75, or (ii) into Voting Common Stock at such time upon the election of
holders of not less than two-thirds of the then outstanding shares of Series A Preferred
Stock, when NetScout's common stock is registered under Section 12(g) of the
Securities Exchange Act of 1934 or (iii) into Non-Voting Common Stock upon the
election of holders of not less than two-thirds of the then outstanding
shares of Series A
Preferred Stock.

F-13

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

8. CAPITAL STOCK (CONTINUED)
REDEMPTION

The holders of not less than a majority of the outstanding shares of Class B
Convertible Common Stock may require NetScout to redeem 33.3%, 66.7% and 100% of
their outstanding shares on January 15, 2004, 2005 and 2006, respectively. The
redemption amount per share will be equal to the sum of $6.39 plus all declared
but unpaid dividends. For the year ended March 31, 1999, accretion of the Class
B Convertible Common Stock issuance costs was not material.

NON-VOTING COMMON STOCK

Shares of Non-Voting Common Stock are automatically convertible tointo shares
of Voting Common Stock upon the closing of an initial public offering.

STOCK SUBJECT TO REPURCHASE

During the years ended March 31, 1994 and 1995, NetScout issued 3,259,720
and 104,280 shares of unvested Non-Voting Common Stock, respectively, which
generally vest a portion at the date of grant and then vest yearly through 1999,
to employees of NetScout. As of March 31, 1999, all shares of Non-Voting Common
Stock subject to stock offering.

RESTRICTION AGREEMENTrepurchase agreements were fully vested.

In August 1995, NetScout issued 300,000200,000 shares of restrictedunvested Non-Voting Common
Stock to a related party in exchange for services to be performed. The shares
were scheduled to become unrestrictedvest in August 2005. The fair value ascribed to the shares was
$50 which was recorded as deferred compensation and was being charged to
NetScout's results of operations ratably over the service period of the related
party. In February 1999, NetScout terminated the restriction agreement allowing the shares
to become unrestrictedvested and recognized the remaining balance of deferred compensation
as a charge to optionsoperations at that time. For the year ended March 31, 1999,
NetScout recorded $27 as compensation expense related to these shares.

STOCK SPLIT

In December 1998, NetScout authorized and effected a two-for-one stock split
on the voting and non-voting common stock. As a result, all common stock share
data included in the accompanying financial statements and notes have been
retroactively restated for the split.

On April 14, 1999, NetScout authorized a three-for-two stock split on the
voting and non-voting common stock. As a result, all common stockper share data included in the accompanying consolidated financial
statements and notes have been retroactively restated for the split.

TREASURY STOCK

In January 1999, NetScout repurchased 7,124,2474,749,498 shares of Voting Common
Stock and 1,446,900964,600 shares of Non-Voting Common Stock for $4.26$6.39 per share and
315,789 shares of Series A Preferred Stock for $25.55 per share ($4.266.39 per
common equivalent) for a total of $44,571. Of this amount, $44,394 was recorded
as treasury stock and $177 was recorded as a charge to operations. The amount
charged to operations was for 63,90042,600 shares of Non-Voting Common Stock
repurchased from employees who acquired the stock under NetScout's stock option
plan and did not hold such stock for at least six months.

RESERVED SHARES

NetScout has reserved 4,710,084 shares of Non-Voting Common Stock for
issuance under the 1990 Stock Option Plan (Note 9). NetScout has also reserved
13,911,558 shares of Voting Common Stock for issuance upon conversion of
NetScout's Series A Preferred Stock and Non-Voting Common Stock. In

F-14

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

8. CAPITAL STOCK (CONTINUED)
RESERVED SHARES

NetScout has reserved 4,035,608 shares of Non-Voting Common Stock for
issuance under the 1990 Stock Option Plan (Note 9). NetScout has also reserved
17,575,036 shares of Voting Common Stock for issuance upon conversion of
NetScout's Class B Convertible Common Stock and Series A Preferred Stock and
Non-Voting Common Stock. In addition, NetScout has reserved 3,789,4742,526,316 shares of
Non-Voting Common Stock for issuance upon conversion of NetScout's Series A
Preferred Stock.

AUTHORIZED SHARES

In April 1999, NetScout's Board of Directors approved, subject to
stockholder approval, an increase in the authorized shares of Voting and
Non-Voting Common Stock, $0.001 par value per share, to 121,798,382 and
21,224,364 shares, respectively.

