**Exhibit 10.1**

**QUEST SOFTWARE, INC.**

**1999 STOCK INCENTIVE PLAN**

**ARTICLE ONE**

**GENERAL PROVISIONS**

 

This 1999 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 theattached Appendix. 

 

**A.** The Plan shall bedivided into four separate equity programs: 

**(i)** the Discretionary Option Grant Program under which eligible personsmay, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock, 

**(ii)** theStock Issuance Program 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 Parent or Subsidiary), 

**(iii)** the Automatic Option Grant Program under which eligible non-employee Boardmembers shall automatically receive options at periodic intervals to purchase shares of Common Stock, and 

**(iv)** theDirector Fee Option Grant Program under which non-employee Board members may elect to have all or any portion of their annual retainer fee otherwise payable in cash applied to a special option grant. 

**B.** The provisions of Articles One and Six shall apply to all equity programs under the Plan and shall govern the interests of all persons underthe 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 Programswith respect to all other persons eligible to participate 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 respectto all such persons. 

**(iii)** Administration of the Automatic Option Grant Program shall be self-executing inaccordance with the terms of that program. 

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

**(i)** to establish such rules asit may deem appropriate for proper administration of the Plan, 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; 

**(ii)** to determine, with respect to awards made under the Discretionary Option Grant and Stock Issuance Programs, which eligiblepersons 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 anIncentive 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 PlanAdministrator within the scope of its administrative functions under the Plan shall be final and binding on all parties. 

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

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

**IV.****ELIGIBILITY**
**A.** The persons eligible toparticipate in the Discretionary Option Grant and Stock Issuance Programs are as follows: 

**(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 provide services to the Corporation (or any Parent or Subsidiary). 

**B.** Only non-employee Board members shall be eligible to participate in the Automatic Option Grant and Director Fee Option Grant Programs.

 
**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 28,500,000 shares. 

**B.** No one person participating in the Plan may receive options, separately exercisablestock appreciation rights and direct stock issuances for more than One Million (1,000,000) shares of Common Stock in the aggregate per calendar year, beginning with the 1999 calendar year. 

**C.** Shares of Common Stock subject to outstanding options (including options incorporated into this Plan from the Predecessor Plan) shall beavailable for subsequent issuance 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 theoriginal exercise or issue price 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 availablefor reissuance through one or 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 issuableunder the Plan be withheld by the 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 forissuance under the Plan shall be 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 stockissuance. Shares of Common Stock underlying one or more stock appreciation rights exercised under the Plan shall not be available for subsequent issuance. 

**D.** If any change 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 of consideration, appropriate adjustments shall be made to (i) the maximumnumber and/or class of securities issuable under the Plan, (ii) 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 the Planper calendar year, (iii) the number and/or class of securities for which grants are subsequently to be made under the Automatic Option Grant Program to new and continuing non-employee Board members, (iv) the number and/or class ofsecurities and the exercise price per share in effect under each outstanding option under the Plan and (v) the number and/or class of securities and price per share in effect under each outstanding option incorporated into this Plan from thePredecessor Plan. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall befinal, 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 tothe provisions of 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. 

**2.** The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section IIof Article Six 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 the time the option is exercised, then the exerciseprice may also be paid as follows: 

**(i)** shares of Common Stock held for the requisite period necessary to avoid anyadditional 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 the Optionee shall concurrently provide irrevocable instructions to (a) aCorporation-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 settlement date, sufficient funds to cover the aggregate exercise price payable for thepurchased 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 sharesdirectly 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 forthe purchased shares must be made on the Exercise Date. 

**B.*****Exercise and Term of Options.*****Each option shall beexercisable 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 in the 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 options outstanding at the time of the Optionee’s cessation ofService or death: 

**(i)** Any option outstanding at the time of the Optionee’s cessation of Service for any reasonshall 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 be exercisable after the expiration of the option term.

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

**(iii)** During the applicable post-Service exercise period, the option may not be exercisedin 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 the applicable exercise period or (if earlier) upon the expiration of theoption 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 upon the Optionee’s cessation of Service, terminate and cease to beoutstanding to the extent the option is not otherwise at that time exercisable for vested shares. 

