**Exhibit 10.3**

**QUEST SOFTWARE, INC.**

**2001 STOCK INCENTIVE PLAN**

**ARTICLE ONE**

**GENERAL PROVISIONS**

 

This 2001 Stock Incentive Planis intended to promote the interests of Quest Software, Inc., a California corporation, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as anincentive for them to remain in the service of the Corporation. Capitalized terms shall have the meanings assigned to such terms in the attached Appendix. 

 

The Plan shall be dividedinto two separate equity programs: (i) the Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock; and (ii) the Stock IssuanceProgram under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parentor Subsidiary). The provisions of Articles One and Four shall apply to all equity programs under the Plan and shall govern the interests of all persons under the Plan. 

 

**A.** The followingprovisions shall govern the administration of the Plan: 

**(i)**The Board shall have the authority to administer theDiscretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders but may delegate such authority in whole or in part to the Primary Committee. 

**(ii)** Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible toparticipate in those programs may, at the Board’s discretion, be vested in the Primary Committee or a Secondary Committee, or the Board may retain the power to administer those programs with respect to all such persons. 

**B.** Each Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full power and authority subject to theprovisions of the Plan: 

**(i)** to establish such rules as it may deem appropriate for proper administration of thePlan, to make all factual determinations, to construe and interpret the provisions of the Plan and the awards thereunder and to resolve any and all ambiguities thereunder; 

 

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**(ii)** to determine, with respect to awards made under the Discretionary OptionGrant and Stock Issuance Programs, which eligible persons are to receive such awards, the time or times when such awards are to be made, the number of shares to be covered by each such award, the vesting schedule (if any) applicable to the award,the status of a granted option as either an Incentive Option or a Non-Statutory Option and the maximum term for which the option is to remain outstanding; 

**(iii)** to amend, modify or cancel any outstanding award with the consent of the holder or accelerate the vesting of such award; and 

**(iv)**to take such other discretionary actions as permitted pursuant to the terms of the applicable program. 

Decisions of each Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties. 

**C.** Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removedby the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee. 

**D.** Service on the Primary Committee or the Secondary Committee shall constitute service as a Board member, and members of each such committeeshall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omission made in good faithwith respect to the Plan or any options or stock issuances under the Plan. 

 
**IV.****ELIGIBILITY**
The persons eligible to participate in theDiscretionary Option Grant and Stock Issuance Programs are: (i) Employees; (ii) non-employee members of the Board or the board of directors of any Parent or Subsidiary; and (iii) consultants and other independent advisors who provideservices to the Corporation (or any Parent or Subsidiary); provided, however, that prior to the Shareholder Approval Date, no officers or directors of the Corporation shall be eligible to participate in the Plan. 

 
**V.****STOCK SUBJECT TO THE PLAN**
**A.** The stockissuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock reserved for issuance over the term ofthe Plan shall not exceed 5,000,000 shares. 

**B.** No one person participating in the Plan may receive options, separately exercisablestock appreciation rights and direct stock issuances for more than Two Hundred Fifty Thousand (250,000) shares of Common Stock in the aggregate per calendar year. 

 

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**C.** Shares of Common Stock subject to outstanding options shall be available for subsequentissuance under the Plan to the extent those options expire, terminate or are cancelled for any reason prior to exercise in full. Unvested shares issued under the Plan and subsequently repurchased by the Corporation, at the original exercise or issueprice paid per share, pursuant to the Corporation’s repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through oneor more subsequent options or direct stock issuances under the Plan. However, should the exercise price of an option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld bythe Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of a stock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shallbe reduced by the gross number of shares for which the option is exercised or which vest under the stock issuance, and not by the net number of shares of Common Stock issued to the holder of such option or stock issuance. Shares of Common Stockunderlying one or more stock appreciation rights exercised under the Plan shall NOT be available for subsequent issuance. 

**D.** If anychange is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt ofconsideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or class of securities by which the share reserve is to increase each calendar yearpursuant to the automatic share increase provisions of the Plan, (iii) the number and/or class of securities for which any one person may be granted options, separately exercisable stock appreciation rights and direct stock issuances under thePlan per calendar year, and (iv) the number and/or class of securities and the exercise price per share in effect under each outstanding option under the Plan. Such adjustments to the outstanding options are to be effected in a manner whichshall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. 