9. STOCK PLANS

1990 STOCK OPTION PLAN

In October 1990, NetScout adopted the 1990 Stock Option Plan (the "Plan""1990
Stock Option Plan"). The 1990 Stock Option Plan provides for the granting of
incentive and non-qualified stock options to employees, directors and
consultants of NetScout. The 1990 Stock Option Plan, as amended, allows for the
issuance of options to purchase up to 4,776,0844,514,666 shares of Non-Voting Common
Stock. The Board of Directors determines the term of each option, option price,
number of shares for which each option is granted and the rate at which each
option is exercisable. The exercise price of incentive stock options shall not
be less than 100% of the fair market value of the common stock at the date of
grant (110% for incentive stock options granted to holders of more than 10% of
the voting stock of NetScout). The term of options granted cannot exceed ten
years (five years for incentive stock options granted to holders of more than
10% of the voting stock of NetScout).

1999 STOCK OPTION AND INCENTIVE PLAN

In April 1998,1999, NetScout increasedadopted the 1999 Stock Option and Incentive Plan
(the "1999 Stock Option Plan"). The 1999 Stock Option Plan provides for the
grant of stock-based awards to employees, officers and directors, consultants or
advisors. Under the 1999 Stock Option Plan, NetScout may grant options that are
intended to qualify as incentive stock options, options not intended to qualify
as incentive stock options, restricted stock and other stock-based awards.
Incentive stock options may be granted only to employees of NetScout. The 1999
Stock Option Plan is administered by the compensation committee. Subject to the
provisions of the 1999 Stock Option Plan, the compensation committee has the
authority to select the persons to whom awards are granted and determine the
terms of each award, including the number of shares availableof common stock subject to
the award. A total of 4,500,000 shares of common stock have been reserved for
issuance under the 1999 Stock Option Plan.

EMPLOYEE STOCK PURCHASE PLAN

In April 1999, NetScout adopted the 1999 Employee Stock Purchase Plan (the
"1999 Purchase Plan"), to 6,771,999be effective upon the closing of an initial public
offering. The 1999 Purchase Plan provides for the issuance of a maximum of
500,000 shares of Non-Voting Common Stock.common stock.

F-15

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

9. STOCK PLANS (CONTINUED)
Transactions under the 1990 Stock Option Plan during the years ended March
31, 1996, 1997, 1998 and 19981999 are summarized as follows:

WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- -----------

Outstanding--March 31, 1995............................................ 833,8501996................................................................ 665,500 $ .01.10
Granted (weighted average fair value of $.05$.43 per share).............. 276,000 .21
Exercised............................................................ (10,800) .01
Canceled............................................................. (100,800) .01.................................. 1,404,500 1.41
Exercised................................................................................ (17,600) .12
Canceled................................................................................. (54,000) .48
----------
Outstanding--March 31, 1996............................................ 998,250 .071997................................................................ 1,998,400 1.01
Granted (weighted average fair value of $.29 per share).............. 2,106,750 .94
Exercised............................................................ (26,400) .08
Canceled............................................................. (81,000) .32
----------
Outstanding--March 31, 1997............................................ 2,997,600 .67
Granted (weighted average fair value of $.53$.79 and $1.09$1.63 per share for options with
exercise prices equal to and less than the market price, respectively,
at the date of grant)......................... 1,794,000 1.91
Exercised............................................................ (28,800) .87
Canceled............................................................. (345,900) 1.45.................................................................. 1,196,000 2.87
Exercised................................................................................ (19,200) 1.31
Canceled................................................................................. (230,600) 2.18
----------
Outstanding--March 31, 1998............................................ 4,416,900 1.111998................................................................ 2,944,600 1.67
Granted (weighted average fair value of $.99 and $4.53 per share for options with
exercise prices equal to and less than the market price, respectively, at the date of
grant)................................................................................. 1,054,000 5.00
Exercised................................................................................ (427,858) .58
Canceled................................................................................. (477,117) 2.34
----------
Outstanding--March 31, 1999................................................................ 3,093,625 2.85
----------
----------

F-15F-16

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

9. 1990 STOCK OPTION PLANPLANS (CONTINUED)
The following tables summarize information about employee options
outstanding and exercisable at March 31, 1998:1999:

WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE
- ------------------------------------------------------ ----------- -------------- -----------