**(iv)** Should theOptionee’s Service be terminated for Misconduct or should the Optionee 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 whilethe option remains outstanding: 

**(i)** to extend the period of time for which the option is to remain exercisablefollowing the Optionee’s cessation of Service to 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 additionalinstallments in which the Optionee would have vested had the Optionee continued in Service. 

**D.*****Shareholder Rights.***The holder of an option shall have no shareholder rights withrespect to the shares subject to 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 ofCommon Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation 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 repurchaseright shall be exercisable (including the period and procedure for exercise and the appropriate 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 Period of Certain Grants.*** Options granted under the Plan to the Chief Executive Officer ofthe Company or Chairman of the Board of Directors shall be subject to a minimum vesting period and shall vest as follows: not more than twenty percent (20%) of any shares of Common Stock subject to an option shall vest after the first yearfollowing 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 periodprovided in this Article Two, Section I.F. Notwithstanding the foregoing, at such time as the Chairman is Independent, the minimum vesting period required by this Article Two, Section I.F. shall not apply to options granted to such Chairman.

**G.*****Limited Transferability of Options.*****During the lifetime of the Optionee, Incentive Options shall beexercisable only by the Optionee and shall not be assignable or transferable other than to a Beneficiary following the Optionee’s death. 

 
**II.****INCENTIVE OPTIONS**
The terms specified below shallbe applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Six shall be applicable to Incentive Options. Options which are specifically designated as Non-StatutoryOptions 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 shallnot be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. 

**C.*****Dollar Limitation.*****The aggregate Fair Market Value of the shares of Common Stock (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 optionplan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holdstwo (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which suchoptions are granted. 

**D.*****10% Shareholder.*****If any Employee to whom an Incentive Option is granted isa 10% Shareholder, then the exercise price per share shall not 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) yearsmeasured from the option grant date. 

 
**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. 

**B.** All outstandingrepurchase rights shall also terminate automatically, and 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 areassigned 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 other limitations imposed by the PlanAdministrator at the time the repurchase right is issued. 

**C.** Immediately following the consummation of the Change in Control, alloutstanding options shall terminate and cease to be outstanding, except to the 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 suchChange 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. Appropriateadjustments to reflect such 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/or class 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 exercisablestock appreciation rights and direct stock issuances under the Plan per calendar year. 

**E.** The Plan Administrator may at any time provide that one or more options will automaticallyaccelerate 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 become exercisable,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. In addition, thePlan 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 in Control.

**F.** The Plan Administrator may at any time provide that one or more options will automatically accelerate upon an InvoluntaryTermination 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 so acceleratedshall 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. Inaddition, 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 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 PlanAdministrator 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 the effective date of such HostileTake-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 an Incentive Option only to the extent the applicable One HundredThousand 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-Statutory Option 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**

 
**I.****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 or restricted stock units,awarded by and at the discretion of the Plan Administrator, that entitle the recipients to receive the shares underlying those awards or units upon the attainment of designated performance goals or Service requirements or upon the expiration of adesignated time period following the vesting of those awards or units. 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 Six, shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator maydeem appropriate in each individual instance: 

**(i)** cash or check made payable to the Corporation, or 

**(ii)** past services rendered to the Corporation (or any Parent or Subsidiary). 

********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 or restricted stock units that entitle therecipients to receive the shares underlying those awards and/or units upon the attainment of one or more performance goals or Service requirements established by the Plan Administrator or upon the expiration of a designated time period following thevesting of those awards or units, including (without limitation) a deferred distribution date following the termination of the Participant’s Service. 

**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 herunvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt ofconsideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 

**3.** The Participant shall have full shareholder rights with respect to the issuedshares 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 paid on such shares. The Participantshall not have any shareholder rights with respect to the shares of Common Stock subject to a restricted stock unit or share right award until that award vests and the shares of Common Stock are actually issued thereunder. However,dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of Common Stock, on outstanding restricted stock unit or share right awards, subject to such terms and conditions as the Plan Administrator may deemappropriate. 

