Document:

<PAGE>

                                                                   EXHIBIT 10.16

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT") OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

                       WARRANT TO PURCHASE 140,000 SHARES
                             OF THE COMMON STOCK OF
                                NetIQ Corporation

EFFECTIVE DATE: March 31, 2002

EXPIRATION DATE: July 28, 2003

     This certifies that HEIDRICK & STRUGGLES, INC. or its permitted transferees
or assigns (each individually, the "Holder") for the agreed upon value of $1.00
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, shall be entitled to purchase from NETIQ
CORPORATION, a Delaware corporation (the "Company"), having its principal place
of business at 3553 North First Street, San Jose, CA 95134, a maximum of 140,000
fully paid and nonassessable shares of the Company's Common Stock ("Common
Stock") for cash at a price equal to $21.81 per share (the "Exercise Price") at
any time, or from time to time, up to and including 5:00 p.m. Pacific time on
the Expiration Date, upon the surrender to the Company at its principal place of
business (or at such other location as the Company may advise the Holder in
writing) of this Warrant properly endorsed, a Form of Subscription in
substantially the form attached hereto duly filled in and signed and, as
applicable, upon payment in cash or by check of the aggregate Exercise Price for
the number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof, or the surrender of the right to acquire
the number of shares of Common Stock determined in accordance with Section 1.2.
The Exercise Price and the number of shares of Common Stock purchasable
hereunder are subject to adjustment as provided in Section 3 of this Warrant.

     The Warrant is being issued pursuant to the Agreement between the Company
and the Holder dated as of May 9, 2001 and revised as of May 17, 2001 (the
"Agreement"). This Warrant represents the complete understanding between the
Company and Heidrick & Struggles, Inc. with respect to the warrant contemplated
in the Agreement and satisfies in full the Company's obligation to issue a
warrant under the Agreement.

     This Warrant is subject to the following terms and conditions:

     1.   EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.

     1.1 General. This Warrant is exercisable at the option of the holder of
record hereof at any time or from time to time up to the Expiration Date for all
or any number of the shares of Common Stock (but not for a fraction of a share),
which may be purchased hereunder. The Company agrees that the shares of Common
Stock purchased under this Warrant shall be

                                       1

<PAGE>

and are deemed to be issued to the Holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant, properly
endorsed, the completed and executed Form of Subscription and appropriate
payment for such shares shall have each been delivered to the Company at its
principal place of business. Certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder is
entitled upon such exercise, shall be delivered to the Holder by the Company at
the Company's expense within a reasonable time after the rights represented by
this Warrant have been so exercised, and in any event within 10 business days of
such exercise. In case of a purchase of less than all the shares which may be
purchased under this Warrant, the Company shall cancel this Warrant and execute
and deliver a new Warrant or Warrants of like tenor for the balance of the
shares purchasable under the Warrant surrendered upon such purchase to the
Holder hereof within a reasonable time. Each stock certificate so delivered
shall be in such denominations of Common Stock as may be requested by the Holder
hereof and shall be registered in the name designated by such Holder.

     1.2 Net Issue Exercise. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, the Holder may elect a "Net Issue
Exercise" pursuant to which it will receive shares equal to the value (as
determined below) of this Warrant (or the portion thereof being exercised) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Form of Subscription and notice of such election in which
event the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:

         X = Y (A-B)
            --------
               A

     Where X = the number of shares of Common Stock to be issued to the Holder

         Y = the number of shares of Common Stock purchasable under the Warrant
         or, if only a portion of the Warrant is being exercised, the portion
         of the Warrant being exercised (at the date of such exercise)

         A = the fair market value of one share of the Company's Common Stock
         (at the date of such exercise)

         B = Exercise Price (as adjusted to the date of such exercise).

For purposes of the above calculation, the fair market value of one share of
Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that where there is a public market for the Company's
Common Stock, the fair market value per share shall be the average of the
closing prices of the Company's Common Stock quoted on the Nasdaq National
Market (or similar system) or on any exchange on which the Common Stock is
listed, whichever is applicable, over the five (5) trading day period ending on
the trading day immediately preceding the day the Warrant is being exercised.

     2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of

                                       2

<PAGE>

the rights represented by this Warrant will, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable and free from all preemptive rights
of any shareholder and free of all taxes, liens and charges with respect to the
issue thereof. The Company further covenants and agrees that, during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved, for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant,
a sufficient number of shares of authorized but unissued Common Stock, or other
securities and property, when and as required to provide for the exercise of the
rights represented by this Warrant. The Company will take all such action as may
be necessary to assure that such shares of Common Stock may be issued as
provided herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed; provided, however, that the Company shall not be required to effect a
registration under Federal or State securities laws with respect to such
exercise. The Company will not take any action which would result in any
adjustment of the Exercise Price (as set forth in Section 3 hereof) if the total
number of shares of Common Stock issuable after such action upon exercise of all
outstanding warrants, together with all shares of Common Stock then outstanding
and all shares of Common Stock then issuable upon exercise of all options and
upon the conversion of all convertible securities and other equity purchase
rights then outstanding, would exceed the total number of shares of Common Stock
then authorized by the Company's Certificate of Incorporation (the "Company
Charter").

     3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price
and the number of shares purchasable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the occurrence of certain events
described in this Section 3. Upon each adjustment of the Exercise Price, the
Holder of this Warrant shall thereafter be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of shares purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Exercise Price resulting
from such adjustment.

         3.1 Subdivision or Combination of Stock. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Company shall be combined into a smaller number of shares
(by reverse stock split or otherwise), the Exercise Price in effect immediately
prior to such combination shall be proportionately increased.

         3.2 Dividends in Common Stock, Other Stock, Property,
Reclassification. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,

             (a) Common Stock or any shares of stock or other securities which
are at any time directly or indirectly convertible into or exchangeable for
Common Stock, or any rights or options to subscribe for, purchase or otherwise
acquire any of the foregoing by way of dividend or other distribution,

                                       3

<PAGE>

             (b) any cash paid or payable otherwise than as a cash dividend,
or

             (c) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement (other than shares of
Common Stock issued as a stock split or adjustments in respect of which shall be
covered by the terms of Section 3.1 above),

then, and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clause (b) and clause (c) above) which such Holder
would hold on the date of such exercise had such Holder been the holder of
record of such Common Stock as of the date on which holders of Common Stock
received or became entitled to receive such shares or all other additional stock
and other securities and property. Notwithstanding the foregoing, in the case of
distributions (or deemed distributions) of securities or other property
described in the previous sentence other than Common Stock or additional stock
of the Company, or, in either case rights with respect thereto, the Company may,
in lieu of the additional entitlement described in the previous sentence,
entitle the Holder of this Warrant to receive, upon the exercise of this Warrant
and without payment of any additional consideration therefor, the equivalent
value thereof in cash (as determined by the Company's Board of Directors).