(YEARS)
$.002$.003 to .50......................................... 1,835,250 7.21.50........................................ 1,032,575 6.7 $ .29
1.00.76
1.75 to 1.33......................................... 505,500 8.3 1.03
1.67................................................. 1,669,650 9.2 1.67
2.67................................................. 406,5002.50........................................ 840,363 8.2 2.49
4.00 to 5.00........................................ 848,187 9.1 4.20
6.00 to 6.50........................................ 372,500 9.8 2.676.40
-----------
4,416,900 8.4 1.113,093,625 8.1 2.85
-----------
-----------

WEIGHTED
AVERAGE
NUMBER EXERCISE
RANGE OF EXERCISE PRICES EXERCISABLE PRICE
- ----------------------------------------------------------------------- ---------- -----------

$.002$.003 to .50.......................................................... 768,5101.50......................................................... 666,501 $ .17
1.00.67
1.75 to 1.33.......................................................... 101,100 1.03
1.67.................................................................. 166,350 1.672.50......................................................... 352,992 2.47
4.00 to 5.00......................................................... 152,879 4.09
6.00 to 6.50......................................................... 10,256 6.42
----------
1,035,960 .491,182,628
----------
----------

As of March 31, 19961997 and 1997, 198,5701998, 270,760 and 406,140690,640 options were exercisable,
respectively, under the 1990 Stock Option Plan. As of March 31, 1998,1999, there were
293,184941,983 shares of Non-Voting Common Stockcommon stock available for grant under the 1990 Stock Option
Plan.

FAIR VALUE DISCLOSURES

As discussed in Note 2, NetScout has adopted SFAS No. 123 through disclosure
only. Had compensation cost for NetScout's option plan been determined based on
the fair value at the grant dates, as prescribed in SFAS No. 123, NetScout's net
income and basic and diluted net income per share on a pro forma basis would
have been as follows:

YEAR ENDED MARCH 31,
-------------------------------

1996 1997 1998 1999
--------- --------- ---------
Net income:
As reported.................................................... $ 2,003reported................................................... $ 5,918 $ 5,432 $ 10,272
Pro forma...................................................... $ 2,000forma..................................................... $ 5,824 $ 5,208 $ 9,915
Basic net income per share:
As reported....................................................reported................................................... $ .07.31 $ .21.28 $ .19.55
Pro forma......................................................forma..................................................... $ .07.31 $ .20.27 $ .18.53
Diluted net income per share:
As reported....................................................reported................................................... $ .06.26 $ .17.23 $ .16.43
Pro forma......................................................forma..................................................... $ .06.25 $ .17.22 $ .15.42

F-16F-17

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

9. 1990 STOCK OPTION PLANPLANS (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions for grants in 1996, 1997, 1998
and 1998:1999: dividend yield of 0.0%; risk-free interest rates of 5.9%6.4%, 6.4%6.0% and
6.0%5.1% for 1996, 1997, 1998 and 1998,1999, respectively; and a weighted-average expected
option term of 5 years. Because options granted after the initial filing for
NetScout's initial public offering must contain a volatility factor under SFAS
No. 123, additional option grants are expected to be made each year and options
vest over several years, the above pro forma disclosures are not representative
of pro forma effects of reported net income for future years.

In May 1996, NetScout granted 498,000332,000 options to purchase Non-Voting Common
Stock to a consultant in exchange for services to be performed. The fair value
ascribed to the shares was $166 which was recorded as deferred compensation and
is being charged to NetScout's results of operations ratably over the service
period. For the year ended March 31, 1999, NetScout recorded $33 of compensation
expense related to these options.

In September 1997, NetScout granted 60,00040,000 options to purchase Non-Voting
Common Stock to consultants for services to be performed. In November 1997, the
EITF finalized Issue No. 96-18. Under EITF 96-18, the compensation expense that
will ultimately be recognized for options issued to these consultants will be
measured at the vesting dates of the underlying options. NetScout has recorded
deferred compensation at a preliminary value of $118 of these options which have
not vested as of March 31, 1998. As these options vest
over five years, NetScout will be required to remeasure the fair value of these
options at each reporting period prior to vesting and then finally at the
vesting dates of the options. Changes in the estimated fair value of these
options will be recognized as compensation expense in the period of the change.
In March 1999, NetScout terminated the agreement with the consultants and a
total of 16,000 options vested. For the year ended March 31, 1998,1999, NetScout
recorded $27$105 of compensation expense related to these options.

