QUEST SOFTWARE INC, S-1/A, 1999-07-22

QUEST SOFTWARE INC
S-1/A, 1999-07-22
PREPACKAGED SOFTWARE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1999

REGISTRATION NO. 333-80543
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

QUEST SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
CALIFORNIA 7372 33-0231678
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

610 NEWPORT CENTER DRIVE
NEWPORT BEACH, CA 92660
(949) 720-1434
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

MR. VINCENT C. SMITH
CHIEF EXECUTIVE OFFICER
QUEST SOFTWARE, INC.
610 NEWPORT CENTER DRIVE
NEWPORT BEACH, CA 92660
(949) 720-1434
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
GREG T. WILLIAMS, ESQ. ALAN K. AUSTIN, ESQ.
CHRISTINE P. LE, ESQ. BRIAN C. ERB, ESQ.
PATTY H. LE, ESQ. BRIAN M. MCDANIEL, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON SONSINI GOODRICH & ROSATI
38 TECHNOLOGY DRIVE PROFESSIONAL CORPORATION
IRVINE, CALIFORNIA 92618 650 PAGE MILL ROAD
(949) 790-6300 PALO ALTO, CALIFORNIA 94304
(650) 493-9300
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------

If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

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

<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Common Stock............................................... $70,840,000 $19,693.52
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).

(2) The Registrant previously paid $16,680 of the total registration fee.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED JULY 22, 1999

[QUEST SOFTWARE LOGO]

4,400,000 SHARES

COMMON STOCK
----------------------------------

Quest Software, Inc. is offering 4,400,000 shares of common stock. This is
our initial public offering, and no public market currently exists for our
shares. We have filed an application for the common stock to be quoted on the
Nasdaq National Market under the symbol "QSFT." We anticipate that the initial
public offering price will be between $12.00 and $14.00 per share.

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

INVESTING IN OUR COMMON STOCK INVOLVES RISKS.

SEE "RISK FACTORS" BEGINNING ON PAGE 7.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Quest Software, Inc............................. $ $
</TABLE>

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

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Quest Software, Inc. has granted the underwriters a 30-day option to
purchase up to an additional 660,000 shares of common stock to cover
over-allotments. We have requested that the underwriters reserve up to 12% of
the shares of common stock for sale at the initial public offering price to
individuals designated by us. BancBoston Robertson Stephens Inc. expects to
deliver the shares of common stock to purchasers on , 1999.

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

BANCBOSTON ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
CIBC WORLD MARKETS
FAC/EQUITIES

THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3

Inside Front Cover

[QUEST SOFTWARE LOGO]

The Quest Solution.

Quest offers both application and information availability solutions that
enhance the performance and reliability of e-business, enterprise and custom
applications and facilitate the delivery of information across the extended
enterprise.

[Schematic depiction of enterprise software environment showing the
functionality of and relationships among Quest's products and this underlying
environment.]

[Three columns of text at the bottom of the page. The first column is entitled
"Development -- Deployment" and reads, "Integrated products that aid in the
rapid development, testing and automated deployment of Internet software
applications in quickly changing, mission-critical environments." The second
column is entitled "Production Management" and reads, "Software solutions
designed to maintain high performance and provide constant access to critical
business applications, as well as monitoring these systems to detect and correct
problems before they impact users." The third column is entitled "Information
Delivery" and reads, "An output management system that captures and delivers
reports and data from nearly any software application for immediate and secure
distribution to information consumers within an organization or over the
Internet."]

2
<PAGE> 4

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 4
Risk Factors................................................ 7
Information Regarding Forward-Looking Statements............ 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 31
Management.................................................. 45
Certain Transactions........................................ 55
Principal Shareholders...................................... 57
Description of Capital Stock................................ 59
Shares Eligible for Future Sale............................. 61
Underwriting................................................ 63
Legal Matters............................................... 65
Experts..................................................... 65
Additional Information...................................... 65
Index to Consolidated Financial Statements.................. F-1
</TABLE>

3
<PAGE> 5

SUMMARY

You should read the following summary together with the more detailed
information and consolidated financial statements and the notes to those
statements appearing elsewhere in this prospectus. This prospectus contains
forward looking statements that involve risks and uncertainties. Our actual
results could differ materially from the results anticipated in these
forward-looking statements as a result of the factors set forth under "Risk
Factors" and elsewhere in this prospectus.

QUEST SOFTWARE, INC.

Organizations are constantly seeking ways to use information technology to
compete more effectively. Today, organizations must deliver relevant information
and provide increasingly sophisticated and time-sensitive services to a rapidly
expanding audience, including employees, customers, suppliers and partners both
inside and outside the traditional enterprise. Many organizations are beginning
to extend their core business processes over the Internet to directly reach a
large number of geographically dispersed end-users. These initiatives, commonly
referred to as e-business, are raising the strategic importance of real-time
information and are increasing the challenges of building and maintaining the
systems to effectively manage and distribute information. As a result,
organizations must assure that their systems provide:

- Application availability -- uninterrupted and high performance access to
applications under widely varying conditions; and

- Information availability -- broad distribution of critical business
information from underlying applications to decision-makers throughout
the extended enterprise.

We offer a family of products that provide both application and information
availability solutions. Our products are designed to work individually and
together to provide immediate and continuous availability of applications and
information. Our application availability products are designed to help ensure
uninterrupted and high performance access to software systems by utilizing a
number of integrated products that tune and monitor applications and the
underlying database which stores an enterprise's critical information. Other
primary components of our application availability solution include our database
replication products that maintain a real-time copy of a database for load
balancing and high availability, as well as our products that manage the complex
and error-prone process of development and deployment of rapidly changing
applications. Our information availability products deliver an enterprise,
report-based information management solution that captures, stores, indexes,
prints and archives report data or electronic documents from virtually any
application for instant distribution over intranets or the Internet.

The key elements of our strategy include extending our product leadership,
continuing our focus on the e-business applications market, leveraging our
significant installed base, expanding our sales force and international
distribution channels and extending our existing strategic relationships and
developing new partnerships with leading global systems integrators.

We have thousands of customers across a range of industries including
technology, financial services, manufacturing, healthcare, energy, insurance and
telecommunications. We market and sell our software and services worldwide
through a combination of direct sales and telesales in the United States,
Australia, the United Kingdom and Germany, as well as through resellers and
distributors.

4
<PAGE> 6

THE OFFERING

Common stock offered.................. 4,400,000 shares

Common stock to be outstanding after
this offering......................... 38,124,600 shares

Use of proceeds....................... We intend to use the net proceeds as
follows:

- $10.6 million to redeem all
outstanding shares of our Series B
Redeemable Preferred Stock;

- $10.0 million to repay
indebtedness; and

- the balance for general corporate
purposes, including working
capital, expanding our sales and
marketing efforts, product
development, expanding our customer
support organization, possible
acquisitions and capital
expenditures.

Proposed Nasdaq National Market
symbol................................ QSFT

The number of shares of common stock to be outstanding after this offering
is based on the actual number of shares outstanding as of June 30, 1999 which
excludes:

- 4,578,875 shares of common stock issuable upon exercise of stock options
outstanding as of June 30, 1999, at a weighted average exercise price of
$1.88 per share;

- 15,438 shares of common stock issued upon the exercise of options in July
1999;

- 2,914,525 shares of common stock reserved for future issuance under our
stock incentive plans; and

- 600,000 shares of common stock reserved for issuance under our employee
stock purchase plan. See "Capitalization," "Management -- 1999 Stock
Incentive Plan," "-- 1999 Employee Stock Purchase Plan" and note 5 of the
notes to our consolidated financial statements.

CORPORATE INFORMATION

We were incorporated in California in April 1987. Our principal executive
offices are located at 610 Newport Center Drive, Newport Beach, California 92660
and our telephone number is (949) 720-1434. Our Web site is located at
www.quest.com. Information contained on our Web site does not constitute part of
this prospectus.

Except as otherwise noted, all information in this prospectus:

- reflects a three-for-two stock split that was effected in June 1999;

- reflects the automatic conversion of our Series A Preferred Stock into
4,000,000 shares of common stock immediately prior to the closing of this
offering; and

- assumes that the underwriters' over-allotment option is not exercised.

5
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table should be read with the consolidated financial
statements and notes thereto appearing elsewhere in this prospectus. The pro
forma information gives effect, as of June 30, 1999, to the issuance of
4,000,000 shares of common stock upon the conversion of all outstanding shares
of our Series A Preferred Stock immediately prior to the closing of this
offering. The pro forma as adjusted information reflects the conversion of the
Series A Preferred Stock and our receipt of the estimated net proceeds from the
sale of 4,400,000 shares of our common stock offered by us hereby at an assumed
initial public offering price of $13.00 per share and the applications of the
estimated proceeds described in "Use of Proceeds."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues......................... $5,686 $9,524 $12,862 $18,315 $34,790 $14,035 $28,289
Gross profit........................... 3,461 8,284 10,445 15,036 28,850 11,487 25,147
Income (loss) from operations.......... 37 2,335 (372) 1,448 3,689 1,417 2,191
Net income............................. 17 2,358 16 289 2,346 899 1,314
Net income applicable to common
shareholders......................... 974
Net income per share:
Basic................................ $ -- $ 0.12 $ -- $ 0.01 $ 0.05 $ 0.02 $ 0.03
Diluted.............................. $ -- $ 0.12 $ -- $ 0.01 $ 0.05 $ 0.02 $ 0.02
Weighted average common shares
outstanding:
Basic................................ 19,500 19,500 38,350 40,373 44,261 43,990 38,809
Diluted.............................. 19,500 19,500 38,350 40,617 44,459 43,990 43,580
Pro forma basic and diluted net income
per share............................ $ 0.05 $ 0.02
Pro forma weighted average shares
outstanding:
Basic................................ 48,261 42,809
Diluted.............................. 48,459 45,016
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $11,777 $43,133
Working capital............................................. 3,151 34,507
Total assets................................................ 27,468 58,824
Long-term debt.............................................. 10,000 --
Series A Redeemable Preferred Stock......................... 15,000 --
Series B Redeemable Preferred Stock......................... 10,340 --
Retained earnings (deficit)................................. 31 (269)
Total shareholders' equity (deficit)........................ (13,751) 37,945
</TABLE>

6
<PAGE> 8

RISK FACTORS

An investment in our shares involves risks and uncertainties. You should
carefully consider the factors described below before making an investment
decision in our securities. The risks described below are the risks that we
currently believe are material risks of business, the industry in which we
compete and this offering.

Our business, financial condition and results of operations could be
adversely affected by any of the following risks. If we are adversely affected
by such risks, then the trading price of our common stock could decline, and you
could lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, AND, AS A
RESULT, WE MAY FAIL TO MEET EXPECTATIONS OF INVESTORS AND ANALYSTS, CAUSING OUR
STOCK PRICE TO FLUCTUATE OR DECLINE

Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors. One factor has been, and we expect to
continue to be, the size and timing of customer orders. In any given quarter,
sales of some of our products have involved large financial commitments from a
relatively small number of customers, and cancellation or deferral of these
large contracts would reduce our revenues. In addition, the sales cycles for
Vista Plus and SharePlex have been up to six months and often require
pre-purchase evaluation periods and customer education. These relatively long
sales cycles may cause significant periodic variation in our license revenues.
Also, we have often booked a large amount of our sales in the last month or
weeks of each quarter and delays in the closing of sales near the end of a
quarter could cause quarterly revenue to fall short of anticipated levels.
Finally, while a portion of our revenues each quarter is recognized from
previously deferred revenue, our quarterly performance will depend primarily
upon entering into new contracts to generate revenues for that quarter.

Other factors that may impact our operating results include the following:

- increased expenses, whether related to sales and marketing, product
development or administration;

- our ability to attain market acceptance of new products and services and
enhancements to our existing products;

- delays in introducing new products;

- new product introductions by competitors;

- lack of order backlog;

- changes in our pricing policies or the pricing policies of our
competitors;

- costs related to acquisitions of technologies or businesses;

- the timing of releases of new versions of third-party software products
that our products support, including, without limitation, product
releases by Oracle; and

- the amount and timing of expenditures related to expansion of our
operations.

See "-- Customer focus and spending on Year 2000 remediation make it
difficult to predict the buying patterns of our customers during the third and
fourth quarters of 1999."

7
<PAGE> 9

MANY OF OUR PRODUCTS ARE DEPENDENT ON ORACLE'S TECHNOLOGIES AND IF ORACLE'S
TECHNOLOGIES LOSE MARKET SHARE OR BECOME INCOMPATIBLE WITH OUR PRODUCTS, OUR
BUSINESS COULD SUFFER

We believe that our success has depended in part, and will continue to
depend in part for the foreseeable future, upon our relationship with Oracle and
our status as a complementary software provider for Oracle's database and
application products. Many versions of our principal products, including
SharePlex, SQLab Xpert, and SQL Navigator, are designed specifically to be used
with Oracle databases. Although a number of our products work with other
environments, our competitive advantage consists in substantial part on the
integration between our products and Oracle's products, and our extensive
knowledge of Oracle's technology. Currently, a significant portion of our total
revenues are derived from products that specifically support Oracle-based
products. If Oracle for any reason decides to promote technologies and standards
that are not compatible with our technology, or if Oracle loses market share for
its database products, our business, operating results and financial condition
would be materially adversely affected.

MANY OF OUR PRODUCTS ARE VULNERABLE TO DIRECT COMPETITION FROM ORACLE

We currently compete with Oracle in the market for database management
solutions. We expect that Oracle's commitment to and presence in the database
management product market will increase in the future and therefore
substantially increase competitive pressures. We believe that Oracle will
continue to incorporate database management technology into its server software
offerings, possibly at no additional cost to its users. We believe that Oracle
will also continue to enhance its database management technology. Furthermore,
Oracle could attempt to increase its presence in this market by acquiring or
forming strategic alliances with our competitors, and Oracle may be in better
position to withstand and respond to the current factors impacting this
industry. Oracle has a longer operating history, a larger installed base of
customers and substantially greater financial, distribution, marketing and
technical resources than we do. In addition, Oracle has well-established
relationships with many of our present and potential customers. As a result, we
may not be able to compete effectively with Oracle in the future which could
materially adversely affect our business, operating results and financial
condition. See "Business -- Competition."

OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND OUR INDIRECT SALES CHANNELS

Our ability to increase revenues in the future substantially depends on our
ability to expand our indirect sales channel.

In certain domestic and international markets we may miss sales
opportunities if we are unable to enter into successful relationships with
locally based resellers. In the future, we intend to augment our current limited
indirect sales distribution methods through additional third-party distribution
arrangements and, therefore, we will likely become more dependent on these type
of relationships. There can be no assurance that we will successfully augment
these arrangements or that the expansion of indirect sales distribution methods
will increase revenues.

8
<PAGE> 10

DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD ADVERSELY AFFECT OUR
BUSINESS

We have recently experienced a period of rapid growth in our operations
that has placed and will continue to place a strain on our management,
administrative, operational and financial infrastructure. During this period, we
have experienced an increase in the number of our employees, increasing demands
on our operating and financial systems and personnel, and an expansion in the
geographic coverage of our operations. The number of our full-time employees
increased from 66 as of December 31, 1996 to 123 as of December 31, 1997, to 257
as of December 31, 1998, to 415 as of June 30, 1999. Our ability to manage our
operations and growth requires us to continue to improve our operational,
financial and management controls, and reporting systems and procedures. In
addition, we will be required to hire additional management, financial, and
sales and marketing personnel to manage our expanding operations. If we are
unable to manage this growth effectively, our business, operating results and
financial condition may be materially adversely affected.

OUR FUTURE SUCCESS MAY DEPEND ON INCREASED BUSINESS FROM OUR CURRENT CUSTOMERS

Most of our customers initially make a purchase of our products for a
single department or location. Many of these customers may choose not to expand
their use of our products. If we fail to generate expanded business from our
current customers, our business, operating results and financial condition could
be materially adversely affected. In addition, as we deploy new modules and
features for our existing products or introduce new products, our current
customers may choose not to purchase this new functionality or these new
products. Moreover, if customers elect not to renew their maintenance
agreements, our service revenues would be materially adversely affected.

BECAUSE THE MARKET FOR E-BUSINESS SOLUTIONS IS NEW AND EVOLVING, WE CANNOT
ACCURATELY PREDICT THE FUTURE GROWTH RATE OF THIS MARKET OR ITS ULTIMATE SIZE

We are increasingly focusing our selling efforts on providing application
and information availability solutions for e-business applications and we expect
such sales to constitute an increasing portion of our future revenue growth. We
believe that most companies currently are not yet aware of our products and
capabilities within this evolving market, and, as a result, such companies have
not deployed our solutions. While we have devoted significant resources to
promoting awareness of our products and the problems these products address for
this evolving market, these efforts may not be sufficient to build market
awareness of the need for our products. Failure of a significant market for
e-business application and information availability products to develop, or
failure of our products to achieve broad market acceptance, could have a
material adverse effect on our business, operating results and financial
condition.

WE EXPECT TO INCUR SIGNIFICANT INCREASES IN OUR OPERATING EXPENSES IN THE
FORESEEABLE FUTURE, WHICH MAY AFFECT OUR FUTURE PROFITABILITY

We intend to substantially increase our operating expenses for the
foreseeable future as we:

- increase our sales and marketing activities, including expanding our
direct sales and telesales forces;

- increase our research and development activities;

- expand our general and administrative activities; and

- expand our customer support organizations.

Accordingly, we will be required to significantly increase our revenues in order
to maintain profitability. These expenses will be incurred before we generate
any revenues by this increased spending. If we do not significantly increase
revenues from these efforts, our business and operating results would be
negatively impacted.

9
<PAGE> 11

ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR
BUSINESS AND DIVERSION OF MANAGEMENT ATTENTION

We have in the past made and we expect to continue to make acquisitions of
complementary companies, products or technologies. If we make any acquisitions,
we will be required to assimilate the operations, products and personnel of the
acquired businesses and train, retain and motivate key personnel from the
acquired businesses. We may be unable to maintain uniform standards, controls,
procedures and policies if we fail in these efforts. Similarly, acquisitions may
subject us to liabilities and risks that are not known or identifiable at the
time of the acquisition or may cause disruptions in our operations and divert
management's attention from day-to-day operations, which could impair our
relationships with our current employees, customers and strategic partners. We
may have to incur debt or issue equity securities to pay for any future
acquisitions. The issuance of equity securities for any acquisition could be
substantially dilutive to our shareholders. In addition, our profitability may
suffer because of acquisition-related costs or amortization costs for acquired
goodwill and other intangible assets. In consummating acquisitions, we are also
subject to risks of entering geographic and business markets in which we have no
or limited prior experience. If we are unable to fully integrate acquired
businesses, products or technologies with our existing operations, we may not
receive the intended benefits of acquisition.

OUR INTERNATIONAL OPERATIONS AND OUR PLANNED EXPANSION OF OUR INTERNATIONAL
OPERATIONS EXPOSES US TO CERTAIN RISKS

Substantially all of our current international revenues are derived from
the operations of our three wholly-owned subsidiaries in Australia, the United
Kingdom and Germany. Revenues from licenses and services to customers outside of
North America were $5.8 million in 1998, representing 16.7% of total revenues,
and $6.2 million in the six months ended June 30, 1999, representing 22.0% of
total revenues. As a result, we face increasing risks from doing business on an
international basis, including, among others:

- difficulties in staffing and managing foreign operations;

- longer payment cycles;

- seasonal reductions in business activity in Europe;

- increased financial accounting and reporting burdens and complexities;

- potentially adverse tax consequences;

- delays in localizing our products;

- compliance with a wide variety of complex foreign laws and treaties;

- reduced protection for intellectual property rights in some countries;
and

- licenses, tariffs and other trade barriers.

In addition, because our international subsidiaries conduct business in the
currency of the country in which they operate, we are subject to currency
fluctuations and currency transaction losses or gains which are outside of our
control.

We plan to expand our international operations as part of our business
strategy. The expansion of our existing international operations and entry into
additional international markets will require significant management attention
and financial resources and will place additional burdens on our management,
administrative, operational and financial infrastructure. We cannot be certain
that our investments in establishing facilities in other countries will produce
desired levels of revenue or profitability. In addition, we have sold our
products internationally for only a few years and we have limited experience in
developing localized versions of our products and marketing and distributing
them internationally. As our international operations expand, our exposure to
exchange rate fluctuations will increase as we use an increasing number of
foreign currencies. We have not yet entered into any hedging transactions to
date to mitigate our expense to currency fluctuations.

10
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OUR FUTURE SUCCESS DEPENDS IN PART ON THE ACCEPTANCE OF OUR VISTA PLUS PRODUCT

Our recent operating results have depended in part upon the commercial
success of our Vista Plus product line and we expect a significant portion of
our licensing revenues for the foreseeable future to come from sales of these
products. As a result, any future growth of Quest for the foreseeable future
will depend on the continued commercial success of these products. Our future
financial performance will also depend in part on the successful development,
introduction and customer acceptance of new and enhanced versions of Vista Plus
products. In the future we may not be successful in marketing our existing
products or any new or enhanced products or services.

FAILURE TO DEVELOP STRATEGIC RELATIONSHIPS COULD HARM OUR BUSINESS

Our current collaborative relationships may not prove to be beneficial to
us, and they may not be sustained. We also may not be able to enter into
successful new strategic relationships in the future, which could have a
material adverse effect on our business, operating results and financial
condition. From time to time, we have collaborated with other companies,
including Hewlett-Packard and Oracle and certain regional offices of a number of
the national accounting firms that provide system integration services, in areas
such as product development, marketing, distribution and implementation. We
could lose sales opportunities if we fail to work effectively with these
parties. Moreover, we expect that maintaining and enhancing these and other
relationships will become a more meaningful part of our business strategy in the
future. However, many of our current partners are either actual or potential
competitors with us. In addition, many of these third parties also work with
competing software companies and we may not be able to maintain these existing
relationships, due to the fact that these relationships are informal or, if
written, are terminable with little or no notice.

OUR PROPRIETARY RIGHTS MAY BE INADEQUATELY PROTECTED, AND THERE IS RISK OF
INFRINGEMENT CLAIMS OR INDEPENDENT DEVELOPMENT OF COMPETING TECHNOLOGY THAT
COULD HARM OUR BUSINESS

Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a combination
of trademark, trade secret, copyright law and contractual restrictions to
protect the proprietary aspects of our technology. We presently have no patents
on our products. We currently hold several trademark registrations and have
numerous trademark applications in the United States and certain foreign
countries. Our trademark applications might not result in the issuance of any
valid trademarks. We seek to protect our source code for our software,
documentation and other written materials under trade secret and copyright laws.
We license our software pursuant to signed or shrinkwrap license agreements,
which impose restrictions on the licensee's ability to utilize the software.
Finally, we seek to avoid disclosure of our intellectual property by requiring
employees and consultants with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source code.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. In addition, we sell our products
internationally. The laws of many countries do not protect our proprietary
rights to as great an extent as do the laws of the United States. Litigation may
be necessary in the future to enforce our intellectual property rights, to
protect our trade secrets, and to determine the validity and scope of the
proprietary rights of others. Any such resulting litigation could result in
substantial costs and diversion of resources and would materially adversely
affect our business, operating results and financial condition.

Our means of protecting our proprietary rights may prove to be inadequate
and competitors may independently develop similar or superior technology.
Policing unauthorized use of our products is difficult, and we cannot be certain
that the steps we have taken will prevent misappropriation of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States. We also believe that, because of the
rapid rate of technological change in the software industry, trade secret and
copyright protection are less significant than factors such as the knowledge,

11
<PAGE> 13

ability and experience of our employees, frequent product enhancements and the
timeliness and quality of customer support services.

Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. Third parties
may claim infringement by us of their intellectual property rights. We expect
that software product developers will increasingly be subject to infringement
claims as the number of products and competitors in our industry segment grows
and the functionality of products in different industry segments overlaps. Any
such claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us, if at all. In the event of a successful claim of product
infringement against us and our failure or inability to either license the
infringed or similar technology or develop alternative technology on a timely
basis, our business, operating results and financial condition could be
materially adversely affected.

On May 25, 1999, Mobius Management Systems, Inc. filed a lawsuit against us
in the United States District Court for the District of New Jersey. The
complaint alleges, among other things, that we misappropriated unspecified trade
secrets belonging to Mobius. No factual basis was set forth in the complaint in
support of the misappropriation of trade secrets claim. In response to Mobius'
complaint, we have filed a motion to dismiss which is set for hearing on
September 13, 1999. The suit seeks injunctive relief and unspecified damages.
See "Business -- Legal Proceedings" and "Business -- Proprietary Rights."

OUR BUSINESS WILL SUFFER IF OUR SOFTWARE CONTAINS ERRORS

The software products we offer are inherently complex. Despite testing and
quality control, we cannot be certain that errors will not be found in current
versions, new versions or enhancements of our products after commencement of
commercial shipments. Significant technical challenges also arise with our
products because our customers purchase and deploy our products across a variety
of computer platforms and integrate it with a number of third-party software
applications and databases. If new or existing customers have difficulty
deploying our products or require significant amounts of customer support, our
operating margins could be harmed. Moreover, we could face possible claims and
higher development costs if our software contains undetected errors or if we
fail to meet our customers' expectations. As a result of the foregoing, we could
experience:

- loss of or delay in revenues and loss of market share;

- loss of customers;

- damage to our reputation;

- failure to achieve market acceptance;

- diversion of development resources;

- increased service and warranty costs;

- legal actions by customers against us which could, whether or not
successful, increase costs and distract our management; and

- increased insurance costs.

In addition, a product liability claim, whether or not successful, could
harm our business by increasing our costs and distracting our management.

12
<PAGE> 14

WE INCORPORATE SOFTWARE LICENSED FROM THIRD PARTIES INTO SOME OF OUR PRODUCTS
AND ANY SIGNIFICANT INTERRUPTION IN THE AVAILABILITY OF THESE THIRD-PARTY
SOFTWARE PRODUCTS OR DEFECTS IN THESE PRODUCTS COULD HARM OUR BUSINESS

Our SQL Navigator, TOAD and Vista Plus products contain components
developed and maintained by third-party software vendors. For example, we
incorporate software licensed from Inso Corporation and Artifex Software into
add-on options for our Vista Plus products. We expect that we may have to
incorporate software from third-party vendors in our future products. We may not
be able to replace the functionality provided by the third-party software
currently offered with our products if that software becomes obsolete, defective
or incompatible with future versions of our products or is not adequately
maintained or updated. Any significant interruption in the availability of these
third-party software products or defects in these products could harm our sales
unless and until we can secure an alternative source. Although we believe there
are adequate alternate sources for the technology licensed to us by Inso and
Artifex, such alternate sources may not provide us with the same functionality
as that currently provided to us. Further, we may experience a delay in
obtaining an alternate source for the file viewing technology licensed to us by
Inso if our license with Inso becomes unavailable for any reason.

RISKS RELATED TO OUR INDUSTRY

YEAR 2000 ISSUES PRESENT TECHNOLOGICAL RISKS AND COULD CAUSE DISRUPTION TO OUR
BUSINESS

Software that records only the last two digits of the calendar year may not
be able to distinguish whether "00" means 1900 or 2000. This may result in
software failures or the creation of erroneous results. Year 2000-related errors
or defects that affect the operation of our software could result in:

- delay or loss of revenue;

- cancellation of customer contracts;

- diversion of development resources;

- damage to our reputation;

- increased customer support and warranty costs; and

- litigation costs.

We are in the process of commencing our Year 2000 review program for the
hardware, software and systems we use to run our operations. The Year 2000
problem could affect computers, software and other equipment that we use
internally as well as divert management's attention from ordinary business
activities. In addition to computers and related systems, the operation of our
office and facilities equipment, such as fax machines, photocopiers, telephone
switches, security systems, elevators and other common devices may be affected
by the Year 2000 problem. In addition, there can be no assurance that our
suppliers or other third parties that we rely upon for services will resolve any
or all Year 2000 problems with their systems on a timely basis. Because we have
not yet completed our Year 2000 review program, we face uncertainty. However,
based on currently available information, we do not expect our internal Year
2000 compliance efforts to involve significant time and expense.

Success of our Year 2000 compliance efforts may also depend on the success
of our customers in dealing with their Year 2000 issues. Our products are
generally integrated into enterprise systems involving sophisticated hardware
and complex software products which may not be Year 2000 compliant. In addition,
third party applications in which our products are embedded, or for which our
products are separately licensed, may not comply with Year 2000 requirements,
which may have an adverse impact on or demand for our products. In some cases
even certain earlier Year 2000 compliant versions of our software, while
compatible with earlier, non-Year 2000 compliant versions of other software
products with which our software is integrated, are not compatible with certain
more recent Year 2000 compliant versions of such other software providers. While
we do not believe we have any obligation under these

13
<PAGE> 15

circumstances given that these customers are using older versions of our
software products, there can be no assurance that we will not be subject to
claims or complaints by our customers.

Although we have not been a party to any litigation or arbitration
proceeding to date involving our products or services related to Year 2000, we
may in the future be required to defend our products or services in such
proceedings, or to negotiate resolutions of claims based on Year 2000 issues.
The costs of defending and resolving Year 2000-related disputes, regardless of
the merits of such disputes, and any liability for Year 2000-related damages,
including consequential damages, could have a material adverse effect on our
business, results of operations and financial condition.

Failure of our internal computer systems or third-party hardware or
software, or of systems maintained by third parties, to operate properly with
regard to Year 2000 could cause systems interruptions or loss of data or could
require us to incur significant unanticipated expenses to remedy any problems.
We are unable to reasonably estimate the duration and extent of any such
unanticipated interruption, or quantify the effect it may have on our future
operating results. We have not yet developed a comprehensive contingency plan to
address these issues but we intend to continue developing such a plan, to the
extent possible, throughout 1999.

If our present efforts to address the Year 2000 compliance issues are not
successful, or if third party vendors, licensors and providers of hardware,
software and services with which we conduct business do not successfully address
such issues, our business, operating results and financial condition would be
materially adversely affected. Please refer to our discussion in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000" for further information.

Quest believes that the following consequences are possible in a
"reasonable worst case" Year 2000 scenario:

- costly business disputes and claims for pricing adjustments, damages,
product returns and warranty obligations related to our products, any of
which could cause a delay in receipt of revenues from our customers;

- a significant number of operational inconveniences and inefficiencies for
Quest and its customers that will divert management's time and attention;
and

- Year 2000 non-compliance by third parties that would disrupt, reduce or
eliminate for a period of time the ability of our customers to purchase
our products, thereby reducing our revenues.

CUSTOMER FOCUS AND SPENDING ON YEAR 2000 REMEDIATION MAKE IT DIFFICULT TO
PREDICT THE BUYING PATTERNS OF OUR CUSTOMERS DURING THE THIRD AND FOURTH
QUARTERS OF 1999

The purchasing patterns of our customers and potential customers based on
Year 2000 issues make it difficult to predict future sales of our products,
especially in the third and fourth quarters of 1999. Many customers may spend
their limited financial and personnel resources remediating Year 2000 problems,
thereby delaying or foregoing purchases of other software products such as ours.
This trend could reduce our revenues in 1999 and 2000. Other companies are
accelerating purchases of software products prior to 2000, causing an increase
in short-term demand which may in turn cause a corresponding decrease in
long-term demand for software products.

OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO ADAPT TO RAPID TECHNOLOGICAL
CHANGE

Our future success will depend on our ability to continue to enhance our
current products and to develop and introduce new products on a timely basis
that keep pace with technological developments and satisfy increasingly
sophisticated customer requirements. Rapid technological change, frequent new
product introductions and enhancements, uncertain product life cycles, changes
in customer demands and evolving industry standards characterize the market for
our products. The introduction of products embodying new technologies and the
emergence of new industry standards can render our existing products obsolete
and unmarketable. As a result of the complexities inherent in today's computing
environments and the

14
<PAGE> 16

performance demanded by customers for embedded databases and Web-based products,
new products and product enhancements can require long development and testing
periods. As a result, significant delays in the general availability of such new
releases or significant problems in the installation or implementation of such
new releases could have a material adverse effect on our business, operating
results and financial condition. We may not be successful in:

- developing and marketing, on a timely and cost-effective basis, new
products or new product enhancements that respond to technological
change, evolving industry standards or customer requirements;

- avoiding difficulties that could delay or prevent the successful
development, introduction or marketing of these products; or

- achieving market acceptance for our new products and product
enhancements.

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN PERSONNEL

Our future success depends on the continued service of our executive
officers and other key administrative, sales and marketing and support
personnel, many of whom, including our Chief Financial Officer, have recently
joined our company. In addition, the success of our business is substantially
dependent on the services of our Chief Executive Officer and our President and
Chief Technical Officer. We intend to hire a significant number of additional
sales, support, marketing, administrative and research and development personnel
over at least the next 12 months. There has in the past been and there may in
the future be a shortage of personnel that possess the technical background
necessary to sell, support and develop our products effectively. Competition for
skilled personnel is intense, and we may not be able to attract, assimilate or
retain highly qualified personnel in the future. Our business may not be able to
grow if we cannot attract qualified personnel. Hiring qualified sales,
marketing, administrative, research and development and customer support
personnel, is very competitive in our industry, particularly in Southern
California, where Quest is headquartered.

RISKS RELATED TO THIS OFFERING

OUR OFFICERS AND DIRECTORS WILL BE ABLE TO EXERT SIGNIFICANT CONTROL ON QUEST
AFTER THIS OFFERING

Executive officers, directors and persons and entities affiliated with them
will, in the aggregate, own approximately 80% of our outstanding common stock
following this offering. These shareholders, if acting together, would be able
to determine all matters requiring approval by our shareholders, including the
election of directors and the approval of mergers or other business combination
transactions.

THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AND WE EXPECT THE PRICE OF
OUR COMMON STOCK TO BE VOLATILE

Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering, and the market price might fall below the initial
public offering price. The initial public offering price may bear no
relationship to the price at which the common stock will trade upon completion
of this offering. The initial public offering price will be determined based on
negotiations between us and the representatives of the underwriters, based on
factors that may not be indicative of future market performance. The market
price of the common stock may fluctuate significantly in response to a number of
factors, some of which are beyond our control, including:

- quarterly variations in our operating results;

- changes in financial estimates by securities analysts;

- changes in market valuation of software and Internet companies;

- announcements by us of significant contracts, acquisitions or capital
commitments;

15
<PAGE> 17

- failure to complete significant license transactions;

- additions or departures of key personnel;

- any shortfall in revenue or net income or any increase in losses from
levels expected by securities analysts;

- future sales of common stock; and

- stock market price and volume fluctuations, which are particularly common
among highly volatile securities of Internet and software companies.

A LARGE NUMBER OF SHARES OF OUR COMMON STOCK WILL BE ELIGIBLE FOR SALE SHORTLY
AFTER THE OFFERING, WHICH COULD RESULT IN A DECLINE IN OUR STOCK PRICE

Sales in the market of a substantial number of shares of common stock after
the offering could adversely affect the market price of our common stock and
could impair our ability to raise capital through the sale of additional equity
securities. On completion of this offering, we will have 38,124,600 shares of
common stock outstanding, or 38,784,600 shares if the underwriters' option to
purchase additional shares is exercised in full. The 4,400,000 shares sold in
this offering, which would be 5,060,000 shares if the underwriters' option to
purchase additional shares is exercised in full, will be freely tradable without
restriction or further registration under the Federal securities laws unless
purchased by our "affiliates" as that term is defined in Rule 144. The remaining
33,724,600 shares of common stock outstanding on completion of this offering
will be "restricted securities" as that term is defined in Rule 144.

Our stock and substantially all of our option holders are subject to
agreements that limit their ability to sell common stock. These holders cannot
sell or otherwise dispose of any shares of common stock for a period of at least
180 days after the date of this prospectus without the prior written approval of
BancBoston Robertson Stephens. When these agreements expire, these shares and
the shares underlying the options will become eligible for sale, in some cases
only pursuant to the volume, manner of sale and notice requirements of Rule 144.
See "Shares Eligible for Future Sale" and "Underwriting."

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

Some of the matters discussed under the captions "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus include forward-looking
statements. We have based these forward-looking statements on currently
available information and our current beliefs, expectations and projections
about future events, including, among other things,

- successfully implementing our business strategy;

- maintaining and expanding market acceptance of the products we offer; and

- our ability to successfully compete in our marketplace.

In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "potential," "continue," "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions. All forward-looking statements contained herein are subject to
numerous risks and uncertainties. Our actual results and events may vary
significantly from those discussed in the forward-looking statements. In light
of these assumptions, risks and uncertainties, the forward-looking events
discussed in this prospectus might not occur.

16
<PAGE> 18

USE OF PROCEEDS

The net proceeds to us from the sale of the 4,400,000 shares of common
stock offered hereby are estimated to be approximately $52.0, or $60.0 million
if the underwriters exercise their over-allotment option in full, based upon an
assumed initial offering price per share of $13.00 and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us.

We intend to use the net proceeds of this offering:

- to redeem all outstanding shares of our Series B Preferred Stock,
including all accrued dividends thereon, for $10.6 million;

- to repay $10.0 million of outstanding term indebtedness that matures in
May 2002 and bears interest at the prime rate, and all accrued and unpaid
interest thereon; and

- for other general corporate purposes, including working capital,
expanding our sales and marketing efforts, product development, expanding
our customer support organization, possible acquisitions and capital
expenditures.

The proceeds from the issuance of the Series B Preferred Stock and the
$10.0 million of term indebtedness in April 1999 originally financed a portion
of our repurchase of the 14,820,000 shares of our common stock held by Doran
Machin, one of our co-founders. The total purchase price for Mr. Machin's shares
was $35.0 million.

The other principal purposes of this offering are to increase our financial
flexibility, create a public market for our common stock, facilitate our future
access to public equity markets and increase our visibility in the marketplace.

As of the date of this prospectus, other than the redemption of the
preferred stock and repayment of indebtedness, we cannot specify with certainty
the particular uses for the net proceeds to be received upon the closing of this
offering. Pending other uses, the net proceeds of this offering will be invested
in short-term, interest-bearing investment-grade instruments.

From time to time, in the ordinary course of business, we evaluate possible
acquisitions of, or investments in, businesses, products and technologies that
are complementary to our business. A portion of the net proceeds may be used to
fund acquisitions or investments. We currently have no formal arrangements,
agreements or understandings, and are not engaged in active negotiations with
respect to such acquisitions or investments.

DIVIDEND POLICY

Prior to our conversion to a C corporation for tax purposes in January
1997, we paid distributions to our S corporation shareholders in amounts
generally consistent with their tax liabilities arising from their allocable
share of S corporation earnings. Since becoming a C corporation, we have not
declared or paid any cash dividends on our common stock and do not expect to do
so in the foreseeable future. We currently intend to retain all available funds
for use in the operation and expansion of our business. Any future determination
to pay dividends will be at the discretion of our board of directors and will
depend on our results of operations, financial conditions, contractual and legal
restrictions and other factors the board deems relevant.

17
<PAGE> 19

CAPITALIZATION

The Actual column in the following table sets forth our actual
capitalization as of June 30, 1999.

The Pro Forma column in the following table gives effect to the conversion
of all outstanding shares of Series A Preferred Stock into 4,000,000 shares of
common stock which will occur immediately prior to the closing of this offering.

The Pro Forma As Adjusted column in the following table gives effect to the
pro forma adjustments described above and:

- the filing of our Amended and Restated Articles of Incorporation
concurrently with the closing of this offering to provide for authorized
capital stock of 75,000,000 shares of common stock and 5,000,000 shares
of undesignated preferred stock;

- the redemption of all outstanding shares of our Series B Redeemable
Preferred Stock and all accrued dividends thereon for $10.6 million with
a portion of the net proceeds of this offering;

- the repayment of $10.0 million of long-term debt and all accrued and
unpaid interest thereon with a portion of the net proceeds of this
offering; and

- the sale of 4,400,000 shares of common stock in this offering at an
assumed initial public offering price of $13.00 per share and the
application of the estimated net proceeds therefrom.

See "Use of Proceeds" and the notes to our consolidated financial
statements. The Pro Forma and Pro Forma As Adjusted information set forth below
should be read in conjunction with our consolidated financial statements and the
notes thereto.

<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt.............................................. $ 10,000 $ 10,000 $ --
-------- -------- --------
Series A Redeemable Preferred Stock, no par value, 2,666,667
shares authorized, 2,666,667 shares issued and outstanding
actual and pro forma, no shares issued or outstanding pro
forma as adjusted......................................... 15,000 -- --
Series B Redeemable Preferred Stock, no par value, 1,800,000
shares authorized; 1,777,778 shares issued and
outstanding, pro forma; no shares issued and outstanding,
pro forma as adjusted..................................... 10,340 10,340 --
Shareholders' equity (deficit):
Preferred stock, no par value; 5,000,000 shares authorized,
no shares issued or outstanding, pro forma as adjusted.... -- -- --
Common stock, no par value; 75,000,000 shares authorized,
29,724,600, 33,724,600 and 38,124,600 shares issued and
outstanding, actual, pro forma and pro forma as
adjusted.................................................. 4,306 19,306 71,302
Retained earnings (deficit)................................. 31 31 (269)
Notes receivable from sale of common stock.................. (3,024) (3,024) (3,024)
Capital distribution in excess of basis in common stock..... (30,064) (30,064) (30,064)
-------- -------- --------
Total shareholders' equity (deficit)...................... (28,751) (13,751) 37,945
-------- -------- --------
Total capitalization...................................... $ 6,589 $ 6,589 $ 37,945
======== ======== ========
</TABLE>

The information in the table above excludes:

- 4,578,875 shares of common stock issuable upon exercise of stock options
outstanding as of June 30, 1999 at a weighted average exercise price of
$1.88 per share;

- 15,438 shares of common stock issued upon the exercise of options in July
1999;

- 2,914,525 shares of common stock reserved for future issuance under our
stock incentive plans; and

18
<PAGE> 20

DILUTION

Our pro forma net tangible book value (deficit) as of June 30, 1999 was
$(14,127,000), or $(0.42) per share of common stock. Pro forma net tangible book
value (deficit) per share represents the amount of our total assets reduced by
the amount of our purchased technology and software and total liabilities,
divided by the pro forma number of shares of common stock outstanding after
giving effect to the issuance and conversion of 2,666,667 shares of Series A
Preferred Stock into 4,000,000 shares of common stock.

After giving effect to the sale of the 4,400,000 shares of common stock
offered hereby at an assumed initial public offering price of $13.00 per share
and our receipt of the estimated net proceeds therefrom, our pro forma net
tangible book value as of June 30, 1999 would have been approximately
$37,569,000, or $0.99 per share. This represents an immediate increase in pro
forma net tangible book value of $1.41 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $12.01 per share to
new investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.00
Pro forma net tangible book value (deficit) per share..... $(0.42)
Increase per share attributable to new investors.......... 1.41
------
Pro forma net tangible book value per share after this
offering.................................................. 0.99
------
Dilution per share to new investors......................... $12.01
======
</TABLE>

The following table summarizes on a pro forma basis, as of June 30, 1999,
the differences between the existing shareholders, as adjusted, and new
investors with respect to the number of shares of common stock purchased from
us, the total consideration paid to us, and the average price per share paid.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.................. 33,724,600 88.5% $19,249,000 18% $ 0.57
New investors.......................... 4,400,000 11.5 57,200,000 72 $13.00
---------- ----- ----------- -----
Totals....................... 38,124,600 100.0% $76,449,000 100.0%
========== ===== =========== =====
</TABLE>

The information in the table above excludes:

- 4,578,875 shares of common stock issuable upon exercise of stock options
outstanding as of June 30, 1999 at a weighted average exercise price of
$1.88 per share;

- 15,438 shares of common stock issued upon the exercise of options in July
1999;

- 2,914,525 shares of common stock reserved for future issuance under our
stock incentive plans; and

The issuance of common stock under our stock plans will result in further
dilution to new investors.

19
<PAGE> 21

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes thereto appearing elsewhere in this prospectus. The following
selected consolidated statement of operations data for the years ended December
31, 1996, 1997 and 1998 and the six months ended June 30, 1998 and 1999 and the
consolidated balance sheet data at December 31, 1997 and 1998 and June 30, 1999
have been derived from audited and unaudited consolidated financial statements
included elsewhere in this prospectus. The consolidated data presented below for
the year ended December 31, 1995 and at December 31, 1995 and 1996 are derived
from audited consolidated financial statements that are not included in this
prospectus. The consolidated data presented below for the year ended December
31, 1994 and at December 31, 1994 are derived from unaudited consolidated
financial statements that are not included in this prospectus. The data
presented below do not include pro forma adjustments to reflect the income tax
provision as if we were a C corporation in fiscal years 1994, 1995 and 1996.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
----------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:

Revenues:
Licenses..................................... $ 4,835 $ 7,219 $ 9,316 $12,158 $24,901 $ 9,580 $21,365
Services..................................... 851 2,305 3,546 6,157 9,889 4,455 6,924
------- ------- ------- ------- ------- ------- -------
Total revenues......................... 5,686 9,524 12,862 18,315 34,790 14,035 28,289
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Licenses..................................... 99 260 950 1,307 3,433 1,504 1,404
Services..................................... 2,126 980 1,467 1,972 2,507 1,044 1,738
------- ------- ------- ------- ------- ------- -------
Total cost of revenues................. 2,225 1,240 2,417 3,279 5,940 2,548 3,142
------- ------- ------- ------- ------- ------- -------
Gross profit................................... 3,461 8,284 10,445 15,036 28,850 11,487 25,147
Operating expenses:
Sales and marketing.......................... 672 2,179 4,328 5,845 11,836 4,371 12,158
Research and development..................... 502 1,134 2,995 4,293 8,047 3,629 6,034
General and administrative................... 2,250 2,636 3,494 3,450 5,278 2,070 3,989
Compensation and other costs................. -- -- -- -- -- -- 775
------- ------- ------- ------- ------- ------- -------
Total operating expenses............... 3,424 5,949 10,817 13,588 25,161 10,070 22,956
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.................. 37 2,335 (372) 1,448 3,689 1,417 2,191
Other income (expense), net.................... 6 51 389 (137) 336 119 82
------- ------- ------- ------- ------- ------- -------
Income before income tax provision............. 43 2,386 17 1,311 4,025 1,536 2,273
Income tax provision........................... 26 28 1 1,022 1,679 637 959
------- ------- ------- ------- ------- ------- -------
Net income..................................... $ 17 $ 2,358 $ 16 $ 289 $ 2,346 $ 899 1,314
======= ======= ======= ======= ======= =======
Preferred stock dividends...................... 340
-------
Net income applicable to common shareholders... $ 974
=======
Net income per share:
Basic........................................ $ -- $ 0.12 $ -- $ 0.01 $ 0.05 $ 0.02 $ 0.03
Diluted...................................... $ -- $ 0.12 $ -- $ 0.01 $ 0.05 $ 0.02 $ 0.02
Weighted average shares outstanding:
Basic........................................ 19,500 19,500 38,350 40,373 44,261 43,990 38,809
Diluted...................................... 19,500 19,500 38,350 40,617 44,459 43,990 43,580
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
----------- ------ ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:

Cash and cash equivalents........................... $1,801 $2,709 $ -- $ 2,096 $ 8,981 $11,777
Working capital..................................... 1,158 2,594 553 374 2,771 3,151
Total assets........................................ 4,281 6,171 6,408 9,713 19,645 27,468
Long-term debt...................................... -- -- -- -- -- 10,000
Series A Redeemable Preferred Stock................. -- -- -- -- -- 15,000
Series B Redeemable Preferred Stock................. -- -- -- -- -- 10,340
Total shareholders' equity (deficit)................ 1,681 2,996 2,429 2,836 5,074 (28,751)
</TABLE>

20
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of
operations also should be read in conjunction with the consolidated financial
statements and notes to those statements included elsewhere in this prospectus.

OVERVIEW

We provide application and information availability software solutions that
enhance the performance and reliability of an organization's e-business,
packaged and custom applications and enable the delivery of information across
the extended enterprise.

We were incorporated in 1987. At our inception we focused on developing and
marketing software which supported developers and users of Hewlett Packard's HP
3000 proprietary operating system known as MPE. In 1995 Vincent C. Smith joined
us as a director and in 1997 he became our chief executive officer. In 1995, we
began to transition our focus from proprietary MPE technology to open system
technology. Additionally, commencing in 1995, we began extending our Vista Plus
product to open system architectures, and in 1998 we extended Vista Plus to
support the Internet. In 1996 we acquired R*Tech which developed SQLab, our
first product series for Oracle databases. In 1997 we made a number of
additional acquisitions which augmented the product line for managing Oracle
databases including our SQL Navigator, I/Watch and Schema Manager products.
Beginning in late 1997, we also began a major expansion of our research and
development, sales and marketing, and customer support organizations by adding
personnel in all departments, and through an acquisition, the establishment of
operations in Australia and the United Kingdom. Commencing in the second half of
1998 we also introduced several additional products including SharePlex and
SQLab Xpert. In 1998 we also established a direct sales operation in Germany.

We derive our revenues primarily from the sale of software licenses and
related annual maintenance fees. Our total revenues have increased over each of
the past five fiscal years, from $5.7 million in 1994 to $34.8 million in 1998.
Pricing of our software licenses is based on the number of servers, workstations
and/or users of our products. Annual maintenance contracts may be purchased
separately by customers at their discretion.

We recognize software license revenues when a non-cancellable license
agreement has been signed with a customer, the software is shipped, no
significant post delivery vendor obligations remain and collection is deemed
probable. Maintenance revenues are recognized ratably over the contract term,
which is typically one year. Revenues for consulting services are recognized as
such services are performed. See note 1 of the notes to our consolidated
financial statements.

We market our software and services primarily through our direct sales
organization in the United States, the United Kingdom, Germany and Australia.
International revenues from licenses and services sold to customers outside of
North America were $1.3 million in 1996, $1.4 million in 1997, $5.8 million in
1998 and $6.2 million in the six months ended June 30, 1999. We intend to expand
our international sales activities as part of our business strategy. All of our
current international revenues are derived from the operations of our three
wholly-owned subsidiaries in Australia, the United Kingdom and Germany. Our
international subsidiaries conduct business in the currency of the country in
which they operate, exposing us to currency fluctuations and currency
transaction losses or gains which are outside of our control. Historically
fluctuations in foreign currency exchange rates have not had a material effect
on our business. We have not to date conducted any hedging transactions to
reduce our risk to currency fluctuations.

In the development of new products and enhancements of existing products,
the technological feasibility of the software is not established until
substantially all product development is complete. Historically, our software
development costs eligible for capitalization have been insignificant and all
costs related to internal research and development have been expensed as
incurred.

21
<PAGE> 23

At the time of our incorporation, we elected to be treated as an S
corporation under Subchapter S of the Internal Revenue Code. As an S
corporation, our shareholders were liable for federal income tax liabilities
resulting from our operations. Effective January 1, 1997, we terminated our
status as an S corporation and for all periods thereafter we have been liable
for federal income taxes. Prior to the termination of our S corporation status,
we declared distributions as dividends to shareholders payable in cash in an
amount generally equal to the tax consequence created by our earnings up to the
date of such termination.

RESULTS OF OPERATIONS

The following table sets forth certain consolidated statement of operations
data as a percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses......................................... 72.4% 66.4% 71.6% 68.3% 75.5%
Services......................................... 27.6 33.6 28.4 31.7 24.5
----- ----- ----- ----- -----
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Licenses......................................... 7.4 7.1 9.9 10.7 5.0
Services......................................... 11.4 10.8 7.2 7.4 6.1
----- ----- ----- ----- -----
Total cost of revenues................... 18.8 17.9 17.1 18.2 11.1
----- ----- ----- ----- -----
Gross profit....................................... 81.2 82.1 82.9 81.8 88.9
Operating expenses:
Sales and marketing.............................. 33.6 31.9 34.0 31.1 43.0
Research and development......................... 23.3 23.5 23.1 25.9 21.4
General and administrative....................... 27.2 18.8 15.2 14.7 14.1
Compensation and other costs..................... -- -- -- -- 2.7
----- ----- ----- ----- -----
Total operating expenses................. 84.1 74.2 72.3 71.7 81.2
----- ----- ----- ----- -----
Income (loss) from operations...................... (2.9) 7.9 10.6 10.1 7.7
Other income (expense), net........................ 3.0 (0.7) 0.9 0.8 0.3
----- ----- ----- ----- -----
Income before income tax provision................. 0.1 7.2 11.5 10.9 8.0
Income tax provision............................... -- 5.6 4.8 4.5 3.4
----- ----- ----- ----- -----
Net income......................................... 0.1% 1.6% 6.7% 6.4% 4.6%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED JUNE 30, 1998 AND 1999

Revenues

Revenues are derived from the sale of software licenses and related
services. Total revenues were $14.0 million and $28.3 million for the six months
ended June 30, 1998 and 1999, respectively, representing an increase of $14.3
million, or 102.1%. International revenues accounted for 15.3% and 22.0% of
total revenues for the six months ended June 30, 1998 and 1999, respectively.

Licenses. Licenses were $9.6 million and $21.4 million for the six months
ended June 30, 1998 and 1999, respectively, representing an increase of $11.8
million, or 123.0%. This increase resulted from both an increase in the size of
both the domestic and international sales organizations as well as the
availability of new products. Products available in the first six months of 1999
which were not available in 1998 included Schema Manager, I/Watch and TOAD along
with the Vista Plus interface module for SAP R/3. Licenses represented 68.3% and
75.5% of total revenues for the six months ended June 30, 1998 and 1999,
respectively. International licenses represented 17.2% and 24.3% of total
licenses in the six months ended June 30, 1998 and 1999, respectively.

22
<PAGE> 24

Services. Services were $4.5 million and $6.9 million for the six months
ended June 30, 1998 and 1999, respectively, representing an increase of $2.4
million, or 53.3%. Services consist primarily of annual maintenance fees for
technical support and product enhancements. Maintenance fees are generally
renewable annually at the customer's option and are recognized over the term of
each agreement. The increase in services for the six months ended June 30, 1999
reflected increases in the installed base of customers that purchased
maintenance. Services represented 31.7% and 24.5% of total revenues for the six
months ended June 30, 1998 and 1999, respectively. International services
accounted for 11.1% and 15.0% of services for the six months ended June 30, 1998
and 1999, respectively.

Cost of Revenues

Cost of Licenses. Cost of licenses includes amortization of purchased
technology and software licenses, product media, printing and duplication costs,
and royalties to former owners of acquired technologies. Cost of licenses was
$1.5 million and $1.4 million for the six months ended June 30, 1998 and 1999,
respectively, representing a decrease of $100,000, or 6.7%. This decrease was
principally a result of reduced royalties and amortization of purchased
technology and software licenses, offset in part by increased product media,
printing and duplication costs. Cost of licenses represented 15.7% and 6.6% of
license revenue for the six months ended June 30, 1998 and 1999, respectively.
The decrease as a percentage of license revenue resulted from increased license
revenue without a corresponding increase in amortization of technology rights
and software licenses which do not vary by the number of licenses sold. We do
not expect the cost of licenses to increase as a percentage of licenses based
upon our current amortization projections and existing royalty obligations.

Cost of Services. Cost of services includes salaries and related costs for
customer support personnel. Cost of services was $1.0 million and $1.7 million
for the six months ended June 30, 1998 and 1999, respectively, representing an
increase of $700,000, or 70.0%. This increase was primarily due to an increase
in the number of customer support personnel to manage and support our growing
customer base as well as the increased number of product offerings. Cost of
services was 23.4% and 25.1% of service revenues for the six months ended June
30, 1998 and 1999, respectively. We expect the cost of services to increase in
absolute dollars for the foreseeable future as additional customer support
personnel are retained.

Operating Expenses

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions earned by sales personnel, recruiting costs, trade show,
travel and entertainment and other marketing communications costs such as
advertising and promotion. Sales and marketing expenses were $4.4 million and
$12.1 million for the six months ended June 30, 1998 and 1999, respectively,
representing an increase of $7.7 million, or 175%. This increase reflects a $3.2
million increase in salaries and related expenses due to the rapid expansion of
our sales and marketing organization which we commenced in early 1998. Sales
commissions also increased $2.1 million. Sales and marketing expenses
represented 31.1% and 43.0% of total revenues for the six months ended June 30,
1998 and 1999, respectively. We expect that sales and marketing expenses will
continue to increase in absolute dollars for the foreseeable future as
commissions increase with expected increases in revenues and as we continue to
expand the size of our sales and marketing organization.

Research and Development. Research and development expenses consist
primarily of salaries and benefits for software developers, software product
managers and quality assurance personnel and payments to outside software
development contractors. Research and development expenses were $3.6 million and
$6.0 million for the six months ended June 30, 1998 and 1999, respectively,
representing an increase of $2.4 million, or 66.7%. This increase was primarily
related to an increase in the number of software developers, both in our
domestic and Australian development operations. Research and development costs
represented 25.9% and 21.3% of total revenues for the six months ended June 30,
1998 and 1999, respectively. We expect that research and development expenses
will continue to increase in absolute dollars for the foreseeable future as
additional development personnel are hired.

23
<PAGE> 25

General and Administrative. General and administrative expenses consist
primarily of salaries, benefits and related costs for our executive, finance,
administrative and information services personnel. General and administrative
expenses were $2.1 million and $4.0 million for the six months ended June 30,
1998 and 1999, respectively, representing an increase of $1.9 million, or 90.5%.
This increase was due to a number of factors including increases in salaries and
related expenses due to an increase in the number of general and administrative
personnel necessary to support our expanding operations and increases in
professional fees and depreciation. General and administrative costs represented
14.7% and 14.1% of total revenues for the six months ended June 30, 1998 and
1999, respectively. We expect that general and administrative expenses will
continue to increase in absolute dollars for the foreseeable future as a result
of the continued expansion of administrative staff and expenses associated with
being a public company, including annual and other public reporting costs,
directors' and officers' liability insurance premiums, investor relations
programs and professional services fees.

Compensation and Other Costs. Compensation and other costs include $715,000
related to the severance package provided to Doran Machin, one of our founders
and a director, which will be paid out over a three year period, and $60,000 in
compensation costs related to the grant of stock options.

Other Income (Expense), net. Other income (expense), net is comprised of
interest income, interest expense and foreign currency transaction gains and
losses. Other income (expense), net was $119,000 and $82,000 for the six months
ended June 30, 1998 and 1999, respectively, representing a decrease of $37,000.

Provision for Income Taxes. Provision for income taxes was $637,000 and
$959,000 for the six months ended June 30, 1998 and 1999, respectively,
representing an increase of $322,000 due to higher income. Our effective income
tax rate was 41.5% and 42.2% for the six months ended June 30, 1998 and 1999,
respectively.

Net Income Applicable to Common Shareholders. Net income applicable to
common shareholders represents net income less $340,000 of cumulative dividends
payable on the Series B Redeemable Preferred Stock.

YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

Revenues

Revenues were $12.9 million, $18.3 million and $34.8 million for 1996, 1997
and 1998, respectively, representing increases of $5.4 million, or 41.9%, from
1996 to 1997 and $16.5 million, or 90.2%, from 1997 to 1998. International
revenues accounted for 10.2%, 7.4%, and 16.7% of total revenues for 1996, 1997,
and 1998, respectively. One customer accounted for 12% of total revenues in
1996. No customer accounted for more than 10.0% of total revenues in 1997 or
1998.

Licenses. Licenses were $9.3 million, $12.2 million and $24.9 million in
1996, 1997 and 1998, respectively, representing increases of $2.9 million, or
31.2%, from 1996 to 1997 and $12.7 million, or 104.1%, from 1997 to 1998.
Licenses represented 72.4%, 66.4% and 71.6% of total revenues in 1996, 1997 and
1998, respectively. International licenses accounted for 11.9%, 8.2%, and 18.6%
of total licenses in 1996, 1997, and 1998, respectively. The increase in
licenses from 1996 to 1997 was due to the increase in the size of the domestic
sales organization combined with the availability in 1997 of our SQL Navigator
product. The increase in licenses from 1997 to 1998 was due to the expansion of
our domestic sales organization, a substantial increase in international license
revenue, greater market acceptance of our products for Oracle database market
and the success of our Vista Plus product for the UNIX environment.

Services. Services were $3.5 million, $6.1 million and $9.9 million in
1996, 1997 and 1998, respectively, representing increases of $2.6 million, or
74.3%, from 1996 to 1997 and $3.8 million, or 62.3%, from 1997 to 1998. Services
represented 27.6%, 33.6% and 28.4% of total revenues in 1996, 1997 and 1998,
respectively. The increase in services from 1996 to 1997 and 1997 to 1998
reflects the increase in the number of software licenses sold with maintenance
agreements. International services accounted for 5.7%, 5.7% and 11.9% of total
services in 1996, 1997 and 1998, respectively.

<PAGE> 26

Cost of Revenues

Cost of Licenses. Cost of licenses was $950,000, $1.3 million and $3.4
million in 1996, 1997 and 1998, respectively, representing increases of
$350,000, or 36.8%, from 1996 to 1997 and $2.1 million, or 161.5%, from 1997 to
1998. Cost of licenses as a percentage of license revenue was 10.2%, 10.8% and
13.8% for 1996, 1997 and 1998, respectively. The increase in cost of licenses as
a percentage of license revenue from 1997 to 1998 was attributable to a $1.8
million increase in royalties and higher amortization of purchased technology
and software licenses.

Cost of Services. Cost of services was $1.5 million, $2.0 million and $2.5
million in 1996, 1997 and 1998, respectively, representing increases of
$500,000, or 33.3%, from 1996 to 1997 and $500,000, or 25.0%, from 1997 to 1998.
The increases over these periods were primarily due to an increase in the number
of customer support personnel to service our growing customer and product base.
Cost of services as a percentage of service revenues was 41.4%, 32.0% and 25.4%
for 1996, 1997 and 1998, respectively. The decreases in cost of services as a
percentage of services over these periods were primarily due to economies of
scale realized as a result of our increasing service revenues.

Operating Expenses

Sales and Marketing. Sales and marketing expenses were $4.3 million, $5.8
million and $11.8 million in 1996, 1997 and 1998, respectively, representing
increases of $1.5 million, or 34.9%, from 1996 to 1997 and $6.0 million, or
103.4%, from 1997 to 1998. The increase from 1996 to 1997 was primarily due to
additional commissions. The increase from 1997 to 1998 reflects our increasing
investment in our sales and marketing organization, which included a $3.6
million increase in salaries and related expenses, $1.1 million in additional
commissions and additional marketing communications expenses such as trade shows
and advertising. Travel and entertainment expenses, and related costs of hiring
sales and marketing management also increased.

Research and Development. Research and development expenses were $3.0
million, $4.3 million and $8.0 million in 1996, 1997 and 1998, respectively,
representing increases of $1.3 million, or 43.3%, from 1996 to 1997 and $3.7
million, or 86.0%, from 1997 to 1998. The increases for these periods were
primarily related to the increase in the number of software developers and
quality assurance personnel and, to a lesser extent, outside contractors to
support product development activities.

General and Administrative. General and administrative expenses were $3.5
million, $3.5 million and $5.3 million in 1996, 1997 and 1998, respectively,
representing a decrease of $44,000, or 1.3%, from 1996 to 1997 and an increase
of $1.8 million, or 51.4%, from 1997 to 1998. The most significant expense
increases from 1997 to 1998 were for salaries and related expenses and rent.

Other Income (Expense), net. Other income (expense), net was $389,000 in
1996, $(137,000) in 1997 and $336,000 in 1998, representing a decrease of
$526,000 from 1996 to 1997 and an increase of $473,000 from 1997 to 1998. The
decrease from 1996 to 1997 was due to the loss on the disposal of fixed assets
and other costs associated with Quest International, a subsidiary in the UK
which was put into liquidation. The increase from 1997 to 1998 reflects
increased interest income from higher cash and short-term investments.

Provision for Income Taxes. Provision for income taxes was $1,000, $1.0
million and $1.7 million in 1996, 1997 and 1998, respectively, representing
increases of $999,000, from 1996 to 1997 and $700,000, or 70.0%, from 1997 to
1998. The effective income tax rate was 5.9%, 78.0%, and 41.7% in 1996, 1997 and
1998, respectively. The high effective tax rate in 1997 is attributable to our
election, effective January 1, 1997, to terminate our status as an S corporation
under federal tax regulations which resulted in the establishment of deferred
taxes. See note 5 of the notes to our consolidated financial statements.

Inflation

Inflation has not had a significant effect on our results of operations or
financial position for the years ended December 31, 1996, 1997 and 1998 and the
three months ended March 31, 1998 and 1999.