     3.3 Reorganization, Consolidation, Merger or Sale. If any recapitalization
or reorganization of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets or other transaction shall be effected in such a
way that holders of Common Stock shall be entitled to receive stock (an "Organic
Change"), then, as a condition of such Organic Change, lawful and adequate
provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented by this Warrant) such shares of
stock as may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented by this Warrant. In the event of any Organic Change,
appropriate provision shall be made by the Company with respect to the rights
and interests of the Holder of this Warrant to the end that the provisions
hereof (including, without limitation, provisions for adjustments of the
Exercise Price and of the number of shares purchasable and receivable upon the
exercise of this Warrant) shall thereafter be applicable, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
hereof. Prior to the consummation of any such Organic Change, the successor
entity (if other than the Company) resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument reasonably
satisfactory in form and substance to the Holders executed and mailed or
delivered to the registered Holder hereof at the last address of such Holder
appearing on the books of the Company, the obligation to deliver to such Holder
such shares of stock as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase. Notwithstanding the foregoing or any other
provision of this Warrant, if any recapitalization or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company with
another corporation, or the

                                       4

<PAGE>

sale of all or substantially all of its assets or other transaction shall be
effected in such a way that holders of Common Stock shall be entitled to receive
assets or property other than stock (an "Organic Non-Stock Change"), this
Warrant shall, if possible, automatically net issue exercise in accordance with
Section 1.2 immediately prior to the occurrence of such Organic Non-Stock Change
or, if net issue exercise in accordance with Section 1.2 is not possible, then
this Warrant shall expire immediately prior to the occurrence of such Organic
Non-Stock Change.

         3.4 Notices of Change.

             (a) Immediately upon any adjustment in the number or class of
shares subject to this Warrant and/or of the Exercise Price, the Company shall
give written notice thereof to the Holder, setting forth in reasonable detail
and certifying the calculation of such adjustment.

             (b) The Company shall give written notice to the Holder at least
10 business days prior to the date on which the Company closes its books or
takes a record for determining rights to receive any dividends or distributions.

             (c) The Company shall also give written notice to the Holder at
least 30 business days prior to the date on which an Organic Change shall take
place.

     4.  ISSUE TAX. The issuance of certificates for shares of Common Stock upon
the exercise of the Warrant shall be made without charge to the Holder of the
Warrant for any issue tax (other than any applicable income taxes) in respect
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the then Holder of the
Warrant being exercised.

     5.  CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any shares of Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.

     6.  NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Exercise Price or as a shareholder of the Company, whether
such liability is asserted by the Company or by its creditors.

     7.  WARRANTS TRANSFERABLE. This Warrant and all rights hereunder are
non-transferable; provided, however, that the holder may transfer this Warrant
and the rights hereunder, in part or whole, to an affiliate or an employee of
Heidrick & Struggles, Inc. and any such affiliate or employee transferee may
transfer this Warrant to Heidrick & Struggles, Inc.

                                       5

<PAGE>

     8.  RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, shall survive the
exercise of this Warrant.

     9.  FURTHER REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

             (a) Due Authority. The execution and delivery by the Company of
this Warrant and the performance of all obligations of the Company hereunder,
including the issuance to Holder of the right to acquire the shares of Common
Stock, have been duly authorized by all necessary corporate action on the part
of the Company, and the Warrant is not inconsistent with the Company Charter or
Bylaws and constitutes a legal, valid and binding agreement of the Company,
enforceable in accordance with its terms.

             (b) Consents and Approvals. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant, except for any filing required by applicable
federal and state securities laws, which filing will be effective by the time
required thereby.

             (c) Exempt Transaction. Subject to the accuracy of the Holders
representations in Section 10 hereof, the issuance of the Common Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(the "1933 Act"), in reliance upon Section 4(2) thereof, and (ii) the
qualification requirements of the applicable state securities laws.

     10. REPRESENTATIONS AND COVENANTS OF THE HOLDER.

     This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of the Holder:

             (a) Investment Purpose. The Warrant and the Common Stock issuable
upon exercise of the Warrant will be acquired for investment and not with a view
to the sale or distribution of any part thereof, and the Holder has no present
intention of selling or engaging in any public distribution of the same except
pursuant to a registration or exemption pursuant to the 1933 Act.

             (b) Private Issue. The Holder understands (i) that the Warrant
and the Common Stock issuable upon exercise of this Warrant is not registered
under the 1933 Act or qualified under applicable state securities laws on the
ground that the issuance contemplated by this Warrant will be exempt from the
registration and qualifications requirements thereof pursuant to Section 4(2) of
the 1933 Act and any applicable state securities laws, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.

             (c) Disposition of Holders Rights. In no event will the Holder
make a disposition of the Warrant or the Common Stock issuable upon exercise of
the Warrant unless

                                       6

<PAGE>

and until (i) it shall have notified the Company of the proposed disposition,
and (ii) if requested by the Company, it shall have furnished the Company with
an opinion of counsel (which counsel may either be inside or outside counsel to
the Holder) satisfactory to the Company and its counsel to the effect that (A)
appropriate action necessary for compliance with the 1933 Act has been taken, or
(B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Common Stock or Common Stock
issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Common Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act. Whenever the restrictions
imposed hereunder shall terminate, as hereinabove provided, the Holder or holder
of a share of Common Stock then outstanding as to which such restrictions have
terminated shall be entitled to receive from the Company, without expense to
such holder, one or more new certificates for the Warrant or for such shares of
Common Stock not bearing any restrictive legend.

             (d) Financial Risk. The Holder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.

             (e) Risk of No Registration. The Holder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the Warrant, or (ii) the Common Stock issuable upon exercise of the
Warrant, it may be required to hold such securities for an indefinite period.
The Holder also understands that any sale of the Warrant or the Common Stock
issuable upon exercise of the Warrant which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.

             (f) Accredited Investor. Holder is an "accredited investor"
within the meaning of Rule 501 of Regulation D under the 1933 Act, as presently
in effect.

     11. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
amended or waived only by an instrument in writing signed, in the case of an
amendment, by the Holder and the Company or in the case of waiver, by the party
against which enforcement of the same is sought.

     12. NOTICES. Any notice, request or other document required or permitted to
be given or delivered to the Holder hereof or the Company shall be delivered or
shall be sent by an established overnight service provider (e.g., Federal
Express), or registered or certified mail, postage prepaid, to each such holder
at its address as shown on the books of the Company or to the Company at the
address indicated therefor in the first paragraph of this Warrant or such other
address as either may from time to time provide to the other in accordance with
this Section.