In September 1997, NetScout granted 777,000518,000 options to purchase Non-Voting
Common Stock at $1.67$2.50 per share to employees. At the grant date, NetScout
estimated the fair value of the common stock to be $2.33$3.50 per share. In
accordance with APB No. 25, NetScout recorded $518 of deferred compensation
which will be charged to NetScout's results of operations over the vesting
period of the options, generally four years. For the year ended March 31, 1998,1999,
NetScout recorded $66 of compensation expense related to these options.

(Unaudited)

In March 1999, NetScout terminated the agreement with the consultants and a
total of 24,000 options vested. As a result, NetScout recorded an additional
$105$138 of compensation expense related to these options.

In February 1999, NetScout granted 458,250305,500 options to purchase Non-Voting
Common Stock at $6.50 per share to employees. At the grant date, of grant, NetScout
estimated the fair value of the common stock to be $6.45$9.68 per share. In
accordance with APB No. 25, NetScout recorded $968 of deferred compensation
which will be charged to NetScout's results of operations over the vesting
period of the options, generally four years. For the year ended March 31, 1999,
NetScout recorded $40 of compensation expense related to these options.

In April 1999, NetScout granted 287,750 options to purchase Non-Voting
Common Stock at $18.90 per share, the estimated fair value of the common stock
at the grant date, to employees.

10. RETIREMENT PLAN

In 1996, NetScout established a 401(k) plan, which is intended to qualify
under Section 401(k) of the Internal Revenue Code of 1986, pursuant to which
NetScout matches 25% of the employee's contribution up to 6% of the employee's
salary. NetScout contributions vest at a rate of 20% per year

F-17F-18

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

10. RETIREMENT PLAN (CONTINUED)
of service. NetScout made matching contributions of $35, $57, $121 and $121$153 to the
plan for the years ended March 31, 1996, 1997, 1998 and 1998,1999, respectively.

11. INCOME TAXES

The components of the provision for income taxes are as follow:

YEAR ENDED MARCH 31,
-------------------------------

1996 1997 1998 1999
--------- --------- ---------
Current provision:
Federal........................................................ $ 1,111 $ 3,438 $ 2,859 $ 4,938
State.......................................................... 312 1,050 701 674
Foreign........................................................ -- -- 33
--------- --------- ---------
1,423 4,488 3,560 5,645
--------- --------- ---------
Deferred tax benefit:(benefit) provision:
Federal........................................................ (58) (721) (426) (20)
State.......................................................... (10) (127) (78) 90
--------- --------- ---------
(68) (848) (504) 70
--------- --------- ---------
$ 1,355 $ 3,640 $ 3,056 $ 5,715
--------- --------- ---------
--------- --------- ---------

The components of deferred tax assets are as follows:

MARCH 31,
--------------------

1997 1998 1999
--------- ---------
Deferred tax assets:
Reserves................................................................. $ 713486 $ 486558
Accrued expenses......................................................... 275 226 542
Fixed assets............................................................. 52 335 327
Deferred revenue......................................................... 22 479 74
Other.................................................................... 21 61 16
--------- ---------
$ 1,0831,587 $ 1,5871,517
--------- ---------
--------- ---------

F-18F-19

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

11. INCOME TAXES (CONTINUED)
The income tax provision computed using the federal statutory income tax
rate differs from NetScout's effective tax rate primarily due to the following:

YEAR ENDED MARCH 31,
-------------------------------

1996 1997 1998 1999
--------- --------- ---------
Statutory U.S. federal tax rate................................rate....................................... 34.0% 34.0% 34.0%35.0%
State taxes, net of federal tax benefit........................ 6.2benefit............................... 6.4 4.8 3.1
Foreign sales corporation exempt income........................ (1.0)income............................... (.8) (1.5) (2.1)
Research and development tax credits........................... (.9)credits.................................. (1.3) (1.7) Nondeductible expenses......................................... 2.1(1.5)
Other................................................................. (.2) .4 --------- --------- ---------
40.4%1.3
--- --- ---
38.1% 36.0% --------- --------- ---------
--------- --------- ---------35.8%
--- --- ---
--- --- ---

12. COMMITMENTS AND CONTINGENCIES

LEASES

NetScout leases office space under operating leases. Total rent expense
under the leases was $50, $198, $942 and $942$1,531 for the years ended March 31, 1996, 1997,
1998 and 1998,1999, respectively. Future noncancelable minimum lease commitments are
as follows:

YEAR ENDING MARCH 31,
- -------------------------------------------------------------------------------------

1999.................................................................................2000................................................................................. $ 829
2000................................................................................. 861
2001................................................................................. 959
2002................................................................................. 1,024
2003................................................................................. 683
2004................................................................................. --
---------
Total minimum lease payments......................................................... $ 4,3563,527
---------
---------

Under the terms of its principal office lease, NetScout is required to
maintain a letter of credit totaling $561 under its $3,000$5,000 revolving line of
credit (Note 6).

