<PAGE>

                                                                     EXHIBIT 4.1

                          NETIQ STOCK OPTION AGREEMENT

     THIS NETIQ STOCK OPTION AGREEMENT (this "Agreement") is made and entered
into as of February 26, 2000, among Mission Critical Software Inc., a Delaware
corporation ("MCS"), and NetIQ Corp., a Delaware corporation ("NetIQ").
Capitalized terms used but not otherwise defined herein will have the meanings
ascribed to them in the Merger Agreement (as defined below).

                                    RECITALS
                                    --------

     A.  MCS, Merger Sub (as defined below) and NetIQ have entered into an
Agreement and Plan of Reorganization (the "Merger Agreement") which provides for
the merger (the "Merger") of a wholly-owned subsidiary of NetIQ ("Merger Sub")
with and into MCS.  Pursuant to the Merger, all outstanding capital stock of MCS
will be converted into the right to receive Common Stock of NetIQ.

     B.  As a condition to NetIQ's willingness to enter into the Merger
Agreement, NetIQ has requested that MCS agree, and MCS has so agreed, to grant
to NetIQ an option to acquire shares of MCS's Common Stock, par value $0.001 per
share (the "MCS Shares"), upon the terms and subject to the conditions set forth
herein.

     NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:

     1.  Grant of Option. NetIQ hereby grants to MCS an irrevocable option (the
         ---------------
"Option") to acquire up to 3,520,234 NetIQ Shares (the "Option Shares"), in the
manner set forth below by paying cash at a price of $73.50 per share (the
"Exercise Price").

     2.  Exercise of Option; Maximum Proceeds.
         ------------------------------------

         (a) The Option may be exercised by MCS in whole or in part, at any time
or from time to time (i) if the Merger Agreement is terminated pursuant to
7.1(g) thereof and an event causing the NetIQ Termination Fee to become payable
pursuant to Section 7.3(c) of the Merger Agreement occurs or (ii) immediately
prior to the occurrence of any event causing the NetIQ Termination Fee to become
payable pursuant to Section 7.1(b) or 7.1(d) thereof (any of the events being
referred to herein as an "Exercise Event"). In the event MCS wishes to exercise
the Option, MCS will deliver to NetIQ a written notice (each an "Exercise
Notice") specifying the total number of Option Shares it wishes to acquire. Each
closing of a purchase of Option Shares (a "Closing") will occur on a date and at
a time prior to the termination of the Option designated by MCS in an Exercise
Notice delivered at least two (2) business days prior to the date of such
Closing, which Closing will be held at the principal offices of NetIQ.

         (b) The Option will terminate upon the earliest of (i) the Effective
Time, (ii) twelve (12) months following the date on which the Merger Agreement
is terminated pursuant to

                                       1
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Section 7.1(b) or 7.1(d) thereof, if no event causing the Termination Fee to
become payable pursuant to Section 7.3(c)(ii) of the Merger Agreement has
occurred, (iii) twelve (12) months following the date on which the Merger
Agreement is terminated pursuant to Section 7.1(h) thereof, (iv) in the event
the Merger Agreement has been terminated pursuant to Section 7.1(b) or 7.1(d)
thereof and the Termination Fee became payable pursuant to Section 7.3(c)(ii)
thereof, twelve (12) months after payment of the Termination Fee; and (v) the
date on which the Merger Agreement is terminated if neither a Triggering Event
nor the public announcement of a NetIQ Acquisition Proposal by a third party
occurred on or prior to the date of such termination; provided, however, that if
                                                      --------  -------
the Option cannot be exercised by reason of any applicable government order or
because the waiting period related to the issuance of the Option Shares under
the HSR Act will not have expired or been terminated, then the Option will not
terminate until the tenth (10th) business day after such impediment to exercise
will have been removed or will have become final and not subject to appeal.

         (c) If MCS receives in the aggregate pursuant to Section 7.3(c) of the
Merger Agreement together with either (i) proceeds in connection with any sales
or other dispositions of Option Shares and any dividends received by MCS
declared on Option Shares or (ii) in the aggregate pursuant to Section 6 of this
Agreement, more than the sum of (x) $66,000,000 plus (y) the Exercise
                                                ----
Price multiplied by the number of NetIQ Shares purchased by MCS pursuant to the
Option, then all proceeds to MCS in excess of such sum will be remitted by MCS
to NetIQ.