**ARTICLE TWO**

**DISCRETIONARY OPTION GRANT PROGRAM**

 
**I.****OPTION TERMS**
Each option shall be evidenced by oneor more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisionsof the Plan applicable to such options. 

**A. EXERCISE PRICE.**

**1.** The exercise price per share shall be fixed by the Plan Administrator at the time of the option grant, provided that theexercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. 

 

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**2.** The exercise price shall become immediately due upon exercise of the option andshall, subject to the provisions of Section II of Article Four and the documents evidencing the option, be payable in cash or check made payable to the Corporation. Should the Common Stock be registered under Section 12 of the 1934 Act at thetime the option is exercised, then the exercise price may also be paid as follows: 

**(i)**shares of Common Stock heldfor the requisite period necessary to avoid any additional charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or 

**(ii)** to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which theOptionee shall concurrently provide irrevocable instructions to (a) a Corporation-approved brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlementdate, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and(b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. 

Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. 

**B.****EXERCISE AND TERM OF OPTIONS.** Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth inthe documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date. 

**C. CESSATION OF SERVICE.**

**1.** The following provisions shall govern the exercise of any optionsoutstanding at the time of the Optionee’s cessation of Service or death: 

**(i)**Any option outstanding at the timeof the Optionee’s cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall beexercisable after the expiration of the option term. 

**(ii)** Any option exercisable in whole or in part by the Optioneeat the time of death may be subsequently exercised by his or her Beneficiary. 

**(iii)** During the applicablepost-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee’s cessation of Service. Upon the expiration of theapplicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately uponthe Optionee’s cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares. 

 

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**(iv)** Should the Optionee’s Service be terminated for Misconduct or should theOptionee engage in Misconduct while his or her options are outstanding, then all such options shall terminate immediately and cease to be outstanding. 

**2.** The Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding: 

**(i)** to extend the period of time for which the option is to remain exercisable following the Optionee’s cessation of Serviceto such period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or 

**(ii)** to permit the option to be exercised, during the applicable post-Service exercise period, for one or more additional installments in which the Optionee would have vested had the Optionee continued inService. 

**D.****SHAREHOLDER RIGHTS.** The holder of an option shall have no shareholder rights with respect to the shares subjectto the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares. 

**E.****REPURCHASE RIGHTS.** The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, theCorporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and theappropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. 

**F.****VESTING.** Options granted under the Plan to the Chief Executive Officer of the Company or Chairman of the Board of Directors shall be subject to a minimum vesting period and shall vest as follows: notmore than twenty percent (20%) of any shares of Common Stock subject to an option shall vest after the first year following the date of grant and not more than ten percent (10%) after every six-month period thereafter, provided, however,the Compensation Committee shall have the authority, in its sole discretion, to reduce the minimum vesting period provided in this Article Two, Section I(F). Notwithstanding the foregoing, at such time as the Chairman is Independent, the minimumvesting period required by this Article Two, Section I(F) shall not apply to options granted to such Chairman. 

 

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**II.****INCENTIVE OPTIONS**
The terms specified below shallbe applicable to all Incentive Options. Incentive Options may not be granted hereunder unless the Shareholder Approval Date occurs within 12 months of the Effective Date. Except as modified by the provisions of this Section II, all the provisions ofArticles One and Two shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II. 

**A.****ELIGIBILITY.** Incentive Options may only be granted to Employees. 

**B.****EXERCISE PRICE.**The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per shareof Common Stock on the option grant date. 

**C.****DOLLAR LIMITATION.**The aggregate Fair Market Value of the shares of CommonStock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisableas Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the samecalendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. 

**D.****10% SHAREHOLDER.** If any Employee to whom an Incentive Option is granted is a 10% Shareholder, then the exercise price per share shallnot be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date. 

**E.****LIMITED TRANSFERABILITY OF INCENTIVE OPTIONS.** During the lifetime of the Optionee, Incentive Options shall be exercisable only by theOptionee and shall not be assignable or transferable other than to a Beneficiary following the Optionee’s death. 