Pursuant to a product development arrangement, NetScout pays royalties on
certain network management and monitoring software it developed and is selling.
Royalties accrue at rates ranging from 2% to 4% of gross product and contract
sales, up to a maximum of $992. Royalty expense under the agreement was $260,
$451 and $16 for the years ended March 31, 1996, 1997 and 1998, respectively.

(Unaudited)

CONTINGENCIES

In August 1998, a former employee made claims against NetScout and an
employee stockholder and alleged unspecified damages. The former employee filed
a related claim with the Massachusetts Commission Against Discrimination (the
"MCAD") in December 1998. In July 1999, the former employee requested that the
claim be withdrawn from the MCAD, so that the claim may be filed in state and/or
federal court. Based on the information available to date, NetScout believes
that the claim is without merit and intends to vigorously defend this claim. The
parties have had preliminary settlement negotiations. As this

F-19

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

12. COMMITMENTS AND CONTINGENCIES (CONTINUED) matter is at a
preliminary stage, NetScout is unable to predict the outcome or the amount of
related expense or loss, if any.

In addition to the matter noted above, from time to time NetScout is subject
to legal proceedings and claims in the ordinary course of business. In the
opinion of management, the amount of ultimate

F-20

NETSCOUT SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
expense with respect to any other current legal proceedings and claims will not
have a material adverse effect on NetScout's financial position or results of
operations.

EMPLOYMENT AGREEMENT

In January 1999, NetScout amended an employeeemployment agreement with two employee
stockholders to providewhich provides that each employee stockholder will receive a base
salary of at least $250 and a year-end, non-discretionary bonus of at least
$250. The employment agreement is terminable at will, but provides that if
either employee's employment is terminated by NetScout without cause, or either
decides to terminate his own employment for "good reason", as defined, each is
entitled to receive severance benefits for three years as follows: (i) for the
first twelve months following termination, the greater of $175 or base salary as
of the date of termination; and (ii) for each subsequent twelve-month period, an
amount equal to 120% of the amount received in the immediately preceding twelve
months. Each employment agreement provides for a five-year term commencing June
1, 1994 with automatic one-year renewals.

13. RELATED PARTY TRANSACTIONS

For the years ended March 31, 1996, 1997, 1998 and 1998,1999, NetScout paid
approximately $20, $352, $315 and $315,$470, respectively, to an affiliate, which is
two-thirds owned by the two voting common stockholders of NetScout, for
consulting services.

14. GEOGRAPHIC INFORMATION

Revenue was distributed geographically as follows:

YEAR ENDED THREE MONTHS ENDED
MARCH 31, JUNE 30,
------------------------------- --------------------
1996
1997 1998 1999 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
North America................................................ $ 12,106America.......................... $ 26,823 $ 37,518 $ 59,619 $ 13,191 $ 15,442
Other international.......................................... 3,577international.................... 3,825 5,311 7,932 2,072 3,629
--------- --------- --------- --------- ---------
$ 15,683 $ 30,648 $ 42,829 $ 67,551 $ 15,263 $ 19,071
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Substantially all of NetScout's identifiable assets are located in the
United States.

F-20F-21

NETSCOUT SYSTEMS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO DEDUCTIONS END OF
DESCRIPTION PERIOD OPERATIONS (1)DEDUCTIONS PERIOD
- ---------------------------------------------------------------------------------------------------------------- ------------ ------------ ------------------------- ------------

Year ended March 31, 1996
Reserves and allowances deducted from asset accounts
Allowance for doubtful accounts and returns........ $ 178,000 845,000 826,000 $ 197,000
Year ended March 31, 1997
Reserves and allowances deducted from asset accounts
Reserve for returns.................................. $ 117,000 2,868,000 1,492,000 $1,493,000
Allowance for doubtful accounts and returns........accounts...................... $ 197,000 3,019,000 1,523,000 $1,693,00080,000 151,000 31,000 $ 200,000
Year ended March 31, 1998
Reserves and allowances deducted from asset accounts
Reserve for returns.................................. $ 1,493,000 (427,000) 353,000 $ 713,000
Allowance for doubtful accounts...................... $ 200,000 178,000 28,000 $ 350,000
Year ended March 31, 1999
Reserves and allowances deducted from asset accounts
Reserve for returns.................................. $ 713,000 (184,000) 83,000 $ 446,000
Allowance for doubtful accounts...................... $ 350,000 244,000 4,000 $ 590,000
Three months ended June 30, 1999
Reserves and returns........allowances deducted from asset accounts
Reserve for returns.................................. $ 1,693,000 (249,000) 381,000 $1,063,000446,000 61,000 44,000 $ 463,000
Allowance for doubtful accounts...................... $ 590,000 (4,300) 800 $ 584,900

