Quest Software (QSFT)

1.6 Employee Stock Options.

(a) Prior to the Closing, the Company shall cause each unexercised Company Option that is outstanding immediately prior to the Effective Time (whether vested or unvested) to be cancelled, terminated and extinguished as of the Effective Time, and upon the cancellation thereof be converted into the right to receive, subject to Section 1.8(b), in respect of each share of Company Common Stock then subject to such Company Option: (i) an amount in cash equal to: (A) the Class A Per Share Amount; less (B) only with respect to Company Options that are vested as of immediately prior to the Effective Time, the Escrow Contribution Amount with respect to such share of Company Common Stock subject to such vested Company Option; less (C) the exercise price per share of Company Common Stock subject to such Company Option; plus (ii) any cash disbursements required to be made from the Escrow Fund with respect to such share of Company Common Stock subject to such Company Option to the former holder of such Company Option in accordance with Section 10.7 (as and when such consideration is required to be released to such former holder); plus (iii) any amount to be paid in respect of such share of Company Common Stock subject to such Company Option to the former holder of such Company Option in accordance with Section 1.6(b). Each holder of an outstanding Company Option cancelled as provided in this Section 1.6(a) shall cease to have any rights with respect thereto, except the right to receive the cash consideration specified in this Section 1.6(a) without interest.

(b) Notwithstanding anything contained herein to the contrary, amounts payable pursuant to Section 1.6(a) in respect of Company Options which are unvested as of immediately prior to the Effective Time (the “Unvested Amount”) will also be unvested and shall have the same vesting

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schedule as the applicable unvested Company Option, subject to the former holder of such unvested Company Option continuing to be employed by the Surviving Corporation or its Subsidiaries on each vesting date; provided, however, that upon the termination of employment of a holder set forth on Schedule 1.6 by an Acquired Corporation without “cause” or by the holder for “good reason” (each as defined in an offer letter from Parent countersigned by such holder), all such vesting shall accelerate in full as of the date of such termination. At the Effective Time, Parent shall cause to be delivered to the Escrow Agent, as a contribution to an escrow account separate from the Escrow Fund (the “Unvested Option Escrow Account”), with respect to each share of Company Common Stock that is subject to a Company Option that is outstanding immediately prior to the Effective Time and subject to further vesting, an amount equal to the Unvested Amount. All fees, costs and expenses of the Escrow Agent relating to the Unvested Option Escrow Account shall be borne by the Effective Time Holders from the Unvested Amount and shall in no event be borne by Parent. On or before the Payment Date (or if such date is not a business day, the next business day) immediately following each Vesting Period in which any Unvested Amount becomes vested, Parent shall deliver to the Stockholders’ Representative a notice specifying the amount of the Unvested Amount which vested during such Vesting Period (the “Period’s Vested Amount”) and the pro rata share of such amount of each former holder of Unvested Options as well as the portion of the Unvested Amount which was scheduled to vest during such Vesting Period but which did not vest as a result of the former holder(s) of unvested Company Option not continuing to be employed by the Surviving Corporation or its Subsidiaries (the “Period’s Forfeited Amount”) and Parent and the Stockholders’ Representative then shall promptly and jointly issue instructions to the Escrow Agent holding the Unvested Option Escrow Account (which instructions shall specify the Persons to receive distributions and amounts to be distributed to each such Person, calculated by Parent and the Stockholders’ Representative in accordance with this Section 1.6(b)) to: (i) distribute to each holder of an Effective Time Share (other than Effective Time Shares subject to unvested Company Options as of immediately prior to the Effective Time where the amount payable pursuant to Section 1.6(a) with respect to such unvested Company Option constitutes a portion of the Unvested Amount which did not become a portion of the Period’s Vested Amount in such Vesting Period or any prior Vesting Period) such amount, subject to Section 1.8(b), as is determined by multiplying: (A) the applicable Period’s Forfeited Amount minus all fees, costs and expenses of the Escrow Agent relating to the Unvested Option Escrow Account (it being understood that if the resulting amount is zero or negative, the entire Period’s Forfeited Amount shall be used to pay the fees, costs and expenses of the Escrow Agent and no distribution would be made to the holders of Effective Time Shares for such Vesting Period); by (B) the fraction having: (1) a numerator equal to one; and (2) a denominator equal to the Fully Diluted Share Number, less the number of Dissenting Shares, less the number of Effective Time Shares subject to unvested Company Options as of immediately prior to the Effective Time where the amount payable pursuant to Section 1.6(a) with respect to such unvested Company Option constitutes a portion of the Unvested Amount which did not become a portion of the Period’s Vested Amount in such Vesting Period or any prior Vesting Period; and (ii) distribute to Parent the Period’s Vested Amount minus any fees, costs and expenses of the Escrow Agent relating to the Unvested Option Escrow Account that were not satisfied from the Period’s Forfeited Amount or from any interest accruing on the Unvested Option Escrow Account. The amount so distributed to Parent shall promptly be allocated among the former holders of unvested Company Options based on their pro rata share of the applicable Period’s Vested Amount and, subject to Section 1.8(b), promptly paid to such Persons. For purposes of this subsection (b), (i) “Payment Date” shall mean, as applicable, February 15 or August 15 of each calendar year; and (ii) “Vesting Period” shall mean (A) with respect to the Payment Date occurring on February 15, 2008, the period commencing on the Closing Date and ending on December 31, 2007, (B) with respect to any February 15 Payment Date other than as described in (A) above, the period commencing on July 1 of the immediately preceding calendar year and ending on December 31 of such immediately preceding calendar year, and (C) with respect to any August 15 Payment Date, the period commencing on January 1 of such calendar year and ending on June 30 of such calendar year.