 
**III.****CHANGE IN CONTROL/HOSTILE TAKE-OVER**
**A.** Eachoption outstanding at the time of a Change in Control but not otherwise fully-vested shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable for all of theshares of Common Stock at the time subject to that option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall not so accelerate if and to the extent: (i) such optionis, in connection with the Change in Control, assumed or otherwise continued in full force and effect by the successor corporation (or parent thereof) pursuant to the terms of the Change in Control, (ii) such option is replaced with a cashincentive program of the successor corporation which preserves the spread existing at the time of the Change in Control on the shares of Common Stock for which the option is not otherwise at that time exercisable and provides for subsequent payoutin accordance with the same vesting schedule applicable to those option shares or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. Each option outstandingat the time of the Change in Control shall terminate as provided in Section III.C. of this Article Two. 

 

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**B.** All outstanding repurchase rights shall also terminate automatically, and the shares of CommonStock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control, except to the extent: (i) those repurchase rights are assigned to the successor corporation (or parent thereof) or otherwisecontinue in full force and effect pursuant to the terms of the Change in Control or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. 

**C.** Immediately following the consummation of the Change in Control, all outstanding options shall terminate and cease to be outstanding, except tothe extent assumed by the successor corporation (or parent thereof) or otherwise expressly continued in full force and effect pursuant to the terms of the Change in Control. 

**D.** Each option which is assumed in connection with a Change in Control shall be appropriately adjusted, immediately after such Change in Control,to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments to reflectsuch Change in Control shall also be made to (i) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same, (ii) the maximum number and/orclass of securities available for issuance over the remaining term of the Plan and (iii) the maximum number and/or class of securities for which any one person may be granted options, separately exercisable stock appreciation rights and directstock issuances under the Plan per calendar year. 

**E.** The Plan Administrator may at any time provide that one or more options willautomatically accelerate in connection with a Change in Control, whether or not those options are assumed or otherwise continued in full force and effect pursuant to the terms of the Change in Control. Any such option shall accordingly becomeexercisable, immediately prior to the effective date of such Change in Control, for all of the shares of Common Stock at the time subject to that option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Inaddition, the Plan Administrator may at any time provide that one or more of the Corporation’s repurchase rights shall not be assignable in connection with such Change in Control and shall terminate upon the consummation of such Change inControl. 

**F.** The Plan Administrator may at any time provide that one or more options will automatically accelerate upon anInvoluntary Termination of the Optionee’s Service within a designated period (not to exceed eighteen (18) months) following the effective date of any Change in Control in which those options do not otherwise accelerate. Any options soaccelerated shall remain exercisable for fully-vested shares until the earlier of (i) the expiration of the option term or (ii) the expiration of the one (1) year period measured from the effective date of the Involuntary Termination.In addition, the Plan Administrator may at any time provide that one or more of the Corporation’s repurchase rights shall immediately terminate upon such Involuntary Termination. 

**G.** The Plan Administrator may at any time provide that one or more options will automatically accelerate in connection with a Hostile Take-Over.Any such option shall become exercisable, immediately prior to the effective date of such Hostile Take-Over, for all of the shares of Common Stock at the time subject to that option and may be exercised for any or all of those shares as fully-vestedshares of Common Stock. In addition, the Plan Administrator may at 

 

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any time provide that one or more of the Corporation’s repurchase rights shall terminate automatically upon the consummation of such Hostile Take-Over.Alternatively, the Plan Administrator may condition such automatic acceleration and termination upon an Involuntary Termination of the Optionee’s Service within a designated period (not to exceed eighteen (18) months) following theeffective date of such Hostile Take-Over. Each option so accelerated shall remain exercisable for fully-vested shares until the expiration or sooner termination of the option term. 

**H.** The portion of any Incentive Option accelerated in connection with a Change in Control or Hostile Take Over shall remain exercisable as anIncentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-StatutoryOption under the Federal tax laws. 

 
**IV.****STOCK APPRECIATION RIGHTS**
The Plan Administratormay, subject to such conditions as it may determine, grant to selected Optionees stock appreciation rights which will allow the holders of those rights to elect between the exercise of the underlying option for shares of Common Stock and thesurrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of (a) the Option Surrender Value of the number of shares for which the option is surrendered over (b) the aggregate exerciseprice payable for such shares. The distribution may be made in shares of Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretiondeem appropriate. 

**ARTICLE THREE**

**STOCK ISSUANCE PROGRAM**

 
**V.****STOCK ISSUANCE TERMS**
Shares of Common Stock may beissued under the Stock Issuance Program through direct and immediate issuances without any intervening options. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards which entitle the recipients toreceive those shares upon the attainment of designated performance goals or Service requirements. Each such award shall be evidenced by one or more documents which comply with the terms specified below. 