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

(1) Doubtful accounts written off, netS-1

[Picture of recoveries

S-1three different models of NetScout probes.]

S-2

[LOGO]

PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the common stock offered hereby are as
follows:

SEC registration fee.............................................. $ 28,773
NASD filing fee................................................... 10,850
Nasdaq National Market listing fee................................ 95,000
Printing and engraving expenses................................... 120,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 225,000
Blue Sky fees and expenses (including legal fees)................. 5,000
Transfer agent and registrar fees and expenses.................... 5,000
Miscellaneous..................................................... 10,377
---------
Total........................................................... $ 800,000
---------
---------

NetScout will bear all expenses shown above.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Delaware General Corporation Law and the Company's charter and by-laws
provide for indemnification of the Company's directors and officers for
liabilities and expenses that they may incur in such capacities. In general
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the Company and, with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.
Reference is made to the Company's charter and by-laws filed as Exhibits 3.3 and
3.5 hereto, respectively.

The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act").amended. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.

In addition, the Company has an existing directors and officers liability
insurance policy.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In the three fiscal years preceding the filing of this registration
statement, the Company has issued the following securities that were not
registered under the Securities Act:

(a) Issuances of Capital Stock.

In January 1999, the Company issued 6,977,254 shares of its Class B
Convertible Common Stock, par value $.001$0.001 per share, (the "Class B Common
Stock"), to certain affiliates of
TA Associates, Inc. and to Egan-Managed Capital, L.P., at $6.388051 per share,
for aggregate consideration of $44,571,054. All of the proceeds from the Class B
Common Stock financing were used to redeem shares of the Company's Series A
Preferred Stock, Non-Voting Common Stock and common stock held by certain
persons, including certain officers and directors of NetScout. Upon closing of
this offering, the 6,977,254 outstanding shares of Class B Convertible Common
Stock will automatically convert into 10,465,8816,977,254 shares of common stock.

In February 1996, NetScout issued 631,579 shares of its Series A Preferred
Stock, par value $.001$0.001 per share, (the "Series A Preferred"), to Greylock Equity Limited Partnership, ("Greylock"), at
purchase price

II-1
of $9.50 per share, for an aggregate of

II-1

$6,000,000. Roger Evans, a general partner of the general partner of Greylock,
served as a member of the Board of Directors of NetScout from February 1996
until January 1999. Upon closing of this offering, the 315,790 shares of
outstanding Series A Preferred Stock will automatically convert into an
aggregate of 1,894,7401,263,160 shares of common stock.

(b) Grants and Exercises of Stock Options

As of March 31,June 30, 1999, the Company has outstanding options to purchase an
aggregate of 4,640,4383,239,451 shares of Non-Voting Common Stock under the 1990 Stock
Option Plan exercisable at a weighted average exercise price of $1.90$4.21 per share.
From April 1, 1996 to March 31,June 30, 1999, the Company issued 696,986491,121 shares of
Non-Voting Common Stock for an aggregate purchase price of $278,982$348,279 pursuant to
exercise of employee options.

Upon closing of this offering, each share of Non-Voting Common Stock will
convert into one share of common stock.

No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase common stock, Rule 701 under
the Securities Act. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS:

EXHIBIT NO. EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------------

1.1*1.1 TRIANGLE Form of Underwriting Agreement.

3.13.1++ Second Amended and Restated Certificate of Incorporation of NetScout.

3.23.2++ Form of Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of
NetScout.

3.3, 4.14.1++ Form of Third Amended and Restated Certificate of Incorporation of NetScout.

3.43.4++ By-laws of NetScout.

3.5, 4.24.2++ Form of Amended and Restated By-laws of NetScout.

4.3*4.3++ Specimen Certificate for shares of NetScout's Common Stock.

5.1*5.1++ Legal Opinion of Testa, Hurwitz & Thibeault, LLP.