25
<PAGE> 27

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited consolidated statement of
operations data for the ten quarters in the period ended June 30, 1999, as well
as such data expressed as a percentage of total revenues for the periods
indicated. This data has been derived from our unaudited consolidated financial
statements that have been prepared on the same basis as the audited consolidated
financial statements included in this prospectus, and, in the opinion of our
management, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the information when read in conjunction
with the consolidated financial statements and the notes thereto included in
this prospectus. These quarterly results have been in the past and may in the
future be subject to significant fluctuations. As a result, we believe that
results of operations for interim periods should not be relied upon as any
indication of the results to be expected in any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:

Licenses................................ $2,505 $2,700 $3,066 $3,887 $4,840 $4,740 $6,190 $9,131
Services................................ 1,487 1,600 1,405 1,665 2,203 2,252 2,544 2,890
------ ------ ------ ------ ------ ------ ------ ------
Total revenues.................... 3,992 4,300 4,471 5,552 7,043 6,992 8,734 12,021
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
Licenses................................ 215 183 179 730 557 947 1,081 848
Services................................ 420 474 500 578 521 523 609 854
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues............ 635 657 679 1,308 1,078 1,470 1,690 1,702
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.............................. 3,357 3,643 3,792 4,244 5,965 5,522 7,044 10,319
Operating expenses:
Sales and marketing..................... 1,245 1,265 1,461 1,874 1,923 2,448 3,169 4,296
Research and development................ 856 1,230 1,087 1,120 1,766 1,863 1,928 2,490
General and administrative.............. 723 849 900 978 841 1,229 980 2,228
Compensation and other costs............ -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses.......... 2,824 3,344 3,448 3,972 4,530 5,540 6,077 9,014
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations............. 533 299 344 272 1,435 (18) 967 1,305
Other income (expense), net............... (84) (62) (9) 18 48 71 106 111
------ ------ ------ ------ ------ ------ ------ ------
Income before provision for income
taxes................................... 449 237 335 290 1,483 53 1,073 1,416
Provision for income taxes................ 350 183 262 227 615 22 446 596
------ ------ ------ ------ ------ ------ ------ ------
Net income................................ $ 99 $ 54 $ 73 $ 63 $ 868 $ 31 $ 627 $ 820
====== ====== ====== ====== ====== ====== ====== ======
AS A PERCENTAGE OF TOTAL REVENUES
Revenues:
Licenses................................ 62.8% 62.8% 68.6% 70.0% 68.7% 67.8% 70.9% 76.0%
Services................................ 37.2 37.2 31.4 30.0 31.3 32.2 29.1 24.0
------ ------ ------ ------ ------ ------ ------ ------
Total revenues.................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
Licenses................................ 5.4 4.3 4.0 13.2 7.9 13.5 12.3 7.1
Services................................ 10.5 11.0 11.2 10.4 7.4 7.5 7.0 7.1
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues............ 15.9 15.3 15.2 23.6 15.3 21.0 19.3 14.2
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.............................. 84.1 84.7 84.8 76.4 84.7 79.0 80.7 85.8
Operating expenses:
Sales and marketing..................... 31.2 29.4 32.7 33.8 27.3 35.0 36.3 35.7
Research and development................ 21.4 28.6 24.3 20.2 25.1 26.6 22.1 20.7
General and administrative.............. 18.1 19.8 20.1 17.5 11.9 17.6 11.2 18.5
Compensation and other costs............ -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses.......... 70.7 77.8 77.1 71.5 64.3 79.3 69.6 75.0
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations............. 13.4 6.9 7.7 4.9 20.4 (0.3) 11.1 10.8
Other income (expense), net............... (2.1) (1.4) (0.2) 0.3 0.6 1.0 1.2 0.9
------ ------ ------ ------ ------ ------ ------ ------
Income before provision for income
taxes................................... 11.3 5.5 7.5 5.2 21.0 0.7 12.3 11.7
Provision for income taxes................ 8.8 4.3 5.9 4.1 8.7 0.3 5.1 5.0
------ ------ ------ ------ ------ ------ ------ ------
Net income................................ 2.5% 1.2% 1.6% 1.1% 12.3% 0.4% 7.2% 6.7%
====== ====== ====== ====== ====== ====== ====== ======

<CAPTION>
THREE MONTHS ENDED
-------------------
MAR. 31, JUNE 30,
1999 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Licenses................................ $9,540 $11,825
Services................................ 3,299 3,625
------ -------
Total revenues.................... 12,839 15,450
------ -------
Cost of revenues:
Licenses................................ 684 720
Services................................ 904 834
------ -------
Total cost of revenues............ 1,588 1,554
------ -------
Gross profit.............................. 11,251 13,896
Operating expenses:
Sales and marketing..................... 5,036 7,122
Research and development................ 2,758 3,276
General and administrative.............. 1,938 2,051
Compensation and other costs............ -- 775
------ -------
Total operating expenses.......... 9,732 13,224
------ -------
Income (loss) from operations............. 1,519 672
Other income (expense), net............... 113 (31)
------ -------
Income before provision for income
taxes................................... 1,632 641
Provision for income taxes................ 689 270
------ -------
Net income................................ $ 943 $ 371
====== =======
AS A PERCENTAGE OF TOTAL REVENUES
Revenues:
Licenses................................ 74.3% 76.5%
Services................................ 25.7 23.5
------ -------
Total revenues.................... 100.0 100.0
------ -------
Cost of revenues:
Licenses................................ 5.3 4.7
Services................................ 7.0 5.4
------ -------
Total cost of revenues............ 12.3 10.1
------ -------
Gross profit.............................. 87.6 89.9
Operating expenses:
Sales and marketing..................... 39.2 46.1
Research and development................ 21.5 21.2
General and administrative.............. 15.1 13.3
Compensation and other costs............ -- 5.0
------ -------
Total operating expenses.......... 75.8 85.6
------ -------
Income (loss) from operations............. 11.8 4.3
Other income (expense), net............... 0.9 (0.2)
------ -------
Income before provision for income
taxes................................... 12.7 4.1
Provision for income taxes................ 5.4 1.2
------ -------
Net income................................ 7.3% 2.4%
====== =======
</TABLE>

Our total revenues have increased in each period presented with the
exception of the three months ended June 30, 1998. These increases have been
generally due to increased acceptance of our products and the expansion of our
sales force and increased service revenues as the installed customer base has
grown. Total cost of revenues have also generally increased in absolute dollars
over these periods presented due to increased amortization of purchased
technology and software licenses, royalty costs and an increase in the number of
customer support personnel. Total operating expenses have increased in absolute
dollars in each period presented as we have grown our infrastructure to support
our expanding operations.

26
<PAGE> 28

While we have not experienced a significant amount of seasonality in the
past, we expect that we will begin to experience seasonal customer buying
patterns in the foreseeable future. Specifically, we would expect to experience
relatively stronger demand for our products during the quarters ending December
31 and June 30, and relatively weaker demand in the quarters ending March 31 and
September 30. In addition, to the extent international operations constitute a
greater percentage of our revenues in future periods, we anticipate that demand
for our products in Europe will decline during the summer vacation season.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our business to date primarily from cash generated by our
operations. Our sources of liquidity as of June 30, 1999 consisted principally
of cash and cash equivalents of $11.8 million.

Net cash provided by operating activities was $16,000, $3.6 million and
$8.2 million in 1996, 1997 and 1998, respectively, and $4.3 million for the six
months ended June 30, 1999. The increases in 1997, 1998 and 1999 were primarily
due to increases in net income, depreciation and amortization, deferred revenue
resulting from additional service contracts and accrued expenses, offset by
increases in accounts receivable resulting from increased sales.

Investing activities have consisted of purchases of property and equipment
and the acquisition of technology and software licenses. Capital expenditures
totaled $589,000, $536,000 and $1.2 million in 1996, 1997 and 1998,
respectively, and $1.5 million in the six months ended June 30, 1999. Purchases
of technology and software licenses were $769,000, $831,000 and $57,000 in 1996,
1997 and 1998, respectively, and $234,000 for the six months ended June 30,
1999. See note 1 of the notes to our consolidated financial statements.

Financing activities used $1.4 million, $270,000 and $8,000 in 1996, 1997
and 1998, respectively, and generated $237,000 for the six months ended June 30,
1999, and are comprised in 1996 and 1997 primarily of distributions to
shareholders as a result of our status as an S corporation for federal income
tax purposes. In April 1999, we raised $25.0 million through the sale of
preferred stock and an additional $10.0 million in term debt from a commercial
bank in order to purchase shares of common stock from a shareholder and founder
for $35.0 million. See "Certain Transactions" and note 6 of the notes to our
consolidated financial statements.

We believe that the net proceeds from this offering, our existing cash
balances and cash equivalents and cash from operations will be sufficient to
finance our operations through at least the next 12 months. If additional
financing is needed, there can be no assurance that such financing will be
available to us on commercially reasonable terms or at all.

YEAR 2000

Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates
because such systems were developed using two digits rather than four to
determine the applicable year. For example, computer programs that have date-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This error could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced to comply with such "Year 2000"
requirements.

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<PAGE> 29

State of Readiness of our Operations. Our business is dependent on the
operation of numerous systems that could potentially be affected by Year
2000-related problems. Those systems include, among others:

- the software products we sell to customers;

- hardware and software systems used by us in our operations, including our
proprietary software systems as well as software supplied by third
parties;

- communications networks such as our client/server network, the Internet
and our private intranet;

- the hardware and software systems of our customers and suppliers; and

- non-information technology systems and services, such as utilities,
telephone systems and building systems.

We are currently in the process of assessing the potential overall impact
of the Year 2000 on our operations and we expect to continue this process
throughout 1999. The phases of our Year 2000 assessment will be as follows:

- assignment of responsibility for issues, such as systems, facilities,
equipment, software and legal audit;

- inventory of all aspects of our operations and relationships potentially
subject to the Year 2000 problem;

- communication as necessary with significant suppliers and service
providers to determine the readiness of their products and systems and
their ability to remediate their own Year 2000 issues;

- comprehensive analysis, including impact analysis and cost analysis of
our Year 2000 readiness; and

- testing and remediation.

We have not to date used nor do we expect in the future to use any
independent third parties to validate our risk assessment and cost estimates of
our efforts related to Year 2000.

Readiness of Our Products. Based on our review to date of the use of dates
within our products, each of the current versions of our products was found to
be Year 2000 compliant -- that is, they are capable of adequately distinguishing
21st century dates from 20th century dates when used in accordance with the
related documentation, and subject to the Year 2000 compliance of the underlying
system of the host machine and any other software used in conjunction with our
products. Year 2000-related errors or defects that affect the operation of our
software could result in:

- delay or loss of revenue;

- cancellation of customer contracts;

- diversion of development resources;

- damage to our reputation;

- increased customers support and warranty costs; and

- litigation costs.

Earlier versions of certain of our products and certain other discontinued
products were not Year 2000 compliant; however, we currently make available
versions of our non-discontinued software designed to be Year 2000 compliant for
customers that have current maintenance contracts.

Risks. Although we have not been a party to any litigation or arbitration
proceeding to date involving our products or services related to Year 2000
compliance issues, we may in the future be required to defend our products or
services in such proceedings, or to negotiate resolutions of claims based on
Year 2000 issues. The costs of defending and resolving Year 2000-related
disputes, regardless of the merits of

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<PAGE> 30

such disputes, and any liability for Year 2000-related damages, including
consequential damages, could have a material adverse effect on our business,
results of operations and financial condition.

Success of our Year 2000 compliance efforts may depend on the success of
our customers in dealing with their Year 2000 issues. Our products are generally
integrated into enterprise systems involving sophisticated hardware and complex
software products which may not be Year 2000 compliant. In addition, third party
applications in which our products are embedded, or for which our products are
separately licensed, may not comply with Year 2000 requirements, which may have
an adverse impact on or demand for our products. In some cases even certain
earlier Year 2000 compliant versions of our software, while compatible with
earlier, non-Year 2000 compliant versions of other software products with which
our software is integrated, are not compatible with certain more recent Year
2000 compliant versions of such other software providers. While we do not
believe we have any obligation under these circumstances given that these
customers are using older versions of our software products, there can be no
assurance that we will not be subject to claims or complaints by our customers.

Contingency Plan. To date, we have not encountered any material Year 2000
problems with the hardware and software systems we use in our operations.
However, we could experience material adverse effects on our business if we fail
to identify all Year 2000 dependencies in our systems and in the systems of our
suppliers, customers and financial institutions. We do not presently have a
comprehensive contingency plan for handling Year 2000 problems that are not
detected and corrected prior to their occurrence, but we expect to continue
developing such a plan, to the extent possible, throughout 1999. Despite our
efforts, we may not identify and remediate all significant Year 2000 problems on
a timely basis, remediation efforts may involve significant time and expense,
and unremediated problems may have a material adverse effect on our business.
See "Risk Factors -- Year 2000 issues present technological risks and could
cause disruption of our business."

Costs. To date, we have not incurred any material costs directly associated
with our Year 2000 compliance efforts, except for compensation expense
associated with our salaried employees who have devoted some of their time to
our Year 2000 assessment and remediation efforts. Moreover, to date, other
projects, including our new product development efforts, have not been delayed
due to our Year 2000 efforts. We do not expect the total cost of Year 2000
problems to be material to our business, financial condition and operating
results.

Purchasing Patterns of our Customers. We believe that purchasing patterns
of customers and potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct or upgrade their current
software systems for Year 2000 compliance or defer additional software purchases
until after 2000. As a result, some customers and potential customers may have
more limited budgets available to purchase software products such as those
offered by us, and others may choose to refrain from changes in their
information technology environment until after 2000. Still other companies are
accelerating purchases of software products prior to 2000, causing an increase
in short-term demand which may, in turn, cause a corresponding decrease in
long-term demand for software products. To the extent Year 2000 issues cause
significant change in, delay in, or cancellation of, decisions to purchase our
products or services, our business could be materially adversely affected.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard , or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods for
derivative financial instruments and hedging activities related to those
instruments, as well as other hedging activities. Because we do not currently
hold any derivative instruments and do not currently engage in hedging
activities, we expect that the adoption of SFAS No. 133 will not have a material
impact on our financial position or results of operations. We will be required
to implement SFAS No. 133 for the year ending .

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<PAGE> 31

In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with respect to Certain Transactions. SOP 98-9
amends SOP 97-2 and SOP 98-4 extending the deferral of the application of
certain provisions of SOP 97-2 amended by SOP 98-4 through fiscal years
beginning on or before March 15, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after March
15, 1999. We do not expect the adoption of SOP 98-9 to have a material effect on
our results of operations or financial condition.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DERIVATIVES AND
FINANCIAL INSTRUMENTS

FOREIGN CURRENCY HEDGING INSTRUMENTS

We transact business in various foreign currencies. Accordingly, we are
subject to exposure from adverse movements in foreign currency exchange rates.
This exposure is primarily related to revenues and operating expenses in
Australia, the United Kingdom and Germany denominated in the respective local
currency.

To date, we have not used hedging contracts to hedge our foreign-currency
fluctuation risks. We will assess the need to utilize financial instruments to
hedge currency exposures on an ongoing basis. We also do not use derivative
financial instruments for speculative trading purposes.

FIXED INCOME INVESTMENTS

Our general investing policy is to limit the risk of principal loss and
ensure the safety of invested funds by limiting market and credit risk. We
currently place our investments in highly liquid money market accounts. All
highly liquid investments with a maturity of three months or less at the date of
purchase are considered to be cash equivalents.

EUROPEAN MONETARY UNION

Within Europe, the European Economic and Monetary Union introduced a new
currency, the euro, on January 1, 1999. The new currency is in response to the
European Union's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services.

On January 1, 1999, the participating countries adopted the euro as their
local currency, initially available for currency trading on currency exchanges
and non-cash transactions such as banking. The existing local currencies, or
legacy currencies, will remain legal tender through January 1, 2002. Beginning
on January 1, 2002, euro-denominated bills and coins will be issued for cash
transactions. For a period of up to six months from this date, both legacy
currencies and the euro will be legal tender. On or before July 1, 2002, the
participating countries will withdraw all legacy currencies and exclusively use
the euro.

Our transactions are recorded in both U.S. dollars and foreign currencies.
Future transactions may be recorded in the euro. We have not incurred and do not
expect to incur any significant costs from the continued implementation of the
euro. However, the currency risk of the euro could harm our business.

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<PAGE> 32

BUSINESS

This prospectus contains certain forward looking statements within the
meaning of the federal securities laws. Actual results and the timing of certain
events could differ materially from those projected in the forward looking
statements due to a number of factors, including those set forth under "Risk
Factors" and elsewhere in this prospectus.

OVERVIEW

We provide application and information availability software solutions that
enhance the performance and reliability of an organization's e-business,
enterprise and custom applications and enable the delivery of information across
the extended enterprise. Our application availability products are designed to
help ensure uninterrupted and high performance access to software systems by
utilizing a number of integrated products that tune and monitor applications and
the underlying database which stores an enterprise's critical information. Other
primary components of our application availability solution include our database
replication products that maintain a real-time copy of a database for load
balancing and high availability, as well as our products that manage the complex
and error-prone process of development and deployment of rapidly changing
applications. Our information availability products deliver an enterprise,
report-based information management solution that captures, manages and
distributes report data or electronic documents from virtually any application
for instant distribution over intranets or the Internet.

INDUSTRY BACKGROUND

Organizations are constantly seeking ways to use information technology to
gain competitive advantages. To compete more effectively, organizations must
deliver relevant information and provide increasingly sophisticated and
time-sensitive services to a rapidly expanding audience, including employees,
customers, suppliers and partners both inside and outside of the traditional
enterprise. Today, a growing number of organizations are using the Internet to
conduct business electronically. In embracing this e-business model, enterprises
are attempting to maximize the value of their information technology
infrastructure as they extend their core business processes over the Internet to
directly reach a large number of geographically dispersed end-users. The
fundamental changes brought on by the increasing reliance on information
technology, including today's rapidly expanding e-business initiatives, are
introducing new complexities and transforming business practices:

- Decisions need to be made in real-time by personnel at all levels both
inside and outside the enterprise;

- Users demand relevant information immediately and without interruption,
and have increasingly high expectations regarding response time;

- New software applications must be developed, and existing applications
need to be extended over the Internet; and

- Organizations must deploy new applications and technologies at an
increasingly rapid pace.

Underlying each of these requirements is the importance of effective
management and distribution of information. While raising the strategic
importance of real-time, dynamic information, today's e-business initiatives
have heightened the challenges of developing and managing the systems to deliver
it. For example, if an electronic commerce application fails, the relationship
between the organization and the customer is jeopardized, giving new meaning to
the term "mission critical." As a result, organizations must assure that their
systems provide:

- Application availability -- uninterrupted and high performance access to
applications under widely varying conditions; and

- Information availability -- broad distribution of critical business
information from underlying applications to decision makers throughout
the extended enterprise.

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Application Availability

The challenge of today's competitive environment is to provide users with
the ability to immediately execute transactions and access information, without
regard to the underlying complexities inherent in the disparate systems that run
business applications. Since the emergence of e-business has allowed consumers
to directly communicate with an organization's systems, it is more important
than ever before to maximize application performance and minimize downtime.
Furthermore, as e-business, enterprise resource planning and other applications
are deployed to a wider audience, rapid and unpredictable spikes in the number
of users can dramatically increase the likelihood of performance degradation and
system failure. Not only must organizations have adequate back-up systems in
place, but they also need solutions that will enable them to proactively
monitor, identify and resolve issues that can adversely affect application
performance. Finally, to ensure true application availability, organizations
need solutions that will enable them to quickly and accurately develop and
deploy new applications and modifications to existing applications.

Information Availability

In addition to assuring the availability of applications, the imperatives
of e-business require organizations to make the strategic information within
these applications readily available to the users who need it. The Internet has
created a platform for distributing critical, dynamic business information, such
as inventory levels, requisitions, billing statements, manufacturing data and
sales reports to a broad range of employees, partners and suppliers, many of
whom may be located in geographically remote locations and connected through
multiple, non-integrated systems. Organizations must be able to leverage this
platform to reach customers and provide 24x7x365 access to valuable information,
including customer support and current account information. The challenge,
however, is effectively extracting, publishing and disseminating large volumes
of information to thousands of employees, customers, partners and suppliers over
the Internet without massive amounts of application reengineering.

Need for a Comprehensive Solution

The effectiveness of an organization's information delivery system is
dependent on its application availability environment. A user's ability to
access information is linked to the performance and reliability of the
underlying application. Historically, organizations have relied on a combination
of manual processes and a heterogeneous assortment of software tools to manage
the performance and reliability of their application infrastructure and to
enable the distribution of information throughout the enterprise. However, the
requirements of today's e-business initiatives have stretched the capabilities
of these traditional solutions. This dynamic environment has created the need
for a comprehensive solution that will address the breadth of these application
and information availability requirements:

- Deliver data from multiple, heterogeneous sources, scale to thousands of
users and deliver information across all environments, quickly and
cost-effectively;

- Provide high performance and reliability for 24x7x365 access, and
minimize the strain on existing systems and personnel;

- Be easy to use and deploy without requiring in-depth technical expertise;

- Adapt to accommodate rapidly changing business needs;

- Provide an architecture to realize immediate value for Web-based
applications; and

- Address these requirements across the entire Web, application and
database environments.

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THE QUEST SOLUTION

Quest offers application and information availability software solutions
that enhance the performance and reliability of e-business, enterprise and
custom applications and enable the delivery of information across the extended
enterprise. Key elements of our solution include:

Assure Application Availability

We offer a family of products that enhance the reliability and performance
of software applications. Our application availability products enable the
development of efficient and reliable Internet-enabled applications; accurately
deploy database and application changes; provide replication solutions for
fail-over capability, data distribution and load balancing; and proactively
monitor, diagnose and resolve database and system performance issues before they
are noticed by the end-user. Our products are designed to maintain the
continuous availability of applications to the enterprise, not only in terms of
uptime, but also in terms of providing adequate performance under a wide range
of operating conditions. As a result, information technology personnel are able
to efficiently and proactively enhance the performance and reliability of
critical business applications.

Extend the Reach of Information

We enable enterprises to deliver information internally and externally via
the Internet to reach employees, customers and partners throughout large and
geographically dispersed organizations. Our Web-based information availability
solutions enable access to a greater number of users, minimize the delay in
publishing information and reduce manual printing and delivery costs associated
with paper-based report distribution. For example, these solutions can integrate
with corporate portals to allow for delivery of personalized information to a
user's desktop through a Web browser. We optimize the storage and distribution
of information by publishing information once from disparate applications to a
centralized repository. This repository serves as a common platform to capture
and distribute information without taxing the application systems or the
network. Our solution is designed to empower decision-makers by providing
relevant, dynamic information, more quickly and more cost-effectively than
previously possible.

Leverage the Web

Our products allow organizations to leverage the functionality and
flexibility of the Internet to address the high-performance demands of
e-business environments. Specifically, our products are designed to adapt to the
varying bandwidth and response times encountered on the Internet with efficient
and fault-tolerant architectures; employ Java-based interfaces to deliver
transparent Web access to business information; and ensure the security and
integrity of Web-based access to applications.

Maximize Investment in Existing Technology

We enable organizations to enhance the capabilities and extend the benefits
of their existing information technology infrastructure. Our products enable
existing enterprise and custom applications to reach throughout and beyond the
enterprise without requiring re-engineering. Additionally, we enable our
customers to improve the reliability and performance of existing information
technology infrastructure to cost-effectively and predictability support the
increasing number of users and large volumes of transactions required by today's
e-business applications.

Easy to Deploy and Use

Our products are easy to deploy and use, thereby minimizing implementation,
training and support costs. We designed our products to be installed quickly by
the customer, typically without the need for on-site assistance. Our products
contain specific integration modules for SAP R/3, PeopleSoft and Oracle
Financials, enabling rapid deployment in these environments, minimizing the need
for customization and reducing ongoing maintenance requirements.

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Architected to Scale

Our products are well-suited for large, enterprise-wide deployments. We
designed our products to effectively scale when implemented in large and rapidly
expanding environments without compromising system performance. Our products
support heterogeneous networks, manage large quantities of information and
support thousands of users while at the same time minimizing the consumption of
network and computing resources. Our Java user interfaces significantly reduce
the need for client-side software management, effectively leveraging today's
wide deployment of Internet browser technology.

STRATEGY

Our objective is to become the leading provider of application and
information availability solutions to enable organizations to deliver relevant
information and provide sophisticated services to employees, customers,
suppliers and partners both inside and outside of the traditional enterprise.
Key elements of our strategy include:

Extend Product Leadership

We offer a family of products that work together to provide application and
information availability solutions capable of meeting today's performance
requirements. We believe our family of application availability products
provides the most thorough and efficient approach to optimizing the performance
and availability of e-business, enterprise and custom applications. We also
believe that we offer the leading Web-based information availability software
solutions. We intend to advance our product leadership by investing
significantly in research and development and by acquiring and integrating
complementary products and technologies. We intend to strengthen and expand our
offerings of integration software for leading enterprise resource planning (ERP)
applications. Our flexible and open architecture allows for the integration of
new modules that enhance our current solutions and add new e-business
functionality, such as electronic bill presentment. We plan to augment our
existing application availability solutions with capabilities to monitor and
maintain the underlying infrastructure of e-business applications. For example,
we plan to introduce a product that manages and optimizes the performance of Web
application servers.

Focus on e-Business Applications Market

We believe that both recent and expected growth in e-business applications
have created strong demand for our application and information availability
products. We intend to capitalize on this opportunity by actively marketing our
products to companies with strong e-business initiatives. In addition to
developing new e-business applications, organizations are attempting to improve
the e-business functionality of their existing enterprise applications by
extending them over the Internet. As a result, we believe a significant market
opportunity exists to help organizations leverage these investments by
incorporating new e-business functionality into these systems. We believe that
our products will be used as a key component of the infrastructure for emerging
e-business applications.

Leverage our Significant Installed Base of Customers

We have an installed base of thousands of customers that we believe
provides us with a significant opportunity for additional sales of current and
future products, as well as ongoing maintenance revenues. A majority of our
customers have purchased only one or a few of our products or use our products
in specific business-units or locations. We believe that we can sell more deeply
into our installed customer base by expanding these departmental deployments
into enterprise-wide implementations as well as by cross-selling additional
products and services.

Expand our Sales Force and Distribution Channels

We market and sell our products worldwide primarily though a direct sales
and telesales force. We believe that our direct sales approach allows us to
achieve better control of the sales process and respond more quickly to customer
needs while maintaining an efficient sales model. We are continuing to expand

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our direct sales efforts both domestically and internationally. Sales outside of
North America represented approximately 17% of total revenue in 1998, and we
believe that there is significant untapped demand for our software products
internationally. We intend to continue to expand our direct sales staff and
increase the number of sales offices internationally, and, to a lesser extent,
develop alliances with international distributors.

Extend Strategic Integrator Relationships

We intend to increase the value of our solutions to customers by offering
additional and improved consulting and implementation services for our
enterprise-level software solutions. Specifically, we plan to extend our
existing strategic relationships and develop new partnerships with leading
global systems integrators who specialize in implementing software solutions
that support e-business and enterprise application software. We believe that
these relationships will both facilitate the successful enterprise deployment of
our products and generate additional product sales opportunities.

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PRODUCTS

Our products are designed to work individually and together to provide
immediate and continuous availability of applications and information, both of
which are critical as enterprises rapidly extend their information technology
infrastructure. Our products and their functionality are summarized below:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INFORMATION AVAILABILITY
- ------------------------------------------------------------------------------------------------------------
VISTA PLUS Captures, manages and distributes report-based information
through an enterprise report and document repository.
- ------------------------------------------------------------------------------------------------------------
VISTA PLUS E-PURPOSING MODULE Extends information delivery across the Internet by
providing global delivery of time-sensitive documents,
electronic bill and statement presentment without requiring
application changes.
- ------------------------------------------------------------------------------------------------------------
VISTA PLUS INTERFACE MODULES FOR SAP Provides rapid installation and continuous synchronization
R/3, PEOPLESOFT, AND ORACLE of users, groups, authorization profiles and report
APPLICATIONS information from ERP systems to Vista Plus.
- ------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C>
APPLICATION AVAILABILITY
- ------------------------------------------------------------------------------------------------------------
DATABASE REPLICATION
- ------------------------------------------------------------------------------------------------------------
SHAREPLEX(R) REPLICATION Replicates high volumes of data from Oracle databases to
improve performance and manage future growth.
- ------------------------------------------------------------------------------------------------------------
ENTERPRISE MONITORING
- ------------------------------------------------------------------------------------------------------------
I/WATCH Offers a centralized console for monitoring, alerting,
diagnosing and resolving problems in databases, operating
systems and applications.
- ------------------------------------------------------------------------------------------------------------
DATABASE AND APPLICATION PERFORMANCE
- ------------------------------------------------------------------------------------------------------------
INSTANCE MONITOR A real-time monitoring and diagnostic tool featuring visual
representation of database process flows.
- ------------------------------------------------------------------------------------------------------------
SQLAB XPERT Identifies and resolves database resource consumption
problems caused by poorly performing application code by
recommending optimal tuning scenarios.
- ------------------------------------------------------------------------------------------------------------
SPACE MANAGER Reorganizes database objects and performs capacity planning
to improve performance and manage future growth.
- ------------------------------------------------------------------------------------------------------------
APPLICATION CHANGE MANAGEMENT
- ------------------------------------------------------------------------------------------------------------
SCHEMA MANAGER Manages database change and migration from development
through production by providing comprehensive version
control, auditing and rollback capabilities.
- ------------------------------------------------------------------------------------------------------------
DATA MANAGER Builds test databases, deploys reference data to production
during software rollouts, extracts data for data warehouses
or reporting databases, and purges or archives production
data that is not needed on-line.
- ------------------------------------------------------------------------------------------------------------
SQL IMPACT Manages interdependencies between database objects and
application source code, providing detailed impact analysis,
documentation and auditing.
- ------------------------------------------------------------------------------------------------------------
SQL NAVIGATOR AND TOAD Server-side database development and management solutions
with optional add-on modules available for debugging, SQL
tuning with expert advice and integrated code libraries for
rapid development.
- ------------------------------------------------------------------------------------------------------------
</TABLE>

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INFORMATION AVAILABILITY

Vista Plus. Our Vista Plus products deliver the benefits of enabling
Web-based access to existing information and applications without a complex
development or deployment effort. Vista Plus is an enterprise, report-based
information management solution that captures, stores, indexes, prints and
archives report data or electronic documents from virtually any application.
Vista Plus maintains a repository of this output for instant distribution over a
heterogeneous, widely distributed network, including the Internet, with our
sophisticated Java or Windows clients. By storing output from applications in
its repository, Vista Plus also eliminates the processing needed to rerun
reports, and its report mining capabilities provide users access to information
without burdening the primary systems.

Vista Plus enables real-time access to business-critical information at any
time, even if the source application is not accessible. Vista Plus provides the
ability to quickly navigate from summary to detailed information, data
extraction, hyperlinks to navigate between related information and numerous
print and electronic distribution functions with no application changes,
delivering immediate benefits throughout the enterprise. The robust security
model built into Vista ensures that only authorized users gain access to data.
Vista Plus further extends information availability by transforming production
reports into a series of personalized emails, PDF files or HTML pages for
Internet distribution of statements such as invoices, purchase orders and
financial statements. As a result, the data that is delivered to end users
contains relevant information in a familiar and highly usable format.

APPLICATION AVAILABILITY

We provide a broad range of products that together provide a comprehensive
application availability solution. Our products provide a wide range of services
that work together to maintain the high level of performance and continuous
access required by today's demanding e-business environment. Integration between
these components significantly enhances the value of each solution by increasing
user productivity and delivering otherwise unavailable functionality.

Database Replication

SharePlex. SharePlex replicates high volumes of data from an Oracle
database to one or more other databases. Replication is accomplished in
real-time with very little overhead to critical application servers. Secondary
systems can then be used for offloading non-critical processing, thus preserving
desired user response times and Web server performance, as well as providing a
back-up system for reporting and fail-over. SharePlex also supports wide-area
networks without the need for expensive high bandwidth data links.

Enterprise Monitoring

I/Watch. I/Watch offers a central console for monitoring databases,
operating systems and applications and alerts the operations staff of problems
as they develop. I/Watch is easy to deploy and consumes relatively few system
resources. I/Watch detects system and application failures, and allows
operations staff to watch for developing problems over a large network of
systems. I/Watch can alert and automatically respond with appropriate measures
to resource problems. I/Watch provides an intuitive, graphical interface that
clearly shows where problems are occurring and supports the ability to quickly
navigate from summary to detailed information for diagnosing and resolving
issues. I/Watch allows for the mining of previously monitored time periods to
help pinpoint the root cause of problems. I/Watch is fully customizable and can
be further extended by plugging in one or more optional knowledge cartridges,
which provide monitoring solutions for other specific services in the
enterprise, including market leading ERP packages and other Quest products.

Database and Application Performance

Instance Monitor. Instance Monitor is a real-time monitoring and
diagnostic tool featuring visual representations of process flows within the
database. Instance Monitor's unique user-interface design

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displays a comprehensive diagram of a database's internal workings and the flow
of information within the database. Instance Monitor tracks database performance
in real-time, identifies potential bottlenecks and provides detailed expert
advice to help resolve problems as they occur.

SQLab Xpert. SQLab Xpert automatically locates and highlights poorly
written database application code. It provides expert advice to help both novice
and seasoned developers and administrators quickly find solutions to difficult
performance problems.

Space Manager. Space Manager addresses the complex issues of physical data
management to help keep application performance at peak levels. As database
structures are modified to accommodate application changes and growth,
performance begins to degrade due to poor physical organization of information
within the database. Space Manager is designed to perform this necessary
maintenance as well as assist in planning for future growth in storage
requirements.

Application Change Management

SQL Impact. SQL Impact scans application code and stores it in its
repository. If a change is needed to any object in a database, SQL Impact
determines which programs and specific lines of code will be affected, reducing
the likelihood of overlooking required application changes.

Schema Manager. Schema Manager automatically determines the differences
between a development and production database and can synchronize the databases
automatically. Schema Manager packages all of the changes needed for a new
application deployment, checks to make sure the changes will not fail in the
production environment, and implements the changes. Its auditing capability
documents all database changes, allowing the immediate rollback of a change if
required.

Data Manager. Data Manager deploys and transforms data when new
applications are rolled out, for example, storing or changing reference data
such as sales tax tables and control information. Data Manager also creates test
databases for developers, eliminating the need to use a full copy of a
production database which can be impractical due to its large size.

Database Programming

SQL Navigator and TOAD enable development of server side code for
databases, a key component of Internet-enabled application development. SQL
Navigator and TOAD allow developers to rapidly and accurately develop and tune
applications. Providing similar functionality, these two products incorporate
different user interfaces that increase their appeal to a broader spectrum of
developers and database administrators. They integrate with our other
application availability products, enabling developers to check and correct the
performance of their code before it is put into production.

CUSTOMERS AND CASE STUDIES

Our software products are licensed to customers worldwide to provide a wide
range of application and availability solutions. Our products have been sold to
thousands of corporations, governmental agencies and other organizations
worldwide. One customer accounted for 12% of total revenues in 1996. In 1997,
1998 and the first six months of 1999, no customer accounted for more than 10%
of our total revenues.

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<PAGE> 40

A representative sampling of customers who have purchased at least $100,000
of software licenses since January 1, 1996 includes:

<TABLE>
<S> <C> <C>
TECHNOLOGY ENERGY MANUFACTURING
3Com Detroit Edison 3M
Amazon.Com FirstEnergy Corp. American Cyanamid
Applied Materials Pennsylvania Power & Light Boeing
Computer Sciences Corp. PG&E Texas Management Eaton Corp.
Dell Computer Shell Services International General Electric Plastics
Diamond Multimedia Sun Chemical Gulf States Steel
Earthlink Valero Energy Honeywell
Hewlett-Packard FINANCIAL SERVICES Johnson Controls
Imation Koch Industries
Mail.com ADP Lockheed Martin
Merisel AIG Marketing Rockwell
Micro Warehouse American United Life Rogers Tool Works
Micron Electronics Ceridian Tax Service Sara Lee Hosiery
NCR Chase Manhattan Mortgage Smuckers
Oracle Credit Suisse/First Boston Weyerhaeuser
Smith-Gardner & Associates Fidelity Investments OTHER
Sony First National Bank Chicago
Sun Microsystems Mercury Insurance Group American Home Shield
Tandy Corporation Nations Bank Andersen Consulting
HEALTHCARE/PHARMACEUTICAL Wellington Management Aramark
Wells Fargo Bausch & Lomb Worldwide
3M Health Information Systems TELECOMMUNICATIONS Carlson Companies
Acuson Dun & Bradstreet Info. Systems
AVMED Health Plan Air Touch Communications Earth Tech
Blue Cross-Blue Shield (FL) AT&T Hertz
Cardinal Health British Telecom JC Penney
GE Medical Systems Lucent Technologies Pepsi-Cola
Harvard Pilgrim Health Care MCI System House Southwest Airlines
Hoechst Marion Roussel Rohm Corporation Time
Merck Southwestern Bell Mobile United Space Alliance
Partners Health Plan Communications University of Michigan
Qualmed TCI Communications Yamaha
US Surgical Williams Information Services
</TABLE>

The following case studies illustrate how a selected group of
representative customers are using a variety of Quest products to ensure high
application and information availability across their increasingly heterogeneous
and distributed networks. The information in these case studies was compiled in
consultation with the companies listed below.