**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 or restricted stockunits under the Stock Issuance Program shall automatically terminate, and no shares of Common Stock shall actually be issued in satisfaction of those awards or units, if the performance goals or Service requirements established for such awards orunits are not attained or satisfied. The Plan Administrator, however, shall have the authority to issue shares of Common Stock in satisfaction of one or more outstanding share right awards or restricted stock units as to which the designatedperformance goals or Service requirements are not attained. 

**II.****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.** Any outstanding award under the StockIssuance Program may be assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect or may be replaced with a cash incentive program of the successor corporation (or parent thereof) which preserves theFair Market Value of any shares of Common Stock underlying such award at the time of the Change in Control and provides for subsequent payout of that value in accordance with the vesting schedule applicable to the award. No accelerated vesting ofthe award shall occur in the event of such assumption or continuation of the award or such replacement of the award with a cash incentive program. 

**C.** Each outstanding award under the Stock Issuance Program that is assumed in connection with a Change in Control or otherwise continued in effect shall be adjusted immediately after the consummation of that Change in Control toapply to the number and class of securities into which the shares of Common Stock subject to the award immediately prior to the Change in Control would have been converted in consummation of such Change in Control had those shares actually beenoutstanding at that time, and appropriate adjustments shall also be made to the cash consideration (if any) payable per share thereunder, provided the aggregate amount of such consideration shall remain the same. Unless otherwise provided by anaward agreement between the Company and a Participant, if any outstanding award is not so assumed or otherwise continued in effect or replaced with a cash retention program that preserves the Fair Market Value of the shares underlying the award atthe time of the Change in Control and provides for the subsequent payout of that value in accordance with the vesting schedule in effect for the award at the time of such Change in Control, such award shall vest, and the shares of Common Stocksubject to that Award shall be issued as fully-vested shares, immediately prior to the consummation of the Change in Control. 

**D.**The Plan Administrator may at any time structure one or more unvested awards under the Stock Issuance program so that the shares of Common Stock subject to those awards shall automatically vest (or vest and become issuable) in whole or in partimmediately 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 anyChange in Control or Hostile Take-Over. 

 
**III.****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**

**AUTOMATIC OPTION GRANT PROGRAM**

 
**I.****OPTION TERMS**
**A.*****GrantDates.*****Options shall be made on the dates specified below: 

**1.****Previously Scheduled InitialOptions**. Each individual who is first elected or appointed as a non-employee Board member at any time after the Underwriting Date and continuing through March 15, 2008 shall automatically be granted, on the date of such initial election orappointment, a Non-Statutory Option to purchase Fifty Thousand (50,000) shares of Common Stock (a “**Previously Scheduled Initial Option**”), provided that individual has not previously been in the employ of the Corporation (or anyParent or Subsidiary). 

**2.****New Initial Options**. Each individual who is first elected or appointed as anon-employee Board member at any time after March 15, 2008 shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase Forty Thousand (40,000) shares of Common Stock (a“**New Initial Option**”), provided that individual has not previously been in the employ of the Corporation (or any Parent or Subsidiary). 

**3.****Previously Scheduled Annual Options**. On the date of each Annual Shareholders Meeting beginning with the 2001 Annual Shareholder Meeting and continuing through March 15, 2008, each individual whohas served as a non-employee Board member since the date of the Annual Shareholders Meeting in the immediately preceding year shall automatically be granted a Non-Statutory Option to purchase Fifteen Thousand (15,000) shares of Common Stock (a“**Previously Scheduled Annual Option**”). 

**4.****Transitional Annual Options**. On July 1, 2008,each individual who has served as a non-employee Board member since the first business day in July 2007, shall automatically be granted a Non-Statutory Option to purchase Thirty Thousand (30,000) shares of Common Stock (a “**TransitionalAnnual Option**”). Notwithstanding the foregoing, no Transitional Annual Option shall be granted if the Company’s shareholders approve the Company’s 2008 Stock Incentive Plan at the 2008 Annual Meeting of Shareholders. 

**5.****New Annual Options**. On the first business day in January of each year, beginning on January 2, 2009, eachindividual who has served as a non-employee Board member since the first business day in January of the previous year shall automatically be granted a Non-Statutory Option to purchase Twenty Thousand (20,000) shares of Common Stock (a“**New Annual Option**”). Notwithstanding the foregoing, no New Annual Option shall be granted if the Company’s shareholders approve the Company’s 2008 Stock Incentive Plan at the 2008 Annual Meeting of Shareholders.