                                       7

<PAGE>

     13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the covenants and
agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.

     14. DESCRIPTIVE HEADINGS. The description headings of the several sections
and paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.

     15. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California, without giving effect to principles of conflicts of
laws.

     16. LOST WARRANTS. The Company represents and warrants to the Holder hereof
that upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.

     17. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Exercise Price.

     18. RESTRICTIVE LEGEND. Certificates representing shares of Common Stock
issued pursuant to this Warrant shall bear a legend substantially in the form of
the legend set forth on the first page of this Warrant to the extent that and
for so long as such legend is required pursuant to applicable law.

     IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized.

                                      NETIQ CORPORATION

                                      a Delaware corporation

                                      By:
                                         ---------------------------------------

                                      Name:
                                           -------------------------------------

                                      Title:
                                            ------------------------------------

ATTEST:

-------------------------------------
Name:
Title:  Secretary

                                       8

<PAGE>

                                    EXHIBIT A

                                SUBSCRIPTION FORM

                                                 Date: _________________, 200___

NetIQ Corporation
3553 North First Street
San Jose, CA 95134

Attn:  President

Ladies and Gentlemen:

|_|  The undersigned hereby elects to exercise the warrant issued to it by NetIQ
     Corporation (the "Company") and dated January 25, 2002 (the "Warrant") and
     to purchase thereunder __________________________________ shares of the
     Common Stock of the Company (the "Shares") at a purchase price of
     ___________________________________________ Dollars ($__________) per Share
     or an aggregate purchase price of __________________________________
     Dollars ($__________) (the "Exercise Price"). Pursuant to the terms of the
     Warrant the undersigned has delivered the Exercise Price herewith in full
     in cash or by certified check or wire transfer.

|_|  The undersigned hereby elects to convert _______________________ percent
     (____%) of the value of the Warrant pursuant to the provisions of Section
     1.2 of the Warrant.

Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below:

                           Name:
                                ---------------------------------

                           Address:
                                   ------------------------------

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

                                                 Very truly yours,

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

                                                 By:
                                                    ----------------------------

                                                 Title:
                                                       -------------------------<PAGE>

                                                                   Exhibit 10.17

                                NETIQ CORPORATION

           AMENDED AND RESTATED 1998 STOCK INCENTIVE COMPENSATION PLAN

     SECTION 1.   PURPOSE

     The purpose of the NetIQ Corporation 1998 Stock Incentive Compensation Plan
(the "Plan") is to enhance the long-term shareholder value of NetIQ Corporation,
a Delaware corporation (the "Company"), by offering opportunities to selected
persons to participate in the Company's growth and success, and to encourage
them to remain in the service of the Company and its Related Corporations (as
defined in Section 2) and to acquire and maintain stock ownership in the
Company.

     SECTION 2.   DEFINITIONS

     For purposes of the Plan, the following terms shall be defined as set forth
below:

     "Award" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Options and Stock Awards, or any
combination of the foregoing.

     "Board" means the Board of Directors of the Company.

     "Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.

     "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

     "Common Stock" means the common stock, without par value, of the Company.

     "Corporate Transaction" means any of the following events:

          (a) Consummation of any merger or consolidation of the Company with or
     into another corporation; or

          (b) Consummation of any sale, lease, exchange or other transfer in one
     transaction or a series of related transactions of all or substantially all
     of the Company's assets other than a transfer of the Company's assets to a
     majority-owned subsidiary corporation (as defined in Section 8.3) of the
     Company.

     "Disability," unless otherwise defined by the Plan Administrator, means a
mental or physical impairment of the Participant that is expected to result in
death or that has lasted or is expected to last for a continuous period of 12
months or more and that causes the Participant to be unable, in the opinion of
the Company, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity.

     "Effective Date" means the date on which the Plan is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the average of the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market for a single trading day or (b)
if the Common Stock is listed on the New York Stock Exchange or the American
Stock Exchange, the average of the high and low per share sales prices for the
Common Stock as such price is officially quoted in the composite tape of
transactions on such exchange for a single trading day. If

                                      -1-

<PAGE>

there is no such reported price for the Common Stock for the date in question,
then such price on the last preceding date for which such price exists shall be
determinative of Fair Market Value.

     "Grant Date" means the date on which the Plan Administrator completes the
corporate action relating to the grant of an Award and all conditions precedent
to the grant have been satisfied, provided that conditions to the exercisability
or vesting of Awards shall not defer the Grant Date.

     "Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.

     "Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.

     "Option" means the right to purchase Common Stock granted under Section 7.

     "Parent" means, except as otherwise defined in Section 8.3 in connection
with Incentive Stock Options, any entity, whether now or hereafter existing,
that directly or indirectly controls the Company.

     "Participant" means: (a) the person to whom an Award is granted; (b) for a
Participant who has died, the personal representative of the Participant's
estate, the person(s) to whom the Participant's rights under the Award have
passed by will or by the applicable laws of descent and distribution, or the
beneficiary designated in accordance with Section 11; or (c) the person(s) to
whom an Award has been transferred in accordance with Section 11.

     "Plan Administrator" means the Board or any committee or committees of the
Board to administer the Plan under Section 3.1.

     "Related Corporation" means any Parent or Subsidiary of the Company.

     "Retirement" means retirement as of the individual's normal retirement date
under the Company's 401(k) Plan or other similar successor plan applicable to
salaried employees, unless otherwise defined by the Plan Administrator from time
to time for purposes of the Plan.

     "Securities Act" means the Securities Act of 1933, as amended.

     "Stock Award" means shares of Common Stock or units denominated in Common
Stock granted under Section 9, the rights of ownership of which may be subject
to restrictions prescribed by the Plan Administrator.

     "Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company.

     "Successor Corporation" has the meaning set forth in Section 12.3.

     SECTION 3.   ADMINISTRATION

3.1  Plan Administrator

     The Plan shall be administered by the Board and/or a committee or
committees (which term includes subcommittees) appointed by, and consisting of
two or more members of, the Board (a "Plan Administrator"). If and so long as
the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act,
the Board shall consider in selecting the members of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may
delegate the responsibility for administering the Plan with respect to
designated classes of eligible persons to different committees consisting of two
or more members of the Board, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.

                                      -2-

<PAGE>

3.2  Administration and Interpretation by the Plan Administrator

     Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.