10.1**++ 1990 Stock Option Plan, as amended.

10.2**++ 1999 Stock Option and Incentive Plan.

10.3**++ 1999 Employee Stock Purchase Plan.

10.410.4++ Stock Purchase and Redemption Agreement dated December 31, 19991998 by and among NetScout, Greylock
Equity Limited Partnership, certain affiliates of TA Associates, Inc. and Egan-Managed Capital,
L.P.

10.510.5++ Amended and Restated Rights Agreement entered into as of January 15, 1999 by and among NetScout,
Greylock Equity Limited Partnership, certain affiliates of TA Associates, Inc. and Egan-Managed
Capital, L.P.

10.610.6++ Lease dated August 18, 1997 between NetScout and Michelson Farm-Westford Technology Park Limited
Partnership.

10.710.7++ Amended and Restated Loan and Security Agreement dated March 12, 1998 by and between NetScout and
Silicon Valley Bank.

II-2

10.810.8++ Loan Modification Agreement entered into March 11, 1999 between NetScout and Silicon Valley Bank.

+10.9+10.9++ OEM Agreement dated as of February 3, 1998 by and between SDL Communications, Inc. and NetScout.

+10.10 TRIANGLE Project Development and License Agreement dated as of July 13, 1994 by and between Cisco Systems,
Inc. ("Cisco") and NetScout.

+10.11 TRIANGLE Amendment No. 1 to the Project Agreement and Design License Agreement dated as of January 4, 1995
by and between Cisco and NetScout.

+10.12 TRIANGLE Private Label Agreement effective as of October 17, 1995 by and between Cisco and NetScout.

+10.13 TRIANGLE Amendment to Private Label Agreement and Project Development and License Agreement dated May 15,
1996 by and between Cisco and NetScout.

+10.14 TRIANGLE Amendment No. 3 to the Private Label Agreement and Project Development and License Agreement by and
between Cisco and NetScout.

+10.15 TRIANGLE Amendment No. 4 to Private Label Agreement and Project Development and License Agreement effective
as of February 23, 1998 by and between Cisco and NetScout.

10.16**++ Agreement Relating to Employment dated June 1, 1994 by and between NetScout and Anil Singhal.

10.17**++ Amendment No. 1 to Agreement Relating to Employment dated January 14, 1999 by and between NetScout
and Anil Singhal.

10.18**++ Agreement Relating to Employment dated June 1, 1994 by and between NetScout and Narendra Popat.

10.19**++ Amendment No. 1 to Agreement Relating to Employment dated January 14, 1999 by and between NetScout
and Narendra Popat.

10.2010.20++ Secured Term Note for $1,100,000, Partially Non-Recourse, dated June 28, 1996, Payable to NetScout
by Anil Singhal.

10.2110.21++ Stock Pledge Agreement, made as of June 28, 1996, between Anil Singhal and NetScout.

10.2210.22++ Secured Term Note for $900,000, Partially Non-Recourse, dated June 28, 1996. Payable to NetScout by
Narendra Popat.

10.2310.23++ Stock Pledge Agreement, made as of June 28, 1996, between Narendra Popat and NetScout.

21.121.1++ Subsidiaries of NetScout.

23.1*23.1++ Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit 5.1).

23.223.2++ Consent of PricewaterhouseCoopers LLP.

24.124.1++ Power of Attorney (contained on page II-5).

27.1Attorney.

27.1++ Financial Data Schedule.

27.2++ Financial Data Schedule.

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

* To be filed by amendment.

** Indicates a management contract or any compensatory plan, contract or
arrangement.

+ Confidential materials omitted and filed separately with the Securities and
Exchange Commission.

++ Previously filed.

TRIANGLE Filed herewith.

II-3

(B) FINANCIAL STATEMENT SCHEDULES.

Schedule II--Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are either not applicable
or the required information is included with the Consolidated Financial
Statement and Notes thereto, and therefore have been omitted.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statementAmendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Westford, Massachusetts on April 22,August 6, 1999.

NETSCOUT SYSTEMS, INC.