**B.*****Exercise Price.***

**1.** The exercise price per share shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. 

**2.** The exercise price shall be payable in one or more of the alternative formsauthorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. 

**C.*****Option Term.***Each option shall have a term of ten (10) years measured from the option grant date. 

**D.*****Exercise and Vesting of Options.*****Each option shall be immediately exercisable for any or all of the option shares.However, any shares purchased under a Previously Scheduled Initial Option or New Initial Option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee’s cessation of Board service prior tovesting in those shares. Each Previously Scheduled Initial Option and New Initial Option shall vest, and the Corporation’s repurchase right shall lapse, in a series of four (4) successive equal annual installments over the Optionee’speriod of continued service as a Board member, with the first such installment to vest upon the Optionee’s completion of one (1) year of Board service measured from the option grant date. Each Previously Scheduled Annual Option,Transitional Annual Option, and New Annual Option shall be fully vested at the time of grant. 

**E.*****Cessation of BoardService.*****The following provisions shall govern the exercise of any options outstanding at the time of the Optionee’s cessation of Board service: 

**(i)** Any option outstanding at the time of the Optionee’s cessation of Board service for any reason shall remain exercisablefor a twelve (12)-month period following the date of such cessation of Board service, but in no event shall such option be exercisable after the expiration of the option term. 

**(ii)** Any option exercisable in whole or in part by the Optionee at the time of death may be subsequently exercised by his or herBeneficiary. 

**(iii)** Following the Optionee’s cessation of Board service, the option may not be exercised in theaggregate for more than the number of shares for which the option was exercisable on the date of such cessation of Board service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, theoption shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee’s cessation of Board service, terminate and cease to be outstandingfor any and all shares for which the option is not otherwise at that time exercisable. 

**(iv)** However, should theOptionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the option shall immediately vest so that such option may, during the twelve (12)-month exercise period following suchcessation of Board service, be exercised for all or any portion of those shares as fully-vested shares of Common Stock. 

**II.****CHANGE IN CONTROL/HOSTILE TAKE-OVER**
******A.** In the event of any Change in Control or Hostile Take-Over, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option may,immediately prior to the effective date of such Change in Control or Hostile Take-Over, became fully exercisable for all of the shares of Common Stock at the time subject to such option and maybe exercised for all or any of those shares asfully-vested shares of Common Stock. Each such option accelerated in connection with a Change in Control shall terminate upon the Change in Control, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continuedin full force and effect pursuant to the terms of the Change in Control. Each such option accelerated in connection with a Hostile Take-Over shall remain exercisable until the expiration or sooner termination of the option term. 

**B.** All outstanding repurchase rights shall automatically terminate and the shares of Common Stock subject to those terminated rights shallimmediately vest in full, in the event of any Change in Control or Hostile Take-Over. 

**C.** Upon the occurrence of a HostileTake-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each of his or her outstanding options. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal tothe excess of (i) the Option Surrender Value of the shares of Common Stock at the time subject to each surrendered option (whether or not the option is otherwise at the time exercisable for those shares) over (ii) the aggregate exerciseprice payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. 

**D.** Each option which is assumed in connection with a Change in Control shall be appropriately adjusted to apply to the number and class of securities which would have been issuable to the Optionee inconsummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, *provided* theaggregate exercise price payable for such securities shall remain the same. 

 
**III.****REMAINING TERMS**
The remaining terms of each optiongranted under the Automatic Option Grant Program shall be the same as the terms in effect for options made under the Discretionary Option Grant Program. 