     SECTION 4.   STOCK SUBJECT TO THE PLAN

4.1  Authorized Number of Shares

     Subject to adjustment from time to time as provided in Section 12.1, the
number of shares of Common Stock that shall be available for issuance under the
Plan shall be:

     (a) 4,228,950 shares plus;

     (b) an annual increase to be added as of the first day of the Company's
fiscal year beginning in 2001 equal to the lesser of (i) 1,000,000 shares, (ii)
5% of the adjusted average common shares outstanding of the Company used to
calculate fully diluted earnings per share as reported in the Annual Report to
shareholders for the preceding year, and (iii) a lesser amount determined by the
Plan Administrator; provided, that any shares from any such increases in
previous years that are not actually issued, shall be added to the aggregate
number of shares for issuance under the Plan; plus

     (c) any shares subject to outstanding awards under the Company's 1997 Stock
Incentive Compensation Plan (the "Prior Plan") on the Effective Date that cease
to be subject to such awards (other than by reason of exercise or payment of the
awards to the extent they are exercised for or settled in vested and
nonforfeitable shares), which shares shall no longer be available for grant and
issuance under the Prior Plan, but shall be available for issuance under this
Plan.

Shares issued under the Plan shall be drawn from authorized and unissued shares
or shares now held or subsequently acquired by the Company.

4.2  Limitations

     (a) Subject to adjustment from time to time as provided in Section 12.1,
not more than an aggregate of 1,400,000 shares shall be available for issuance
pursuant to grants of Stock Awards under the Plan.

     (b) Subject to adjustment from time to time as provided in Section 12.1,
not more than 1,000,000 shares of Common Stock may be made subject to Awards
under the Plan to any individual in the aggregate in any one fiscal year of the
Company, except that the Company may make additional one-time grants of up to
2,000,000 shares to newly hired individuals, such limitation to be applied in a
manner consistent with the requirements of, and only to the extent required for
compliance with, the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code.

4.3  Reuse of Shares

     Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in vested and
nonforfeitable shares) shall again be available for issuance in connection with
future grants of Awards under the Plan; provided, however, that for purposes of
Section 4.2, any such shares shall be counted in accordance with the
requirements of Section 162(m) of the Code.

     SECTION 5.   ELIGIBILITY

     Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Related Corporations as the Plan Administrator
from time to time selects. Awards may also be made to consultants, agents,
advisors

                                      -3-

<PAGE>

and independent contractors who provide services to the Company and its Related
Corporations; provided such Participants render bona fide services that are not
in connection with the offer and sale of the Company's securities in a
capital-raising transaction and do not directly or indirectly promote or
maintain a market for the Company's securities.

     SECTION 6.   AWARDS

6.1  Form and Grant of Awards

     The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards may
include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options and Stock Awards. Awards may be granted singly or in combination.

6.2  Settlement of Awards

     The Company may settle Awards through the delivery of shares of Common
Stock, cash payments, the granting of replacement Awards, or any combination
thereof as the Plan Administrator shall determine. Any Award settlement,
including payment deferrals, may be subject to such conditions, restrictions and
contingencies as the Plan Administrator shall determine. The Plan Administrator
may permit or require the deferral of any Award payment, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest, or dividend equivalents, including converting such
credits into deferred stock equivalents. The Plan Administrator may at any time
offer to buy out for a payment in cash or Common Stock, an Option previously
granted based on such terms and conditions as the Plan Administrator shall
establish and communicate to the Participant at the time such offer is made.

6.3  Acquired Company Awards

     Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
Awards shall be deemed to be Participants.

     SECTION 7.   AWARDS OF OPTIONS

7.1  Grant of Options

     The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.

7.2  Option Exercise Price

     The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options. For
Incentive Stock Options granted to a more than 10% shareholder, the option
exercise price shall be as specified in Section 8.2.

7.3  Term of Options

     The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date. For Incentive
Stock Options granted to a more than 10% shareholder, the maximum Option term
shall be as specified in Section 8.2.

                                      -4-

<PAGE>

7.4  Exercise of Options

     The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which, or the installments in which, the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option shall vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:

Period of Participant's Continuous Employment or
Service With the Company or Its                   Percent of Total Option
Related Corporations From the Option Grant Date   That Is Vested and Exercisable
------------------------------------------------- ------------------------------

After 1 year                                      25%

Each additional one-month period of continuous    An additional 1/48
service completed thereafter

After 4 years                                     100%

     To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by delivery to the Company of a
written stock option exercise agreement or notice, in a form and in accordance
with procedures established by the Plan Administrator, setting forth the number
of shares with respect to which the Option is being exercised, the restrictions
imposed on the shares purchased under such exercise agreement, if any, and such
representations and agreements as may be required by the Company, accompanied by
payment in full as described in Section 7.5. An Option may not be exercised as
to less than a reasonable number of shares at any one time, as determined by the
Plan Administrator.

7.5  Payment of Exercise Price

     The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, any combination of:

     (a) cash or check; or

     (b) tendering (either actually or, if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, by attestation)
shares of Common Stock already owned by the Participant for at least six months
(or any shorter period necessary to avoid a charge to the Company's earnings for
financial reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price;

     (c) if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, delivery of a properly executed exercise notice,
together with irrevocable instructions, to (i) a brokerage firm designated by
the Company to deliver promptly to the Company the aggregate amount of sale or
loan proceeds to pay the Option exercise price and any withholding tax
obligations that may arise in connection with the exercise and (ii) the Company
to deliver the certificates for such purchased shares directly to such brokerage
firm, all in accordance with the regulations of the Federal Reserve Board; or

     (d) such other consideration as the Plan Administrator may permit.

     In addition, to assist a Participant (including a Participant who is an
officer or a director of the Company) in acquiring shares of Common Stock
pursuant to an Award granted under the Plan, the Plan Administrator, in its sole
discretion, may authorize, either at the Grant Date or at any time before the
acquisition of Common Stock pursuant to the Award, (a) the payment by a
Participant of a full-recourse promissory note, (b) the payment by the
Participant of the purchase price, if any, of the Common Stock in installments,
or (c) the guarantee by the Company of a full-recourse loan obtained by the
Participant from a third party. Subject to the foregoing, the Plan Administrator
shall in its sole discretion specify the terms of any loans, installment
payments or loan guarantees, including the interest rate and terms of and
security for repayment.

                                      -5-

<PAGE>

7.6  Post-Termination Exercises

     The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Participant ceases to be
employed by, or to provide services to, the Company or its Related Corporations,
which provisions may be waived or modified by the Plan Administrator at any
time. If not so established in the instrument evidencing the Option, the Option
shall be exercisable according to the following terms and conditions, which may
be waived or modified by the Plan Administrator at any time:

     (a) Any portion of an Option that is not vested and exercisable on the date
of termination of the Participant's employment or service relationship (the
"Termination Date") shall expire on such date, unless the Plan Administrator
determines otherwise. (b) Any portion of an Option that is vested and
exercisable on the Termination Date shall expire upon the earliest to occur of:

         (i)      the last day of the Option term;

         (ii)     if the Participant's Termination Date occurs for reasons other
than Cause, death, Disability or Retirement, the three-month anniversary of such
Termination Date;

         (iii)    if the Participant's  Termination Date occurs by reason of
Retirement, the one-year anniversary of such Termination Date; or

         (iv)     if the Participant's Termination Date occurs by reason of
Disability or death, the one-year anniversary of such Termination Date.