By: /s/ ANIL K. SINGHALNARENDRA POPAT
------------------------------------------
Anil K. Singhal
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD

POWER OF ATTORNEY AND SIGNATURES

We, the undersigned officers and directors of NetScout Systems, Inc., hereby
severally constitute and appoint Anil K. Singhal,
Narendra Popat
and Charles
Tillett, and each of them singly, our true and lawful attorneys, with full power
to them and each of them singly, to sign for us in our names in the capacities
indicated below, any registration statement related to the offering that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933 (a "462(b) Registration Statement"), any and all amendments and exhibits to
this registration statement or any 462(b) Registration Statement, and any and
all applications and other documents to be filed with the Securities and
Exchange Commission pertaining to the registration of the securities covered
hereby or thereby, and generally to do all things in our names and on our behalf
in such capacities to enable NetScout Systems, Inc. to comply with the
provisions of the Securities Act of 1933 and all requirements of the Securities
and Exchange Commission.PRESIDENT AND CHIEF OPERATING OFFICER

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, this registration statementAmendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

SIGNATURE TITLE(S) DATE
- ------------------------------ --------------------------- -------------------
Chief Executive Officer and April 22,
SIGNATURE TITLE(S) DATE
- ------------------------------ --------------------------- -------------------

Chief Executive Officer and August 6, 1999
* Chairman of the Board
---------------------------- (Principal Executive
Anil K. Singhal Officer)

/s/ NARENDRA POPAT President, Chief Operating August 6, 1999
---------------------------- Officer and Director
Narendra Popat

Vice President, Finance and August 6, 1999
* Administration and Chief
---------------------------- Financial Officer
Charles W. Tillett (Principal Financial and
Accounting Officer)

* Director August 6, 1999
----------------------------
Joseph G. Hadzima, Jr.

* Director August 6, 1999
----------------------------
Kenneth T. Schiciano

* Director August 6, 1999
/s/ ANIL K. SINGHAL Chairman of the Board
- ---------------------------- (Principal Executive
Anil K. Singhal Officer)

/s/ NARENDRA POPAT President, Chief Operating April 22, 1999
- ---------------------------- Officer and Director
Narendra Popat

Vice President, Finance and April 22, 1999
/s/ CHARLES TILLETT Administration and Chief
- ---------------------------- Financial Officer
Charles Tillett (Principal Financial and
Accounting Officer)

/s/ JOSEPH G. HADZIMA, JR. Director April 22, 1999
- ----------------------------
Joseph G. Hadzima, Jr.

/s/ KENNETH T. SCHICIANO Director April 22, 1999
- ----------------------------
Kenneth T. Schiciano

/s/ RICHARD J. EGAN Director April 22, 1999
-
----------------------------
Richard J. Egan

*By: /s/ NARENDRA POPAT
-------------------------
Narendra Popat
ATTORNEY-IN-FACT
II-5
EXHIBIT INDEX

EXHIBIT NO. EXHIBIT
- ------------- ---------------------------------------------------------------------------------------------------

1.1 TRIANGLE Form of Underwriting Agreement.

3.1++ Second Amended and Restated Certificate of Incorporation of NetScout.

3.2++ Form of Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of
NetScout.

3.3, 4.1++ Form of Third Amended and Restated Certificate of Incorporation of NetScout.

3.4++ By-laws of NetScout.

3.5, 4.2++ Form of Amended and Restated By-laws of NetScout.

4.3++ Specimen Certificate for shares of NetScout's Common Stock.

5.1++ Legal Opinion of Testa, Hurwitz & Thibeault, LLP.

10.1**++ 1990 Stock Option Plan, as amended.

10.2**++ 1999 Stock Option and Incentive Plan.

10.3**++ 1999 Employee Stock Purchase Plan.

10.4++ Stock Purchase and Redemption Agreement dated December 31, 1998 by and among NetScout, Greylock
Equity Limited Partnership, certain affiliates of TA Associates, Inc. and Egan-Managed Capital,
L.P.

10.5++ Amended and Restated Rights Agreement entered into as of January 15, 1999 by and among NetScout,
Greylock Equity Limited Partnership, certain affiliates of TA Associates, Inc. and Egan-Managed
Capital, L.P.

10.6++ Lease dated August 18, 1997 between NetScout and Michelson Farm-Westford Technology Park Limited
Partnership.

10.7++ Amended and Restated Loan and Security Agreement dated March 12, 1998 by and between NetScout and
Silicon Valley Bank.

10.8++ Loan Modification Agreement entered into March 11, 1999 between NetScout and Silicon Valley Bank.

+10.9++ OEM Agreement dated as of February 3, 1998 by and between SDL Communications, Inc. and NetScout.

+10.10 TRIANGLE Project Development and License Agreement dated as of July 13, 1994 by and between Cisco Systems,
Inc. and NetScout.