Applied Materials

Applied Materials is a leading semiconductor equipment manufacturer. To
improve efficiency in its global operations, Applied Materials needed a
Web-based enterprise-wide report management solution that could seamlessly
integrate with their existing applications, automate their processes and provide
instant access to corporate reports to thousands of employees worldwide. Such a
solution would eliminate the need to prepare, compile and distribute thousands
of corporate reports manually. Applied Materials selected and implemented Vista
Plus as an enterprise-wide report warehouse and distribution solution for
automated electronic delivery and archiving of application reports. Applied
Materials was able to realize cost savings and productivity benefits
immediately. Administrative overhead was reduced through lower paper and
printing costs and reduced human resource expenses. Moreover, Applied Materials
deployed Vista Plus without having to reconfigure its existing applications.
After experiencing the benefits of Vista Plus, Applied Materials purchased
I/Watch, for enterprise monitoring and SQLab Xpert for application turning, to
improve the availability and performance of their Oracle database environment.

39
<PAGE> 41

EarthLink

EarthLink is a leading Internet service provider, with a full range of
innovative access and hosting solutions used by approximately 1.15 million
individuals and businesses every day. Using Oracle databases, EarthLink needed a
better way to diagnose and address day-to-day application availability and
management issues. Due to the size and the dynamic nature of its business,
downtime would be catastrophic. EarthLink selected our products to satisfy its
requirements in this area. To manage its applications, EarthLink uses I/Watch
and Instance Monitor for database monitoring, diagnostics and resolution.
EarthLink particularly liked the user interfaces and integration of the products
they purchased. These products, along with SQLab Xpert, enable their database
administrators to perform "targeted tuning" with intelligent tuning
recommendations that optimize the performance of the databases. Space Manager
provides EarthLink with a comprehensive solution for database reorganization and
capacity planning for application availability through preventive maintenance,
problem detection and resolution across all databases.

NCR

NCR provides integrated software, consulting services and hardware
solutions for businesses. NCR runs Oracle in a multi-platform environment with a
combination of applications, including Oracle Financials, PeopleSoft and other
internally developed solutions. NCR employs over 300 servers worldwide and
executes mission-critical data transfers. This complexity required a controlled
application development and deployment environment. Our change management
products allow NCR to facilitate the identification, migration and deployment of
critical database changes required to ensure that all databases have the same
structure across the extended enterprise. NCR uses SQL Impact to identify the
interdependencies between application source code and the database objects. NCR
uses Schema Manager to synchronize and migrate database structural changes
between development and production databases. In addition, they use SQLab Tuner
to tune complex queries and SQL Navigator for server-side development and
debugging. As a result of implementing our products, NCR was able to realize a
reduction in processing time by improving code integrity and reducing the
development effort.

Royal Automobile Club

The RAC provides roadside assistance 24 hours a day, seven days a week in
the United Kingdom. Availability of member services is crucial to the RAC,
therefore they needed a data replication solution to guarantee availability of
member information in the event of a system failure. Their key requirements in
selecting a replication solution were reliability, ease of implementation and
minimized disruption to the existing production environment. The RAC chose
SharePlex because of its ease of implementation and maintenance, high
performance replication availability and ability to interface with existing
applications. The RAC expects to expand its use of SharePlex in the future for
load balancing and scalability testing.

SALES, MARKETING AND DISTRIBUTION

We market and sell our products and services worldwide through a
combination of direct sales and telesales forces and, to a lesser extent,
resellers and distributors. Our domestic sales organization is headquartered in
Newport Beach, California. We have additional sales offices located in the
metropolitan areas of Atlanta, Boston, Chicago, Dallas, Detroit, New York,
Raleigh, San Francisco and Washington D.C. We also have international sales
offices in the metropolitan areas of Frankfurt, London and Melbourne. We are
continuing to expand our sales organization and establish additional sales
offices domestically and internationally. We also sell certain of our products
through our Web site, which allows our customers to conveniently download our
products for evaluation and direct purchase.

Our sales and marketing approach is designed to help customers understand
both the business and technical benefits of our products. Accordingly, we
complement the efforts of our sales organization with a pre-sale customer
support organization that is responsible for addressing technical questions
related to our products. The sales team for each customer is responsible for
maintaining appropriate contacts with key information technology personnel who
have planning and purchasing responsibility within the customer's organization.
Since a number of our products affect systems and employees throughout the
enterprise, our sales effort typically

40
<PAGE> 42

involve technology presentations and pilot implementations, and many times
involve numerous decision makers. As a result, a key feature of our sales
efforts is to establish relationships at all appropriate levels in our
customers' organizations. While the sales cycle varies substantially from
customer to customer, the typical sales cycle for our Vista Plus and SharePlex
products has ranged from three to six months.

Focusing on our target markets, our marketing efforts are designed to
create awareness for our products and generate sales leads. To achieve these
goals, we engage in a variety of marketing activities, including seminars, trade
shows, direct mailings and print and Web-based advertising. In addition, we have
recently expanded our marketing staff and intend to commence an ongoing public
relations program that will include establishing and maintaining relationships
with key trade press, business press and industry analysts. We also intend to
initiate a customer advisory council which will provide a communication channel
for regular feedback from key customers to facilitate the design of products to
meet the expanding requirements of our target market.

CUSTOMER SERVICE AND SUPPORT

A high level of customer service and support is critical to the successful
marketing and sale of our products and the development of long-term customer
relationships. Our customer support group provides technical support to our
customers under support agreements entered into at the time of the initial sale.
Our base level of e-mail-, Internet-, fax-, and telephone-based support includes
assistance with installation, configuration and initial set-up of our products;
ongoing support during normal business hours; and software maintenance and
upgrade releases. For an additional fee, we provide support on a 24x7x365 basis
as well as training and other services.

Customer support is provided domestically through our offices in Newport
Beach and internationally through our offices in Europe and Australia. We plan
to hire additional support personnel and, as needed, establish additional
support sites domestically and internationally to meet our customers' needs.
Furthermore, we plan to extend our existing strategic partnerships and develop
new partnerships with leading systems integrators to provide implementation
guidance, assistance with configuration and initial set-up of applications.

Our services contracts are generally of 12 months' duration and are
renewable at the customer's option. Service contracts are generally priced at
approximately 20% of the amount of licenses and the customer is invoiced
annually in advance.

RESEARCH AND DEVELOPMENT

We believe that strong research and product development capabilities are
essential to enhancing our core technologies and developing additional products
that offer maximum value and ease of use. We have invested significant time and
resources in creating a structured process for undertaking product development
projects. This process is designed to provide the proper framework for defining
and addressing the steps, tasks and activities required to bring product
concepts and development projects to market successfully. A significant portion
of our development effort is conducted in Melbourne, Australia. We have actively
recruited key software engineers and developers with expertise in the areas of
Oracle technologies, SQL Server, Java, Microsoft development technologies, ERP
systems and document management. Our engineers include several of the industry's
leading database management authorities. Complementing these individuals, our
senior management has extensive background in the database, network
infrastructure and enterprise and system software industries.

Our research and development efforts focus on designing and developing
reliable, easy to install and use products that solve application and
information availability problems for our customers. Since our inception in
1987, we have made substantial investments in research and development through
both internal development and technology acquisitions. Our products utilize a
number of advanced technologies including the log analysis component of
SharePlex that allows quick and accurate determination of the database
structural and data changes with minimal overhead. Another example is our Vista
Plus product line which contains highly sophisticated postscript and PCL parsing
technology that allows these products

41
<PAGE> 43

to understand complex output data streams, enabling search, transformation and
extraction from graphics-intensive output.

COMPETITION

The market for application and information availability solutions is
emerging rapidly, and, as a result, is intensely competitive and characterized
by rapidly changing technology and evolving standards. We expect competition to
continue to increase both from existing competitors and new market entrants. We
believe that our ability to effectively compete depends on many factors,
including:

- the ease of use, performance, features, price and reliability of our
products as compared to those of our competitors;

- the timing and market acceptance of new products and enhancements to
existing products developed by us and our competitors;

- the quality of our customer support; and

- the effectiveness of our sales and marketing efforts.

Companies currently offering competitive products vary in the scope and
breadth of the products and services offered and include:

- providers of enterprise report management products such as Actuate,
Computer Associates, Mobius, and IBM;

- providers of hardware and software replication tools such as EMC and
Veritas; and

- providers of database and database management products such as BMC,
Compuware, Oracle, and Computer Associates.

Many of our competitors and potential competitors have greater name
recognition, a larger installed customer base company-wide and significantly
greater financial, technical, marketing, and other resources than we do. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than we can. In addition,
because there are relatively low barriers to entry in the software market, we
may encounter additional competition as other established and emerging companies
enter our field and introduce new products and technologies.

In addition, providers of database solutions such as Oracle and Microsoft
currently produce database management tools and may in the future enhance their
products to include functionality that is currently provided by our products.
The inclusion of the functionality of our software as standard features of the
underlying database solution or application supported by our products could
render our products obsolete and unmarketable, particularly if the quality of
such functionality were comparable to that of our products. Even if the
functionality provided as standard features by these system providers is more
limited than that of our software, there can be no assurance that a significant
number of customers would not elect to accept more limited functionality in lieu
of purchasing additional software. Moreover, there is substantial risk that the
mere announcements of competing products by large competitors such as Oracle
could result in the delay or cancellation of customer orders for our products in
anticipation of the introduction of such new products.

In addition to the competition that we may face because of the internal
development efforts of our competitors, current and potential competitors may
make strategic acquisitions or establish cooperative relationships among
themselves or with third parties, thereby increasing their ability to address
the needs of our current or prospective customers. Accordingly, it is possible
that new competitors or alliances among current and new competitors may emerge
and rapidly gain significant market share. Such competition could also
materially adversely affect our ability to sell our products or to obtain
maintenance and support renewals for existing licenses on terms favorable to us.

There can be no assurance that we will be able to compete successfully
against current and future competitors. Increased competition could result in
price reductions, fewer customer orders, reduced gross

42
<PAGE> 44

margins and loss of market share, any of which could materially affect our
business, operating results or financial condition.

PROPRIETARY RIGHTS

We cannot assure you that our means of protecting our proprietary rights
will be adequate or that competition will not independently develop similar or
superior technology. We also believe that, because of the rapid rate of
technological change in the software industry, trade secret and copyright
protection are less significant than factors such as the knowledge, ability and
experience of our employees, frequent product enhancements and the timeliness
and quality of customer support services.

Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. We are not
aware that we are infringing any proprietary rights of third parties. There can
be no assurance, however, that third parties will not claim we infringe their
intellectual property rights. We expect that software product developers will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without merit,
could be time consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
us to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us, if at
all. In the event of a successful claim of product infringement against us and
our failure or inability to either license the infringed or similar technology
or develop alternative technology on a timely basis, our business, operating
results and financial condition could be materially adversely affected.

We incorporate technology from third parties into our SQL Navigator, TOAD
and Vista Plus products. We currently have a material license agreement with
Inso for the use of file viewing technology which is incorporated into an add-on
module for our Vista Plus products. We currently pay Inso royalty fees based on
sales of our Vista Plus product. This license agreement terminates on February
10, 2002. In addition, we currently have a material license agreement with
Artifex for the use of technology which is incorporated into an add-on module
for our Vista Plus products. We currently pay Artifex royalty fees based on
sales of Vista Plus products incorporating the licensed software. The license
for the technology from Artifex remains in effect for so long as any proprietary
rights in the licensed technology are enforceable under the laws of any
jurisdiction, unless earlier terminated by us upon 30 days written notice or by
Artifex upon a material breach by us. As we continue to introduce new products,
we may be

43
<PAGE> 45

required to license additional technology from others. There can be no assurance
that these third-party technology licenses will continue to be available to us
on commercially reasonable terms, if at all.

SharePlex is a registered trademark owned by us. This prospectus also makes
reference to the other trademarks that we own, some of which we are seeking
registration for, and to trademarks of other companies.

EMPLOYEES

As of June 30, 1999, we employed 415 full-time employees, including 208 in
sales and marketing, 140 in research and development, 34 in customer service and
support and 33 in general and administrative. We believe that our future success
will depend in large part upon our continuing ability to attract and retain
highly skilled managerial, sales, marketing, customer support and research and
development personnel. Like other software companies, we face intense
competition for such personnel, and we have at times experienced and continue to
experience difficulty in recruiting qualified personnel. There can be no
assurance that we will be successful in attracting, assimilating and retaining
other qualified personnel in the future. We are not subject to any collective
bargaining agreement and we believe that our relationships with our employees
are good.

FACILITIES

Our principal administrative, sales, marketing, support and research and
development facility is currently located in approximately 33,000 square feet of
space in Newport Beach, California. In October 1999 we intend to relocate our
headquarters in Newport Beach to a leased facility in nearby Irvine, California,
consisting of approximately 67,500 square feet of office space. The new facility
will be under a six-year lease and will have an option to renew for an
additional five-year term.

We also lease sales offices in the metropolitan areas of Atlanta, Boston,
Chicago, Dallas, Detroit, New York, Raleigh, San Francisco, and Washington, D.C.
Our German subsidiary currently operates from two facilities in Frankfurt and
Dusseldorf. Our Australian subsidiary operates from two leased facilities in
Melbourne which total approximately 10,000 square feet. Our UK subsidiary leases
a 5,300 square-foot office in the London metropolitan area.

LEGAL PROCEEDINGS

On May 25, 1999, Mobius Management Systems, Inc., filed a complaint in the
United States District Court for the District of New Jersey (Mobius Management
Systems, Inc. v. Quest Software, Inc., Case No. 99-2337). The complaint alleges
that we published three advertisements that were false and misleading and
therefore in violation of the Lanham Act and common law, and that we
misappropriated unspecified trade secrets belonging to Mobius. The
advertisements that Mobius alleges in its complaint are false and misleading are
two e-mails intended for internal use, a comparison chart believed to have been
prepared by a former Quest employee in 1997 for internal purposes, and a
statement made regarding our Vista Plus Java client which had been posted on the
Internet. The complaint seeks injunctive relief and unspecified damages. No
factual basis was set forth in the complaint in support of Mobius'
misappropriation of trade secrets claim. In response to Mobius' complaint, we
have filed a motion to dismiss which is set for hearing on September 13, 1999.
We intend to defend this action vigorously, and, based on the complaint and the
facts underlying the complaint of which we are currently aware, we do not
believe that this lawsuit will have a material adverse effect on our business,
results of operations or financial condition; however, it is too early to
determine the ultimate outcome of the lawsuit.

In the normal course of business, we are subject to various other legal
matters. While the results of litigation and claims cannot be predicted with
certainty, we believe that the final outcome of these other matters will not
have a material adverse effect on our business, operating results or financial
condition.

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<PAGE> 46

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding our executive
officers and directors as of June 10, 1999:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Vincent C. Smith....................... 35 Chief Executive Officer and Chairman of the Board
David M. Doyle(2)...................... 38 President, Secretary and Director
John J. Laskey......................... 49 Chief Financial Officer and Vice President, Finance
Eyal M. Aronoff........................ 35 Vice President, Technology and Engineering
Douglas F. Garn........................ 40 Vice President, Worldwide Sales
Carla S. Fitzgerald.................... 34 Vice President, Marketing
Kimberly A. Kinnison................... 38 Vice President, Technical Support
Terence J. Mullin...................... 44 Vice President, Output Management Business Unit
Charles C. Ramsey...................... 45 Vice President, International Sales
Raymond J. Lane(1)..................... 52 Director
Doran G. Machin(2)..................... 45 Director
Jerry Murdock, Jr.(1)(2)............... 41 Director
</TABLE>

- -------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee

Set forth below is certain information regarding the business experience
during the past five years of each of the above-named persons.

Vincent C. Smith has served as our Chief Executive Officer since 1997 and a
director since 1995. Mr. Smith became Chairman of the Board in 1998. In 1994,
Mr. Smith was Director of Open Systems at BMC Software, where he managed its
sales operations. From 1992 to 1994, Mr. Smith co-founded Patrol Software North
America and served as its Vice President of Worldwide Sales and Marketing.
Patrol Software merged with BMC in 1994. Mr. Smith worked at Oracle Corporation
from 1987 to 1992 in a variety of sales management positions. Mr. Smith received
his B.S. degree in Computer Science with a minor in Economics from University of
Delaware.

David M. Doyle is our President, Secretary, founder and a director. Mr.
Doyle has been President and a director since the formation of Quest in 1987 and
has been our Secretary since June 1999. Mr. Doyle was the primary designer and
developer of our products during the initial four years after the founding of
Quest. Prior to the founding of Quest, Mr. Doyle served as a consultant to a
variety of industries, specializing in the areas of system design and
application performance. Mr. Doyle studied Information and Computer Sciences at
University of California, Irvine.

John J. Laskey is our Chief Financial Officer and Vice President, Finance.
Mr. Laskey has held these positions since October 1998. From June 1995 to
October 1998, Mr. Laskey served as the Chief Financial Officer and Vice
President, Finance of Continuus Software Corporation, a provider of software
change management solutions. From April to June 1995, Mr. Laskey was the Chief
Financial Officer and Vice President, Finance of StarBase Corporation. From
September 1986 to April 1995, Mr. Laskey worked at FileNet Corporation as Vice
President, Finance and Principal Accounting Officer. Mr. Laskey received his
B.S. degree in Electrical Engineering from University of Illinois and his M.B.A.
from Loyola University of Chicago.

Eyal M. Aronoff has been our Vice President of Technology and Engineering
since March 1996, when we acquired R*Tech Systems, Inc., a database management
company. Mr. Aronoff founded R*Tech Systems in 1992 and served as its President
from 1992 to 1996. Prior to this, Mr. Aronoff worked for John Bryce Ltd., an
Oracle distributor in Israel, attended school and served in the Israeli Defense
Force.

45
<PAGE> 47

Mr. Aronoff received a B.A. degree in computer science and chemistry from
Bar-Ilan University Ramat-Gan, Israel.

Douglas F. Garn is the Vice President of Worldwide Sales. Mr. Garn has held
this position since January 1998. From March 1996 to January 1998, Mr. Garn was
Vice President of North American Sales for Peregrine Systems, Inc. From July
1995 until April 1996, Mr. Garn was Vice President of Sales with Syntax, Inc., a
networking software company. From November 1993 until July 1995, Mr. Garn was
Regional Sales Manager with BMC. Mr. Garn holds a B.S. in Marketing from
University of Southern California.

Carla S. Fitzgerald is our Vice President, Marketing. Ms. Fitzgerald has
held this position since February 1999. From November 1988 to February 1999, Ms.
Fitzgerald worked for Computer Associates International, where she most recently
served as Vice President, Global Technology Delivery Services. Ms. Fitzgerald
received her B.A. in Economics and Computer Studies from Claremont McKenna
College.

Kimberly A. Kinnison has been our Vice President of Technical Support since
January 1999. As such, Ms. Kinnison oversees our management information systems
department and our worldwide technical support staff. From January 1998 to
January 1999, Ms. Kinnison was our Director of Technical Support and from June
1995 to December 1997, she was our Support Manager. Ms. Kinnison joined Quest in
November 1991 as a technical support engineer. Prior to joining Quest, Ms.
Kinnison held positions as a systems programmer at Hughes Aircraft and
instructor/consultant at Hewlett Packard. Ms. Kinnison received her B.S. in
Computer Information Systems from California State Polytechnic University,
Pomona.

Terence J. Mullin has been our Vice President of the Output Management
Business Unit since April 1998. From November 1997 to April 1998, Mr. Mullin was
the Vice President of Marketing and Business Development of Clarion Corporation
of America's Advanced Technology Division. From April 1997 to November 1997, Mr.
Mullin was the Vice President of Marketing and Business Development for
NetSoft/NetManage. From April 1995 to April 1997, Mr. Mullin held the position
of Strategic Planner of Internet Strategy and Marketing at FileNet Corporation.
Mr. Mullin studied Computer Science at California State University, Fullerton
and completed the Advanced Management Development in Business Administration
program offered by the University of Southern California.

Charles C. Ramsey has been our Vice President of International Sales since
January 1999. In this position, Mr. Ramsey heads up the expansion of our
international direct-sales and support teams and will complete the development
of a worldwide channel organization. From April 1998 to January 1999, Mr. Ramsey
was a Regional Field Sales Manager. From May 1989 to April 1998, Mr. Ramsey was
employed with Ziff Davis Market Intelligence, where he was most recently the
Vice President of Sales. Prior to working at Ziff Davis, Mr. Ramsey worked for
IBM Corporation for five years. Mr. Ramsey received a B.S. in Communications
from University of California, San Diego and an M.I.M. from American Graduate
School of International Management.

Raymond J. Lane has served as a member of our board since June 1999. Mr.
Lane has been the president and chief operating officer of Oracle Corporation
since January 1997 and has been a director of Oracle since June 1995.
Previously, Mr. Lane served as the executive vice president of Worldwide
Operations for Oracle from October 1993 to January 1997. Mr. Lane served as a
senior vice president of Oracle USA from June 1992 to October 1993. Before
joining Oracle, Mr. Lane served as senior vice president and managing partner of
the Worldwide Information Technology Group at Booz, Allen & Hamilton from July
1986 to May 1992. He served on the Booz, Allen & Hamilton Executive Committee
and its Board of Directors from April 1987 to May 1992. Mr. Lane is also a
member of the Board of Trustees of Carnegie Mellon University. Mr. Lane received
his B.S. in Math from West Virginia University.

Doran G. Machin has served as a director since 1987. Mr. Machin was also
our Secretary and Executive Vice President from 1987 through April, 1999. Prior
to 1987, Mr. Machin was employed as an independent computer consultant, worked
for Hewlett-Packard and American Data Industries. Mr. Machin attended Cerritos
College and California State University, Fullerton.

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<PAGE> 48

Jerry Murdock, Jr. has served as a member of our board since April 1999.
Since 1995, Mr. Murdock has been employed by InSight Capital Partners, an
investment firm which he co-founded in that year. From 1987 to 1995, Mr. Murdock
was President of Aspen Technology Group, a consulting firm which he founded in
1987. Mr. Murdock has a degree in Political Science from San Diego State
University. Mr. Murdock is a member of the boards of directors of several
private technology companies.

BOARD OF DIRECTORS AND COMMITTEES

We have established an audit committee composed of Messrs. Doyle, Machin
and Murdock. Messrs. Machin and Murdock are independent directors. This
committee reviews and supervises our financial controls, including the selection
of our auditors, reviews the books and accounts, meets with our officers
regarding our financial controls, acts upon recommendations of auditors and
takes further actions as the audit committee deems necessary to complete an
audit of our books and accounts, as well as other matters which may come before
it or as directed by the board.

We have established a compensation committee, which reviews and approves
the compensation and benefits for our executive officers, administers our stock
plans and performs other duties as may from time to time be determined by the
board. The compensation committee is currently comprised of Messrs. Lane and
Murdock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

We did not have a Compensation Committee for 1998. In 1998, all decisions
regarding executive compensation were made by our board of directors. We created
our compensation committee in June 1999.

In April 1999, we purchased an aggregate of 14,820,000 shares of our common
stock for a total purchase price of $35.0 million from trusts established by Mr.
Machin, one of the founders and a director of Quest. In addition, we entered
into a severance agreement with Mr. Machin pursuant to which we agreed to pay
him an annual fee of $200,000 per year from 1999 to 2001, pay him medical
benefits and provide for his use of a company car and related car expenses. Mr.
Machin currently owns no shares of our capital stock.

No interlocking relationship exists between any of our executive officers
or any member of our compensation committee and any member of any other
company's board of directors or compensation committee.

DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS

Directors receive no cash remuneration for serving on the board of
directors or any committee thereof. Non-employee directors are reimbursed for
reasonable expenses incurred by them in attending board and committee meetings.
Non-employee board members are also eligible for option grants pursuant to the
provisions of the automatic option grant program under our 1999 Stock Incentive
Plan. See "-- 1999 Stock Incentive Plan."

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<PAGE> 49

SUMMARY COMPENSATION TABLE

The following table sets forth for the year ended December 31, 1998, all
compensation received for services rendered to Quest in all capacities by our
chief executive officer and each of the other four most highly compensated
executive officers whose salary and bonus exceeded $100,000 in 1998. These
officers are referred to in this prospectus as the "Named Executive Officers."
No individual who would otherwise have been includable in such table on the
basis of salary and bonus earned during 1998 has resigned or otherwise
terminated his employment during 1998. Mr. Machin resigned from his position as
Secretary in April 1999. The compensation table excludes other compensation in
the form of perquisites and other personal benefits that constitutes the lesser
of $50,000 or 10% of the total annual salary and bonus earned by each of the
Named Executive Officers in 1998. The amount set forth in the "All Other
Compensation" column includes matching contributions under our 401(k) Plan and
expenses paid by us for Mr. Machin's car and the automobile insurance thereon.

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) UNDERLYING OPTIONS COMPENSATION($)
- --------------------------- --------- -------- ------------------ ---------------
<S> <C> <C> <C> <C>
Vincent C. Smith....................... 191,666 175,000 -- --
Chief Executive Officer
David M. Doyle......................... 200,000 175,000 -- --
President
Doran G. Machin........................ 200,000 -- -- 25,081
Secretary
Eyal M. Aronoff........................ 191,931 -- 39,000 --
Vice President, Technology and
Engineering
Douglas F. Garn........................ 184,510 125,000 576,000 --
Vice President, Worldwide Sales
</TABLE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers in 1998, including the
potential realizable value over the ten-year term of the options, based on
assumed rates of stock appreciation of 5% and 10%, compounded annually. These
assumed rates of appreciation comply with the rules of the Commission and do not
represent our estimate of future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of our common
stock. No stock appreciation rights were granted to the Named Executive Officers
during 1998.

<TABLE>
<CAPTION>
OPTIONS GRANTS IN 1998
----------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM($)
OPTIONS EMPLOYEES IN PER-SHARE EXPIRATION -------------------------
NAME GRANTED(#) 1998(%) ($) DATE 5% 10%
---- ---------- ------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Vincent C. Smith..... -- -- -- -- -- --
David M. Doyle....... -- -- -- -- -- --
Doran G. Machin...... -- -- -- -- -- --
Eyal M. Aronoff...... 24,000 * 1.00 6/23/08 196,215 497,248
15,000 * 1.17 10/1/08 122,634 310,780
Douglas F. Garn...... 450,000 13.3 1.00 6/23/08 3,679,034 9,323,393
126,000 3.7 1.00 7/1/08 1,030,129 2,610,550
</TABLE>

- -------------------------
* Less than one percent.

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<PAGE> 50

Each option listed in the table was granted under our 1998 Stock
Option/Stock Issuance Plan, the predecessor plan to our 1999 Stock Incentive
Plan, and represents the right to purchase one share of common stock. Except for
300,000 of Mr. Garn's 450,000 options, the options shown in this table are all
nonqualified stock options. These options vest as follows:

- 20% upon the completion of one year of employment,

- 13% upon the completion of each of the next five six-month periods of
employment, and

- 15% upon the completion of the sixth six-month period.

To the extent not already exercisable, all of these options will become
exercisable in the event of a merger in which more than 50% of our outstanding
securities are transferred to persons different from those persons who are our
shareholders prior to the merger or upon the sale of substantially all our
assets in complete liquidation or dissolution. This acceleration feature does
not apply in the event that the options are assumed by the successor corporation
in the merger or are replaced with a cash incentive program.

During 1998 we granted options to purchase up to an aggregate of 3,332,700
shares of common stock. All options were granted at an exercise price equal to
the fair market value of our common stock on the date of grant, as determined by
our board of directors.

The potential realizable value is calculated based on the ten year term of
the option at its time of grant. It is calculated based on the assumption that
the assumed initial public offering price of $13.00 per share appreciates at the
indicated annual rate compounded annually for the entire term of the option and
that the option is exercised and sold on the last day of its term for the
appreciated stock price. Actual gains, if any, on stock option exercises are
dependent on the future performance of the common stock and overall stock market
conditions. The amounts reflected in the table may not necessarily be achieved.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

The following table sets forth the number and value of shares of common
stock underlying the unexercised options held by the Named Executive Officers.
No options were exercised during 1998.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Vincent C. Smith........................... -- -- -- --
David M. Doyle............................. -- -- -- --
Doran G. Machin............................ -- -- -- --
Eyal M. Aronoff............................ -- 39,000 -- $ 465,450
Douglas F. Garn............................ -- 576,000 -- 6,912,000
</TABLE>

There was no public trading market for our common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the initial
public offering price of $13.00 per share, less the applicable exercise price
per share, multiplied by the number of shares underlying such options.

1999 STOCK INCENTIVE PLAN

Introduction. Our 1999 Stock Incentive Plan is intended to serve as the
successor equity incentive program to our 1998 Stock Option/Stock Issuance Plan.
The 1999 Stock Incentive Plan was adopted by the board and subsequently approved
by the shareholders in June 1999. The 1999 Stock Incentive Plan became effective
upon its adoption by the board. On the date of this offering, all outstanding
options under our predecessor plan will be incorporated into the 1999 Stock
Incentive Plan, and no further option grants will thereafter be made under the
predecessor plan. The incorporated options will continue to be governed by their
existing terms, unless the plan administrator elects to extend one or more
features of the 1999 Incentive Plan to those options. Except as otherwise noted
below, the incorporated options have

49
<PAGE> 51

substantially the same terms as will be in effect for grants made under the
Discretionary Option Grant Program of the 1999 Stock Incentive Plan.

Share Reserve. 7,493,400 shares of common stock have been authorized for
issuance under the 1999 Stock Incentive Plan. This share reserve consists of the
number of shares that remain available for issuance under the predecessor plan
and shares of common stock subject to outstanding options thereunder. No
participant in the 1999 Stock Incentive Plan may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of common stock in total per calendar year.

Programs. The 1999 Stock Incentive Plan is divided into five separate
programs:

- the discretionary option grant program under which eligible individuals
in Quest's employ may be granted options to purchase shares of common
stock at an exercise price determined by the plan administrator;

- the stock issuance program under which such individuals may be issued
shares of common stock directly, through the purchase of such shares at a
price determined by the plan administrator or as a bonus tied to the
performance of services;

- the salary investment option grant program which may, at the plan
administrator's discretion, be activated for one or more calendar years
and, if so activated, will allow executive officers and other highly
compensated employees the opportunity to apply a portion of their base
salary to the acquisition of special below-market stock option grants;

- the automatic option grant program under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to 100% of the fair market value of those shares on the grant date;
and

- the director fee option grant program which may, in the plan
administrator's discretion, be activated for one or more calendar years
and, if so activated, will allow non-employee board members the
opportunity to apply a portion of the annual retainer fee otherwise
payable to them in cash each year to the acquisition of special
below-market option grants.

Administration. The discretionary option grant program and the stock
issuance program will be administered by the compensation committee of the board
of directors. This committee will determine which eligible individuals are to
receive option grants or stock issuances under those programs, the time or times
when such option grants or stock issuances are to be made, the number of shares
subject to each such grant or issuance, the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
Federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance and the maximum term for which any granted option is to remain
outstanding. The compensation committee will also have the authority to select
the executive officers and other highly compensated employees who may
participate in the salary investment option grant program in the event that
program is activated for one or more calendar years.

Plan Features. Our 1999 Stock Incentive Plan will include the following
features:

- The exercise price for any options granted under the plan may be paid in
cash or in shares of common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.

- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program in return for the
grant of new options for the same or different number of option shares
with an exercise price per share based upon the fair market value of our
common stock on the new grant date.

50
<PAGE> 52

the surrendered option less the exercise price payable for those shares.
We may make the payment in cash or in shares of common stock.

Change in Control. The 1999 Stock Incentive Plan will include the
following change in control provisions which may result in the accelerated
vesting of outstanding option grants and stock issuances:

- In the event that Quest is acquired by merger or asset sale or a
board-approved sale of more than fifty percent of the outstanding stock
by our shareholders, each outstanding option under the discretionary
option grant program which is not assumed or continued by the successor
corporation will immediately become exercisable for all the option
shares, and all unvested shares will immediately vest, except to the
extent we repurchase rights with respect to those shares are to be
assigned to the successor corporation.

- The plan administrator will have complete discretion to grant one or more
options which will become exercisable for all the option shares in the
event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of outstanding shares under the 1999 Stock Incentive Plan may be
accelerated upon similar terms and conditions.

- The plan administrator may also grant options which will immediately vest
upon our acquisition by another entity, whether or not those options are
assumed by the successor corporation.

- The plan administrator may grant options and structure repurchase rights
so that the shares subject to those options or repurchase rights will
immediately vest in connection with a successful tender offer for more
than fifty percent (50%) of the outstanding voting stock or a change in
the majority of our board of directors through one or more contested
elections. Such accelerated vesting may occur either at the time of such
transaction or upon the subsequent termination of the individual's
service.

Salary Investment Option Grant Program. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees
selected for participation may elect to reduce his or her base salary for that
calendar year by a specified dollar amount not less than $10,000 nor more than
$75,000. Each selected individual who makes such an election will automatically
be granted, on the first trading day in January of the calendar year for which
that salary reduction is to be in effect, an option to purchase that number of
shares of common stock determined by dividing the salary reduction amount by
two-thirds of the fair market value per share of common stock on the grant date.
The option will be exercisable at a price per share equal to one-third of the
fair market value of the option shares on the grant date. A compensation expense
will be recorded for the amount of the salary reduction. As a result, the total
spread on the option shares at the time of grant will be equal to the amount of
salary invested in that option. The option will vest and become exercisable in a
series of twelve (12) equal monthly installments over the calendar year for
which the salary reduction is to be in effect and will be subject to full and
immediate vesting upon certain changes in the ownership or control of Quest.