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(c) The Company shall take all actions that may be necessary or that Parent considers appropriate (under the Company Option Plan and otherwise) to effectuate the provisions of this Section 1.6 and to ensure that, from and after the Effective Time, holders of Company Options have no rights with respect to such Company Options other than those specifically provided in Section 1.6(a).

1.7 Closing of the Company’s Transfer Books. At the Effective Time, holders of certificates representing shares of Company Capital Stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company, and the stock transfer books of the Company shall be closed with respect to all shares of such Company Capital Stock outstanding immediately prior to the Effective Time. No further transfer of any such outstanding shares of Company Capital Stock shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any shares of Company Capital Stock (a “Company Stock Certificate”) is presented to the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 1.8.

1.6 Employee Stock Options.

(a) At the Effective Time, all outstanding unexercised Company Options, whether vested or unvested, shall be assumed by Parent in accordance with the terms of the Company Option Plan and in accordance with the terms of the stock option agreements by which such Company Options are evidenced. All rights with respect to Company Common Stock under Company Options assumed by Parent shall thereupon be converted into rights with respect to Parent Common Stock; and, from and after the Effective Time:

(i) each assumed Company Option may be exercised solely for shares of Parent Common Stock;

(ii) the number of shares of Parent Common Stock subject to each such assumed Company Option shall be determined by multiplying the number of shares of Company Common Stock that were subject to such Company Option immediately prior to the Effective Time by the Option Exchange Ratio (as defined below), and rounding to the nearest whole number of shares of Parent Common Stock;

(iii) the per share exercise price for the Parent Common Stock issuable upon exercise of each assumed Company Option shall be the amount determined by dividing the exercise price per share of Company Common Stock subject to such Company Option, as in effect immediately prior to the Effective Time, by the Option Exchange Ratio, and rounding the resulting exercise price to the nearest whole cent, and

(iv) all restrictions on the exercise of each such Company Option shall continue in full force and effect, and the term, exercisability, vesting schedule and other provisions of each assumed Company Option shall otherwise remain unchanged; provided, however, that each assumed Company Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, reverse stock split, stock dividend, recapitalization or other similar transaction effected by Parent after the Effective Time.

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For purposes of this Agreement, (I) each Company Option assumed by Parent in accordance with this Section 1.6(a) shall be referred to as an “Assumed Option,” and (II) the “Option Exchange Ratio” shall be the fraction having a numerator equal to the Common Stock Per Share Closing Amount and having a denominator equal to the volume weighted average trading price of a share of Parent Common Stock as reported on the Nasdaq National Market for the 10 trading days immediately prior to the Closing Date (the “Parent Closing Date Stock Price”).