   3.  Conditions to Closing.  The obligation of NetIQ to issue Option Shares to
       ---------------------
MCS hereunder is subject to the conditions that (A) any waiting period under the
HSR Act applicable to the issuance of the Option Shares hereunder will have
expired or been terminated; (B) all material consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, any Federal,
state or local administrative agency or commission or other Federal state or
local governmental authority or instrumentality, if any, required in connection
with the issuance of the Option Shares hereunder will have been obtained or
made, as the case may be; and (C) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance will be in effect.  It is understood and agreed that
at any time during which the Option is exercisable, the parties will use their
respective best efforts to satisfy all conditions to Closing, so that a Closing
may take place as promptly as practicable.

   4.  Closing.  At any Closing, (A)  NetIQ will deliver to MCS a single
       -------
certificate in definitive form representing the number of NetIQ Shares
designated by MCS in its Exercise Notice, such certificate to be registered in
the name of MCS and to bear the legend set forth in Section 9 hereof, against
delivery of (B) payment by MCS to NetIQ of the aggregate purchase price for the
NetIQ Shares so designated and being purchased by delivery of a certified check
or bank check.

   5.  Representations and Warranties of the NetIQ.  NetIQ represents and
       -------------------------------------------
warrants to MCS that (A) NetIQ is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder; (B) the execution and delivery of this Agreement by NetIQ
and consummation by NetIQ of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of NetIQ and no other
corporate proceedings on the part of NetIQ are necessary to authorize this
Agreement or any of the transactions contemplated hereby; (C) this Agreement has
been duly executed and delivered by NetIQ and constitutes a legal, valid and

                                      -2-
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binding obligation of NetIQ and, assuming this Agreement constitutes a legal,
valid and binding obligation of MCS, is enforceable against NetIQ in accordance
with its terms; (D) except for any filings required under the HSR Act, NetIQ has
taken all necessary corporate and other action to authorize and reserve for
issuance and to permit it to issue upon exercise of the Option, and at all times
from the date hereof until the termination of the Option will have reserved for
issuance, a sufficient number of unissued NetIQ Shares for MCS to exercise the
Option in full and will take all necessary corporate or other action to
authorize and reserve for issuance all additional NetIQ Shares or other
securities which may be issuable pursuant to Section 8(a) upon exercise of the
Option, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable;
(E) upon delivery of the NetIQ Shares and any other securities to MCS upon
exercise of the Option, MCS will acquire such NetIQ Shares or other securities
free and clear of all material claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever, excluding those imposed by MCS; (F)
the execution and delivery of this Agreement by NetIQ do not, and the
performance of this Agreement by NetIQ will not, (i) conflict with or violate
the Certificate of Incorporation or Bylaws or equivalent organizational
documents of NetIQ or any of its subsidiaries, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to NetIQ or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair NetIQ's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of NetIQ or
any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which NetIQ or any of its subsidiaries is a party or
by which NetIQ or any of its subsidiaries or its or any of their respective
properties are bound or affected; and (G) the execution and delivery of this
Agreement by NetIQ does not, and the performance of this Agreement by NetIQ will
not, require any consent, approval, authorization or permit of, or filing with,
or notification to, any Governmental Entity except pursuant to the HSR Act.

   6.  MCS Put.  At the request of and upon notice by MCS (the "Put Notice"), at
       -------
any time during the period during which the Option is exercisable pursuant to
Section 2 (the "Purchase Period"), NetIQ (or any successor entity thereof) will
purchase from MCS the Option, to the extent not previously exercised, at the
price set forth in subparagraph (i) below (as limited by subparagraph (iii)
below), and the Option Shares, if any, acquired by MCS pursuant thereto, at the
price set forth in subparagraph (ii) below (as limited by subparagraph (iii)
below):

       (a) The difference between the "Market/Tender Offer Price" for the NetIQ
Shares as of the date MCS gives notice of its intent to exercise its rights
under this Section 6(a) (defined as the higher of (A) the highest price per
share offered as of such date pursuant to any NetIQ Acquisition Proposal which
was made prior to such date and (B) the average closing sale price of NetIQ
Shares then on Nasdaq during the twenty (20) trading days ending on the trading
day immediately preceding such date) and the Exercise Price, multiplied by the
number of NetIQ Shares purchasable pursuant to the Option, but only if the
Market/Tender Offer Price is greater than the Exercise Price. For purposes of
determining the highest price offered pursuant to any NetIQ Acquisition Proposal
which involves consideration other than cash, the value of such consideration
will be equal to the higher of (x) if securities of the same class of the
proponent as such

                                      -3-
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consideration are traded on any national securities exchange or by any
registered securities association, a value based on the closing sale price or
asked price for such securities on their principal trading market on such date
and (y) the value ascribed to such consideration by the proponent of such NetIQ
Acquisition Proposal, or if no such value is ascribed, a value determined in
good faith by the Board of Directors of NetIQ.