Automatic Option Grant Program. Each individual who first becomes a
non-employee board member at any time after the completion of this offering will
automatically receive an option grant for 25,000 shares on the date such
individual joins the board, provided such individual has not been in the prior
employ of Quest. In addition, on the date of each annual shareholders meeting
beginning with the 2001 annual shareholders meeting, each non-employee board
member who has served as a non-employee board member since the date of the last
annual shareholders meeting will automatically be granted an option to purchase
7,500 shares of common stock.

Each automatic grant will have a term of ten years, subject to earlier
termination following the optionee's cessation of board service. The initial
25,000 share option will be immediately exercisable for all of the option
shares; however, any unvested shares purchased under the option will be subject
to repurchase by us, at the exercise price paid per share, should the optionee
cease board service prior to vesting in those shares. The shares subject to each
25,000 share automatic option grant will vest over a

51
<PAGE> 53

four (4) year period in successive equal annual installments upon the
individual's completion of each year of board service over the four (4) year
period measured from the option grant date. However, the shares subject to each
such automatic grant will immediately vest in full upon certain changes in
control or ownership of Quest or upon the optionee's death or disability while a
board member. Each 7,500 share automatic option grant will be immediately
exercisable and fully vested on the option grant date.

Director Fee Option Grant Program. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any annual retainer fee otherwise payable in cash to the acquisition
of a below-market option grant. The option grant will automatically be made on
the first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of common stock on the grant date. As a result,
the option will be structured so that the fair market value of the option shares
on the grant date less the aggregate exercise price payable for those shares
will be equal to the portion of the retainer fee invested in that option. The
option will become exercisable in a series of twelve (12) equal monthly
installments over the calendar year for which the election is to be in effect.
However, the option will become immediately exercisable for all the option
shares upon certain changes in the ownership or control of Quest or the death or
disability of the optionee while serving as a board member.

Limited Stock Appreciation Rights. Limited stock appreciation rights will
automatically be included as part of each grant made under the automatic option
grant, salary investment option grant and director fee option grant programs and
may be granted to one or more of our officers as part of their option grants
under the discretionary option grant program. Options with such a limited stock
appreciation right may be surrendered to Quest upon the successful completion of
a hostile tender offer for more than 50% of the Quest outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a cash
distribution from us in an amount per surrendered option share based on the
highest price per share of common stock paid in connection with the tender
offer.

Amendment. The board may amend or modify the 1999 Stock Incentive Plan at
any time, subject to any required shareholder approval. The 1999 Stock Incentive
Plan will terminate no later than June 8, 2009.

1999 EMPLOYEE STOCK PURCHASE PLAN

Introduction. The 1999 Employee Stock Purchase Plan was adopted by the
board and approved by the shareholders in June 1999 and will become effective
immediately upon the execution of the underwriting agreement for this offering.
The 1999 Employee Stock Purchase Plan is designed to allow our eligible
employees and the employees of our participating subsidiaries to purchase shares
of common stock, at semi-annual intervals, through their periodic payroll
deductions under the 1999 Employee Stock Purchase Plan.

Share Reserve. 600,000 shares of common stock will initially be reserved
for issuance.

Purchase Periods. The plan will have a series of successive purchase
periods, each with a maximum duration of six months. The initial purchase period
will begin on the date of the underwriting agreement for this offering covered
by this prospectus is signed and will end on the last business day in January
2000. Thereafter, purchase periods will run for the first business day in
February to the last business day in July each year, and for the first business
day in August to the last business day in January of the following year.

Eligible Employees. Individuals who are scheduled to work more than 20
hours per week for more than 5 calendar months per year on the start date of any
purchase period may join the plan on such start date.

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<PAGE> 54

Payroll Deductions. A participant may contribute up to 15% of his or her
cash earnings, and the accumulated payroll deductions will be applied to the
purchase of shares on each semi-annual purchase date. The purchase price per
share will be equal to 85% of the fair market value of the common stock on the
start date of the purchase period or, if lower, the fair market value on the
semi-annual purchase date. Semi-annual purchase dates will occur on the last
business day of January and July each year. In no event, however, may any
participant purchase more than 600 shares on any semi-annual purchase date.

Change in Control. In the event Quest is acquired by merger or asset sale,
all outstanding purchase rights will automatically be exercised immediately
prior to the effective date of the acquisition. The purchase price will be equal
to 85% of the fair market value per share of common stock on the participant's
entry date into the offering period in which such acquisition occurs or, if
lower, the fair market value per share of common stock immediately prior to such
acquisition.

Termination/Amendment. The 1999 Employee Stock Purchase Plan will
terminate on the last business day of July 2009. The board may at any time
alter, suspend or discontinue the plan. However, certain amendments to the plan
may require shareholder approval.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our Amended and Restated Articles of Incorporation limit the personal
liability of our directors for monetary damages to the fullest extent permitted
by the California General Corporation Law. Under California law, a director's
liability to a company or its shareholders may not be limited:

- for acts or omissions that involve intentional misconduct or a knowing
and culpable violation of law;

- for acts or omissions that a director believes to be contrary to the best
interests of the company or its shareholders or that involve the absence
of good faith on the part of the director;

- for any transaction from which a director derived an improper personal
benefit;

- for acts or omissions that show a reckless disregard for the director's
duty to the company or its shareholders in circumstances in which the
director was aware, or should have been aware, in the ordinary course of
performing the director's duties, of a risk of serious injury to the
company or its shareholders;

- for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the company or
its shareholders;

- under Section 310 of the California General Corporation Law concerning
contacts or transactions between the company and a director; or

- under Section 316 of the California General Corporation Law concerning
directors' liability for improper dividends, loans and guarantees.

The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to our shareholders for any violation by a
director of the director's fiduciary duty to us or our shareholders.

Our Articles of Incorporation also include an authorization for us to
indemnify our "agents," as defined in Section 317 of the California General
Corporation Law, through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this provision, our Amended and
Restated Bylaws provide for indemnification of our directors, officers and
employees. In addition, we may, at our discretion, provide indemnification to
persons whom we are not obligated to indemnify. The Amended and Restated Bylaws
also allow us to enter into indemnity agreements with individual directors,
officers, employees and other agents. Indemnity agreements have been entered
into with all directors and certain executive officers and provide the maximum
indemnification permitted by law. We also currently maintain directors' and
officers' liability insurance. These agreements, together with our Amended and
Restated Bylaws and Amended and Restated Articles of Incorporation, may require
us, among other things, to indemnify our directors and executive officers, other
than for liability resulting from willful misconduct of a

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<PAGE> 55

culpable nature, and to advance expenses to them as they are incurred, provided
that they undertake to repay the amount advanced if it is ultimately determined
by a court that they are not entitled to indemnification. Section 317 of the
California General Corporation Law and our Amended and Restated Bylaws and our
indemnification agreements make provision for the indemnification of officers,
directors and other corporate agents in terms sufficiently broad to indemnify
such persons, under certain circumstances, for liabilities, including
reimbursement of expenses incurred, arising under the Securities Act. We are not
currently aware of any pending litigation or proceeding involving any of our
directors, officers, employees or agents in which indemnification will be
required or permitted. Moreover, we are not currently aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
We believe that the foregoing indemnification provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.

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<PAGE> 56

CERTAIN TRANSACTIONS

SALES OF PREFERRED STOCK

In April 1999, we sold an aggregate of 1,688,889 shares of our Series A
Preferred Stock at a price of $5.625 per share to investors affiliated with
InSight Capital Partners. Mr. Murdock, a director of Quest, is a General Partner
of InSight Capital Partners. In April 1999 we also sold 977,778 shares of Series
A Preferred Stock and 1,777,778 shares of our Series B Redeemable Preferred
Stock to UBS Capital LLC at a price of $5.625 per share. The proceeds from the
issuance of the Series A and Series B Preferred Stock was used to repurchase
shares of our common stock held by Mr. Machin, one of our co-founders and
directors. See "-- Repurchase of Shares from and Severance Arrangement with
Director."

Both the Series A Preferred Stock and the Series B Preferred Stock have
cumulative dividends, liquidation preferences, redemption rights and conversion
features. So long as the Series A shares have not been converted into Common
Stock, the Series B shares may be converted into Series A shares by Quest at any
time prior to April 21, 2000 and by the holders of the Series B shares at any
time after April 21, 2000. Holders of shares of our Series A Preferred Stock,
including the common stock issuable upon the conversion of those shares, are
entitled to certain registration rights with respect to the common stock
issuable upon conversion thereof. See "Description of Capital
Stock -- Registration Rights."

We intend to use approximately $10.6 million of the net proceeds of this
offering to redeem the Series B Redeemable Preferred Stock, including all
accrued, cumulative dividends thereon. See "Use of Proceeds."

The following table summarizes the shares of preferred stock purchased by
our executive officers, directors and five percent shareholders and persons
associated with them since January 1996. The number of total shares on an
as-converted basis reflects the current 1-for-1.5 conversion ratio for each
share of Series A Preferred Stock. The entities affiliated with InSight Capital
Partners consist of InSight Capital Partners II, L.P., InSight Capital Partners
(Cayman) II, L.P. and WI Software Investors LLC.

<TABLE>
<CAPTION>
SERIES B
SERIES A REDEEMABLE TOTAL SHARES ON AN
PREFERRED PREFERRED AS-CONVERTED AGGREGATE
INVESTOR STOCK STOCK BASIS CONSIDERATION
- -------- --------- ---------- ------------------ -------------
<S> <C> <C> <C> <C>
Entities affiliated with InSight
Capital Partners.................... 1,688,889 -- 2,533,333 $ 9,500,000
UBS Capital LLC....................... 977,778 1,777,778 1,466,667 15,500,000
</TABLE>

REPURCHASE OF SHARES FROM AND SEVERANCE ARRANGEMENT WITH DIRECTOR

In April 1999 we purchased an aggregate of 14,820,000 shares of our common
stock for a total purchase price of $35.0 million from trusts established by Mr.
Machin, one of the founders and a director of Quest. During late 1998, Mr.
Machin sought to sell his stock and liquidate his position in Quest. Mr. Machin
and the Company negotiated at arms-length to determine the pricing of the
repurchase and Mr. Machin ultimately agreed upon a price based on the fact that
he could obtain cash immediately. In addition, we entered into a severance
agreement with Mr. Machin to pay him an annual fee of $200,000 per year from
1999 to 2001 and to provide for his use of a company car, related car expenses
and medical benefits. There was no prior agreement that obligated us to
consummate the repurchase transaction with Mr. Machin. Currently, Mr. Machin
does not own any shares of our capital stock.

ACQUISITION OF R*TECH SYSTEMS, INC. AND SALE OF STOCK TO OFFICER

In March 1996, we acquired R*Tech Systems, Inc., the sole shareholder of
which was Mr. Aronoff, our current Vice President, Engineering and Technology,
through a merger of R*Tech with and into Quest. In the merger Quest issued
1,950,000 shares of common stock to Mr. Aronoff. Mr. Aronoff also entered into
an employment agreement with us for a term of 24 months, under which he received
an annual salary of $85,000, the right to receive commissions on the sale of
certain products, the right to

55
<PAGE> 57

receive bonus payments of up to $400,000 upon the achievement of specified
performance milestones, and an option to purchase up to 2.5% of our outstanding
capital stock.

In April 1998, Mr. Aronoff purchased 975,000 shares of common stock under
the option for a per share purchase price of $.769 and a total purchase price of
$750,000, for which Mr. Aronoff executed a promissory note. The note has a term
of four years, bears interest at the rate of 5.7% per annum, and up to 25% of
the original principal amount of the note may be prepaid in each year of the
four-year term. The entire amount due under the note may be prepaid upon a sale
or merger of Quest or at any time Mr. Smith no longer serves as our chief
executive officer. As of June 30, 1999, $573,008 of principal and interest on
this note was outstanding.

Mr. Aronoff's two-year employment agreement expired in March 1998.

SALE OF COMMON STOCK TO MR. SMITH

In October 1997, we sold to Mr. Smith, our Chief Executive Officer,
3,900,000 shares of common stock for aggregate consideration of $2.2 million.
Mr. Smith executed a promissory note for the purchase price. This note is due
and payable on April 1, 2002 and bears interest at a rate of 6.2%. As of the
date of this prospectus, the entire principal amount of this note is
outstanding. This note is also secured in part by the 3,900,000 shares of common
stock.

TRANSACTIONS WITH DIRECTORS AND OFFICERS

In June 1998, we granted options to two of our officers, Eyal Aronoff and
Douglas Garn, to purchase 24,000 and 450,000 shares of our common stock,
respectively, at an exercise price of $1.00 per share. In July 1998, we granted
options to Mr. Garn and Terence Mullin and Charles Ramsey, officers, to purchase
126,000, 75,000 and 150,000 shares of our common stock, respectively, at an
exercise price of $1.00. In September 1998, we granted options to Mr. Aronoff
and to John Laskey, an officer, to purchase 15,000 and 180,000 shares of our
common stock, respectively, at an exercise price of $1.17 per share. In January
1999, we granted options to purchase 120,000 shares of our common stock at an
exercise price of $2.37 per share to Carla Fitzgerald, an officer.

In January 1999, we granted options to purchase 30,000 and 15,000 shares of
our common stock at an exercise price of $2.37 per share to Mr. Mullin and Mr.
Ramsey, respectively. In June 1999, we granted options to purchase 35,000 shares
of our common stock at an exercise price of $6.75 per share to Raymond Lane, one
of our directors.

OTHER RELATED PARTY TRANSACTIONS

We have entered into an indemnification agreement with certain of our
executive officers and our directors containing provisions that may require us,
among other things, to indemnify our officers and our directors against certain
liabilities that may arise by reason of their status or service as officers or
directors, other than liabilities arising from willful misconduct of a culpable
nature, and to advance expenses incurred as a result of any proceeding against
them as to which they could be indemnified. See "Management -- Limitation of
Liability and Indemnification."

We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between us and our officers, directors and principal shareholders and their
affiliates and any transactions between us and any entity with which our
officers, directors or principal shareholders are affiliated will be approved by
a majority of the board of directors, including a majority of the independent
and disinterested outside directors of the board of directors and will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.

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<PAGE> 58

PRINCIPAL SHAREHOLDERS

The table below sets forth information regarding the beneficial ownership
of our common stock as of June 30, 1999 by the following individuals or groups:

- each person or entity who is known by Quest to own beneficially more than
five percent of our outstanding common stock;

- each of the Named Executive Officers;

- each director; and

- all directors and executive officers as a group, which for us is eleven
persons.

Applicable percentage ownership in the following table is based on the
number of shares of common stock outstanding as of June 30, 1999, as adjusted to
reflect

- a three-for-two stock split that was effected in June 1999;

- the conversion of all outstanding shares of our Series A Preferred Stock
into 4,000,000 shares of common stock; and

- the redemption for cash of all outstanding shares of our Series B
Redeemable Preferred Stock.

In addition, information presented in the table below assumes no exercise of the
underwriters' over-allotment option.

Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. The number of shares beneficially owned and the percentage of shares
beneficially owned are based on 33,724,600 shares of common stock outstanding as
of June 30, 1999 and 38,124,600 shares of common stock outstanding upon
consummation of this offering. Shares of common stock subject to options
currently exercisable or exercisable within 60 days of June 30, 1999 are deemed
to be outstanding and to be beneficially owned by the person holding these
options for the purpose of computing the number of shares beneficially owned and
the percentage of the person or entity holding these securities, but are not
deemed outstanding for the purpose of computing the percentage ownership of any
other person or entity. Unless otherwise indicated, the principal address of
each of the shareholders below is c/o Quest Software, Inc., 610 Newport Center
Drive, Newport Beach, California 92660.

<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
NUMBER OF SHARES -------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE AFTER
- ------------------------ ------------------ ------- ------
<S> <C> <C> <C>
Vincent C. Smith(1)........................................ 18,233,499 54.1% 47.8%
David M. Doyle............................................. 7,397,100 21.9% 19.4%
Eyal M. Aronoff(2)......................................... 2,932,920 8.7% 7.7%
Jerry Murdock(3)........................................... 2,785,201 8.3% 7.3%
c/o InSight Capital Partners
122 East 42nd Street
New York, NY 10168
InSight Capital Partners II, L.P.(4)....................... 2,520,001 7.5% 6.6%
InSight Capital Partners
122 East 42nd Street
New York, NY 10168
UBS Capital LLC(5)......................................... 1,466,667 4.3% 3.8%
299 Park Avenue
34th Floor
New York, NY 10171
Douglas F. Garn(6)......................................... 173,700 * *
Raymond J. Lane............................................ 50,000 * *
Doran G. Machin............................................ -- -- --
All executive officers and directors as a group (12 82.5%
persons)(7).............................................. 31,664,670 93.1%
</TABLE>

- -------------------------
* Less than one percent.

57
<PAGE> 59

(1) Includes 38,100 shares held in the name of McNair Smith and 38,100 shares
held in the name of McKenzie Smith, Mr. Smith's minor children. Mr. Smith
disclaims beneficial ownership of the shares held in the names of his minor
children.

(2) Includes 4,224 shares held in the name of Aely Sollie Aronoff and 17,223
shares held in the name of Leya Jullie Aronoff, Mr. Aronoff's minor
children. Also includes 7,920 shares issuable upon the exercise of stock
options that are exercisable within 60 days of June 30, 1999.

(3) Includes 265,200 shares of common stock owned directly by Mr. Murdock. Also
includes 792,000 shares of Series A Preferred Stock held by InSight Capital
Partners II, L.P., 88,001 shares of Series A Preferred Stock held by InSight
Capital Partners (Cayman) II, L.P., and 800,000 shares of Series A Preferred
Stock held by WI Software Investors LLC., which will be converted into an
aggregate of 2,520,001 shares of common stock immediately prior to the
closing of this offering. Mr. Murdock is a General Partner of InSight
Capital Partners and a director of Quest. Mr. Murdock disclaims beneficial
ownership of the shares held by InSight Capital Partners II, L.P., InSight
Capital Partners (Cayman) II, L.P., and WI Software Investors LLC, except to
the extent of his indirect pecuniary interests therein.

(4) Includes 88,001 shares of Series A Preferred Stock held by InSight Capital
Partners (Cayman) II, L.P., 792,000 shares of Series A Preferred Stock held
by InSight Capital Partners II, L.P., and 800,000 shares of Series A
Preferred Stock held by WI Software Investors LLC, which shares will be
converted into an aggregate of 2,520,001 shares of common stock immediately
prior to the closing of this offering. Each of InSight Capital Partners II,
L.P. and InSight Capital Partners (Cayman) II, L.P. is a limited partnership
controlled by its general partner, InSight Venture Associates II, LLC, which
has voting and dispositive powers over its shares of Series A Preferred
Stock.

(5) Includes 977,778 shares of Series A Preferred Stock, which shares will be
converted into 1,466,667 shares of common stock immediately prior to the
closing of this offering. UBS is a limited liability company controlled by a
board of managers who have voting and dispositive powers over UBS' shares of
Series A and Series B Preferred Stock.

(6) Consists of 173,700 shares issuable upon the exercise of stock options that
are exercisable within 60 days of June 30, 1999.

(7) Includes 273,870 shares issuable upon the exercise of stock options that are
exercisable within 60 days of June 30, 1999. See Notes 2 and 6.

58
<PAGE> 60

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, the authorized capital stock of Quest
will consist of 75,000,000 shares of common stock and 5,000,000 shares of
undesignated preferred stock. The following description of our capital stock is
subject to and qualified by our Amended and Restated Articles of Incorporation
and Bylaws and by the provisions of applicable California law. Copies of the
Amended and Restated Articles of Incorporation and Bylaws have been filed as
exhibits to the registration statement of which this prospectus is a part.

COMMON STOCK

As of June 30, 1999, there were 33,724,600 shares of common stock
outstanding held of record by 24 shareholders, and options to purchase an
aggregate of 4,578,875 shares of common stock were also outstanding. There will
be 38,124,600 shares of common stock outstanding, assuming no exercise of the
underwriters' option to purchase additional shares, exercise of outstanding
options under the stock plans after June 30, 1999 or exercise of warrants
outstanding after the closing of this offering, after giving effect to the sale
of the shares of common stock to the public offered in this prospectus.

The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may be
applicable to any outstanding preferred stock that may come into existence, the
holders of common stock are entitled to receive ratably those dividends, if any,
as may be declared from time to time by the board of directors out of funds
legally available for dividends. See "Dividend Policy." In the event of our
liquidation, dissolution or winding up, the holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities, subject
to prior distribution rights of preferred stock then outstanding, if any. The
common stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be outstanding upon completion
of this offering will be fully paid and nonassessable.

PREFERRED STOCK

Upon the closing of this offering, our board of directors will be
authorized, without further shareholder approval, to issue from time to time up
to an aggregate of 5,000,000 shares of preferred stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption price or prices, liquidation preferences and the number
of shares constituting any series or designations of such series. We have no
present plans to issue any shares of preferred stock. The rights of the holders
of common stock will be subject to, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued in the future. Any
series of preferred stock may possess voting, dividend, liquidation and
redemption rights superior to that of the common stock. Issuance of a new series
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
entrenching our board of directors and making it more difficult for a third
party to acquire, or discourage a third party from acquiring, a majority of our
outstanding voting stock. We have no present plans to issue any shares of or
designate any series of preferred stock.

We believe that the ability to issue preferred stock without the expense
and delay of a special shareholders' meeting will provide us with increased
flexibility in structuring possible future financings and acquisitions, and in
meeting other corporate needs that might arise. This also permits the board of
directors to issue preferred stock containing terms which could impede the
completion of a takeover attempt, subject to certain limitations imposed by the
securities laws. The board of directors will make any determination to issue
such shares based on its judgment as to the best interests of Quest and our
shareholders at the time of issuance. This could discourage an acquisition
attempt or other transaction

59
<PAGE> 61

which shareholders might believe to be in their best interests or in which they
might receive a premium for their stock over the then market price of the stock.

REGISTRATION RIGHTS

Upon completion of this offering, the holders of an aggregate of
approximately 4,000,000 shares of common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of the registration rights agreements, if we propose to register
any of our securities under the Securities Act, either for our own account or
for the account of other security holders exercising registration rights, these
holders are entitled to notice of such registration and are entitled to include
shares of common stock in the registration. The rights are subject to conditions
and limitations, among them the right of the underwriters of an offering subject
to the registration to limit the number of shares included in such registration.
Holders of these rights may also require us to file a registration statement
under the Securities Act at our expense with respect to their shares of common
stock, and we are required to use our best efforts to effect such registration,
subject to certain conditions and limitations. Furthermore, shareholders with
registration rights may require us to file additional registration statements on
Form S-3, subject to conditions and limitations.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is U.S. Stock
Transfer Corporation.

LISTING

Application has been made for listing the common stock on the Nasdaq
National Market under the trading symbol "QSFT."

60
<PAGE> 62

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for our common
stock. Future sales of substantial amounts of common stock, including shares
issued upon exercise of outstanding options or warrants, in the public market
could adversely affect prevailing market prices from time to time. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale,
as described below, sales of substantial amount of common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price and our ability to raise equity capital in the future.

Upon completion of this offering, we will have 38,124,600 shares of common
stock outstanding assuming the issuance of 4,400,000 shares of common stock
offered, no exercise of the underwriters' over-allotment option and no exercise
of outstanding stock options after June 30, 1999. Of the total outstanding
shares of common stock, the 4,400,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, except that any shares purchased by our "affiliates," as that term is
defined in Rule 144 under the Securities Act, may generally only be sold
pursuant to an effective registration statement under the Securities Act or in
compliance with the limitations of Rule 144 as described below.

The remaining 33,724,600 shares of common stock are "restricted securities"
as that term is defined in Rule 144. All of these restricted securities will be
available for sale in the public market under Rule 144 following the expiration
of the 180 day lock-up agreement further described below. If the underwriter
elects to waive the lock-up period for any reason, these shares will be
available for sale under Rule 144 prior to that time.

Beginning on the effective date of this offering the holders of 4,000,000
restricted shares are entitled to certain rights with respect to registration of
these shares for sale in the public market. Registration of such shares under
the Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act, except for shares purchased by our
affiliates. If these holders sell in the public market these sales would have a
material adverse effect on the market price of the common stock.

Quest, our officers, directors, shareholders, and most of our optionholders
have entered into contractual "lock-up" agreements generally providing that,
subject to certain limited exceptions, they will not offer, pledge, sell, offer
to sell, contract to sell, sell any option or contract to purchase, purchase any
option to sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any of the shares of common
stock or any securities convertible into, or exercisable or exchangeable for,
common stock owned by them, or enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the common stock, for a period of 180 days after the date of this
prospectus, without the prior written consent of BancBoston Robertson Stephens,
except that we may, without such consent, grant options and sell shares pursuant
to our stock plans. BancBoston Robertson Stephens may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. BancBoston Robertson Stephens currently has no
plans to release any portion of the securities subject to lock-up agreements.
When determining whether or not to release shares from the lock-up agreements,
BancBoston Robertson Stephens will consider, among other factors, the
shareholder's reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time. Following the
expiration of the 180-day lock-up period, the restricted securities will be
available for sale in the public market subject to compliance with Rule 144 or
Rule 701.

In general, under Rule 144 as currently in effect, any affiliate of ours or
a person, or persons whose shares are aggregated, who has beneficially owned
restricted shares for at least one year, including the holding period of any
prior owner other than a person who may be deemed an affiliate of ours, is
entitled

61
<PAGE> 63

to sell within any three-month period a number of shares of common stock that
does not exceed the greater of:

- one percent of the then-outstanding shares of common stock (approximately
381,246 shares after giving effect to this offering); and

- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
Form 144 notice with respect to this sale.

Sales under Rule 144 of the Securities Act are subject to certain
restrictions relating to manner of sale, notice and the availability of current
public information about us. Under Rule 144(k), a person who is not an affiliate
of ours at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, including the holding period
of any prior owner other than a person who may be deemed an affiliate of ours,
would be entitled to sell these shares immediately following this offering
without regard to the volume limitations, manner of sale provisions or notice or
other requirements of Rule 144 of the Securities Act. However, the transfer
agent may require an opinion of counsel that a proposed sale of shares comes
within the terms of Rule 144 of the Securities Act prior to effecting a transfer
of these shares.

We are unable to estimate the number of shares that will be sold under Rule
144, as this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of common
stock in the open market may adversely affect the market price of the common
stock offered hereby.

We will file, on or after the date of this prospectus, a Form S-8
registration statement under the Securities Act to register all shares of common
stock issuable under the 1999 Stock Incentive Plan, and shares of common stock
issuable under the Employee Stock Purchase Plan. Such registration statements
will become effective immediately upon filing, and shares covered by those
registration statements will thereupon be eligible for sale in the public
markets, subject to any lock-up agreements applicable thereto and Rule 144
limitations applicable to affiliates. See "Management -- 1999 Stock Incentive
Plan," "Description of Capital Stock -- Registration Rights" and "Underwriting."

62
<PAGE> 64

UNDERWRITING

The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, CIBC World Markets Corp. and FAC/Equities, a division of First
Albany Corporation (the "Representatives"), have severally agreed with us,
subject to the terms and conditions set forth in the underwriting agreement, to
purchase from us the number of shares of common stock set forth opposite their
names below. The underwriters are committed to purchase and pay for all such
shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Donaldson, Lufkin & Jenrette Securities Corporation ........
CIBC World Markets Corp. ...................................
First Albany Corporation....................................

---------
Total............................................. 4,400,000
=========
</TABLE>

We have been advised by the Representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Representatives. No such reduction shall change the amount of proceeds to be
received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or in
part.

The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

Over-Allotment Option

We have granted to the underwriters an option, exercisable during the
30-day period after the date of this prospectus, to purchase up to 660,000
additional shares of common stock at the same price per share as we will receive
for the 4,400,000 shares that the underwriters have agreed to purchase. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage of such
additional shares that the number of shares of common stock to be purchased by
it shown in the above table represents as a percentage of the 4,400,000 shares
offered hereby. If purchased, such additional shares will be sold by the
underwriters on the same terms as those on which the 4,400,000 shares are being
sold. We will be obligated, pursuant to the option, to sell shares to the extent
the option is exercised. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered hereby. If such option is exercised in full, the total public offering
price, underwriting discounts and commissions and proceeds to us will be
$65,780,000, $4,604,600 and $59,975,400, respectively.

Indemnity

The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.

63
<PAGE> 65

Lock-Up Agreements

Each of our executive officers, directors and shareholders and
substantially all of our optionholders have agreed with the Representatives, for
a period of 180 days after the date of this prospectus, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock,
any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or, with certain exceptions, thereafter acquired
directly by such holders or with respect to which they have or hereafter acquire
the power of disposition, without the prior written consent of BancBoston
Robertson Stephens. However, BancBoston Robertson Stephens may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to the lock-up agreements. There are no agreements between
the Representatives and any of our shareholders providing consent by the
Representatives to the sale of shares prior to the expiration of the period of
180 days after this prospectus.

Future Sales

In addition, we have agreed that during the period of 180 days after this
prospectus, we will not, subject to certain exceptions, without the prior
written consent of BancBoston Robertson Stephens:

- Consent to the disposition of any shares held by shareholders prior to
the expiration of the period of 180 days after this prospectus; or

- Issue, sell, contract to sell or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock.

Directed Shares

We have requested that the underwriters reserve up to 12% of the shares of
common stock for sale at the initial public offering price to individuals
designated by us.

No Prior Public Market

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the common stock
offered hereby will be determined through negotiations between us and the
representatives. Among the factors to be considered in such negotiations are
prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the Representatives believe to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.

Stabilization

The Representatives have advised us that, pursuant to Regulation M under
the Securities Act, certain persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with this offering. A "penalty bid" is an arrangement permitting the
Representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with this offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the Representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
Representatives have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.

64
<PAGE> 66

LEGAL MATTERS

The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, Irvine, California. Certain legal matters in
connection with the offering will be passed upon for the underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.

EXPERTS

The Consolidated Financial Statements and related financial schedule as of
December 31, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998 included in this prospectus and registration statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which we have included in this prospectus and registration statement
and are given upon the authority of Deloitte & Touche LLP as experts in
accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission, Washington, D.C.
20549 (the "Commission"), under the Securities Act, as amended, a registration
statement on Form S-1 relating to the common stock offered. This prospectus does
not contain all of the information set forth in the registration statement and
its exhibits and schedules. For further information with respect to us and the
shares we are offering pursuant to this prospectus you should refer to the
registration statement, including its exhibits and schedules. Statements
contained in this prospectus as to the contents of any contract, agreement or
other document referred to are materially complete, and you should refer to the
copy of that contract or other document filed as an exhibit to the registration
statement or any other document. You may inspect a copy of the registration
statement without charge at the Public Reference Section of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at the Commission's
regional offices at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California
90036. The Commission maintains an Internet site that contains reports, proxy
information statements and other information regarding registrants that file
electronically with the Commission. The Commission's World Wide Web address is
www.sec.gov.

We intend to furnish holders of our common stock with annual reports
containing, among other information, audited consolidated financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. We intend to furnish these other reports as we may
determine or as may be required by law.

65
<PAGE> 67

QUEST SOFTWARE, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997, 1998
and June 30, 1999 (Unaudited)............................. F-3
Consolidated Statements of Operations for the Years ended
December 31, 1996, 1997 and 1998 and the Six Months ended
June 30, 1998 and 1999 (Unaudited)........................ F-4
Consolidated Statements of Shareholders' Equity for the
Years ended December 31, 1996, 1997 and 1998 and the Six
Months ended June 30, 1999 (Unaudited).................... F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1996, 1997 and 1998 and the Six Months ended
June 30, 1998 and 1999 (Unaudited)........................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 68

INDEPENDENT AUDITORS' REPORT

The Shareholders and Board of Directors
Quest Software, Inc.

We have audited the accompanying consolidated balance sheets of Quest
Software, Inc. and subsidiaries (the Company) as of December 31, 1997 and 1998,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Quest Software,
Inc. and its subsidiaries at December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.

Costa Mesa, California
June 9, 1999 (except for paragraph 3

of note 1 and the 1999 Employee Stock

Purchase Plan described in note 7 as

to which the date is June , 1999)

The accompanying consolidated financial statements include the effect of
the amendment to the Company's Articles of Incorporation and the adoption of the
1999 Employee Stock Purchase Plan anticipated to be effective prior to the
closing of this offering. The above opinion is in the form which will be signed
by Deloitte & Touche LLP upon consummation of the items described in note 1 and
note 7 of the notes to the consolidated financial statements and assuming that
from June 9, 1999 to the effective date of such items, no other events have
occurred that would affect the accompanying consolidated financial statements
and notes thereto.