**ARTICLE FIVE**

**DIRECTOR FEE OPTION GRANT PROGRAM**

 
**I.****OPTION GRANTS**
The Board implemented the DirectorFee Option Grant Program as of January 1, 2004. Each non-employee Board member may elect to apply all or any portion of the annual retainer fee otherwise payable in cash for his or her service on the Board or any Board committee to theacquisition of a special option grant under this Director Fee Option Grant Program. Such election must be filed with the Corporation’s Secretary prior to the first day of the 12-month period (July 1 to June 30 of the following year) forwhich the election is to be in effect. Each non-employee Board member who files such a timely election shall automatically be granted an 

option under this Director Fee Option Grant Program on the first trading day in July in the 12-month period for which that fee would otherwise be payable.For purposes of this Program, an “annual retainer fee” means the amount to which a non-employee director will be entitled to receive for serving as a director or a member of a standing committee of the Board in a relevant 12-month period,including service on any Board committee, but shall not include reimbursement of expenses, fees determined on a per-meeting attended basis, or fees with respect to any other services provided or to be provided to the Corporation. 

 
**II.****OPTION TERMS**
Each option shall be a Non-StatutoryOption governed by the terms and conditions specified below. 

********A*****. Exercise Price.***

**1**. The exercise price per share shall be the Fair Market Value per share of Common Stock on the option grant date. 

**2.** The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of thealternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the ExerciseDate. 

**B**. ***Number of Option Shares*****.** The number of shares of Common Stock subject to the option shall be anamount necessary to make such option equal in value, using a modified Black-Scholes option valuation model, to that the portion of the annual retainer fee that the non-employee director elected to receive in the form of an option. The value of theoption will be calculated by assuming that the value of an option to purchase one share of Common Stock equals the product of (i) a fraction determined by dividing one (1) by the Multiplier (as defined below) and (ii) the fair MarketValue of a share of Common Stock on the option grant date. 

The number of shares represented by an option granted pursuant to the DirectorFee Option Grant Program shall be determined by (a) dividing the amount of the annual retainer that the non-employee director elects to receive in the form of options by the Fair Market Value of a share of Common Stock on the date of grant, and(b) multiplying the quotient so obtained by a multiplier determined using a modified Black-Scholes option valuation method (the “**Multiplier**”). The Board or the Plan Administrator shall determine the Multiplier prior to thebeginning of a relevant 12-month period by considering the following factors: (i) the Fair Market Value of the Common Stock on the date the Multiplier is determined; (ii) the average length of time the stock options of the Corporation areheld by optionees prior to exercise; (iii) the risk-free rate of return based on the term determined in (ii) above and U.S. government securities rates; (iv) the annual dividend yield for the Common stock, if any; and (v) thevolatility of the Common Stock over the previous two-year period. The number of shares to be subject to the option shall be equal to the largest number of whole shares determined as follows: 

 
Amount of Retainer  
X Multiplier =
Fair Market Value on Grant Date  
Number of Shares

**C**. ***Exercise and Term of Options.*****The option shall become exercisable in aseries of twelve (12) successive equal monthly installments upon the Optionee’s completion of each month of Board service during the calendar year in which the option is granted. Each option shall have a maximum term of ten (10) yearsmeasured from the option grant date. 

**D**. ***Cessation of Board Service.***Should the Optionee cease Board service for anyreason (other than death or Permanent Disability) while holding one or more options, then each such option shall remain exercisable, for any or all of the shares for which the option is exercisable at the time of such cessation of Board service,until the *earlier* of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Board service. However, each option held by the Optionee at thetime of such cessation of Board service shall immediately terminate and cease to remain outstanding with respect to any and all shares of Common Stock for which the option is not otherwise at that time exercisable. 

**E**. ***Death or Permanent Disability.*****Should the Optionee’s service as a Board member cease by reason of death or PermanentDisability, then each option held by such Optionee shall immediately become exercisable for all the shares of Common Stock at the time subject to that option, and the option may be exercised for any or all of those shares as fully-vested sharesuntil the *earlier* of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Board service. 

Should the Optionee die after cessation of Board service but while holding one or more options, then each such option may be exercised, for any or all ofthe shares for which the option is exercisable at the time of the Optionee’s cessation of Board service (less any shares subsequently purchased by Optionee prior to death), by the Optionee’s Beneficiary. Such right of exercise shall lapse,and the option shall terminate, upon the *earlier* of (i) the expiration of the ten (10)-year option term or (ii) the three (3)-year period measured from the date of the Optionee’s cessation of Board service. 