     Notwithstanding the foregoing, if the Participant dies after the
Termination Date while the Option is otherwise exercisable, the portion of the
Option that is vested and exercisable on such Termination Date shall expire upon
the earlier to occur of (y) the last day of the Option term and (z) the first
anniversary of the date of death, unless the Plan Administrator determines
otherwise.

     Also notwithstanding the foregoing, in case of termination of the
Participant's employment or service relationship for Cause, the Option shall
automatically expire upon first notification to the Participant of such
termination, unless the Plan Administrator determines otherwise. If a
Participant's employment or service relationship with the Company is suspended
pending an investigation of whether the Participant shall be terminated for
Cause, all the Participant's rights under any Option likewise shall be suspended
during the period of investigation.

     A Participant's transfer of employment or service relationship between or
among the Company and its Related Corporations, or a change in status from or to
an employee to or from a consultant, shall not be considered a termination of
employment or service relationship for purposes of this Section 7. The effect of
a Company-approved leave of absence on the terms and conditions of an Option
shall be determined by the Plan Administrator, in its sole discretion.

     SECTION 8.   INCENTIVE STOCK OPTION LIMITATIONS

     To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:

8.1  Dollar Limitation

     To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant holds two or more such Options that become exercisable for the
first time in the same calendar year, such limitation shall be applied on the
basis of the order in which such Options are granted.

                                      -6-

<PAGE>

8.2  10% Shareholders

     If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.

8.3  Eligible Employees

     Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.

8.4  Term

     Subject to Section 8.2, the term of an Incentive Stock Option shall not
exceed 10 years.

8.5      Exercisability

     An Option designated as an Incentive Stock Option shall cease to qualify
for favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (if permitted by the terms of the Option) (a) more than three months
after the Termination Date for reasons other than death or disability, (b) more
than one year after the Termination Date by reason of Disability or (c) after
the Participant has been on leave of absence for more than 90 days, unless the
Participant's reemployment rights are guaranteed by statute or contract.

     For purposes of this Section 8.5, Disability shall mean "permanent and
total disability" as that term is defined for purposes of Section 422 of the
Code.

8.6  Taxation of Incentive Stock Options

     In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two years after the Grant Date and
one year from the date of exercise. A Participant may be subject to the
alternative minimum tax at the time of exercise of an Incentive Stock Option.
The Participant shall give the Company prompt notice of any disposition of
shares acquired by the exercise of an Incentive Stock Option prior to the
expiration of such holding periods.

8.7  Promissory Notes

     The amount of any promissory note delivered pursuant to Section 7.5 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.

     SECTION 9.   STOCK AWARDS

9.1  Grant of Stock Awards

     The Plan Administrator is authorized to make Awards of Common Stock or
Awards denominated in units of Common Stock on such terms and conditions and
subject to such restrictions, if any, which may be based on continuous service
with the Company or the achievement of performance goals related to profits,
profit growth, profit-related return ratios, cash flow or total shareholder
return, where such goals may be stated in absolute terms or relative to
comparison companies as the Plan Administrator shall determine, in its sole
discretion, which terms, conditions and restrictions shall be set forth in the
instrument evidencing the Award. The terms, conditions and restrictions that the
Plan Administrator shall have the power to determine shall include, without
limitation, the manner in which shares subject to Stock Awards are held during
the periods they are subject to restrictions and the circumstances under which
forfeiture of the Stock Award shall occur by reason of termination of the
Participant's employment or service relationship.

                                      -7-

<PAGE>

9.2  Issuance of Shares

     Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Participant's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the
Participant or, in the case of the Participant's death, to the personal
representative of the Participant's estate or as the appropriate court directs,
the appropriate number of shares of Common Stock.

9.3  Waiver of Restrictions

     Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Stock Award under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate; provided, however, that the Plan Administrator may not adjust
performance goals for any Stock Award intended to be exempt under Section 162(m)
of the Code for the year in which the Stock Award is settled in such a manner as
would increase the amount of compensation otherwise payable to a Participant.

     SECTION 10.  WITHHOLDING

     The Company may require the Participant to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant, vesting or exercise of any Award. Subject to the Plan and applicable
law, the Plan Administrator may, in its sole discretion, permit the Participant
to satisfy withholding obligations (up to the minimum required federal tax
withholding rate), in whole or in part, by electing to have the Company withhold
shares of Common Stock or by transferring shares of Common Stock to the Company,
in such amounts as are equivalent to the Fair Market Value of the withholding
obligation. The Company shall have the right to withhold from any Award or any
shares of Common Stock issuable pursuant to an Award or from any cash amounts
otherwise due or to become due from the Company to the Participant an amount
equal to such taxes. The Company may also deduct from any Award any other
amounts due from the Participant to the Company or a Related Corporation.

     SECTION 11.  ASSIGNABILITY

     Awards granted under this Plan and any interest therein may not be
assigned, pledged or transferred by the Participant and may not be made subject
to attachment or similar proceedings otherwise than by will or by the applicable
laws of descent and distribution, and, during the Participant's lifetime, such
Awards may be exercised only by the Participant. Notwithstanding the foregoing,
and to the extent permitted by Section 422 of the Code, the Plan Administrator,
in its sole discretion, may permit such assignment, transfer and exercisability
and may permit a Participant to designate a beneficiary who may exercise the
Award or receive compensation under the Award after the Participant's death;
provided, however, that any Award so assigned or transferred shall be subject to
all the same terms and conditions contained in the instrument evidencing the
Award.

     SECTION 12.  ADJUSTMENTS

12.1 Adjustment of Shares

     In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company being received by the holders of shares of
Common Stock of the Company, then the Plan Administrator shall make proportional
adjustments in (i) the maximum number and kind of securities subject to the Plan
as set forth in Section 4.1 and the maximum number and kind of securities that
may be made subject to Stock Awards and to Awards to any individual as set forth
in Section 4.2, and (ii) the number and kind of securities that are subject to
any outstanding Award and the per share price of such securities, without any
change in the aggregate price to be paid therefor. The determination by the Plan
Administrator as to the terms of any of the foregoing adjustments shall be
conclusive and binding. Notwithstanding the foregoing, a dissolution or
liquidation of the Company or a Corporate Transaction shall not be governed by
this Section 12.1 but shall be governed by Sections 12.2 and 12.3, respectively.