       (b) The Exercise Price paid by MCS for NetIQ Shares acquired pursuant to
the Option plus the difference between the Market/Tender Offer Price and such
           ----
Exercise Price (but only if the Market/Tender Offer Price is greater than the
Exercise Price) multiplied by the number of NetIQ Shares so purchased.
                -------------

       7.  Payment and Redelivery of Option or Shares.  In the event MCS
           ------------------------------------------
exercises its rights under Section 6(a), NetIQ will, within five (5) business
days after MCS delivers notice pursuant to Section 6(a), pay the required amount
to MCS in immediately available funds and MCS will surrender to NetIQ the Option
and the certificates evidencing the NetIQ Shares purchased by MCS pursuant
thereto.

       8.  Registration Rights.
           -------------------

           (a) Following the termination of the Merger Agreement, MCS (sometimes
referred to herein as the "Holder") may by written notice (a "Registration
Notice") to NetIQ (the "Registrant") request the Registrant to register under
the Securities Act all or any part of the shares acquired by the Holder pursuant
to this Agreement (such shares requested to be registered, the "Registrable
Securities") in order to permit the sale or other disposition of any or all
shares of the Registrable Securities that have been acquired by or are issuable
to Holder upon exercise of the Option in accordance with the intended method of
sale or other disposition stated by Holder, including a "shelf" registration
statement under Rule 415 under the Securities Act or any successor provision.
Holder agrees to cause, and to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis so that upon
consummation thereof no purchaser or transferee will own beneficially more than
5.0% of the then-outstanding voting power of Registrant. Upon a request for
registration, the Registrant will have the option exercisable by written notice
delivered to the Holder within ten (10) business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities for cash at a price (the "Option Price" equal to the
product of (i) the number of Registrable Securities so purchased and (ii) the
per share average of the closing sale prices of the Registrant's Common Stock on
Nasdaq for the ten (10) trading days immediately preceding the date of the
Registration Notice. Any such purchase of Registrable Securities by the
Registrant hereunder will take place at a closing to be held at the principal
executive offices of the Registrant or its counsel at any reasonable date and
time designated by the Registrant in such notice within ten (10) business days
after delivery of such notice. The payment for the shares to be purchased will
be made by delivery at the time of such closing of the Option Price in
immediately available funds.

           (b) If the Registrant does not elect to exercise its option to
purchase pursuant to Section 7(a) with respect to all Registrable Securities,
the Registrant will use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased

                                      -4-
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Registrable Securities requested to be registered in the Registration Notice and
to keep such registration statement effective for such period not in excess of
120 calendar days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sale or other
disposition; provided, however, that the Holder will not be entitled to more
             --------  -------
than an aggregate of three (3) effective registration statements hereunder. The
obligations of Registrant hereunder to file a registration statement and to
maintain its effectiveness may be suspended for up to 90 calendar days in the
aggregate if the Board of Directors of Registrant shall have determined that the
filing of such registration statement or the maintenance of its effectiveness
would require premature disclosure of material nonpublic information that would
materially and adversely affect Registrant or otherwise interfere with or
adversely affect any pending or proposed offering of securities of Registrant or
any other material transaction involving Registrant. If consummation of the sale
of any Registrable Securities pursuant to a registration hereunder does not
occur within 90 days after the filing with the SEC of the initial registration
statement therefor, the provisions of this Section 7 will again be applicable to
any proposed registration. The Registrant will use all reasonable efforts to
cause any Registrable Securities registered pursuant to this Section 7 to be
qualified for sale under the securities or blue sky laws of such jurisdictions
as the Holder may reasonably request and will continue such registration or
qualification in effect in such jurisdictions; provided, however, that the
                                               --------  -------
Registrant will not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision. If
Registrant effects a registration under the Securities Act of NetIQ Common Stock
for its own account or for any other stockholders of Registrant (other than on
Form S-4 or Form S-8, or any successor form), it will allow Holder the right to
participate in such registration by selling its Registrable Securities, and such
participation will not affect the obligation of Registrant to effect demand
registration statements for Holder under this Section 7; provided that, if the
                                                         --------
managing underwriters of such offering advise Registrant in writing that in
their opinion the number of shares of NetIQ Common Stock requested to be
included in such registration exceeds the number which can be sold in such
offering, Registrant will include the shares requested to be included therein by
Holder pro rata with the shares intended to be included therein by Registrant.

           (c) The registration rights set forth in this Section 7 are subject
to the condition that the Holder will provide the Registrant with such
information with respect to the Holder's Registrable Securities, the plan for
distribution thereof, and such other information with respect to the Holder as,
in the reasonable judgment of counsel for the Registrant, is necessary to enable
the Registrant to include in a registration statement all facts required to be
disclosed with respect to a registration thereunder.