 
**III.****CHANGE IN CONTROL/HOSTILE TAKE-OVER**
**A**. Inthe event of any Change in Control or Hostile Take-Over while the Optionee remains in Board service, each outstanding option held by such Optionee shall automatically accelerate so that each such option shall, immediately prior to the effective dateof the Change in Control or Hostile Take-Over, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares ofCommon Stock. Each such option accelerated in connection with a Change in Control shall terminate upon the Change in Control, except to the extent assumed by the successor corporation (or parent thereof) or otherwise expressly continued in fullforce and effect pursuant to the terms of the Change in Control. Each such option accelerated in connection with a Hostile Take-Over shall remain exercisable until the expiration or sooner termination of the option term. 

**B**. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period inwhich to surrender to the Corporation each of his or her outstanding options. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Option Surrender Value of the sharesof Common Stock at the time subject to each surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paidwithin five (5) days following the surrender of the option to the Corporation. 

 
**IV.****REMAINING TERMS**
The remaining terms of each optiongranted under this Director Fee Option Grant Program shall be the same as the terms in effect for options made under the Discretionary Option Grant Program. 

**ARTICLE SIX**

**MISCELLANEOUS**

 
**I.****NO IMPAIRMENT OF AUTHORITY**
Outstanding awardsshall 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 or assets.

 
**II.****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. 

 
**III.****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 - StatutoryOptions or unvested shares 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 vestingof their shares. Such right may be provided to any such holder in either or both of the following formats: 

*StockWithholding:* The election to have the Corporation 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 MarketValue equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%)) designated by the holder. 

*Stock Delivery:* The election to deliver to the Corporation, 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 withthe option exercise or share vesting triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder. 

 
**V.****EFFECTIVE DATE AND TERM OF THE PLAN**
**A**. ThePlan shall become effective immediately upon the Plan Effective Date. However, the Director Fee Option Grant Program shall not be implemented until such time as the Primary Committee or the Board may deem appropriate. Options may be granted underthe Discretionary Option Grant Program at any time on or after the Plan Effective Date. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation’sshareholders. If such shareholder approval is not obtained within twelve (12) months after the Plan Effective Date, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall begranted and no shares shall be issued under the Plan. 

**B**. The Plan shall serve as the successor to the Predecessor Plan, and nofurther options or direct stock issuances shall be made under the Predecessor Plan after the Section 12 Registration Date. All options outstanding under the Predecessor Plan on the Section 12 Registration Date shall be incorporated intothe Plan at that time and shall be treated as outstanding options under the Plan. However, each outstanding option so incorporated shall continue to be governed solely by the terms of the documents evidencing such option, and no provision of thePlan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such incorporated options with respect to their acquisition of shares of Common Stock. 

**C**. One or more provisions of the Plan, including (without limitation) the option/vesting acceleration provisions of Article Two relating toChanges in Control, may, in the Plan Administrator’s discretion, be extended to one or more options incorporated from the Predecessor Plan which do not otherwise contain such provisions. 

**D**. The Plan shall terminate upon the *earliest* of: (i) June 8, 2009, (ii) thedate 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 theCompany’s shareholders approve the Company’s 2008 Stock Incentive Plan at the 2008 Annual Meeting of Shareholders. Upon such plan termination, no additional stock awards will be granted under this Plan, but all outstanding stock awardsshall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such grants. 

 
**VI.****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.

**B**. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant Program and shares of CommonStock 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 shall be held in escrowuntil 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 thedate 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 promptly refund to the Optionees and theParticipants 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 held in escrow, and such shares shallthereupon be automatically cancelled and cease to be outstanding. 

 
**VII.****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. 

 
**VIII.****  REGULATORY APPROVALS**
**A**. Theimplementation of 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 theCorporation’s procurement 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. 

**IX.****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. 

**APPENDIX**

The following definitions shall bein effect under the Plan: 

**A**. ***Automatic Option Grant Program***shall mean the automatic option grant program in effectunder the Plan. 

**B**. ***Beneficiary*** shall mean, in the event the Plan Administrator implements a beneficiary designationprocedure, the person designated by an Optionee or Participant, pursuant to such procedure, to succeed to such person’s rights under any outstanding awards held by him or her at the time of death. In the absence of such designation orprocedure, 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 or the laws of descent and distribution. 