                                      -8-

<PAGE>

12.2 Dissolution or Liquidation

     In the event of the proposed dissolution or liquidation of the Company, the
Plan Administrator shall notify each Participant as soon as practicable prior to
the effective date of such proposed transaction. The Plan Administrator in its
discretion may permit a Participant to exercise an Option until ten days prior
to such transaction with respect to all vested and exercisable shares of Common
Stock covered thereby and with respect to such number of unvested shares as the
Plan Administrator shall determine. In addition, the Plan Administrator may
provide that any forfeiture provision or Company repurchase option applicable to
any Award shall lapse as to such number of shares as the Plan Administrator
shall determine, contingent upon the occurrence of the proposed dissolution or
liquidation at the time and in the manner contemplated. To the extent an Option
has not been previously exercised, the Option shall terminate automatically
immediately prior to the consummation of the proposed action. To the extent a
forfeiture provision applicable to a Stock Award has not been waived by the Plan
Administrator, the Stock Award shall be forfeited automatically immediately
prior to the consummation of the proposed action.

12.3 Corporate Transaction

     In the event of a Corporate Transaction, except as otherwise provided in
the instrument evidencing the Award, each outstanding Option shall be assumed or
an equivalent option or right substituted by the successor corporation or its
parent corporation (the "Successor Corporation"). In the event that the
Successor Corporation refuses to assume or substitute for the Option, the Option
shall terminate, but the Participant shall have the right immediately prior to
the Corporate Transaction to exercise the Participant's Option to the extent the
vesting requirements applicable to the Option have been satisfied.

12.4 Further Adjustment of Awards

     Subject to Sections 12.2 and 12.3, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the Plan Administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to Participants, with respect to
Awards. Such authorized action may include (but shall not be limited to)
establishing, amending or waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later, extended or
additional time for exercise, lifting restrictions and other modifications, and
the Plan Administrator may take such actions with respect to all Participants,
to certain categories of Participants or only to individual Participants. The
Plan Administrator may take such action before or after granting Awards to which
the action relates and before or after any public announcement with respect to
such sale, merger, consolidation, reorganization, liquidation or change in
control that is the reason for such action.

12.5 Limitations

     The grant of Awards shall in no way affect the Company's right 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. 12.6 Fractional Shares In the event of any adjustment
in the number of shares covered by any Award, each such Award shall cover only
the number of full shares resulting from such adjustment.

     SECTION 13.  MARKET STANDOFF

     In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company's initial public offering, a person
shall not sell, make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
any shares issued pursuant to an Award granted under the Plan without the prior
written consent of the Company or its underwriters. Such limitations shall be in
effect for such period of time as may be requested by the Company or such
underwriters and agreed to by the Company's officers and directors with respect
to their shares; provided, however, that in no event shall such period exceed
180 days. The limitations of this paragraph shall in all events terminate two
years after the effective date of the Company's initial public offering. Holders
of shares issued pursuant to an Award granted under the Plan shall be subject to
the market

                                       -9-

<PAGE>

standoff provisions of this paragraph only if the officers and directors of the
Company are also subject to similar arrangements.

     In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 13, to the same extent the purchased shares are
at such time covered by such provisions.

     In order to enforce the limitations of this Section 13, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.

     SECTION 14.  AMENDMENT AND TERMINATION OF PLAN

14.1 Amendment of Plan

     The Plan may be amended only by the Board in such respects as it shall deem
advisable; provided, however, to the extent required for compliance with Section
422 of the Code or any applicable law or regulation, shareholder approval shall
be required for any amendment that would (a) increase the total number of shares
available for issuance under the Plan, (b) modify the class of persons eligible
to receive Options or (c) otherwise require shareholder approval under any
applicable law or regulation. Any amendment made to this Plan that would
constitute a "modification" to Incentive Stock Options outstanding on the date
of such amendment shall not, without the consent of the Participant, be
applicable to such outstanding Incentive Stock Options but shall have
prospective effect only. 14.2 Termination of Plan The Board may suspend or
terminate the Plan at any time. Unless sooner terminated as provided herein, the
Plan shall terminate ten years after the earlier of the Plan's adoption by the
Board and approval by the shareholders.

14.3 Consent of Participant

     The amendment or termination of the Plan or the amendment of an outstanding
Award shall not, without the Participant's consent, impair or diminish any
rights or obligations under any Award theretofore granted to the Participant
under the Plan; provided, however, that adjustments made pursuant to Section 12
shall not be subject to these restrictions. Any change or adjustment to an
outstanding Incentive Stock Option shall not, without the consent of the
Participant, be made in a manner so as to constitute a "modification" that would
cause such Incentive Stock Option to fail to continue to qualify as an Incentive
Stock Option.

     SECTION 15.  GENERAL

15.1 Evidence of Awards

Awards granted under the Plan shall be evidenced by a written instrument that
shall contain such terms, conditions, limitations and restrictions as the Plan
Administrator shall deem advisable and that are not inconsistent with the Plan.

15.2 No Individual Rights

     Nothing in the Plan or any Award granted under the Plan shall be deemed to
constitute an employment contract or confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related Corporation or limit in any way
the right of the Company or any Related Corporation of the Company to terminate
a Participant's employment or other relationship at any time, with or without
Cause.

15.3 Registration

     Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue or deliver any shares of Common Stock under the Plan or make
any other distribution of benefits under the Plan unless such issuance,

                                      -10-

<PAGE>

delivery or distribution would comply with all applicable laws (including,
without limitation, the requirements of the Securities Act), and the applicable
requirements of any securities exchange or similar entity.

     The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.

     To the extent that the Plan or any instrument evidencing an Award provides
for issuance of stock certificates to reflect the issuance of shares of Common
Stock, the issuance may be effected on a non-certificated basis, to the extent
not prohibited by applicable law or the applicable rules of any stock exchange.

15.4 No Rights as a Shareholder

     No Option or Stock Award denominated in units shall entitle the Participant
to any cash dividend, voting or other right of a shareholder unless and until
the date of issuance under the Plan of the shares that are the subject of such
Award.

15.5 Compliance With Laws and Regulations

     Notwithstanding anything in the Plan to the contrary, the Plan
Administrator, in its sole discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to Participants who are
officers or directors subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
Participants. Additionally, in interpreting and applying the provisions of the
Plan, any Option granted as an Incentive Stock Option pursuant to the Plan
shall, to the extent permitted by law, be construed as an "incentive stock
option" within the meaning of Section 422 of the Code.