           (d) A registration effected under this Section 7 will be effected at
the Registrant's expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to the Holder, and the Registrant will provide
to the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection with
underwritten public offerings and as such underwriters may reasonably require.
In connection with any registration, the Holder and the Registrant agree to
enter into an underwriting agreement reasonably acceptable to each such party,
in form and substance customary for transactions of this type with the
underwriters participating in such offering.

                                      -5-
<PAGE>

           (e)  Indemnification.
                ---------------

                (i) The Registrant will indemnify the Holder, each of its
directors and officers and each person who controls the Holder within the
meaning of Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration, qualification or
compliance which has been effected pursuant to this Agreement, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Registrant of any rule or regulation
promulgated under the Securities Act applicable to the Registrant in connection
with any such registration, qualification or compliance, and the Registrant will
reimburse the Holder and, each of its directors and officers and each person who
controls the Holder within the meaning of Section 15 of the Securities Act, and
each underwriter for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, that the Registrant will not be liable in
                             --------
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to the Registrant by such Holder or director or
officer or controlling person or underwriter seeking indemnification.

                (ii) The Holder will indemnify the Registrant, each of its
directors and officers and each underwriter of the Registrant's securities
covered by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Holder of any rule or regulation promulgated under the
Securities Act applicable to the Holder in connection with any such
registration, qualification or compliance, and will reimburse the Registrant,
such directors, officers or control persons or underwriters for any legal or any
other expenses reasonably incurred in connection with investigating, preparing
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Registrant by the Holder
for use therein; provided, that in no event will any indemnity under
                 --------
this Section 7(e) exceed the net proceeds of the offering received by the
Holder.

                (iii) Each party entitled to indemnification under this Section
7(e) (the "Indemnified Party") will give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any

                                      -6-
<PAGE>

claim as to which indemnity may be sought, and will permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided, that counsel for the Indemnifying Party, who will conduct
           --------
the defense of such claim or litigation, will be approved by the Indemnified
Party (whose approval will not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party will pay such expense if
--------  -------
representation of the Indemnified Party by counsel retained by the Indemnifying
Party would be inappropriate due to actual or potential differing interests
between the Indemnified Party and any other party represented by such counsel in
such proceeding, and provided further, however, that the failure of any
                     -------- -------  -------
Indemnified Party to give notice as provided herein will not relieve the
Indemnifying Party of its obligations under this Section 7(e) unless the failure
to give such notice is materially prejudicial to an Indemnifying Party's ability
to defend such action.  No Indemnifying Party, in the defense of any such claim
or litigation will, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.  No Indemnifying Party will be required to indemnify any Indemnified
Party with respect to any settlement entered into without such Indemnifying
Party's prior consent (which will not be unreasonably withheld).

        9.  Adjustment Upon Changes in Capitalization.
            -----------------------------------------

            (a) In the event of any change in the NetIQ Shares by reason of
stock dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like, the
type and number of shares or securities subject to the Option, the Exercise
Price will be adjusted appropriately, and proper provision will be made in the
agreements governing such transaction so that MCS will receive, upon exercise of
the Option, the number and class of shares or other securities or property that
MCS would have received in respect of the NetIQ Shares if the Option had been
exercised immediately prior to such event or the record date therefor, as
applicable.

            (b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, if the number of outstanding shares of NetIQ Common
Stock increases or decreases after the date of this Agreement (other than
pursuant to an event described in Section 9(a)), the number of shares of NetIQ
Common Stock subject to the Option (including those Option Shares which may have
already been exercised) will be adjusted so that it equals 19.99% of the number
of shares of NetIQ Common Stock then issued and outstanding, without giving
effect to any Option Shares.

            10.  Restrictive Legends.  Each certificate representing Option
                 -------------------
Shares issued to MCS hereunder will include a legend in substantially the
following form:

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
     UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
     ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION  IS
     AVAILABLE.  SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON

                                      -7-
<PAGE>

     TRANSFER AS SET FORTH IN THE STOCK  OPTION  AGREEMENT DATED AS OF FEBRUARY
     26, 2000, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.

     It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have been
registered pursuant to the Securities Act, such Option Shares have been sold in
reliance on and in accordance with Rule 144 under the Securities Act or Holder
has delivered to Registrant a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to Registrant
and its counsel, to the effect that such legend is not required for purposes of
the Securities Act and (ii) the reference to restrictions pursuant to this
Agreement in the above legend will be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do not
require the retention of such reference.