Deloitte & Touche LLP
Costa Mesa, California

July 21, 1999

F-2
<PAGE> 69
QUEST SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1997 1998 1999
------- ------- ------------
(UNAUDITED)

<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,096 $ 8,981 $ 11,777
Accounts receivable, net of allowance for doubtful
accounts and sales returns of $783 (1997), $1,052 (1998)
and $1,182 (1999)....................................... 4,815 7,443 10,447
Income taxes receivable................................... 122 -- --
Prepaid expenses and other current assets................. 100 720 1,608
Deferred income taxes..................................... -- 198 198
------- ------- --------
Total current assets.................................. 7,133 17,342 24,030
Property and equipment:
Furniture and fixtures.................................... 397 596 825
Machinery and equipment................................... 140 270 410
Computer equipment........................................ 1,001 1,711 2,709
Computer software......................................... 186 315 426
Leasehold improvements.................................... 56 109 166
------- ------- --------
1,780 3,001 4,536
Less accumulated depreciation and amortization.............. (857) (1,613) (2,245)
------- ------- --------
Property and equipment, net................................. 923 1,388 2,291
Purchased technology and software licenses, net............. 1,531 527 376
Deferred income taxes....................................... -- 267 267
Other assets................................................ 126 121 504
------- ------- --------
$ 9,713 $19,645 $ 27,468
======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 527 $ 1,468 $ 1,371
Accrued compensation...................................... 775 1,937 3,256
Other accrued expenses.................................... 1,170 2,243 3,706
Deferred support revenue.................................. 4,005 7,298 9,365
Deferred license revenue.................................. 282 1,625 3,181
------- ------- --------
Total current liabilities............................. 6,759 14,571 20,879
Deferred income taxes....................................... 118 -- --
Bank loan payable........................................... -- -- 10,000
Series A Redeemable Preferred Stock, no par value, 2,667
shares authorized, issued and outstanding at June 30,
1999...................................................... -- -- 15,000
Series B Redeemable Preferred Stock, no par value, 1,800
shares authorized, 1,778 issued and outstanding at June
30, 1999.................................................. -- -- 10,340
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock -- no par value, 5,000 shares authorized;
no shares issued or outstanding......................... -- -- --
Common stock -- no par value, 75,000 shares authorized;
43,497, 44,538, and 29,725 shares issued and outstanding
at December 31, 1997 and 1998, and June 30, 1999,
respectively, 33,725 shares issued and outstanding, pro
forma................................................... 3,425 4,241 4,306 $ 19,306
Retained earnings........................................... 1,645 3,991 31 31
Notes receivable from sale of common stock.................. (2,234) (3,158) (3,024) (3,024)
Capital distribution in excess of basis in common stock..... -- -- (30,064) (30,064)
------- ------- -------- --------
Total shareholders' equity (deficit).................. 2,836 5,074 (28,751) $(13,751)
------- ------- -------- ========
$ 9,713 $19,645 $ 27,468
======= ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 70

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses............................... $ 9,316 $12,158 $24,901 $ 9,580 $21,365
Services............................... 3,546 6,157 9,889 4,455 6,924
------- ------- ------- ------- -------
Total revenues.................... 12,862 18,315 34,790 14,035 28,289
Cost of revenues:
Licenses............................... 950 1,307 3,433 1,504 1,404
Services............................... 1,467 1,972 2,507 1,044 1,738
------- ------- ------- ------- -------
Total cost of revenues............ 2,417 3,279 5,940 2,548 3,142
------- ------- ------- ------- -------
Gross profit............................. 10,445 15,036 28,850 11,487 25,147

Operating expenses:
Sales and marketing.................... 4,328 5,845 11,836 4,371 12,158
Research and development............... 2,995 4,293 8,047 3,629 6,034
General and administrative............. 3,494 3,450 5,278 2,070 3,989
Compensation and other costs........... -- -- -- -- 775
------- ------- ------- ------- -------
Total operating expenses.......... 10,817 13,588 25,161 10,070 22,956
------- ------- ------- ------- -------
Income (loss) from operations............ (372) 1,448 3,689 1,417 2,191
Other income (expense), net.............. 389 (137) 336 119 82
------- ------- ------- ------- -------
Income before income tax provision....... 17 1,311 4,025 1,536 2,273
Income tax provision..................... 1 1,022 1,679 637 959
------- ------- ------- ------- -------
Net income............................... $ 16 $ 289 $ 2,346 $ 899 1,314
======= ======= ======= =======
Preferred stock dividends................ 340
-------
Net income applicable to common
shareholders........................... $ 974
=======
Net income per share:
Basic.................................. $ -- $ 0.01 $ 0.05 $ 0.02 $ 0.03
Diluted................................ $ -- $ 0.01 $ 0.05 $ 0.02 $ 0.02
Weighted average shares:
Basic.................................. 38,350 40,373 44,261 43,990 38,809
Diluted................................ 38,350 40,617 44,459 43,990 43,580
Pro forma basic and diluted net income
per share.............................. $ 0.05 $ 0.02
Pro forma weighted average basic shares
outstanding............................ 48,261 42,809
Pro forma weighted average diluted shares
outstanding............................ 48,459 45,016
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 71

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
CAPITAL
DISTRIBUTION
NOTES IN EXCESS OF TOTAL
COMMON STOCK RECEIVABLE BASIS IN SHAREHOLDERS'
----------------- RETAINED FROM COMMON EQUITY
SHARES AMOUNT EARNINGS SHAREHOLDERS STOCK (DEFICIT)
-------- ------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996................... 37,050 $ 35 $ 2,961 $ -- $ -- $ 2,996
Issuance of common stock................... 1,950 777 -- -- -- 777
Net income................................. -- -- 16 -- -- 16
Distributions paid......................... -- -- (1,360) -- -- (1,360)
-------- ------ ------- ------- -------- --------
BALANCE, December 31, 1996................. 39,000 812 1,617 -- -- 2,429
Issuance of common stock................... 597 413 -- -- -- 413
Note receivable from shareholder for
purchase of common stock................. 3,900 2,200 -- (2,200) -- --
Accrued interest receivable from
shareholder.............................. -- -- -- (34) -- (34)
Net income................................. -- -- 289 -- -- 289
Distributions paid......................... -- -- (261) -- -- (261)
-------- ------ ------- ------- -------- --------
BALANCE, December 31, 1997................. 43,497 3,425 1,645 (2,234) -- 2,836
Issuance of common stock................... 66 66 -- -- -- 66
Note receivable from shareholder for
purchase of common stock................. 975 750 -- (750) -- --
Accrued interest receivable from
shareholders............................. -- -- -- (174) -- (174)
Net income................................. -- -- 2,346 -- -- 2,346
-------- ------ ------- ------- -------- --------
BALANCE, December 31, 1998................. 44,538 4,241 3,991 (3,158) -- 5,074
-------- ------ ------- ------- -------- --------
Unaudited:
Exercise of stock options.................. 7 7 -- -- -- 7
Payment on notes receivable from
shareholders for purchase of common
stock.................................... -- -- -- 230 -- 230
Accrued interest receivable from
shareholders............................. -- -- -- (96) -- (96)
Repurchase of common stock................. (14,820) (2) (4,934) -- (30,064) (35,000)
Compensation expense associated with stock
option grants............................ -- 60 -- -- -- 60
Dividends on Series B Redeemable Preferred
Stock.................................... -- -- (340) -- -- (340)
Net income................................. -- -- 1,314 -- -- 1,314
-------- ------ ------- ------- -------- --------
BALANCE, June 30, 1999..................... 29,725 $4,306 $ 31 $(3,024) $(30,064) $(28,751)
======== ====== ======= ======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 72

QUEST SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 16 $ 289 $ 2,346 $ 898 $ 1,314
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 743 964 1,893 776 1,002
Compensation expense associated with stock option
grants.......................................... -- -- -- -- 60
Loss from disposal of property and equipment....... 25 52 -- -- --
Accrued interest receivable from shareholders...... -- (34) (174) (75) (96)
Deferred income taxes.............................. -- 178 (643) (970) --
Changes in assets and liabilities, net of effects
of acquisitions:
Accounts receivable............................. (1,051) (683) (2,628) (212) (3,004)
Income taxes receivable......................... -- (122) 122 122 --
Prepaid expenses and other current assets....... (363) 282 (620) (651) (888)
Other assets.................................... (131) 38 5 12 (383)
Accounts payable................................ 263 113 941 (263) (97)
Bank overdraft.................................. 393 (393) -- -- --
Accrued compensation............................ (703) 108 1,162 868 1,319
Other accrued expenses.......................... 119 881 1,141 963 1,471
Deferred revenue................................ 705 1,960 4,636 572 3,623
------- ------- ------- ------ --------
Net cash provided by operating activities....... 16 3,633 8,181 2,040 4,321
Cash flows from investing activities:
Purchases of property and equipment.................... (589) (536) (1,231) (462) (1,520)
Purchases of software licenses......................... -- (831) (57) (31) (234)
Cash received (paid) for acquisitions.................. (769) 100 -- -- --
------- ------- ------- ------ --------
Net cash used in investing activities........... (1,358) (1,267) (1,288) (493) (1,754)
Cash flows from financing activities:
Distributions to shareholders.......................... (1,360) (261) -- -- --
Proceeds from note payable............................. -- -- -- -- 10,000
Proceeds from issuance of preferred stock.............. -- -- -- -- 25,000
Repurchase of common stock............................. -- -- -- -- (35,000)
Proceeds from the exercise of stock options............ -- -- -- -- 7
Repayment of note payable to related party............. (7) (9) (8) (4) (8)
Payment on notes receivable from shareholders for
purchase of common stock............................. -- -- -- -- 230
------- ------- ------- ------ --------
Net cash (provided by) used in financing
activities.................................... (1,367) (270) (8) (4) 229
------- ------- ------- ------ --------
Net increase (decrease) in cash and cash equivalents..... $(2,709) $ 2,096 $ 6,885 $1,543 $ 2,796
Cash and cash equivalents, beginning of period........... 2,709 2,096 2,096 8,981
------- ------- ------- ------ --------
Cash and cash equivalents, end of period................. $ -- $ 2,096 $ 8,981 $3,639 $ 11,777
======= ======= ======= ====== ========
Supplemental disclosures of consolidated cash flow
information:
Cash paid during the year for:
Interest............................................. $ 2 $ 8 $ 5 $ 4 $ 69
======= ======= ======= ====== ========
Income taxes......................................... $ 28 $ 938 $ 2,054 $ 932 $ 1,787
======= ======= ======= ====== ========
Supplemental schedule of noncash investing and financing
activities:
Note receivable from shareholders for purchase of
common stock......................................... $ 2,200 $ 750 $ 750
======= ======= ======
Accrued interest receivable from shareholders.......... $ 34 $ 174 $ 75 $ 96
======= ======= ====== ========
Dividends payable on Series B Redeemable Preferred
Stock................................................ $ 340
========
</TABLE>

See Note 2 for details of assets acquired and liabilities assumed in
purchase transactions.

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 73

QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations -- Quest Software Inc., a California corporation, (the
"Parent") and its subsidiaries (collectively the "Company") is a leading
provider of application and information availability software solutions that
enhance the performance and reliability of an organization's e-business,
packaged and custom applications and enable the delivery of information across
the extended enterprise. The Company also provides consulting, training, and
support services to its customers. The accompanying consolidated financial
statements include the accounts of the Parent and its wholly owned subsidiaries
in Australia, the United Kingdom, and Germany, and a majority-owned subsidiary
in the United Kingdom. All significant intercompany transactions and balances
have been eliminated in consolidation.

Unaudited Information -- The information set forth in these consolidated
financial statements as of June 30, 1999 and for the six months ended June 30,
1998 and June 30, 1999 is unaudited and reflects all adjustments, consisting
only of normal recurring adjustments, that, in the opinion of management, are
necessary to present fairly the financial position and results of operations of
the Company for the period. Results of operations for the interim periods are
not necessarily indicative of the results of operations for the full fiscal
year.

Stock Split -- On June 23, 1998, the Company's Board of Directors approved
and effected a 1,300-for-1 stock split of the Company's common stock, and on
March 10, 1999, the Company's Board of Directors approved and effected a 2-for-1
stock split. On June 4, 1999, in connection with a proposed public offering of
the Company's common stock, the Company's Board of Directors approved and
effected a 3-for-2 stock split of the Company's common stock. Concurrently with
the closing of the Company's proposed initial public offering, the Company will
file amended Articles of Incorporation to provide for the issuance of up to
5,000 shares of undesignated preferred stock. Such amendment was effective on
, 1999. All share, per share and conversion amounts relating to common
stock, preferred stock, and stock options included in the accompanying
consolidated financial statements and footnotes have been restated to reflect
the stock splits and amendments to the articles of incorporation for all periods
presented.

Foreign Currency Translation -- In accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, Foreign Currency Translation, the United
States dollar is considered to be the functional currency for the Company's
foreign subsidiaries, as such subsidiaries act as sales offices for the Parent.
Therefore, gains or losses from translation adjustments are included in other
income in the Company's consolidated statements of operations. Translation
adjustments were not material for the years ended December 31, 1996, 1997, and
1998, and the six months ended June 30, 1998 and 1999. However, due to the
increase in international operations, the Company's results of operations could
be impacted in the future.

Fair Value of Financial Instruments -- The Company's consolidated balance
sheets include the following financial instruments: cash, accounts receivable,
notes receivable, accounts payable, and accrued liabilities. The Company
considers the carrying value of cash, accounts receivable, accounts payable, and
accrued liabilities in the consolidated financial statements to approximate fair
value for these financial instruments because of the relatively short period of
time between origination of the instruments and their expected realization.
Based on borrowing rates currently available, the fair value of the notes
receivable from the sale of common stock at December 31, 1998 and June 30, 1999
was approximately $3,290 and $3,222, respectively.

Cash and Cash Equivalents -- Cash equivalents include short-term, highly
liquid investments with original maturities of three months or less. Interest
income, included in other income (expense) in the accompanying consolidated
statements of operations, was $17, $72, $372, $35 and $315 for the years ended
December 31, 1996, 1997 and 1998, and the six months ended June 30, 1998 and
1999, respectively.

F-7
<PAGE> 74
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable -- The Company sells and/or licenses its products and
services to various companies across several industries. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses and sales
returns. Such losses have been within management's expectations.

Property and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives ranging from three to seven years. Leasehold
improvements are amortized over the shorter of the estimated useful lives of the
improvements or the term of the related lease. Repair and maintenance costs are
expensed as incurred.

Long-Lived Assets -- The Company accounts for the impairment and
disposition of long-lived assets in accordance with SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
In accordance with SFAS No. 121, long-lived assets to be held are reviewed for
events or changes in circumstances which indicate that their carrying value may
not be recoverable. The Company periodically reviews the carrying value of
long-lived assets to determine whether or not an impairment to such value has
occurred. At December 31, 1998 and June 30, 1999, there was no impairment of
long-lived assets.

Purchased Technology and Software Licenses -- Purchased technology is
recorded at cost and amortized using the straight-line method over the estimated
useful life of three years. Accumulated amortization was $916, $1,483, and
$1,638 at December 31, 1997 and 1998, and June 30, 1999, respectively. Software
licenses are recorded at cost and are amortized over the shorter of the
estimated useful lives of the related products or the term of the license.
Accumulated amortization was $90, $644, and $871 at December 31, 1997 and 1998,
and June 30, 1999, respectively. The net carrying amount of purchased technology
and software licenses was considered recoverable at December 31, 1998 and June
30, 1999, based on the undiscounted future cash flows expected to be realized
from continued sales of the related software products.

Other Assets -- Other assets include amounts receivable related to a
settlement agreement the Company entered into with a former employee. Under the
terms of the settlement agreement, the Company received a lump-sum payment
totaling $220 in January 1997, and a promissory note providing for 40 monthly
payments of $4 each commencing March 1, 1997. Approximately $63 and $42 of the
settlement receivable is recorded in other current assets in the accompanying
consolidated financial statements at December 31, 1998 and June 30, 1999,
respectively.

Capital Distribution in Excess of Basis in Common Stock -- In connection
with the repurchase of common stock in April 1999 from a major stockholder (note
3) the excess of the repurchase price over the original cost of the shares has
been recorded as a capital distribution in excess of the basis of the common
stock in the accompanying consolidated financial statements.

Revenue Recognition -- During October 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Position (SOP) 97-2, Software Revenue
Recognition, which provides guidance in recognizing revenue on software
transactions. SOP 97-2 is effective for transactions entered into in fiscal
years beginning after December 15, 1997, and supersedes SOP 91-1. The Company
adopted this statement, as amended, for the year ended December 31, 1998 and
such adoption did not have any impact on the Company's results of operations..

Software Licenses, Services, and Post-Contract Customer Support -- Revenues
from sales of software licenses, which generally do not contain multiple
elements, are recognized upon shipment of the related product if the
requirements of SOP 97-2, as amended, are met. If the requirements of SOP 97-2
including evidence of an arrangement, customer acceptance, a fixed or
determinable fee, collectibility or vendor specific objective evidence about the
value of an element are not met at the date of shipment, revenue

F-8
<PAGE> 75
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recognition is deferred until such items are known or resolved. Revenue from
service and post-contract customer support is deferred and recognized ratably
over the term of the contract.

Software Development Costs -- Costs incurred in the research and
development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. After technological feasibility is established, any additional
costs are capitalized in accordance with SFAS No. 86, Accounting for the Costs
of Computer Software to Be Sold, Leased or Otherwise Marketed. Because the
Company believes that its current process for developing software is essentially
completed concurrently with the establishment of technical feasibility, no
software development costs have been capitalized as of December 31, 1997, 1998
and June 30, 1999.

Advertising Expenses -- Advertising expenses were $636, $300, $594, $257
and $516 for the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1998 and 1999, respectively.

Income Taxes -- The Company accounts for its income taxes under the
provisions of SFAS No. 109, Accounting for Income Taxes. Deferred taxes on
income result from temporary differences between the reporting of income for
financial statements and tax reporting purposes. Prior to January 1, 1997, the
Company elected to be treated as an S corporation under the provisions of
subchapter S of the Internal Revenue Code and California Revenue and Taxation
Code. Accordingly, the provision for income taxes for the year ended December
31, 1996, is computed by applying the California franchise tax rate for S
corporations of 1.5% to the Company's pretax earnings. Effective January 1,
1997, the Company converted to a C corporation and became subject to regular
federal and state income taxes on an ongoing basis.

Stock-Based Compensation -- The Company accounts for stock-based awards to
employees, using the intrinsic value method in accordance with Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.

Net Income Per Share and Pro Forma Net Income Per Share -- The Company
computes net income per share in accordance with SFAS No. 128, Earnings per
Share. Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities by including other common stock equivalents, including stock options,
in the weighted average number of common shares outstanding for a period, if
dilutive.

Pro forma basic earnings per share are based upon the weighted average
number of common shares outstanding and the pro forma effect of the conversion
of all outstanding shares of Series A preferred stock into common stock (Note
6). Pro forma diluted earnings per share is based upon the weighted average
number of common and common equivalent shares for each period presented and the
pro forma effect of the conversion of all outstanding shares of Series A
preferred stock into common stock. Common equivalent shares include stock
options using the treasury stock method.

For the six months ended June 30, 1999, net income applicable to common
shareholders was $974 representing net income for the period of $1,314 less
Preferred Stock dividends of $340 associated with the Series B Redeemable
Preferred Stock.

F-9
<PAGE> 76
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below sets forth the reconciliation of the denominator of the
earnings per share calculation:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Shares used in computing basic net income
per share.............................. 38,350 40,373 44,261 43,990 38,809
Conversion of Series A Preferred Stock... -- -- -- -- 1,547
Conversion of Series B Redeemable
Preferred Stock........................ -- -- -- -- 1,017
Dilutive effect of stock options......... -- 244 198 -- 2,207
------- ------- ------- ------- -------
Shares used in computing diluted net
income per share....................... 38,350 40,617 44,459 43,990 43,580
======= ======= =======
Conversion of Series A Preferred Stock... 4,000 2,453
------- -------
Redemption of Series B Redeemable
Preferred Stock........................ -- (1,017)
Shares used in computing proforma diluted
net income per share................... 48,459 45,016
======= =======
</TABLE>

The conversion of the Series A Preferred and Series B Redeemable Preferred
Stock into common stock reflects the weighted average of such shares per SFAS
No. 128. The pro forma adjustment for the conversion of the Series A Preferred
Stock represents the adjustment required to reflect the conversion of the Series
A Preferred Stock to common stock as if it occurred on January 1, 1999. The
adjustment to the pro forma basic and diluted net income per share reflects the
redemption of the Series B Redeemable Preferred Stock from the proceeds of the
Company's planned initial public offering.

Pro Forma Information -- The Company is preparing for an initial public
offering of its common stock which, upon completion, will result in the
conversion of all outstanding shares of Series A Preferred Stock issued in April
1999 into shares of common stock (Note 6). The accompanying pro forma
information, which is unaudited, gives effect to the conversion of all
outstanding shares of Series A Preferred Stock into common stock immediately
prior to the closing of the offering.

Use of Estimates -- The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Risks and Uncertainties -- The Company is subject to risks and
uncertainties in the normal course of business including customer acceptance of
its products, rapid technological changes, delays in introducing and market
acceptance of new products, competition, e-business developments, the impact of
the year 2000, international expansion, ability to attract and retain qualified
personnel, ability to protect its intellectual property, and other matters
inherent in the software industry.

NEW ACCOUNTING PRONOUNCEMENTS:

For the year ended December 31, 1998, the Company adopted SFAS No. 130,
Reporting Comprehensive Income. There was no difference between the net income
and the comprehensive net income for the years ended December 31, 1996, 1997 and
1998 and the six months ended June 30, 1998 and 1999.

F-10
<PAGE> 77
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. In accordance with SFAS No. 131, the Company
has disclosed in Note 9 certain information about operating segments and certain
information about the Company's revenue types, geographic areas to which the
Company sells its products, and major customers.

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which the Company is required to adopt
effective in its fiscal year 2000. SFAS No. 133 will require the Company to
record all derivatives on the balance sheet at fair value. The Company does not
currently engage in hedging activities but will continue to evaluate the effects
of adopting SFAS No. 133.

2. ACQUISITIONS

On March 1, 1996, the Company acquired the net assets of R*Tech Systems,
Inc. (R*Tech) pursuant to a merger agreement. The Company agreed to pay $650
cash and issued 1,950 shares of the Company's common stock, valued at $777, in
exchange for 100% of R*Tech's common stock. At the closing date, $520 cash was
paid to the seller, with the remaining $130 withheld by the Company to be paid
one year after the closing date, provided that the seller performed certain
obligations under the indemnification provisions in the agreement. In March 1997
approximately $96 was paid to the seller as final consideration for the
acquisition. The acquisition was accounted for under the purchase method of
accounting and the purchase was allocated $1,386 to technology rights based upon
the estimated fair values at the date of acquisition, $75 to other assets
acquired and $34 to liabilities assumed. R*Tech's operating results have been
included in the Company's consolidated financial statements from the date of
acquisition.

On April 12, 1996, through a majority-owned subsidiary in the United
Kingdom, the Company acquired certain net assets of System Software
International Limited (SSI). The acquisition was accounted for under the
purchase method of accounting and the purchase price of approximately $119 was
allocated to net assets of $30 and goodwill of $89. At December 31, 1996,
expected future undiscounted cash flows from SSI did not support the
recoverability of the goodwill resulting in the write-off of the remaining
unamortized balance. In March 1997 the Company elected to discontinue funding
the subsidiary, and in July 1997 commenced liquidation proceedings. At December
31, 1998 and June 30, 1999, the subsidiary was not conducting operations and the
liquidation process was not completed. The Company does not expect to incur a
material loss as a result of the liquidation of the subsidiary.

On May 1, 1997, the Company entered into an agreement to acquire the net
assets of Common Sense Computing Pty. Ltd. (CSC) for 663 shares of the Company's
common stock. At the closing date, 597 shares valued at $413 were issued to the
seller, with the remaining 66 shares to be issued in June 1998, provided that
the seller performed certain obligations under the indemnification provisions in
the agreement. The acquisition was accounted for under the purchase method of
accounting and the purchase price was allocated $320 to technology rights based
upon the estimated fair value at the date of acquisition $53 to property, plant
and equipment, $100 to cash and $60 to liabilities assumed. CSC's operating
results have been included in the Company's financial statements from the date
of acquisition. On June 15, 1998, the remaining 66 shares of common stock were
issued resulting in an allocation of an additional $66 to technology rights,
based on the fair market value of the Company's common stock at the time of
issuance.

3. RELATED-PARTY TRANSACTIONS

In 1994, the Company borrowed $32 from a shareholder for the purchase of
certain fixed assets. The note payable bears interest at 8.5% per annum, payable
monthly, and requires monthly principal and interest payments of $1 through
December 31, 1999. Approximately $8 was included in other accrued expenses in
the accompanying consolidated financial statements representing the remaining
outstanding

F-11
<PAGE> 78
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

note payable balance at December 31, 1998. The remaining note payable balance
was repaid during the six months ended June 30, 1999.

During 1997 the Company received a note receivable from an officer of the
Company for the purchase of 3,900 shares of the Company's common stock at $.56
per share. The note receivable plus accrued interest is due April 2002 and bears
interest at 6.2%. The note receivable and accrued interest is secured by the
common stock.

During 1998, the Company received a note receivable from another officer of
the Company for the purchase of 975 shares of the Company's common stock at $.77
per share. The note receivable plus accrued interest is due April 2003 and bears
interest at 5.7%. Up to 25% of the unpaid principal and accrued interest may be
repaid in each year during the four-year term of the note. The Company has the
option to repurchase any shares at the original issuance price associated with
the unpaid principal balance if the officer ceases to be employed by the
Company. All of the outstanding unpaid principal and interest may be prepaid at
any time when the current Chief Executive Officer of the Company ceases to be
employed or immediately prior to a sale of substantially all of the assets of
the Company or a merger in which the Company is not the surviving entity. The
note receivable and accrued interest is secured by the common stock.

In April 1999, the Company repurchased and cancelled 14,820 shares of
common stock from a shareholder of the Company at a price of $2.36 per share.
The Company also entered into a severance agreement with the shareholder whereby
the shareholder will receive $200 per year through 2001 and provides for use of
a company car and related expenses and medical benefits. The Company recorded
approximately $715 of expense related to the agreement in April 1999, which is
included in compensation and other costs in the accompanying consolidated
financial statements.

F-12
<PAGE> 79
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

\ 4. TERM NOTE

In connection with the repurchase of common stock from a shareholder in
April 1999 (Note 3), the Company borrowed $10,000 under a term note with a bank.
The borrowings under the term note are secured by substantially all assets of
the Company, bears interest, at the Company's option, at either the bank's prime
rate or at the LIBOR rate plus a maximum of 2.75% per annum, requires monthly
interest payments commencing June 1, 1999, and principal is payable in 24
monthly installments of $417 commencing June 1, 2000. All unpaid principal and
interest is due on May 1, 2002. The loan contains covenants relating to certain
financial statement amounts related to tangible net worth, cash flow from
operations and a debt to cash flow from operations and quick ratios. The Company
was in compliance with all covenants at June 30, 1999. Interest expense related
to the loan was $315 for the six months ended June 30, 1999.

5. INCOME TAXES

The provision for income taxes consists of the following for the years
ended December 31:

<TABLE>
<CAPTION>
1996 1997 1998
---- ------ ------
<S> <C> <C> <C>
Current:
Federal.......................................... $-- $1,359 $1,819
State............................................ 1 102 425
Foreign.......................................... -- -- 78
--- ------ ------
1 1,461 2,322
Deferred:
Federal.......................................... -- (360) (568)
State............................................ -- (79) (75)
Foreign.......................................... -- (85) (165)
--- ------ ------
-- (524) (808)
Change in valuation allowance...................... -- 85 165
--- ------ ------
Total income tax provision......................... $ 1 $1,022 $1,679
=== ====== ======
</TABLE>

The reconciliation of income tax expense computed at U.S. federal statutory
rates to income tax expense for the years ended December 31, 1997 and 1998, is
as follows:

<TABLE>
<CAPTION>
1997 1998
----- ----
<S> <C> <C>
Tax at U.S. federal statutory rates......................... 35.0% 35.0%
State taxes................................................. 2.0 5.7
Recording of deferred income tax liabilities in connection
with the conversion to a C corporation.................... 45.2 --
Foreign losses without benefit.............................. 6.2 6.0
Research and development credits............................ (10.4) (4.6)
Other....................................................... -- (0.4)
----- ----
78.0% 41.7%
===== ====
</TABLE>

F-13
<PAGE> 80
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes as of December 31, 1997 and 1998, are as follows:

<TABLE>
<CAPTION>
1997 1998
----- ------
<S> <C> <C>
Deferred tax assets:
Accounts receivable and sales returns reserves........... $ 249 $ 313
Accrued liabilities...................................... 72 165
Research and development credits......................... 64 --
Foreign net operating loss carryforwards................. 134 250
Intangible assets........................................ (172) 264
Other.................................................... -- 56
----- ------
Total gross deferred assets................................ 347 1,048
Deferred tax liabilities:
Cash to accrual adjustment............................... (440) (301)
State taxes.............................................. -- (32)
----- ------
Total gross deferred liabilities........................... (440) (333)
Valuation allowance........................................ (85) (250)
----- ------
Net deferred income taxes.................................. $(178) $ 465
===== ======
Less current portion....................................... 60 (198)
----- ------
$(118) $ 267
===== ======
</TABLE>

The Company has foreign net operating loss carryforwards of approximately
$735 which will reduce foreign income tax expense when realized.

Prior to January 1, 1997, the Company elected to be treated as an S
corporation under the provisions of subchapter S of the Internal Revenue Code
and California Revenue and Taxation Code. Accordingly, the provisions for income
taxes for the year ended December 31, 1996, are computed by applying the
California franchise tax rate for S corporations of 1.5%. Effective January 1,
1997, the Company converted to a C corporation and became subject to regular
federal and state income taxes on an ongoing basis. As a result, the Company
recorded $617 of net deferred income tax liabilities on January 1, 1997.

Total cash distributions charged against retained earnings include payments
of $1,360 and $261 in 1996 and 1997, respectively, made to the Company's
shareholders.

6. SHAREHOLDERS' EQUITY

In April 1999, the Company issued 2,667 shares of Series A Preferred Stock
(Series A) for $15,000 and 1,778 shares of Series B Redeemable Preferred stock
(Series B) for $10,000.

Series A shares are convertible at the holder's option into shares of
common stock, based on the conversion ratio defined in the agreement. The
conversion ratio may be adjusted from time to time in the event of certain
diluting events, as defined. Conversion is automatic in the event of a public
offering of the Company's common stock, that meets certain specified criteria
initially at a rate of 1.5 shares of common stock for each share of preferred
stock. Additionally, the holders of not less than a majority of the Series A
shares have the right to redeem the Series A shares for cash in two equal
installments due on April 30, 2006 and 2007, respectively. The redemption price
is determined on each date by the then-applicable liquidation preference. Upon
the election of not less than a majority of the Series A holders to redeem the
Series A shares, all Series A shares will be redeemed. Dividends on Series A are
cumulative

F-14
<PAGE> 81
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

on a when and as if declared basis at a rate of 8% per share per annum. Series A
shareholders have the right to elect one director and have veto rights over
certain management decisions. In the event of liquidation, dissolution or
winding up of the Company, each Series A shareholder has a liquidation
preference equal to $5.625 per share, plus an amount equal to all accrued but
unpaid dividends, with respect to such shares plus an amount equal to a prorated
dividend from the last dividend payment date to the date fixed for liquidation,
dissolution, or winding up.

Series B shares are convertible into shares of Series A shares one year
after the issuance of the Series B shares at the holder's option based on the
ratio defined in the agreement. If the Series A shares have not been converted
into common stock, Series B shares are convertible into shares of Series A
preferred stock at the Company's option prior to the one year anniversary of the
date of issuance of the Series B shares. The conversion ratio may be adjusted
from time to time in the event of certain diluting events, as defined. Dividends
on Series B are cumulative and may be declared at the discretion of the Board of
Directors. The dividend rate is 18% per share per annum. Series B shareholders
do not have voting rights with the exception of the redemption provisions
discussed below. In the event of liquidation, dissolution or winding up of the
Company, each Series B shareholder has a liquidation preference equal to $5.625
per share, plus an amount equal to all accrued but unpaid dividends, with
respect to such shares plus an amount equal to a prorated dividend from the last
dividend payment date to the date fixed for liquidation, dissolution, or winding
up. Additionally, the holders of the Series B shares and the Company have the
right to redeem the Series B shares for cash at any time one year following the
issuance of the Series B shares, or, if earlier, upon consummation of an initial
public offering. The redemption price is determined on the redemption date by
the then applicable liquidation preference. For the six months ended June 30,
1999, $340 has been recorded as dividends payable.

7. STOCK OPTION PLANS

The Company entered into an agreement with a key employee in July 1995
under which options to purchase common stock were to be granted for up to 5% of
the Company's common stock upon the attainment of certain growth levels in net
sales and net income through fiscal year 1998. The employee was terminated in
June 1997 and all outstanding options were canceled.

In connection with the acquisition of R*Tech (Note 2), the Company entered
into an employment agreement with the president of R*Tech under which options to
purchase up to 2.5% of the Company's outstanding common stock at $0.77 per share
were granted. The agreement provided for issuance of additional common shares to
the individual in the event the Company issued common shares to employees,
subject to limitations as defined in the agreement. In connection with the
issuance of 975 shares of common stock to this individual in 1998 (Note 3), the
option was cancelled.

In May 1998, the Company adopted the 1998 Stock Option/Stock Issuance Plan
(the Plan). Under the terms of the Plan, options to purchase 7,500 shares of the
Company's common stock were reserved for issuance to employees, directors, and
consultants.

1999 STOCK INCENTIVE PLAN

The 1999 Stock Incentive Plan is intended to serve as the successor equity
incentive program to the 1998 Stock Option/Stock Issuance Plan. The 1999 Stock
Incentive Plan was adopted by the board and subsequently approved by the
shareholders in June 1999. The 1999 Stock Incentive Plan became effective upon
its adoption by the board. On the date of the Company's initial public offering
all outstanding options under the 1998 plan will be incorporated into the 1999
Stock Incentive Plan, and no further option grants will thereafter be made under
the 1998 plan. The incorporated options will continue to be governed by their
existing terms, unless the plan administrator elects to extend one or more
features of the 1999 Incentive Plan to those options. Except as otherwise noted
below, the incorporated options have

F-15
<PAGE> 82
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

substantially the same terms as will be in effect for grants made under the
Discretionary Option Grant Program of the 1999 Stock Incentive Plan.