15.6 Participants in Foreign Countries

     The Plan Administrator shall have the authority to adopt such
modifications, procedures, and subplans as may be necessary or desirable to
comply with provisions of the laws of foreign countries in which the Company or
its Related Corporations may operate to assure the viability of the benefits
from Awards granted to Participants employed in such countries and to meet the
objectives of the Plan.

15.7 No Trust or Fund

     The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.

15.8 Severability

     If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.

15.9 Choice of Law

     The Plan and all determinations made and actions taken pursuant hereto, to
the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Oregon without giving effect to principles
of conflicts of laws.

                                      -11-

<PAGE>

     SECTION 16.  EFFECTIVE DATE

     The Plan's Effective Date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.

                                      -12-

<PAGE>

                                                                      APPENDIX I
<TABLE>
<CAPTION>

         PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
         SUMMARY PAGE

<S>                             <C>                          <C>

                                                             Section/Effect of            Date of Shareholder
Date of Board Action            Action                       Amendment                    Approval
--------------------            ------                       ---------                    --------

December 16, 1998               Initial Plan Adoption                                     December 16, 1998

February 25, 2000               Amendment and Restatement    All share numbers in plan    May 11, 2000
                                to (1) increase size of      reflect all stock splits
                                pool; (2) add                effective on or prior to
                                Section 162(m)               February 29, 2000
                                limitations; (3) delete CA
                                Appendix

March 30, 2001                  Adopted by NetIQ Board of    All outstanding options      Not Applicable
                                Directors                    and shares available for
                                                             option grants

December 17, 2001               Amendment and Restatement                                 Not Applicable
                                to rename
                                Plan to NetIQ

</TABLE>

                                      -1-

<PAGE>

                                                                     APPENDIX II

     NETIQ CORPORATION
     1998 STOCK INCENTIVE COMPENSATION PLAN

     NON-QUALIFIED STOCK OPTION LETTER AGREEMENT

TO:

     We are pleased to inform you that you have been selected by NetIQ
Corporation (the "Company") to receive a stock option (the "Option") to purchase
shares (the "Option Shares") of the Company's Common Stock under the Company's
1998 Amended and Restated Stock Incentive Compensation Plan (the "Plan").

     The terms of the Option are as set forth in this Agreement and in the Plan,
a copy of which is attached. The Plan is incorporated by reference into this
Agreement, which means that this Agreement is limited by and subject to the
express terms and provisions of the Plan. Capitalized terms that are not defined
in this Agreement have the meanings given to them in the Plan.

     The most important terms of the Option are summarized as follows:

     1. Grant Date:                     April 16, 2001
     2. Number of Shares:               XXX shares
     3. Exercise Price:                 $22.58 per share
     4. Expiration Date:                April 16, 2011
     5. Vesting Base Date:              April 16, 2001
     6. Type of Option:                 Nonqualified stock option ("NSO")
     7. Vesting and Exercisability:     The Option will vest and become
                                        exercisable according to the following
                                        schedule:

     Date on and After Which Option Is  Portion of Total Option That Is
     ---------------------------------  -------------------------------
     Vested and Exercisable             Vested and Exercisable
     ----------------------             ----------------------

     At the end of each three-month               6.25%
     period of continuous service
     completed after Vesting Base Date

     April 16, 2005                               100%

     8. Termination of Option: The unvested portion of the Option will terminate
automatically and without further notice immediately upon termination (voluntary
or involuntary) of your employment or service relationship with the Company. The
vested portion of the Option will terminate automatically and without further
notice on the earliest of the dates set forth below. It is your responsibility
              --------
to be aware of the date your Option terminates.

                                      -2-

<PAGE>

     (a) three months after termination of your employment or service
relationship with the Company for any reason other than Cause, Retirement,
Disability or death;

     (b) one year after termination of your employment or service relationship
with the Company by reason of Retirement, Disability or death; or

     (c) the Expiration Date;

except, that if the Company terminates your services for Cause you will forfeit
the unexercised portion of the Option, including vested and unvested shares, on
the date the Company notifies you of your termination, unless the Plan
Administrator determines otherwise. If you die while the Option is exercisable,
the Option may be exercised until one year after the date of death or the
Expiration Date, whichever is earlier. The Option must be exercised within three
months after termination of employment for reasons other than death or
Disability and one year after termination of employment due to Disability.

     9. Method of Exercise: You may exercise the Option by giving written notice
to the Company, in form and substance satisfactory to the Company, which will
state the election to exercise the Option and the number of shares of Common
Stock for which you are exercising the Option. The written notice must be
accompanied by full payment of the exercise price for the number of shares of
Common Stock you are purchasing.

     10. Form of Payment: You may pay the Option exercise price, in whole or in
part, in cash, by check or, unless the Plan Administrator determines otherwise,
by (a) tendering (either actually or by attestation) shares of Common Stock held
by you for a period of at least six months having a fair market value on the day
prior to the date of exercise equal to the exercise price (you should consult
your tax advisor before exercising the Option with stock you received upon the
exercise of an NSO); (b) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds necessary to pay the exercise price;
or (c) such other consideration as the Plan Administrator may permit.

     11. Withholding Taxes: As a condition to the exercise of any portion of the
Option that is treated as a nonqualified stock option, you must make such
arrangements as the Company may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with
such exercise. The Company has the right to retain without notice sufficient
shares of stock to satisfy the withholding obligation. Unless the Plan
Administrator determines otherwise, you may satisfy the withholding obligation
by electing to have the Company withhold from the shares to be issued upon
exercise that number of shares having a fair market value equal to the amount
required to be withheld. The Company may also deduct from the shares to be
issued upon exercise of the Option any other amounts due from you to the
Company.

     12. Transfer of UK employer's NIC: This Option is granted to you on the
basis that you will bear the UK employer's NIC on the gain that may arise on
exercise, assignment or release of the Option. In consideration of you receiving
the Option, you agree to enter into an appropriate Inland Revenue approved
election agreeing to bear such a liability after the format of

                                      -3-

<PAGE>

the election has received UK Inland Revenue approval. The Option will lapse if
you do not sign and return such an approved election within 30 days of the
approved election being sent to you by the Company. You will bear such UK
employer's NIC by a) giving the Company the irrevocable authority to sell
sufficient Option Shares so that the net proceeds payable to the Company are
equal to but not less than the amount of the NIC mentioned above; and/or b) by
arranging for a payment equal to the amount of the NIC mentioned above to be
made to the Company on or before the date the Option is exercised as agreed in
advance with the Company.

     13. Limited Transferability: During your lifetime only you can exercise the
Option. The Option is not transferable except by will or by the applicable laws
of descent and distribution. The Plan provides for exercise of the Option by the
personal representative of your estate or the beneficiary thereof following your
death.