**A. PURCHASE PRICE.**

**1.** The purchase price per share of Common Stock subject to direct issuance shall be fixed by the Plan Administrator. 2. Subject to the provisions of Section II of Article Four, shares of Common Stock may be issued under the StockIssuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: (i) cash or check made payable to the Corporation, or (ii) past services rendered to theCorporation (or any Parent or Subsidiary). 

 

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**B. VESTING/ISSUANCE PROVISIONS.**

**1.** The Plan Administrator may issue shares of Common Stock which are fully and immediately vested upon issuance or which are tovest in one or more installments over the Participant’s period of Service or upon attainment of specified performance objectives. Alternatively, the Plan Administrator may issue share right awards which shall entitle the recipient to receive aspecified number of vested shares of Common Stock upon the attainment of one or more performance goals or Service requirements established by the Plan Administrator. 

**2.** Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend)which the Participant may have the right to receive with respect to his or her unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting theoutstanding Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested shares of Common Stock and (ii) suchescrow arrangements as the Plan Administrator shall deem appropriate. 

**3.** The Participant shall have full shareholderrights with respect to the issued shares of Common Stock, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paidon such shares. 

**4.** Should the Participant cease to remain in Service while holding one or more unvested shares ofCommon Stock, or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shallhave no further shareholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant’s purchase-moneyindebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to thesurrendered shares. 

**5.** The Plan Administrator may waive the surrender and cancellation of one or more unvestedshares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives applicable to those shares. Such waiver shall resultin the immediate vesting of the Participant’s interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s cessation of Service or the attainmentor non-attainment of the applicable performance objectives. 

**6.** Outstanding share right awards shall automaticallyterminate, and no shares of Common Stock shall actually be issued in satisfaction of those awards, if the performance goals or Service requirements established for such awards are not attained. The Plan Administrator, however, shall have theauthority to issue shares of Common Stock in satisfaction of one or more outstanding share right awards as to which the designated performance goals or Service requirements are not attained. 

 

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**VI.****CHANGE IN CONTROL/HOSTILE TAKE-OVER**
**A.** Allof the Corporation’s outstanding repurchase rights shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control, except to the extent(i) those repurchase rights are assigned to the successor corporation (or parent thereof) or otherwise continue in full force and effect pursuant to the terms of the Change in Control or (ii) such accelerated vesting is precluded by otherlimitations imposed by the Plan Administrator at the time the repurchase right is issued. 

**B.** The Plan Administrator may at any timeprovide for the automatic termination of one or more of those outstanding repurchase rights and the immediate vesting of the shares of Common Stock subject to those terminated rights upon (i) a Change in Control or Hostile Take-Over or(ii) an Involuntary Termination of the Participant’s Service within a designated period (not to exceed eighteen (18) months) following the effective date of any Change in Control or Hostile Take-Over in which those repurchase rightsare assigned to the successor corporation (or parent thereof) or otherwise continue in full force and effect. 

 
**VII.****SHARE ESCROW/LEGENDS**
Unvested shares may, in thePlan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvestedshares. 

**ARTICLE FOUR**

**MISCELLANEOUS**

 
**VIII.****  NO IMPAIRMENT OF AUTHORITY**
Outstandingawards shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business orassets. 

 
**IX.****FINANCING**
The Plan Administrator may permit anyOptionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the purchase price of shares issued under the Stock Issuance Program by delivering a full-recourse, interest bearing promissory note payable inone or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. In no event may the maximum credit available to theOptionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or theParticipant in connection with the option exercise or share purchase. 

 

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**X.****TAX WITHHOLDING**
**A.** The Corporation’sobligation to deliver shares of Common Stock upon the exercise of options or the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholdingrequirements. 

**B.** The Plan Administrator may, in its discretion, provide any or all holders of Non-Statutory Options or unvestedshares of Common Stock under the Plan with the right to use shares of Common Stock in satisfaction of all or part of the Withholding Taxes incurred by such holders in connection with the exercise of their options or the vesting of their shares. Suchright may be provided to any such holder in either or both of the following formats: 

Stock Withholding: The election to have theCorporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of theWithholding Taxes (not to exceed one hundred percent (100%)) designated by the holder. 

Stock Delivery: The election to deliver to theCorporation, at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such holder (other than in connection with the option exercise or share vesting triggering the WithholdingTaxes) with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder. 