Share Reserve. 7,493 shares of common stock have been authorized for
issuance under the 1999 Stock Incentive Plan. The share reserve consists of the
number of shares that remain available for issuance under the 1998 plan and
shares of common stock subject to outstanding options thereunder. No participant
in the 1999 Stock Incentive Plan may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances for more than
500 shares of common stock in total per calendar year.

Programs. The 1999 Stock Incentive Plan is divided into five separate
programs:

- the discretionary option grant program under which eligible individuals
may be granted options to purchase shares of common stock at an exercise
price determined by the plan administrator;

- the stock issuance program under which individuals may be issued shares
of common stock directly, through the purchase of such shares at a price
determined by the plan administrator or as a bonus tied to the
performance of services;

Administration. The discretionary option grant program and the stock
issuance program will be administered by the compensation committee of the board
of directors.

Plan Features. The 1999 Stock Incentive Plan will include the following
features:

- Stock appreciation rights may be issued under the discretionary option
grant program. Such rights will provide the holders with the election to
surrender their outstanding options for an appreciation distribution from
the Company equal to the fair market value of the vested shares of common
stock subject to the surrendered option less the exercise price payable
for those shares. Payment can be made in cash or in shares of common
stock.

F-16
<PAGE> 83
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Change in Control. The 1999 Stock Incentive Plan includes the following
change in control provisions which may result in the accelerated vesting of
outstanding option grants and stock issuances:

- In the event that the Company is acquired by merger or asset sale or a
board-approved sale of more than fifty percent of the then outstanding
stock, each outstanding option under the discretionary option grant
program which is not assumed or continued by the successor corporation
will immediately become exercisable for all the option shares, and all
unvested shares will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are assigned to the
successor corporation.

- The plan administrator will have complete discretion to grant one or more
options which will become exercisable for all the option shares in the
event those options are assumed in an acquisition but the optionee's
service with the Company or the acquiring entity is subsequently
terminated. The vesting of outstanding shares under the 1999 Stock
Incentive Plan may be accelerated upon similar terms and conditions.

- The plan administrator may also grant options which will immediately vest
upon our acquisition by another entity, whether or not those options are
assumed by the successor corporation.

Salary Investment Option Grant Program. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees
selected for participation may elect to reduce his or her base salary for that
calendar year by a specified dollar amount not less than $10 nor more than $75.
Each selected individual who makes such an election will automatically be
granted, on the first trading day in January of the calendar year for which that
salary reduction is to be in effect, an option to purchase that number of shares
of common stock determined by dividing the salary reduction amount by two-thirds
of the fair market value per share of common stock on the grant date.
Compensation expense will be recorded for the amount of the salary reduction.
The option will be exercisable at a price per share equal to one-third of the
fair market value of the option shares on the grant date. As a result, the total
spread on the option shares at the time of grant will be equal to the amount of
salary invested in that option. The option will vest and become exercisable in a
series of twelve equal monthly installments over the calendar year for which the
salary reduction is to be in effect and will be subject to full and immediate
vesting upon certain changes in the ownership or control.

Automatic Option Grant Program. Each individual who first becomes a
non-employee board member at any time after the completion of this offering will
automatically receive an option grant for 25 shares on the date such individual
joins the board, provided such individual has not been in the prior employ of
the Company. In addition, on the date of each annual shareholders meeting
beginning with the 2001 annual shareholders meeting, each non-employee board
member who has served as a non-employee board member since the date of the last
annual shareholders meeting will automatically be granted an option to purchase
8 shares of common stock.

Each automatic grant will have a term of ten years, subject to earlier
termination following the optionee's cessation of board service. The initial 25
share option will be immediately exercisable for all of the option shares;
however, any unvested shares purchased under the option will be subject to
repurchase by us, at the exercise price paid per share, should the optionee
cease board service prior to vesting in those

F-17
<PAGE> 84
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

shares. The shares subject to each 25 share automatic option grant will vest
over a four year period in successive equal annual installments upon the
individual's completion of each year of board service over the four year period
measured from the option grant date. However, the shares subject to each such
automatic grant will immediately vest in full upon certain changes in control or
ownership of Quest or upon the optionee's death or disability while a board
member. Each 8 share automatic option grant will be immediately exercisable and
fully vested on the option grant date.

Director Fee Option Grant Program. If this program is put into effect,
then each non-employee board member may elect to apply all or a portion of any
annual retainer fee otherwise payable in cash to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of common stock on the grant date. As a result,
the option will be structured so that the fair market value of the option shares
on the grant date less the aggregate exercise price payable for those shares
will be equal to the portion of the retainer fee invested in that option. The
option will become exercisable in a series of twelve equal monthly installments
over the calendar year for which the election is to be in effect. However, the
option will become immediately exercisable for all the option shares upon
certain changes in the ownership or control or the death or disability of the
optionee while serving as a board member.

Limited Stock Appreciation Rights. Limited stock appreciation rights will
automatically be included as part of each grant made under the automatic option
grant, salary investment option grant and director fee option grant programs and
may be granted to one or more of our officers as part of their option grants
under the discretionary option grant program. Options with such a limited stock
appreciation right may be surrendered to the Company upon the successful
completion of a hostile tender offer for more than 50% of the Company's
outstanding voting stock. In return for the surrendered option, the optionee
will be entitled to a cash distribution from us in an amount per surrendered
option share based on the highest price per share of common stock paid in
connection with the tender offer.

1999 EMPLOYEE STOCK PURCHASE PLAN

Introduction. The 1999 Employee Stock Purchase Plan was adopted by the
board and approved by the shareholders in June 1999 and will become effective
immediately upon the effective date of the Company's initial public offering.
The 1999 Employee Stock Purchase Plan is designed to allow eligible employees
and the employees of participating subsidiaries to purchase shares of common
stock, at semi-annual intervals, through their periodic payroll deductions.

Share Reserve. 600 shares of common stock will initially be reserved for
issuance.

Purchase Periods. The plan will have a series of successive purchase
periods, each with a maximum duration for six months. The initial purchase
period will begin on the date of the underwriting agreement for this offering
covered by this prospectus is signed and will end on the last business day in
January 2000. Thereafter, purchase periods will run for the first business day
in February to the last business day in July each year, and for the first
business day in August to the last business day in January of the following
year.

F-18
<PAGE> 85
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Eligible Employees. Individuals who are scheduled to work more than twenty
hours per week for more than five calendar months per year on the start date of
any purchase period may join the plan on such start date.

Payroll Deductions. A participant may contribute up to 15% of their cash
earnings, and the accumulated payroll deductions will be applied to the purchase
of shares on each semi-annual purchase date. The purchase price per share will
be equal to 85% the fair market value of the common stock on the start date of
the purchase period or, if lower, the fair market value on the semi-annual
purchase date. Semi-annual purchase dates will occur on the last business day of
January and July each year. In no event, however, may any participant purchase
more than .6 shares on any semi-annual purchase date.

In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. As permitted by SFAS No. 123, the Company has chosen to continue
to account for its stock-based compensation plans under APB Opinion No. 25 and
provide the expanded disclosures specified in SFAS No. 123.

Compensation costs would not have significantly changed net income or net
income per share in fiscal 1996 and 1997. Had compensation cost been determined
using the provisions of SFAS No. 123, the Company's net income available to
common shareholders would have been decreased to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ---------
<S> <C> <C>
Net income available to common shareholders:
As reported............................................... $2,346 $ 974
====== ======
Pro forma................................................. $2,177 $ 598
====== ======
Basic net income per share:
As reported............................................... $ 0.05 $ 0.03
====== ======
Pro forma................................................. $ 0.05 $ 0.02
====== ======
Diluted net income per share:
As reported............................................... $ 0.05 $ 0.02
====== ======
Pro forma................................................. $ 0.05 $ 0.01
====== ======
</TABLE>

For purposes of estimating the compensation cost of the Company's option
grants in accordance with SFAS No. 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model,
with the following weighted average assumptions used for grants in the years
1996, 1997 and 1998 and the six months ended June 30, 1998 and 1999: expected
volatility of zero; risk-free interest rates of 6%; and expected lives of ten
years.

F-19
<PAGE> 86
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the status of the Plans is presented below:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------------------------------- -------------------------------------
1996 1997 1998 1998 1999
----------------- ----------------- ----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
period.................. 556 $0.40 1,531 $0.64 975 $0.77 975 $0.77 3,367 $1.19
Granted................... 975 $0.77 -- $ -- 3,383 $1.19 1,198 $1.00 1,419 $3.56
Exercised................. -- $ -- -- $ -- -- $ -- -- $ -- (7) $1.00
Canceled.................. -- $ -- (556) $0.40 (991) $0.77 -- $ -- (200) $2.18
----- ----- ----- ----- -----
Balance, end of period.... 1,531 $0.64 975 $0.77 3,367 $1.19 2,173 $0.90 4,579 $1.88
Weighted average fair
value of options granted
during the year......... $0.00 -- $0.53 $0.24 $3.09
===== ===== ===== ===== =====
</TABLE>

The Company will record compensation expense of approximately $1,905
relating to options granted to purchase 387 shares of common stock in May and
June of 1999 equal to the difference between the fair market value of the
Company's common stock on the grant date and the exercise price of the stock
options. The expense will be recognized ratably over the four-year vesting
period of the stock options. The Company recorded $60 of expense associated with
such option grants during the six month period ended June 30, 1999 which is
included in compensation and other costs in the accompanying consolidated
financial statements.

The following tables summarize information about stock options outstanding
as of December 31, 1998 and June 30, 1999:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00 -- 1.15........................... 2,271 9.5 $1.00 12 $1.00
$1.16 -- 2.00........................... 713 9.8 $1.17 -- --
$2.01 -- 2.37........................... 383 9.9 $2.37 -- --
----- --
3,367 12
===== ==
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00 -- 1.15........................... 2,228 9.0 $1.00 246 $1.00
$1.16 -- 2.00........................... 667 9.3 $1.17 -- --
$2.00 -- 4.00........................... 1,512 9.6 $2.74 -- --
$4.00 -- 9.00........................... 172 10.0 $8.48 -- --
----- ---
4,579 246
===== ===
</TABLE>

F-20
<PAGE> 87
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Options to purchase 15 shares of common stock at $1.00 per share were
exercised in July 1999.

8. COMMITMENTS AND CONTINGENCIES

The Company leases its office facilities and certain equipment under
various operating leases. Total rent expense was $456, $732, $1,038, $484, and
$732, for the years ended December 31, 1997, 1998, and 1999, and the six months
ended June 30, 1998 and 1999, respectively.

Minimum lease commitments under noncancelable operating leases at December
31, 1998, are as follows:

<TABLE>
<S> <C>
Year ending December 31:
1999.............................................. $1,107
2000.............................................. 683
2001.............................................. 79
2002.............................................. 20
------
$1,889
======
</TABLE>

Subsequent to December 31, 1998, the Company entered into a new office
facility lease which is scheduled to commence October 1, 1999. The minimum lease
commitment under the new lease is $1,944, $2,025, $2,106, $2,187, $2,268, and
$2,349 for the first, second, third, fourth, fifth, and sixth years following
the commencement date, respectively.

The Company maintains a profit-sharing plan covering substantially all
employees. Quarterly contributions may be made by the Company based upon
employee salaries. The Company did not contribute to the plan for the year ended
December 31, 1996. Effective January 1, 1997, the Company amended and restated
the profit sharing plan to include a 401(k) plan. The Company contributed $134,
$466, $196, and $733 to the amended plan for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1998 and 1999, respectively.

On May 25, 1999, Mobius Management Systems, Inc., filed a complaint in the
United States District Court for the District of New Jersey (Mobius Management
Systems, Inc. v. Quest Software, Inc., Case No. 99-2337). The complaint alleges
that the Company published three advertisements that were false and misleading
and therefore in violation of the Lanham Act and common law, and that the
Company misappropriated unspecified trade secrets belonging to Mobius. The
advertisements that Mobius allege in its complaint are false and misleading are
two e-mails intended for internal use, a comparison chart believed to have been
prepared by a former Company employee in 1997 for internal purposes, and a
statement made regarding the Company's Vista Plus Java client which had been
posted on the Internet. The complaint seeks injunctive relief and unspecified
damages. No factual basis was set forth in the complaint in support of Mobius'
misappropriation of trade secrets claim. In response to Mobius' complaint, the
Company has filed a motion to dismiss which is set for hearing on September 13,
1999. The Company intends to defend this action vigorously, and, based on the
complaint and the facts underlying the complaint of which the Company is
currently aware, the Company does not believe that this lawsuit will have a
material adverse effect on the Company's business, results of operations or
financial condition; however, it is too early to determine the ultimate outcome
of the lawsuit.

The Company is involved in other various claims and legal actions arising
in the ordinary course of business. The litigation process is inherently
uncertain and it is possible that the resolution of such claims and legal
actions may adversely affect the Company. However, it is the opinion of
management, that the ultimate disposition of these matters will not materially
affect the Company's results of operations or financial position.

F-21
<PAGE> 88
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. GEOGRAPHIC INFORMATION AND CONCENTRATION OF CREDIT RISK

Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
Company's chief operating decision maker, or decision making group, in deciding
how to allocate resources and in assessing performance. The operating segments
of the Company are managed separately because each segment represents a
strategic business unit that offers different products or services.

The Company's reportable operating segments include Licenses and Services.
The Software Licenses operating segment develops and markets the Company's
software products. The Services segment provides after-sale support for software
products and fee-based training and consulting services related to the Company's
products.

The Company does not separately allocate operating expenses to these
segments, nor does it allocate specific assets to these segments. Therefore,
segment information reported includes only revenues, cost of sales and gross
profit as this information and the geographic information described below are
the only information provided to the chief operating decision maker.

Operating segment data for the three years in the period ended December 31,
1998 and the six months ended June 30, 1998 and 1999 was as follows:

<TABLE>
<CAPTION>
LICENSES SERVICES TOTAL
-------- -------- -------
<S> <C> <C> <C>
Year ended December 31, 1996:
Revenues.................................................. $ 9,316 $3,546 $12,862
Cost of revenues.......................................... 950 1,467 2,417
------- ------ -------
Gross profit........................................... $ 8,366 $2,079 $10,445
======= ====== =======
Year ended December 31, 1997:
Revenues.................................................. $12,158 $6,157 $18,315
Cost of revenues.......................................... 1,307 1,972 3,279
------- ------ -------
Gross profit........................................... $10,851 $4,145 $15,036
======= ====== =======
Year ended December 31, 1998:
Revenues.................................................. $24,901 $9,889 $34,790
Cost of revenues.......................................... 3,433 2,507 5,940
------- ------ -------
Gross profit........................................... $21,468 $7,382 $28,850
======= ====== =======
Six months ended June 30, 1998:
Revenues.................................................. $ 9,580 $4,455 $14,035
Cost of revenues.......................................... 1,504 1,044 2,548
------- ------ -------
Gross profit........................................... $ 8,076 $3,411 $11,487
======= ====== =======

Six months ended June 30, 1999:
Revenues.................................................. $21,365 $6,924 $28,289
Cost of revenues.......................................... 1,404 1,738 3,142
------- ------ -------
Gross profit........................................... $19,961 $5,186 $25,147
======= ====== =======
</TABLE>

F-22
<PAGE> 89
QUEST SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenues are attributed to geographic areas based on the location of the
entity to which the products or services were sold. Revenues, gross profit,
income (loss) from operations and long-lived assets concerning principal
geographic areas in which the Company operates are as follows:

<TABLE>
<CAPTION>
UNITED
STATES INTERNATIONAL ELIMINATIONS TOTAL
------- ------------- ------------ -------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Revenues..................................... $11,687 $1,136 $ 39 $12,862
Gross profit................................. 9,435 971 39 10,445
Loss from operations......................... (396) (266) 290 (372)
Long-lived assets............................ 1,662 68 -- 1,730

Year ended December 31, 1997:
Revenues..................................... $17,511 $1,261 $ (457) $18,315
Gross profit................................. 14,413 1,075 (452) 15,036
Income (loss) from operations................ 1,533 (339) 254 1,448
Long-lived assets............................ 2,336 118 -- 2,454

Year ended December 31, 1998:
Revenues..................................... $32,189 $4,172 $(1,571) $34,790
Gross profit................................. 26,594 3,840 (1,584) 28,850
Income (loss) from operations................ 3,839 (252) 102 3,689
Long-lived assets............................ 1,600 315 -- 1,915

Six months ended June 30, 1998:
Revenues..................................... $13,017 $1,746 $ (728) $14,035
Gross profit................................. 10,624 1,591 (728) 11,487
Income (loss) from operations................ 1,291 203 (77) 1,417
Long-lived assets............................ 2,056 180 -- 2,236

Six months ended June 30, 1999:
Revenues..................................... $24,573 $4,799 $(1,083) $28,289
Gross profit................................. 21,662 4,574 (1,089) 25,147
Income from operations....................... 1,281 667 243 2,191
Long-lived assets............................ 2,142 525 -- 2,667
</TABLE>

During the year ended December 31, 1996, sales to a single customer
accounted for approximately 12.0% of total revenue for the year. In fiscal 1997
and 1998 and the six months ended June 30, 1998 and 1999, no single customer
accounted for 10% or more of total revenue. No single international location
accounted for more than 5% of total revenues for any of the periods indicated.

F-23
<PAGE> 90

Inside Back Cover
[QUEST SOFTWARE LOGO]

[Background consists of the names of certain Quest customers]

Quest Software products have been sold to thousands of corporations,
governmental agencies and other organizations worldwide. The companies listed
here are a representative sampling of customers who have purchased at least
$100,000 of software licenses since January 1996.

<PAGE> 91

[QUEST SOFTWARE LOGO]
<PAGE> 92

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fees.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 19,694
NASD Filing Fee............................................. 7,584
Nasdaq National Market Listing Fee.......................... 90,000
Printing and Engraving Expenses............................. 160,000
Legal Fees and Expenses..................................... 350,000
Accounting Fees and Expenses................................ 175,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent Fees......................................... 15,000
Directors' & Officers' Liability Insurance.................. 250,000
Miscellaneous............................................... 127,722
----------
Total............................................. $1,200,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrant's Amended and Restated Articles of Incorporation limit the
personal liability of its directors for monetary damages to the fullest extent
permitted by the California General Corporation Law (the "California Law").
Under the California Law, a director's liability to a company or its
shareholders may not be limited (1) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law, (2) for acts
or omissions that a director believes to be contrary to the best interest of the
Registrant or its shareholders or that involve the absence of good faith on the
part of the director, (3) for any transaction from which a director derived an
improper personal benefit, (4) for acts or omissions that show a reckless
disregard for the director's duty to the Registrant or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of a serious injury
to the Registrant or its shareholders, (5) for acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of the
director's duty to the Registrant or its shareholders, (6) under Section 310 of
the California Law concerning contacts or transactions between the Registrant
and a director, or (7) under Section 316 of the California Law concerning
directors' liability for improper dividends, loans and guarantees. The
limitation of liability does not affect the availability of injunctions and
other equitable remedies available to the Registrant's shareholders for any
violation by a director of the director's fiduciary duty to the Registrant or
its shareholders.

The Registrant's Articles of Incorporation also include an authorization
for the Registrant to indemnify its "agents" (as defined in Section 317 of the
California Law), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this provision, the Registrant's
Bylaws provide for indemnification of the Registrant's directors, officers and
employees. In addition, the Registrant, at its discretion, may provide
indemnification to persons whom the Registrant is not obligated to indemnify.
The Bylaws also allow the Registrant to enter into indemnity agreements with
individual directors, officers, employees and other agents. These indemnity
agreements have been entered into with all directors and executive officers and
provide the maximum indemnification permitted by law. These agreements, together
with the Registrant's Bylaws and Articles of Incorporation, may require the
Registrant, among other things, to indemnify these directors or executive
officers (other than for liability resulting from willful misconduct of a
culpable nature), to advance expenses to them as they are incurred,

II-1
<PAGE> 93

provided that they undertake to repay the amount advanced if it is ultimately
determined by a court that they are not entitled to indemnification, and to
obtain directors' and officers' insurance if available on reasonable terms.
Section 317 of the California Law and the Registrant's Bylaws make provision for
the indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons, under certain circumstances, for
liabilities (including reimbursement of expense incurred) arising under the
Securities Act. The Registrant currently maintains directors' and officers'
liability insurance.

There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Registrant in which indemnification will be
required or permitted. Moreover, the Registrant is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
The Registrant believes that the foregoing indemnification provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers. The Underwriting Agreement (the form of which is filed
as Exhibit 1.1 hereto) provides for indemnification by the Underwriters of the
Registrant and its officers and directors, and by the Registrant of the
Underwriters, for certain liabilities arising under the Securities Act or
otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:

1. In March 1996, the Registrant issued 1,950,000 shares of common stock
to Eyal M. Aronoff in connection with the Registrant's purchase of
R*Tech Systems, Inc.

2. In May 1997, the Registrant issued 663,000 shares of common stock to
the former shareholders of Common Sense Computing Pty. Ltd. in
connection with the Registrant's acquisition of Common Sense Computing.

3. In October 1997, the Registrant sold to Vincent C. Smith, the
Registrant's Chief Executive Officer, 3,900,000 shares of common stock
for aggregate consideration of $2,200,000. Mr. Smith executed a
promissory note for the purchase price. This note has a term of five
years and bears interest at 6.2%. This note is also secured, in part,
by the 3,900,000 shares of common stock purchased from the Registrant.

4. In April 1998, the Registrant sold an aggregate of 975,000 shares of
common stock for an aggregate purchase price of $750,000, for which Mr.
Aronoff executed a promissory note and agreed to cancel an option to
purchase up to 2.5% of the outstanding capital stock of the Registrant.
The note has a term of four years, bears interest at the rate of 5.7%
per annum, and up to 25% of the original principal amount of the note
may be prepaid in each year of the four-year term.

5. In April 1999, the Registrant sold an aggregate of 888,889 shares of
its Series A Preferred Stock at a price of $5.625 per share to InSight
Capital Partners II, L.P. and InSight Capital Partners (Cayman) II,
L.P. Each share of Series A Preferred Stock will convert into one and
one-half shares of common stock upon the closing of this offering.

6. In April 1999, the Registrant sold an aggregate of 800,000 shares of
its Series A Preferred Stock at a price of $5.625 per share to WI
Software Investors LLC. Each share of Series A Preferred Stock will
convert into one and one-half shares of common stock upon the closing
of this offering.

7. In April 1999, the Registrant sold an aggregate of 977,778 shares of
its Series A Preferred Stock and 1,777,778 shares of its Series B
Redeemable Preferred Stock, each at a price of $5.625 per share, to UBS
Capital LLC. Each share of Series A Preferred Stock will convert into
one and one-half shares of common stock and each share of Series B
Preferred Stock will be redeemed upon the closing of this offering.

II-2
<PAGE> 94

8. Since June, 1998, the Registrant has granted stock options to purchase
common stock under individual stock option agreements and the 1998
Stock Option/Stock Issuance Plan to eligible officers, directors,
consultants and employees of the Registrant as described in the
prospectus.

9. Since June, 1999, the Registrant has granted stock options to purchase
common stock under the 1999 Stock Incentive Plan to eligible officers,
directors, consultants and employees of the Registrant as described in
the prospectus.

None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and the Registrant believes
that each transaction was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated
thereunder or Rule 701 pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients in such
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof, and appropriate legends were affixed to the share certificates and
instruments issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Articles of Incorporation, as amended.
3.2** Second Amended and Restated Articles of Incorporation, to be
filed with the California Secretary of State upon
consummation of this offering.
3.3** Amended and Restated Bylaws.
3.4** Second Amended and Restated Bylaws.
4.1 Form of Registrant's Specimen Common Stock Certificate.
5.1 Form of Opinion of Brobeck, Phleger & Harrison LLP.
10.1** Registrant's 1998 Stock Option/Stock Issuance Plan.
10.2 Registrant's 1999 Stock Incentive Plan.
10.3** Registrant's 1999 Employee Stock Purchase Plan.
10.4** Form of Directors' and Officers' Indemnification Agreement.
10.5** Securities Purchase Agreement, dated as of April 21, 1999,
by and among Quest Software, Inc. and InSight Capital
Partners II, L.P., InSight Capital Partners (Cayman) II,
L.P., UBS Capital LLC, and WI Software Investors LLC.
10.6** Investors' Rights Agreement dated as of April 21, 1999 among
Quest Software, Inc. and InSight Capital Partners II, L.P.,
InSight Capital Partners (Cayman) II, L.P., UBS Capital LLC,
and WI Software Investors LLC.
10.7+** Agreement, dated February 19, 1999, between Quest Software,
Inc. and INSO Chicago Corporation, dba INSO Corporation.
10.8+** OEM Agreement, dated March 3, 1998, by and between Quest
Software, Inc. and Artifex Software Inc.
10.9 Office Space Lease dated as of June 17, 1999 between The
Irvine Company and Quest Software, Inc.
21.1** Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
</TABLE>

II-3
<PAGE> 95

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
23.2 Form of Consent of Brobeck, Phleger & Harrison LLP (Included
in Exhibit 5.1 hereto).
24.1** Power of Attorney (Included on signature page hereto).
27.1 Financial Data Schedule (In EDGAR format only).
</TABLE>

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

** Previously filed.

+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.

II-4
<PAGE> 96

(b) FINANCIAL STATEMENT SCHEDULE

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNT

<TABLE>
<CAPTION>
BALANCE AT CHARGES, BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts and sales
returns......................................... $129 $ 417 $ -- $ 546
Year ended December 31, 1997:
Allowance for doubtful accounts and sales
returns......................................... $546 $ 584 $(347) $ 783
Year ended December 31, 1998:
Allowance for doubtful accounts and sales
returns......................................... $783 $1,116 $(847) $1,052
</TABLE>

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the California General Corporation Law, the Amended and
Restated Articles of Incorporation or the Amended and Restated Bylaws of the
Registrant, Indemnification Agreements entered into between the Registrant and
its officers and directors, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

The undersigned Registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective;

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 97
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Newport Beach, State
of California, on this 22nd day of July, 1999.

QUEST SOFTWARE, INC.

By: /s/ DAVID M. DOYLE
------------------------------------
David M. Doyle
President and Secretary

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
persons whose signatures appear below, which persons have signed such
Registration Statement in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>

* Chief Executive Officer (principal July 22, 1999
- --------------------------------------------------- executive officer) and Chairman
Vincent C. Smith of the Board

/s/ DAVID M. DOYLE President, Secretary and Director July 22, 1999
- ---------------------------------------------------
David M. Doyle

* Chief Financial Officer (principal July 22, 1999
- --------------------------------------------------- financial and accounting officer)
John J. Laskey and Vice President, Finance

* Director July 22, 1999
- ---------------------------------------------------
Doran G. Machin

* Director July 22, 1999
- ---------------------------------------------------
Jerry Murdock, Jr.

* Director July 22, 1999
- ---------------------------------------------------
Raymond J. Lane

*By: /s/ DAVID M. DOYLE July 22, 1999
----------------------------------------------
David M. Doyle
(Attorney-in-fact)
</TABLE>

II-6
<PAGE> 98

EXHIBIT INDEX

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

** Previously filed.

<PAGE> 1
EXHIBIT 1.1

UNDERWRITING AGREEMENT

_______ __, 1999

BancBoston Robertson Stephens Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
CIBC World Markets Corp.
FAC/Equities, a division of First Albany Corporation
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
As Representative of the several Underwriters

Ladies and Gentlemen:

INTRODUCTORY. Quest Software, Inc., a California corporation (the
"Company), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 4,400,000 shares (the "Firm
Shares") of its Common Stock, no par value per share (the "Common Shares"). In
addition, the Company has granted to the Underwriters an option to purchase up
to an additional 660,000 Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "Shares". BancBoston Robertson
Stephens Inc., Donaldson, Lufkin & Jenrette Securities Corp., CIBC World Markets
Corp. and FAC/Equities, a division of First Albany Corporation, have agreed to
act as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Shares.

The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-80583), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales

<PAGE> 2

of the Shares, is called the "Prospectus"; provided, however, if the Company
has, with the consent of BancBoston Robertson Stephens Inc., elected to rely
upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the
Company's prospectus subject to completion (each, a "preliminary prospectus")
dated ________ __, 1999 (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").

The Company hereby confirms its agreements with the Underwriters as
follows:

SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company hereby represents, warrants and covenants to each
Underwriter as follows:

(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.

Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be

-2-

<PAGE> 3

described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.

(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives four complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.

(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.

(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.

(e) Authorization of the Shares To Be Sold by the Company. The Shares
to be purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement, will be validly issued, fully paid
and nonassessable.

(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.

(g) No Material Adverse Change. Subsequent to the respective dates as
of which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or

-3-

<PAGE> 4

other subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.

(h) Independent Accountants. Deloitte & Touche LLP, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) filed with the Commission as
a part of the Registration Statement and included in the Prospectus, are
independent public or certified public accountants as required by the Securities
Act.

(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. Such financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved, except
as may be expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus under the
captions "Prospectus Summary--Summary Selected Financial Data", "Selected
Financial Data" and "Capitalization" fairly present the information set forth
therein on a basis consistent with that of the audited financial statements
contained in the Registration Statement.

(j) Company's Accounting System. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.

(k) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21.1 to the Registration Statement.

(l) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation or limited liability company, as the
case may be, in good standing under the laws of the jurisdiction in which it is
organized with full corporate power and authority to own its properties and
conduct its business as described in the prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.

(m) Capitalization of the Subsidiaries. All the outstanding shares of
capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned subsidiaries
free and clear of any security interests, claims, liens or encumbrances.

-4-

<PAGE> 5

(n) No Prohibition on Subsidiaries from Paying Dividends or Making
Other Distributions. No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or any
other subsidiary of the Company, except as described in or contemplated by the
Prospectus.

(o) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options described in the Prospectus).
The Common Shares (including the Shares) conform in all material respects to the
description thereof contained in the Prospectus. All of the issued and
outstanding Common Shares have been duly authorized and validly issued, are
fully paid and nonassessable and have been issued in compliance with federal and
state securities laws. None of the outstanding Common Shares were issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities convertible
into or exchangeable or exercisable for, any capital stock of the Company or any
of its subsidiaries other than those accurately described in the Prospectus. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set forth in
the Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.

(p) Stock Exchange Listing. The Shares have been approved for inclusion
on the Nasdaq National Market, subject only to official notice of issuance.

(q) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.

(r) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of
its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any of its subsidiaries of any court,

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regulatory body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or any of its subsidiaries or any
of its or their properties.

(s) No Defaults or Violations. Neither the Company nor any subsidiary
is in violation or default of (i) any provision of its charter or by-laws, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or such subsidiary or any
of its properties, as applicable, except any such violation or default which
would not, singly or in the aggregate, result in a Material Adverse Change
except as otherwise disclosed in the Prospectus.

(t) No Actions, Suits or Proceedings. No action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries or its or their property is
pending or, to the best knowledge of the Company, threatened that (i) could
reasonably be expected to have a Material Adverse Effect on the performance of
this Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to result in a Material Adverse
Effect.

(u) All Necessary Permits, Etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct their respective businesses, and neither the Company nor any subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.

(v) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned in
the financial statements referred to in Section 1(i) above, in each case free
and clear of any security interests, mortgages, liens, encumbrances, equities,
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company or such subsidiary. The real
property, improvements, equipment and personal property held under lease by the
Company or any subsidiary are held under valid and enforceable leases, with such
exceptions as are not material and do not materially interfere with the use made
or proposed to be made of such real property, improvements, equipment or
personal property by the Company or such subsidiary.

(w) Tax Law Compliance. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes required to be paid by any of them and, if due
and payable, any related or similar assessment, fine or penalty levied against
any of them. The Company has made adequate charges, accruals and reserves in the
applicable financial statements referred to in Section 1(i) above in respect of
all federal, state and

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<PAGE> 7

foreign income and franchise taxes for all periods as to which the tax liability
of the Company or any of its consolidated subsidiaries has not been finally
determined. The Company is not aware of any tax deficiency that has been or
might be asserted or threatened against the Company that could result in a
Material Adverse Change.

(x) Intellectual Property Rights. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent rights
or licenses, inventions, collaborative research agreements, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not result in a
Material Adverse Change that is not otherwise disclosed in the Prospectus; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a Material Adverse Change. There is no
claim being made against the Company regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. The Company and its
subsidiaries do not in the conduct of their business as now or proposed to be
conducted as described in the Prospectus infringe or conflict with any right or
patent of any third party, or any discovery, invention, product or process which
is the subject of a patent application filed by any third party, known to the
Company or any of its subsidiaries, which such infringement or conflict is
reasonably likely to result in a Material Adverse Change.

(y) Year 2000 Preparedness. There are no issues related to the
Company's, or any of its subsidiaries', preparedness for the Year 2000 that (i)
are of a character required to be described or referred to in the Registration
Statement or Prospectus by the Securities Act which have not been accurately
described in the Registration Statement or Prospectus or (ii) might reasonably
be expected to result in any Material Adverse Change or that might materially
affect their properties, assets or rights. All internal computer systems and
each Constituent Component (as defined below) of those systems and all
computer-related products and each Constituent Component (as defined below) of
those products of the Company and each of its subsidiaries fully comply with
Year 2000 Qualification Requirements. "Year 2000 Qualifications Requirements"
means that the internal computer systems and each Constituent Component (as
defined below) of those systems and all computer-related products and each
Constituent Component (as defined below) of those products of the Company and
each of its Subsidiaries (i) have been reviewed to confirm that they store,
process (including sorting and performing mathematical operations, calculations
and computations), input and output data containing date and information
correctly regardless of whether the date contains dates and times before, on or
after January 1, 2000, (ii) have been designated to ensure date and time entry
recognition and calculations, and date data interface values that reflect the
century, (iii) accurately manage and manipulate data involving dates and times,
including single century formulas

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<PAGE> 8

and multi-century formulas, and will not cause an abnormal ending scenario
within the application or generate incorrect values or invalid results involving
such dates, (iv) accurately process any date rollover, and (v) accept and
respond to two-digit year date input in a manner that resolves any ambiguities
as to the century. "Constituent Component" means all software (including
operating systems, programs, packages and utilities), firmware, hardware,
networking components, and peripherals provided as part of the configuration.
The Company has inquired of material vendors as to their preparedness for the
Year 2000 and has disclosed in the Registration Statement or Prospectus any
issues that might reasonably be expected to result in any Material Adverse
Change.