     14. Registration: At the present time, the Company intends to file and
maintain a registration statement with respect to the Option Shares. The Company
intends to maintain this registration but has no obligation to do so. In the
event that such registration is no longer effective, you will not be able to
exercise the Option unless exemptions from registration under federal and state
securities laws are available; such exemptions from registration are very
limited and might be unavailable. By accepting the Option, you hereby
acknowledge that you have read and understand Section 15.3 of the Plan.

     15. Binding Effect: This Agreement shall inure to the benefit of the
successors and assigns of the Company and be binding upon you and your heirs,
executors, administrators, successors and assigns. Please execute the following
Acceptance and Acknowledgment and return it to the undersigned.

                                        Very truly yours,

                                        NETIQ CORPORATION

                                        By________________________________

                                          Charles M. Bosenberg
                                          President and Chief Executive Officer

                                      -4-

<PAGE>

=  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =  =

         ACCEPTANCE AND ACKNOWLEDGMENT

I, a resident of the state of ______________, accept the nonqualified stock
option described in this Agreement and in the Plan, and acknowledge receipt of a
copy of this Agreement and a copy of the Plan. In particular I understand that
Section 12 of the Agreement requires me to bear the UK employer's NIC arising on
the exercise of this option and I will be required to enter an appropriate
Inland Revenue approved election agreeing to bear such a liability after the
format of the election has received UK Inland Revenue approval. The option will
lapse if I do not sign and return such an approved election within 30 days of
the approved election being sent to me by the Company. I have read and
understand the Plan.

Dated:  ____________________________

_______________________________________    ___________________________________
Employee's National Insurance Number:      Name of Employee

                                           Address____________________________

                                           ___________________________________

                                           ___________________________________

                                      -5-

<PAGE>

FORM OF JOINT ELECTION BETWEEN EMPLOYER AND EMPLOYEE

----------------------------------------------------------------------
NAME OF EMPLOYEE:
----------------------------------------------------------------------
EMPLOYEE'S ADDRESS:

----------------------------------------------------------------------
EMPLOYEE'S
NATIONAL
INSURANCE NUMBER:
----------------------------------------------------------------------

1. Option(s) to which this election relates: (tick one)

   []    An option granted to me over [number of shares] ordinary shares of
         NetIQ Corporation on [date of grant] with an exercise price of [$] per
         share under the Rules of the NetIQ Corporation Amended and Restated
         1998 Stock Incentive Compensation Plan ("the Option").

   []    An option to be granted to me over [number of shares] ordinary shares
         of [nominal value] each in the capital of NetIQ Corporation within [12
         months] of the date of this election under the Rules of the NetIQ
         Corporation Amended and Restated 1998 Stock Incentive Compensation Plan
         ("the Option").

2. The gain on which the employee is liable as a result of this election

Where an individual is liable to NIC under section 4(4)(a) of the Social
Security Contributions and Benefits Act 1992, any gain on the exercise,
assignment, release, or cancellation of a share option which is chargeable to
tax by virtue of section 135 Income and Corporation Taxes Act 1988 ("the Option
Gain") is treated as earnings on which National Insurance Contributions may be
due. National Insurance Contributions will be due for example, where there are
arrangements to dispose of the shares or if there is a market in the shares when
the options are exercised.

The purpose of this joint election is to transfer from my employer ("the
Secondary Contributor") to me ("the Earner") the liability for 100% of any
Secondary Class 1 National Insurance Contributions due on the Option Gain at the
applicable rate at the time the option is exercised ("Employer's NIC").

The obligation to account for Employer's NIC under the terms of this election
will cease with immediate effect on the earliest of the following events:

    .    The death of the above named employee;

    .    The terms of the election being satisfied;

    .    Both parties to this election jointly agreeing to revoke it;

                                      -6-

<PAGE>

     This election endures for only so long as there is a UK national insurance
contributions liability on the Option Gain.

     If Inland Revenue approval is withdrawn from the format of this election,
options that have already been granted will be unaffected, but this election
will be invalid in relation to any options granted after the date approval is
withdrawn. Furthermore, if Inland Revenue approval is withdrawn from the format
of this election, no further elections in this format will be able to be made
unless approval is regained.

3. Declaration

I, the undersigned, ("the Employee") hereby elect to meet and discharge any and
all liability to Employer's NIC on the Option Gain.

4. Arrangements to account for Employer's NIC on the Option Gain

I agree to be bound by the terms of this election and I undertake to inform the
Company immediately of the exercise of my Option. I irrevocably instruct and
authorise the Company to procure upon exercise by me of the Option the sale of
sufficient of the shares which I thereby acquire to raise funds to discharge
such liability for Employer's NIC unless I have prior to or contemporaneously
with such exercise provided to my employer in cash an amount sufficient to
discharge the liability for Employer's NIC. In the event that I receive a
payment in respect of the assignment, release or cancellation of the Option, I
irrevocably instruct and authorise the Company to deduct sufficient funds from
such payment that I receive to discharge such liability for Employer's NIC.

--------------------------------------------------------------------------------
SIGNED BY EMPLOYEE:                    ...................................
--------------------------------------------------------------------------------
PRINT NAME IN BLOCK
CAPITALS:                              ...................................

--------------------------------------------------------------------------------
DATE:                                  ...................................
--------------------------------------------------------------------------------

-------------------------------------------------------------------------------
COMPANY:
--------------------------------------------------------------------------------
REGISTERED NUMBER:                     03498397
--------------------------------------------------------------------------------
ADDRESS:                               White Hart House
                                       High Street
                                       Limpsfield
                                       Surrey
                                       RH8 0DT
--------------------------------------------------------------------------------
PAYE REFERENCE:                        581/N3495
--------------------------------------------------------------------------------

                                      -7-

<PAGE>

--------------------------------------------------------------------------------
CORPORATION TAX
REFERENCE:                             201/71370/22944

--------------------------------------------------------------------------------
                                       We acknowledge the election made by the
                                       Employee and undertake that we:

                                       .   have obtained the approval of the
                                           Inland Revenue to this election

                                       .   shall act as the agent of, and on
                                           behalf of, the Employee in
                                           discharging the liability for
                                           Employer's NI hereby accepted, in
                                           particular in ensuring that the
                                           instructions given above are carried
                                           into effect, and that the funds so
                                           raised or provided are duly paid to
                                           the Board of Inland Revenue within 14
                                           days of the end of the Income Tax
                                           month in which the share option gain
                                           is made.

--------------------------------------------------------------------------------
SIGNED FOR & ON                         ....................................
BEHALF OF THE
COMPANY:                                           (Director/Secretary*)
--------------------------------------------------------------------------------
DATE:
--------------------------------------------------------------------------------
* Delete as appropriate

                                      -8-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00039-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00039-of-00352.parquet"}]]