 
**XI.****EFFECTIVE DATE AND TERM OF THE PLAN**
**A.** ThePlan shall become effective immediately upon the Plan Effective Date. Options may be granted under the Discretionary Option Grant Program at any time on or after the Plan Effective Date. However, prior to the Shareholder Approval Date, no officersor directors of the Corporation shall be eligible to participate in the Plan. 

**B.** The Plan shall terminate upon the earliest of:(i) March 1, 2011, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully-vested shares, (iii) the termination of all outstanding options in connection with a Change in Control, or(iv) July 1, 2008 if Company’s shareholders approve the Quest Software, Inc. 2008 Equity Incentive Plan at the 2008 Annual Meeting. Upon such plan termination, no additional stock awards will be granted and all outstanding stockawards shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such grants. 

 
**XII.****AMENDMENT OF THE PLAN**
**A.** The Board shallhave complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to stock options or unvested stockissuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, certain amendments may require shareholder approval pursuant to applicable laws or regulations.

 

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**B.** Options to purchase shares of Common Stock may be granted under the Discretionary Option Grantand shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under those programs shallbe held in escrow until there is obtained shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such shareholder approval is not obtained within twelve(12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptlyrefund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were heldin escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. 

 
**XIII. ****USE OF PROCEEDS**
Any cash proceeds received by theCorporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. 

 
**XIV. ****REGULATORY APPROVALS**
**A.** The implementationof the Plan, the granting of any stock option under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any granted option or (ii) under the Stock Issuance Program shall be subject to the Corporation’sprocurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options granted under it and the shares of Common Stock issued pursuant to it. 

**B.** No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance withall applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of anystock exchange or established market on which Common Stock is then listed for trading. 

 
**XV.****NO EMPLOYMENT/SERVICE RIGHTS**
Nothing in the Planshall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing orretaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause. 

 

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**APPENDIX**

The following definitions shall be in effect under the Plan: 

**A.*****Beneficiary*** shallmean, in the event the Plan Administrator implements a beneficiary designation procedure, the person designated by an Optionee or Participant, pursuant to such procedure, to succeed to such person’s rights under any outstanding awards held byhim or her at the time of death. In the absence of such designation or procedure, the Beneficiary shall be the personal representative of the estate of the Optionee or Participant or the person or persons to whom the award is transferred by will orthe laws of descent and distribution. 

**B.*****Board*** shall mean the Corporation’s Board of Directors. 

**C.*****Change In Control*** shall mean a change in ownership or control of the Corporation effected through any of the followingtransactions: 

**(i)** a merger, consolidation or reorganization approved by the Corporation’s shareholders, unlesssecurities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the sameproportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction, 

**(ii)** any shareholder-approved transfer or other disposition of all or substantially all of the Corporation’s assets, or 

**(iii)** the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a personthat directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of thetotal combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s shareholders which the Board recommends such shareholders accept. 

**D.*****Code***shall mean the Internal Revenue Code of 1986, as amended. 

**E.*****Compensation Committee*** shall mean the Compensation Committee of the Corporation. 

**F.*****Common Stock*** shall mean the Corporation’s common stock. 

**G.*****Corporation***shall mean Quest Software, Inc., a California corporation, and any corporate successor to all or substantially all ofthe assets or voting stock of Quest Software, Inc. which shall by appropriate action adopt the Plan. 

**H.*****Discretionary OptionGrant Program***shall mean the discretionary option grant program in effect under the Plan. 

**I.*****Employee*** shall mean an individual who is in the employ of the Corporation (or anyParent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. 

**J.*****Exercise Date***shall mean the date on which the Corporation shall have received written notice of the option exercise. 

**K.*****Fair Market Value*** per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

**(i)** If the Common Stock is at the time traded on the Nasdaq Capital Market, then the Fair Market Value shall be theclosing selling price per share of Common Stock on the date in question, as such price is reported on the Nasdaq Capital Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the FairMarket Value shall be the closing selling price on the last preceding date for which such quotation exists. 

**(ii)** Ifthe Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be theprimary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall bethe closing selling price on the last preceding date for which such quotation exists. 

**(iii)** If the Common Stock isnot at the time traded on the Nasdaq National Market or listed on any Stock Exchange, then the Fair Market Value shall be determined by the Plan Administrator, after taking into account such factors as it deems appropriate. 