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

**D**. ***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, *unless*securities 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 thesame proportion, 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 person thatdirectly 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 the totalcombined 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. 

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

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

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

**H**. ***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. 

**I**. ***Director Fee OptionGrant Program***shall mean the director fee option grant program in effect under the Plan. 

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

**K**. ***Employee*** shallmean an individual who is in the employ of the Corporation (or any Parent 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. 

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

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

**(i)** If the Common Stock is at the time traded on the Nasdaq Capital Market, then the Fair Market Valueshall be the closing 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 Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. 

**(ii)** If the 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 PlanAdministrator to be the primary 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 FairMarket Value shall be the closing selling price on the last preceding date for which such quotation exists. 

**(iii)**For purposes of any option grants made on the Underwriting Date, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock is to be sold in the initial public offering pursuant to the Underwriting Agreement.

**(iv)** For purposes of any options made prior to the Underwriting Date, the Fair Market Value shall be determined bythe Plan Administrator, after taking into account such factors as it deems appropriate. 

**N**. ***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 thatdirectly 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 the totalcombined 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 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. 

**O**. ***Incentive Option*** shall mean an option which satisfies the requirements of Code Section 422. 

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

**Q**. ***Involuntary Termination*** shall mean the termination of the Service of any individual which occurs by reason of:

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

**(ii)** such individual’s voluntary resignation following (A) a change in his or her position with theCorporation 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) a reduction in his or her level of compensation (includingbase 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 such individual’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. 

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

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

**T**. ***Non-Statutory Option***shall mean an option not intended to satisfy therequirements of Code Section 422. 

**U**. ***Option Surrender Value*** shall mean the Fair Market Value per share of CommonStock on the date the option is surrendered to the Corporation 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 HostileTake-Over, if greater. However, if the surrendered option is an Incentive Option, the Option Surrender Value shall not exceed the Fair Market Value per share. 

**V**. ***Optionee***shall mean any person to whom an option is granted under the Discretionary Option Grant, Automatic Option Grant or Director Fee Option Grant Program. 

**W**. ***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 othercorporations in such chain. 

**X**. ***Participant*** shall mean any person who is issued shares of Common Stock under the StockIssuance Program. 

**Y**. ***Permanent Disability or Permanently Disabled***shall mean the inability of the Optionee or theParticipant 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. However, solely forpurposes of the Automatic Option Grant and Director Fee Option Grant Programs, Permanent Disability or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or her usual duties as a Board member by reason ofany medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. 

**Z**. ***Plan***shall mean the Corporation’s 1999 Stock Incentive Plan, as set forth in this document. 

**AA.*****Plan Administrator*** shall mean the particular entity, whether the Primary Committee, the Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant andStock 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 respect to the persons under its jurisdiction. However, the PrimaryCommittee 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 not otherwise expressly delegated to any other Plan Administrator.

**BB.*****Plan Effective Date*** shall mean June 9, 1999, the date on which the Plan was adopted by the Board.

**CC.*****Predecessor****Plan* shall mean the Corporation’s pre-existing 1998Stock Option/Stock Issuance Plan in effect immediately prior to the Plan Effective Date hereunder. 

**DD.*****PrimaryCommittee*** 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. 

**EE.*****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. 

**FF.*****Section 12 Registration Date***shall mean the date on which the Common Stock is first registered under Section 12(g) of the 1934 Act. 

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

**HH.*****Service***shall mean the performance of services for the Corporation (or anyParent or Subsidiary) by a person in the capacity of an 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 optiongrant or stock issuance. 

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

**JJ.*****Stock Issuance Program***shall mean the stock issuance program in effectunder the Plan. 

**KK.*****Subsidiary*** shall mean any corporation (other than the Corporation) in an unbroken chain ofcorporations beginning 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 votingpower of all classes of stock in one of the other corporations in such chain. 

**LL.*****10% Shareholder*** shall mean theowner 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). 

**MM.*****Underwriting Agreement***shall mean the agreement between the Corporation and the underwriter or underwriters managing the initialpublic offering of the Common Stock. 

**NN.*****Underwriting Date*** shall mean the date on which the Underwriting Agreement isexecuted and priced in connection with an initial public offering of the Common Stock. 

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