     11.  Listing and HSR Filing. NetIQ, upon the request of MCS, will promptly
          ----------------------
file an application to list the NetIQ Shares to be acquired upon exercise of the
Option for quotation on Nasdaq and will use its best efforts to obtain approval
of such listing as soon as practicable. Promptly after the date hereof, each of
the parties hereto will promptly file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice all required
premerger notification and report forms and other documents and exhibits
required to be filed under the HSR Act to permit the acquisition of the NetIQ
Shares subject to the Option at the earliest possible date.

     12.  Binding Effect.  This Agreement will be binding upon and inure to the
          --------------
benefit of the parties hereto and their respective successors and permitted
assigns.  Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature whatsoever
by reason of this Agreement.  Any shares sold by a party in compliance with the
provisions of Section 7 will, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement and any
transferee of such shares will not be entitled to the rights of such party.
Certificates representing shares sold in a registered public offering pursuant
to Section 7 will not be required to bear the legend set forth in Section 9.

     13.  Specific Performance.  The parties hereto recognize and agree that if
          -------- -----------
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy.  Accordingly, each party hereto agrees that in addition to
other remedies the other party hereto will be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement or the right to enforce any of the covenants or agreements set forth
herein by specific performance.  In the event that any action will be brought in
equity to enforce the provisions of the Agreement, neither party hereto will
allege, and each party hereto hereby waives the defense, that there is an
adequate remedy at law.

                                      -8-
<PAGE>

     14.  Entire Agreement.  This Agreement and the Merger Agreement (including
          ------ ---------
the appendices thereto) constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof.

     15.  Further Assurances.  Each party hereto will execute and deliver all
          ------- ----------
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.

     16.  Validity.  The invalidity or unenforceability of any provision of this
          --------
Agreement will not affect the validity or enforceability of the other provisions
of this Agreement, which will remain in full force and effect.  In the event any
Governmental Entity of competent jurisdiction holds any provision of this
Agreement to be null, void or unenforceable, the parties hereto will negotiate
in good faith and will execute and deliver an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law, the
intent of the parties hereto with respect to such provision.

     17.  Notices.  All notices and other communications hereunder will be in
          -------
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as will be specified by like notice):

          (a)  if to MCS, to:


               Mission Critical Software Inc.
               13939 Northwest Freeway
               Houston, Texas  77040
               Attention:  Chief Financial Officer
               Facsimile:  (713) 548-1829

               with a copy to:

               Davis Polk & Wardwell
               1600 El Camino Real
               Menlo Park, California  94025
               Attention: William M. Kelly, Esq.
               Facsimile: (650) 752-2111

          (b)  if to NetIQ, to:

               NetIQ Corp.
               5410 Betsy Ross Drive
               Santa Clara, California  95054
               Attention: Chief Executive Officer
               Facsimile: (408) 330-0959

                                      -9-
<PAGE>

               with copies to:

               Wilson, Sonsini, Goodrich & Rosati,
               Professional Corporation
               650 Page Mill Road
               Palo Alto, California 94304-1050
               Attention:  Larry W. Sonsini, Esq.
                           Thomas C. DeFilipps, Esq.
               Facsimile: (650) 493-6811

               and to:

               Wilson Sonsini Goodrich & Rosati,
               Professional Corporation
               Spear Street Tower
               One Market
               San Francisco, California 94105
               Attention:  Steve L. Camahort, Esq.
               Facsimile:  (415) 947-2099

     18.  Governing Law.  This Agreement will be governed by and construed
          --------- ---
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within such State.

     19.  Expenses.  Except as otherwise expressly provided herein or in the
          --------
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement will be paid by the party incurring
such expenses.

     20. Amendments; Waiver.  This Agreement may be amended by the parties
         ----------- ------
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.

     21. Assignment.  Neither of the parties hereto may sell, transfer, assign
         ----------
or otherwise dispose of any of its rights or obligations under this Agreement or
the Option created hereunder to any other person, without the express written
consent of the other party, except that the rights and obligations hereunder
will inure to the benefit of and be binding upon any successor of a party
hereto.

     22. Counterparts.  This Agreement may be executed in counterparts, each of
         ------------
which will be deemed to be an original, but both of which, taken together, will
constitute one and the same instrument.


                                      -10-
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.

                                    MISSION CRITICAL SOFTWARE INC.

                                    By:   /s/ Michael S. Bennett
                                        ------------------------

                                    Name: Michael S. Bennett
                                          ------------------

                                    Title:  Chairman/CEO
                                            ------------

                                    NETIQ CORP.

                                    By:  /s/ Ching-Fa Hwang
                                         ------------------

                                    Name:___________________

                                    Title:__________________

                                      -11-