**L.*****Hostile Take-Over*** shall mean: 

**(i)** the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common controlwith, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securitiespursuant to a tender or exchange offer made directly to the Corporation’s shareholders which the Board does not recommend such shareholders to accept, or 

**(ii)** a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majorityof the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been electedor nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination. 

**M.*****Incentive Option***shall mean an option which satisfies the requirements of CodeSection 422. 

**N.*****Independent*** shall have such meaning as defined in Section 303A.02 of the New York StockExchange Listed Companies Manual. 

**O.*****Involuntary Termination*** shall mean the termination of the Service of anyindividual which occurs by reason of: 

**(i)** such individual’s involuntary dismissal or discharge by theCorporation for reasons other than Misconduct, or 

**(ii)** such individual’s voluntary resignation following(A) a change in his or her position with the Corporation or Parent or Subsidiary employing the individual which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) areduction in his or her level of compensation (including base salary, fringe benefits and target bonus under any performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of suchindividual’s place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual’s consent. 

**P.*****Misconduct*** shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, anyunauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any intentional wrongdoing by such person, whether by omission or commission, which adversely affects thebusiness or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. This shall not limit the grounds for the dismissal or discharge of any person in the Service of the Corporation (or any Parent or Subsidiary). 

**Q.*****1934 Act***shall mean the Securities Exchange Act of 1934, as amended. 

**R.*****Non-Statutory Option***shall mean an option not intended to satisfy the requirements of Code Section 422. 

**S.*****Option Surrender Value*** shall mean the Fair Market Value per share of Common Stock on the date the option is surrendered to theCorporation or, in the event of a Hostile Take-Over, effected through a tender offer, the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over, if greater. However, if the surrendered optionis an Incentive Option, the Option Surrender Value shall not exceed the Fair Market Value per share. 

**T.*****Optionee***shall mean any person to whom an option is granted under the Discretionary Option Grant Program. 

**U.*****Parent***shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination,stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 

**V.*****Participant*** shall mean any person who is issued shares of Common Stock under theStock Issuance Program. 

**W.*****Permanent Disability Or Permanently Disabled*** shall mean the inability of the Optionee orthe Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. 

**X.*****Plan*** shall mean the Corporation’s 2001 Stock Incentive Plan, as set forth in this document. 

**Y.*****Plan Administrator*** shall mean the particular entity, whether the Primary Committee, the Board or the Secondary Committee, whichis authorized to administer the Discretionary Option Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respectto the persons under its jurisdiction. However, the Primary Committee shall have the plenary authority to make all factual determinations and to construe and interpret any and all ambiguities under the Plan to the extent such authority is nototherwise expressly delegated to any other Plan Administrator. 

**Z.*****Plan Effective Date*** shall mean March 28, 2001,the date on which the Plan was adopted by the Board. 

**AA.*****Primary Committee***shall mean the committee of two(2) or more members of the Compensation Committee appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons. 

**BB.*****Secondary Committee***shall mean a subcommittee of two (2) or more members of the Compensation Committee appointed by theBoard to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons other than Section 16 Insiders. 

**CC.*****Section 16 Insider***shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act. 

**DD.*****Service*** shall mean the performance of services for the Corporation (or any Parent or Subsidiary) by a person in the capacity ofan Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. 

**EE.*****Shareholder Approval Date*** shall mean the date on which the Plan and the issuance of shares of Common stock pursuant to the Planshall have been approved by the Company’s shareholders in satisfaction of applicable requirements of the Nasdaq National Market or Stock Exchange on which the Common Stock is traded or listed. 

**FF.*****Stock Exchange***shall mean either the American Stock Exchange, the New York Stock Exchange, or the Nasdaq Stock Market.

**GG.*****Stock Issuance Program***shall mean the stock issuance program in effect under thePlan. 

**HH.*****Subsidiary*** shall mean any corporation (other than the Corporation) in an unbroken chain of corporationsbeginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of allclasses of stock in one of the other corporations in such chain. 

**II.*****10% Shareholder*** shall mean the owner of stock(as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). 

**JJ.*****Withholding Taxes*** shall mean the Federal, state and local income and employment withholding tax liabilities to which the holderof Non-Statutory Options or unvested shares of Common Stock may become subject in connection with the exercise of those options or the vesting of those shares.