(b) After the Effective Time, Parent will send to each holder of an Assumed Option a written notice setting forth (i) the number of shares of Parent Common Stock subject to such Assumed Option and (ii) the exercise price per share payable to Parent upon the exercise of such Assumed Option. Parent shall file with the SEC, as soon as reasonably practicable after the Closing Date (and in any event within 30 days after the Closing Date), a registration statement on Form S-8 registering the Parent Common Stock underlying the Assumed Options.

(c) The Company shall take all actions that may be necessary, or that Parent considers appropriate (as disclosed to the Company by Parent in writing prior to the Closing), under the Company Option Plan and otherwise, in each case prior to the Closing, to effectuate the provisions of this Section 1.6 and to ensure that, from and after the Effective Time, holders of Company Options have no rights with respect to such Company Options other than those specifically provided in this Section 1.6.

1.7 Closing of the Company’s Transfer Books. At the Effective Time: (a) all shares of Company Capital Stock outstanding immediately prior to the Effective Time shall automatically be canceled and retired and shall cease to exist, and all holders of certificates representing shares of Company Capital Stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company; and (b) the stock transfer books of the Company shall be closed with respect to all shares of Company Capital Stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of Company Capital Stock shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any shares of Company Capital Stock outstanding immediately prior to the Effective Time (a “Company Stock Certificate”) is presented to the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 1.8.

1.6 Employee Stock Options.

(a) At the Effective Time, each outstanding unexercised Company Option, whether vested or unvested, shall be assumed by Parent in accordance with the terms of the Company Option Plan and in accordance with the terms of the stock option agreement by which such Company Option is evidenced. All rights with respect to Company Common Stock under assumed Company Options shall be converted into rights with respect to Parent Common Stock. Accordingly, from and after the Effective Time:

(i) each assumed Company Option may be exercised solely for shares of Parent Common Stock;

(ii) the number of shares of Parent Common Stock subject to each assumed Company Option shall be determined by multiplying the number of shares of Company Common Stock that were subject to such Company Option immediately prior to the Effective Time by the Option Stock Fraction (as defined below), and rounding down to the nearest whole number of shares of Parent Common Stock;

(iii) the per share exercise price for the Parent Common Stock issuable upon exercise of each assumed Company Option shall be the amount determined by dividing the exercise price per share of Company Common Stock subject to such Company Option, as in effect immediately prior to the Effective Time, by the Option Stock Fraction; and

(iv) all restrictions on the exercise of each assumed Company Option shall continue in full force and effect, and the term, exercisability, vesting schedule and other provisions of such Company Option shall otherwise remain unchanged; provided, however, that each assumed Company Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, reverse stock split, stock dividend, recapitalization or other similar transaction effected or declared by Parent after the Effective Time.

For purposes of this Agreement, (I) each Company Option that is assumed by Parent in accordance with this Section 1.6(a) shall be referred to as an “Assumed Option,” and (II) the “Option Stock Fraction” shall be the sum of (x) the fraction having a numerator equal to the amount determined by multiplying 80% by the Residual Per Share Amount, and having a denominator equal to the Average Parent Stock Price, and (y) the fraction having a numerator equal to the amount determined by multiplying 20% by the Residual Per Share Amount, and having a denominator equal to the Designated Parent Stock Price.

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(b) After the Effective Time, Parent will send to each holder of an Assumed Option a written notice setting forth (i) the number of shares of Parent Common Stock subject to such Assumed Option, and (ii) the exercise price per share payable to Parent upon the exercise of such Assumed Option. Parent shall file with the SEC, within 30 days after the Closing Date, a registration statement on Form S-8 registering all of the Parent Common Stock underlying the Assumed Options.

(c) The Company shall take all actions that may be necessary or that Parent considers appropriate (under the Company Option Plan and otherwise) to effectuate the provisions of this Section 1.6 and to ensure that, from and after the Effective Time, holders of Company Options have no rights with respect to such Company Options other than those specifically provided in this Section 1.6.

1.7 Closing of the Company’s Transfer Books. At the Effective Time, holders of certificates representing shares of Company Capital Stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company, and the stock transfer books of the Company shall be closed with respect to all shares of such Company Capital Stock outstanding immediately prior to the Effective Time. No further transfer of any such outstanding shares of Company Capital Stock shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any shares of Company Capital Stock (a “Company Stock Certificate”) is presented to the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 1.8.