(z) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.

(aa) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt of
payment for the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.

(bb) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes, general liability and Directors and Officers liability. The Company
has no reason to believe that it or any subsidiary will not be able (i) to renew
its existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company nor any
subsidiary has been denied any insurance coverage which it has sought or for
which it has applied.

(cc) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, subassemblers,
value added resellers, subcontractors, original equipment manufacturers,
authorized dealers or international distributors that might be expected to
result in a Material Adverse Change.

(dd) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.

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<PAGE> 9

(ee) Lock-Up Agreements. Each officer and director of the Company and
each beneficial owner of capital of the Company has agreed to sign an agreement
substantially in the form attached hereto as Exhibit A (the "Lock-up
Agreements"). The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
Lock-up Agreements presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of BancBoston Robertson
Stephens Inc.

(ff) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.

Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.

SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.

(a) The Firm Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Shares upon the terms herein set forth. On the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase from the Company the respective
number of Firm Shares set forth opposite their names on Schedule A. The purchase
price per Firm Share to be paid by the several Underwriters to the Company shall
be $___ per share.

(b) The First Closing Date. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of Brobeck,
Pheleger & Harrison LLP (or at such other place as may be agreed upon among the
Representatives and the Company), (i) on the third (3rd) full business day
following the first day that Shares are traded, (ii) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the Representatives may, in their sole discretion, postpone the
Closing Date until no later that two (2) full business days following delivery
of copies of the Prospectus to the Representatives.

(c) The Option Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to

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purchase, severally and not jointly, up to an aggregate of 660,000 Option Shares
from the Company at the purchase price per share to be paid by the Underwriters
for the Firm Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Shares. The option granted hereunder may be exercised
at any time upon notice by the Representatives to the Company, which notice may
be given at any time within 30 days from the date of this Agreement. The time
and date of delivery of the Option Shares, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Option Shares
are to be purchased, (i) each Underwriter agrees, severally and not jointly, to
purchase the number of Option Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Option Shares to be purchased as the number of
Firm Shares set forth on Schedule A opposite the name of such Underwriter bears
to the total number of Firm Shares. The Representatives may cancel the option at
any time prior to its expiration by giving written notice of such cancellation
to the Company.

(d) Public Offering of the Shares. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, has
determined is advisable and practicable.

(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.

It is understood that the Representatives have been authorized, for its
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Shares and
any Option Shares the Underwriters have agreed to purchase. BancBoston Robertson
Stephens Inc., individually and not as the Representative of the Underwriters,
may (but shall not be obligated to) make payment for any Shares to be purchased
by any Underwriter whose funds shall not have been received by the
Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.

(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the

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accounts of the Representatives and the several Underwriters, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.

(h) Delivery of Prospectus to the Underwriters. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.

SECTION 3. COVENANTS OF THE COMPANY.

The Company further covenants and agrees with each Underwriter as
follows:

(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.

(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt of
any comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.

(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such

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information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.

(d) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.

(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.

(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.

(g) Notice of Subsequent Events. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.

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<PAGE> 13

(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.

(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.

(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending, September 30, 2000 that satisfies the provisions of Section 11(a) of the
Securities Act.

(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.

(l) Agreement Not to Offer or Sell Additional Securities. The Company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
on during the period of 180 days from the date that the Registration Statement
is declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Shares and (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at the
date of the Prospectus and described in the Prospectus.

(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.

SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date

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<PAGE> 14

and, with respect to the Option Shares, the Second Closing Date, shall be
subject to the accuracy of the representations and warranties on the part of the
Company set forth in Section 1 hereof as of the date hereof and as of the First
Closing Date as though then made and, with respect to the Option Shares, as of
the Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:

(a) Compliance with Registration Requirements; No Stop Order; No
Objection from the National Association of Securities Dealers, LLC The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel; and the National Association
of Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.

(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.

(c) No Material Adverse Change. Subsequent to the execution and
delivery of this Agreement and prior to the First Closing Date, or the Second
Closing Date, as the case may be, there shall not have been any Material Adverse
Change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus.

(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Brobeck, Phleger & Harrison LLP, counsel for the Company, substantially in
the form of Exhibit B attached hereto, dated the First Closing Date, or the
Second Closing Date, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters.

Counsel rendering the opinion contained in Exhibit B may rely as to
questions of law not involving the laws of the United States or the State of
California upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation

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or certificate. Copies of any opinion, representation or certificate so relied
upon shall be delivered to you, as Representatives of the Underwriters, and to
Underwriters' Counsel.

Opinion of Counsel for the Underwriters. You shall have received on the
First Closing Date or the Second Closing Date, as the case may be, an opinion of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, substantially in the
form of Exhibit C hereto. The Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.

(e) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
Deloitte & Touche LLP addressed to the Underwriters, dated the First Closing
Date or the Second Closing Date, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations and based
upon the procedures described in such letter delivered to you concurrently with
the execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than four (4) business days prior to the First
Closing Date or the Second Closing Date, as the case may be, (i) confirming, to
the extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the First Closing Date or the Second Closing Date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Deloitte & Touche
LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations, (ii) set forth their opinion with respect to their examination
of the consolidated balance sheet of the Company as of December 31, 1998 and
related consolidated statements of operations, shareholders' equity, and cash
flows for the twelve (12) months ended December 31, 1998, (iii) state that
Deloitte & Touche LLP has performed the procedures set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of Deloitte & Touche LLP as described in
SAS 71 on the financial statements for each of the quarters in the ten-quarter
period ended June 30, 1999 (the "Quarterly Financial Statements"), (iv) state
that in the course of such review, nothing came to their attention that leads
them to believe that any material modifications need to be made to any of the
Quarterly Financial Statements in order for them to be in compliance with
generally accepted accounting principles consistently applied across the periods
presented, and address other matters agreed upon by Deloitte & Touche LLP and
you. In addition, you shall have received from Deloitte & Touche LLP a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal

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<PAGE> 16

accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of December 31, 1998 did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.

(f) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:

(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the First
Closing Date or the Second Closing Date, as the case may be, and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
First Closing Date or the Second Closing Date, as the case may be;

(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;

(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate,
the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Securities Act and the applicable rules and
regulations of the Commission thereunder and in all material respects
conformed to the requirements of the Securities Act or the Exchange Act
and the applicable rules and regulations of the Commission thereunder,
the Registration Statement and the Prospectus, and any amendments or
supplements thereto, did not and does not include any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth; and

(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one
enterprise, (b) any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions entered
into in the ordinary course of business, (c) any obligation, direct or
contingent, that is material to the Company and its subsidiaries
considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding
indebtedness of the Company or any of its subsidiaries that is material
to the Company and its subsidiaries considered as one enterprise, (e)
any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (f) any
loss or damage (whether or not insured) to the

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<PAGE> 17

property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise.

(g) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
Company and each beneficial owner of the outstanding issued share capital of the
Company.

(h) Stock Exchange Listing. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.

(k) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.

(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.

If any condition specified in this Section 4 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.

SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in

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<PAGE> 18

connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares, (viii) the fees and expenses associated with
including the Common Shares on the Nasdaq National Market, (ix) all costs and
expenses incident to the preparation and undertaking of "road show" preparations
to be made to prospective investors, and (x) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 5, Section 6, and Section 7 hereof, the Underwriters
shall pay their own expenses, including the fees and disbursements of their
counsel.

SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 4, Section 7, Section
8, Section 9, or if the sale to the Underwriters of the Shares on the First
Closing Date is not consummated because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or to comply with any
provision hereof, the Company agrees to reimburse the Representatives and the
other Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.

SECTION 7. INDEMNIFICATION AND CONTRIBUTION.

(a) Indemnification of the Underwriters.

The Company agrees to indemnify and hold harmless each Underwriter, its
officers and employees, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act and the Exchange Act against any loss,
claim, damage, liability or expense, as incurred, to which such Underwriter or
such controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at common
law or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company, which consent shall not be
unreasonably withheld), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any

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<PAGE> 19

amendment or supplement thereto), or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; or (iii)
in whole or in part upon any inaccuracy in the representations and warranties of
the Company contained herein; or (iv) in whole or in part upon any failure of
the Company to perform its obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any matter
covered by clause (i), (ii), (iii) or (iv) above, provided that the Company
shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that the foregoing indemnity agreement shall not apply to any loss, claim,
damage, liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto); and provided, further, that with respect to
any preliminary prospectus, the foregoing indemnity agreement shall not inure to
the benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Company may otherwise have.

(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or

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<PAGE> 20

supplement thereto), or arises out of or is based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written information
furnished to the Company by the Representatives expressly for use therein; and
to reimburse the Company, or any such director, officer or controlling person
for any legal and other expense reasonably incurred by the Company, or any such
director, officer or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. The indemnity agreement set forth in this Section
7(b) shall be in addition to any liabilities that each Underwriter may otherwise
have.

(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first, second and third paragraphs
under the caption "Underwriting" in the Prospectus; and the Underwriters confirm
that such statements are correct.

(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding

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<PAGE> 21

sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (BancBoston Robertson Stephens Inc.
in the case of Section 7(b) and Section 8), representing the indemnified parties
who are parties to such action), (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.

(e) Settlements. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.

(f) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received

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<PAGE> 22

by the Company bears to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7(f) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (f), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 7(f)
to contribute are several in proportion to their respective underwriting
obligations and not joint.

(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.

(h) Survival. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.

(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and

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<PAGE> 23

its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Securities Act and the
Exchange Act.

SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Common Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase does not exceed 10% of the aggregate number of
the Shares to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the number of Firm Common Shares
set forth opposite their respective names on Schedule A bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the provisions of Section 4, and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representatives or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.

As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York or California authorities; (iii) there
shall have occurred any outbreak or escalation of national or international
hostilities or any crisis or calamity, or any change in the United States or
international financial markets, or any substantial change or development
involving a prospective change in United States' or international political,
financial or economic conditions, as in the judgment of the Representatives is
material and adverse and makes it impracticable or inadvisable to market the
Common Shares in the manner and on the terms described in the Prospectus or to
enforce contracts for the sale of securities; (iv) in the

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<PAGE> 24

judgment of the Representatives there shall have occurred any Material Adverse
Change; or (v) the Company shall have sustained a loss by strike, fire, flood,
earthquake, accident or other calamity of such character as in the judgment of
the Representatives may interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured. Any termination pursuant to this Section 9 shall be without
liability on the part of (a) the Company to any Underwriter, except that the
Company shall be obligated to reimburse the expenses of the Representatives and
the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to the
Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.

SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.

SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:

If to the Representatives:

BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel

If to the Company:

QUEST SOFTWARE, INC.
610 Newport Center Drive
Newport Beach, CA 92660
Facsimile: 949-720-0426

Attention: Chief Executive Officer

Any party hereto may change the address for receipt of communications by giving
written notice to the others.

SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 7, and to their
respective successors, and personal representatives, and no other person will
have any right or

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<PAGE> 25

obligation hereunder. The term "successors" shall not include any purchaser of
the Shares as such from any of the Underwriters merely by reason of such
purchase.

SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.

SECTION 14. GOVERNING LAW PROVISIONS.

(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.

(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not located in the
United States irrevocably appoints CT Corporation System, which currently
maintains a San Francisco office at 49 Stevenson Street, San Francisco,
California 94105, United States of America, as its agent to receive service of
process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City and
County of San Francisco.

SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Section headings herein are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement.

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<PAGE> 26

If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.

Very truly yours,

QUEST SOFTWARE, INC.

By:
---------------------------------
Name: Vincent C. Smith
Title: Chief Executive Officer

The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives as of the date first above written.

BANCBOSTON ROBERTSON STEPHENS INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
CIBC WORLD MARKETS CORP.
FAC/EQUITIES, A DIVISION OF FIRST ALBANY CORPORATION

On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.

BY BANCBOSTON ROBERTSON STEPHENS INC.

By:_________________________________
Authorized Signatory

-26-

<PAGE> 27
SCHEDULE A

Number of Firm
Common Shares
Underwriters To be Purchased
- ------------ ---------------

BANCBOSTON ROBERTSON STEPHENS INC. ..........................
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION..........
CIBC WORLD MARKETS CORP. ....................................
FAC/EQUITIES, A DIVISION OF FIRST ALBANY
CORPORATION

Total...............................................

S-A

<PAGE> 28

EXHIBIT A

LOCK-UP AGREEMENT

BancBoston Robertson Stephens Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
CIBC World Markets Corp.
FAC/Equities, a division of First Albany Corporation
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104

RE: Quest Software, Inc. (the "Company")

Ladies & Gentlemen:

The undersigned is an owner of record or beneficially of certain shares
of Common Stock of the Company ("Common Stock") or securities convertible into
or exchangeable or exercisable for Common Stock. The Company proposes to carry
out a public offering of Common Stock (the "Offering") for which you will act as
the representatives (the "Representatives") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.

In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with respect to dispositions of Common
Stock acquired on the open market or (iv) with the prior written consent of
BancBoston Robertson Stephens Inc., for a period commencing on the date hereof
and continuing to a date 180 days after the Registration Statement is declared
effective by the Securities and Exchange Commission (the "Lock-up Period"). The
foregoing restriction has been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during

A-1

<PAGE> 29
the Lock-up Period, even if such Securities would be disposed of by someone
other than such holder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that included, relates to or
derives any significant part of its value from Securities. The undersigned also
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent and registrar against the transfer of shares of Common
Stock or Securities held by the undersigned except in compliance with the
foregoing restrictions.

This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.

Dated: ___________________________________

-----------------------------------------
Printed Name of Holder

By: ______________________________________
Signature

-----------------------------------------
Printed Name of Person Signing (and
indicate capacity of person signing if
signing if signing as custodian, trustee or
on behalf of an entity)

A-2

<PAGE> 30

EXHIBIT B

MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL

(i) The Company and each Significant Subsidiary (as that term
is defined in Regulation S-X of the Act) has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation;

(ii) The Company and each Significant Subsidiary has the
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus;

(iii) The Company and each Significant Subsidiary is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. To such
counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than
[list subsidiaries];

(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right;

(v) All issued and outstanding shares of capital stock of each
Significant Subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first
refusal or other similar right and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest;

(vi) The Firm Shares or the Option Shares, as the case may be,
to be issued by the Company pursuant to the terms of this Agreement
have been duly authorized and, upon issuance and delivery against
payment therefor in accordance with the terms hereof, will be duly and
validly issued and fully paid and nonassessable, and will not have been
issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar
right. The Company has the corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;

B-1

<PAGE> 31

(vii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;

(viii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming due authorization,
execution and delivery by you, is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except
as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles;

(ix) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act;

(x) The 8-A Registration Statement complied as to form in all
material respects with the requirements of the Exchange Act; the 8-A
Registration Statement has become effective under the Exchange Act; and
the Firm Shares or the Option Shares have been validly registered under
the Securities Act and the Rules and Regulations of the Exchange Act
and the applicable rules and regulations of the Commission thereunder;

(xi) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom
as to which such counsel need express no opinion), as of the effective
date of the Registration Statement, complied as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations;

(xii) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by such counsel
and is a fair summary of such matters and conclusions; and the forms of
certificates evidencing the Common Stock and filed as exhibits to the
Registration Statement comply with California law;

(xiii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes are
accurate and fairly present the information required to be presented by
the Securities Act;

(xiv) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which are not described or referred to therein
or filed as required;

B-2

<PAGE> 32

(xv) The performance of this Agreement and the consummation of
the transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result
in a material breach or violation of any of the terms and provisions
of, or constitute a default under, any bond, debenture, note or other
evidence of indebtedness, or any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party or by
which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency
or body having jurisdiction over the Company or any of its
subsidiaries, or over any of their properties or operations;

(xvi) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries, or
over any of their properties or operations is necessary in connection
with the consummation by the Company of the transactions herein
contemplated, except (i) such as have been obtained under the
Securities Act, (ii) such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters, (iii) such as may be
required by the National Association of Securities Dealers, LLC and
(iv) such as may be required under the federal or provincial laws of
Canada;

(xvii) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or
any of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Securities Act, other
than those described therein;

(xviii) To such counsel's knowledge, neither the Company nor
any of its subsidiaries is presently (a) in material violation of its
respective charter or bylaws, or (b) in material breach of any
applicable statute, rule or regulation known to such counsel or, to
such counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries, or over any of their properties or operations; and

(xix) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Company Shares or
other securities of the Company have registration rights with respect
to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of the
Company having rights known to such counsel to registration of such
shares of Company Shares or other securities, because of the filing of
the Registration Statement by the Company have, with respect to the
offering contemplated thereby, waived such rights or such rights have
expired by reason of lapse of time following notification of the
Company's intent to file the Registration Statement

B-3

<PAGE> 33

or have included securities in the Registration Statement pursuant to
the exercise of and in full satisfaction of such rights.

(xx) The Company is not and, after giving effect to the
offering and the sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.

(xxi) To such counsel's knowledge, the Company owns or
possesses sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals, trade secrets and other similar rights
(collectively, "Intellectual Property Rights") reasonably necessary to
conduct their business as now conducted; and the expected expiration of
any such Intellectual Property Rights would not result in a Material
Adverse Effect. The Company has not received any notice of infringement
or conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Effect. To such counsel's knowledge,
the Company's discoveries, inventions, products, or processes referred
to in the Registration Statement or Prospectus do not infringe or
conflict with any right or patent which is the subject of a patent
application known to the Company.

In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements including supporting schedules and
other financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the First Closing
Date or the Second Closing Date, as the case may be, the Registration Statement,
the Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading

B-4

<PAGE> 34

EXHIBIT C

MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL

(i) The Shares to be issued by the Company have been duly
authorized and, upon issuance and delivery and payment therefor in
accordance with the terms of the Underwriting Agreement, will be
validly issued, fully paid and non-assessable.

(ii) The Registration Statement complied as to form in all
material respects with the requirements of the Act; the Registration
Statement has become effective under the Act and, to such counsel's
knowledge, no stop order proceedings with respect thereto have been
instituted or threatened or are pending under the Act.

(iii) The 8-A Registration Statement complied as to form in
all material respects with the requirements of the Exchange Act; the
8-A Registration Statement has become effective under the Exchange Act;
and the Firm Shares or the Option Shares have been validly registered
under the Securities Act and the Rules and Regulations of the Exchange
Act and the applicable rules and regulations of the Commission
thereunder;

(iv) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.

Such counsel shall state that such counsel has reviewed the opinion
addressed to the Representatives from Brobeck, Phleger & Harrison LLP dated the
date hereof, and furnished to you in accordance with the provisions of the
Underwriting Agreement. Such opinion appears on its face to be appropriately
responsive to the requirements of the Underwriting Agreement.

<PAGE> 1

EXHIBIT 4.1

SPECIMEN STOCK CERTIFICATE

FACE

COMMON STOCK COMMON STOCK

[QUEST LOGO] QUEST SOFTWARE

INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA

CUSIP 74834T 10 3

SEE REVERSE FOR CERTAIN DEFINITIONS
AND RESTRICTIONS ON TRANSFER

THIS CERTIFIES THAT

is the owner of ________________________________________________________________

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE, OF QUEST
SOFTWARE, INC. (hereinafter and on the back hereof called the
"Corporation"),transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by a Transfer Agent and Registrar.

WITNESS the facsimile seal of the Corporation and facsimile signatures of
its duly authorized officers.

Dated:

/s/ David M. Doyle /s/ John J. Laskey
- ------------------------------------ ------------------------------------
President Chief Financial Officer

COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR

BY
----------------------------------

AUTHORIZED SIGNATURE

BACK

QUEST SOFTWARE, INC.

The Corporation is authorized to issue Common Stock and Preferred Stock.
The Board of Directors of the Corporation has the authority to fix the number of
shares and the designation of any series of Preferred Stock and to determine or
alter the rights, preferences, privileges and restrictions granted to or imposed
upon any unissued series of Preferred Stock.

<PAGE> 2

A statement of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes or series of shares and upon
the holders thereof as established by the Articles of Incorporation of the
Corporation and by any certificate of determination, and the number of shares
constituting each class or series and the designations thereof, may be obtained
by any shareholder of the Corporation upon written request and without charge
from the Secretary of the Corporation at the Corporate headquarters.

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.

The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM- as tenants in common
TEN ENT- as tenants by the entireties
JT TEN- as joint tenants with right of survivorship and
not as tenants in common

UNIF GIFT MIN ACT-_______________________ Custodian ___________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _________________________
(State)

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED,___________________________ hereby sell, assign and
transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

________________________________________

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

________________________________________________________________________________

__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.

Dated

X_____________________________________

X_____________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.

Signature(s) Guaranteed: _______________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.

<PAGE> 1

EXHIBIT 5.1

FORM OF OPINION

_____________, 1999

Quest Software, Inc.
610 Newport Center Drive
Newport Beach, CA 92660

Re: Quest Software, Inc. Registration Statement on Form S-1
for 5,060,000 Shares of Common Stock
-------------------------------------------------------

Ladies and Gentlemen:

We have acted as counsel to Quest Software, Inc., a California
corporation (the "Company"), in connection with the proposed issuance and sale
by the Company of up to 5,060,000 shares of the Company's Common Stock (the
"Shares") pursuant to the Company's Registration Statement on Form S-1 (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").

This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.

We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.

We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.

This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.

Very truly yours,

<PAGE> 1
EXHIBIT 10.2

QUEST SOFTWARE, INC.
1999 STOCK INCENTIVE PLAN

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

This 1999 Stock Incentive Plan is intended to promote the
interests of Quest Software, Inc., a California corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.

Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.

II. STRUCTURE OF THE PLAN

A. The Plan shall be divided into five separate equity
programs:

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

(ii) the Salary Investment Option Grant Program under
which eligible employees may elect to have a portion of their base salary
invested each year in special options,

(iii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares or
as a bonus for services rendered the Corporation (or any Parent or Subsidiary),

(iv) the Automatic Option Grant Program under which
eligible non-employee Board members shall automatically receive options at
periodic intervals to purchase shares of Common Stock; and

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

B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.

<PAGE> 2

III. ADMINISTRATION OF THE PLAN

A. Prior to the Section 12 Registration Date, the
Discretionary Option Grant and Stock Issuance Programs shall be administered by
the Board unless otherwise determined by the Board. Beginning with the Section
12 Registration Date, the following provisions shall govern the administration
of the Plan:

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

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

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

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

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

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

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

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

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

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

2
<PAGE> 3

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

IV. ELIGIBILITY

A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:

(i) Employees,

(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and

(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).

B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.

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

V. STOCK SUBJECT TO THE PLAN

A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not exceed
Seven Million, Four Hundred Ninety-Eight Thousand, Five Hundred (7,498,500)
shares. Such authorized share reserve consists of (i) the number of shares which
remain available for issuance, as of the Section 12 Registration Date, under the
Predecessor Plan, including the shares subject to the outstanding options to be
incorporated into the Plan and the additional shares which would otherwise be
available for future grant, plus (ii) an increase of _____________________
(___________) shares authorized by the Board subject to stockholder approval
prior to the Section 12 Registration Date.

B. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than Five Hundred Thousand (500,000) shares of Common Stock
in the aggregate per calendar year, beginning with the 1999 calendar year.

C. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent those options
expire, terminate or are cancelled for any reason prior to exercise in full.
Unvested shares issued under the Plan and subsequently

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repurchased by the Corporation, at the original exercise or issue price paid per
share, pursuant to the Corporation's repurchase rights under the Plan shall be
added back to the number of shares of Common Stock reserved for issuance under
the Plan and shall accordingly be available for reissuance through one or more
subsequent options or direct stock issuances under the Plan. However, should the
exercise price of an option under the Plan be paid with shares of Common Stock
or should shares of Common Stock otherwise issuable under the Plan be withheld
by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under the Plan shall NOT be available for subsequent issuance.

D. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities by which the share
reserve is to increase each calendar year pursuant to the automatic share
increase provisions of the Plan, (iii) the number and/or class of securities for
which any one person may be granted options, separately exercisable stock
appreciation rights and direct stock issuances under the Plan per calendar year,
(iv) the number and/or class of securities for which grants are subsequently to
be made under the Automatic Option Grant Program to new and continuing
non-employee Board members, (v) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the Plan
and (vi) the number and/or class of securities and price per share in effect
under each outstanding option incorporated into this Plan from the Predecessor
Plan. Such adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under
such options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.

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ARTICLE TWO

DISCRETIONARY OPTION GRANT PROGRAM

I. OPTION TERMS

Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

A. EXERCISE PRICE.

1. The exercise price per share shall be fixed by the Plan
Administrator at the time of the option grant; provided, however, with respect
to options granted prior to the Section 12 Registration Date, the exercise price
per share shall not be less than eighty-five percent (85%) of the Fair Market
Value per share of Common Stock on the option grant date.

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

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

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

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

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

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<PAGE> 6

C. CESSATION OF SERVICE.

1. The following provisions shall govern the exercise of
any options outstanding at the time of the Optionee's cessation of Service or
death:

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

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

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

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

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

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

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

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

E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to

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<PAGE> 7

repurchase, at the exercise price paid per share, any or all of those unvested
shares. The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate vesting
schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.
Prior to the Section 12 Registration Date, the Plan Administrator may not impose
a vesting schedule upon any option grant or the shares of Common Stock subject
to that option which is more restrictive than twenty percent (20%) per year
vesting, with the initial vesting to occur not later than one (1) year after the
option grant date. However, such limitation shall not be applicable to any
option grants made to individuals who are officers of the Corporation,
non-employee Board members or independent consultants.

F. FIRST REFUSAL RIGHTS. Until the Section 12 Registration
Date, the Corporation shall have the right of first refusal with respect to any
proposed disposition by the Participant (or any successor in interest) of any
shares of Common Stock issued under the Plan. Such right of first refusal shall
be exercisable in accordance with the terms established by the Plan
Administrator and set forth in the document evidencing such right.

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

II. INCENTIVE OPTIONS

The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.

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

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

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

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

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<PAGE> 8

III. CHANGE IN CONTROL/HOSTILE TAKE-OVER

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

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

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

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

E. The Plan Administrator may at any time provide that one or
more options will automatically accelerate in connection with a Change in
Control, whether or not those options are assumed or otherwise continued in full
force and effect pursuant to the terms of the Change in Control. Any such option
shall accordingly become exercisable, immediately prior to the effective date of
such Change in Control, for all of the shares of Common Stock at the time
subject to that option and may be exercised for any or all of those shares as
fully-vested shares of

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<PAGE> 9

Common Stock. In addition, the Plan Administrator may at any time provide that
one or more of the Corporation's repurchase rights shall not be assignable in
connection with such Change in Control and shall terminate upon the consummation
of such Change in Control.

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

G. The Plan Administrator may at any time provide that one or
more options will automatically accelerate in connection with a Hostile
Take-Over. Any such option shall become exercisable, immediately prior to the
effective date of such Hostile Take-Over, for all of the shares of Common Stock
at the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall terminate automatically upon the consummation of such
Hostile Take-Over. Alternatively, the Plan Administrator may condition such
automatic acceleration and termination upon an Involuntary Termination of the
Optionee's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of such Hostile Take-Over. Each option so
accelerated shall remain exercisable for fully-vested shares until the
expiration or sooner termination of the option term.

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

IV. STOCK APPRECIATION RIGHTS

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

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<PAGE> 10

ARTICLE THREE

SALARY INVESTMENT OPTION GRANT PROGRAM

I. OPTION GRANTS

The Primary Committee may implement the Salary Investment
Option Grant Program for one or more calendar years beginning after the
Underwriting Date and select the Section 16 Insiders and other highly
compensated Employees eligible to participate in the Salary Investment Option
Grant Program for each such calendar year. Each selected individual who elects
to participate in the Salary Investment Option Grant Program must, prior to the
start of each calendar year of participation, file with the Plan Administrator
(or its designate) an irrevocable authorization directing the Corporation to
reduce his or her base salary for that calendar year by an amount not less than
Ten Thousand Dollars ($10,000.00) nor more than Seventy-Five Thousand Dollars
($75,000.00). The Primary Committee shall have complete discretion to determine
whether to approve the filed authorization in whole or in part. To the extent
the Primary Committee approves the authorization, the individual who filed that
authorization shall be granted an option under the Salary Investment Grant
Program on the first trading day in January for the calendar year for which the
salary reduction is to be in effect.

II. OPTION TERMS

Each option shall be a Non-Statutory Option evidenced by one
or more documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified below.

A. EXERCISE PRICE.

1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.

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

B. NUMBER OF OPTION SHARES. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):

X = A / (B x 66-2/3%), where

X is the number of option shares,

A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year, and

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<PAGE> 11

B is the Fair Market Value per share of Common Stock on the
option grant date.

C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.

D. CESSATION OF SERVICE. Each option outstanding at the time
of the Optionee's cessation of Service shall remain exercisable, for any or all
of the shares for which the option is exercisable at the time of such cessation
of Service, until the earlier of (i) the expiration of the option term or (ii)
the expiration of the three (3)-year period following the Optionee's cessation
of Service. To the extent the option is held by the Optionee at the time of his
or her death, the option may be exercised by his or her Beneficiary. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to remain outstanding with respect to any and all shares of
Common Stock for which the option is not otherwise at that time exercisable.

III. CHANGE IN CONTROL/HOSTILE TAKE-OVER

A. In the event of any Change in Control or Hostile Take-Over
while the Optionee remains in Service, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Change in Control or Hostile Take-Over, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. Each such option accelerated in
connection with a Change in Control shall terminate upon the Change in Control,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise continued in full force and effect pursuant to the terms of the Change
in Control. Each such option accelerated in connection with a Hostile Take-Over
shall remain exercisable until the expiration or sooner termination of the
option term.

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

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

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<PAGE> 12

IV. REMAINING TERMS

The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
options made under the Discretionary Option Grant Program.

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<PAGE> 13

ARTICLE FOUR

STOCK ISSUANCE PROGRAM

I. STOCK ISSUANCE TERMS

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

A. PURCHASE PRICE.

1. The purchase price per share of Common Stock subject to
direct issuance shall be fixed by the Plan Administrator; provided,
however, with respect to stock issuances made prior to the Section 12
Registration Date, the purchase price per share shall not be less than
eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the issue date and the purchase price per share of Common Stock
issued to a 10% Stockholder shall not be less than one hundred and ten
percent (110%) of such Fair Market Value.

2. Subject to the provisions of Section II of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator
may deem appropriate in each individual instance:

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

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

B. VESTING/ISSUANCE PROVISIONS.

1. The Plan Administrator may issue shares of Common Stock
which are fully and immediately vested upon issuance or which are to vest in one
or more installments over the Participant's period of Service or upon attainment
of specified performance objectives. Alternatively, the Plan Administrator may
issue share right awards which shall entitle the recipient to receive a
specified number of vested shares of Common Stock upon the attainment of one or
more performance goals or Service requirements established by the Plan
Administrator. However, for stock issuances prior to the Section 12 Registration
Date, the Plan Administrator may not impose a vesting schedule upon any stock
issuance effected under the Stock Issuance Program which is more restrictive
than twenty percent (20%) per year vesting, with initial vesting to occur not
later than one (1) year after the issuance date. Such limitation shall not apply
to any Common Stock issuances made to the officers of the Corporation,
non-employee Board members or independent consultants.

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<PAGE> 14

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

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

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

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

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

II. CHANGE IN CONTROL/HOSTILE TAKE-OVER

A. All of the Corporation's outstanding repurchase rights
shall terminate automatically, and all the shares of Common Stock subject to
those terminated rights shall immediately vest in full, in the event of any
Change in Control, except to the extent (i) those repurchase rights are assigned
to the successor corporation (or parent thereof) or otherwise

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<PAGE> 15

continue in full force and effect pursuant to the terms of the Change in Control
or (ii) such accelerated vesting is precluded by other limitations imposed by
the Plan Administrator at the time the repurchase right is issued.

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

III. SHARE ESCROW/LEGENDS

Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.

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ARTICLE FIVE

AUTOMATIC OPTION GRANT PROGRAM

I. OPTION TERMS

A. GRANT DATES. Options shall be made on the dates specified
below:

1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase Twenty-Five Thousand (25,000) shares of Common
Stock, provided that individual has not previously been in the employ of the
Corporation (or any Parent or Subsidiary).

2. On the date of each Annual Stockholders Meeting
beginning with the 2001 Annual Stockholder Meeting, each individual who has
served as a non-employee Board member since the date of the Annual Stockholders
Meeting in the immediately preceding year shall automatically be granted a
Non-Statutory Option to purchase Seven Thousand Five Hundred (7,500) shares of
Common Stock.

B. EXERCISE PRICE.

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

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

C. OPTION TERM. Each option shall have a term of ten (10)
years measured from the option grant date.

D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the initial 25,000 share option shall be subject to repurchase
by the Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each initial
25,000-share option shall vest, and the Corporation's repurchase right shall
lapse, in a series of four (4) successive equal annual installments over the
Optionee's period of continued service as a Board member, with the first such
installment to vest upon the Optionee's completion of one (1) year of Board
service measured from the option grant date. Each annual 7,500-share option
shall be fully vested at the time of grant.

E. CESSATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options outstanding at the time of the Optionee's
cessation of Board service:

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<PAGE> 17

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

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

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

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

II. CHANGE IN CONTROL/HOSTILE TAKE-OVER

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

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

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

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<PAGE> 18

cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation.

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

III. REMAINING TERMS

The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for options made
under the Discretionary Option Grant Program.

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ARTICLE SIX

DIRECTOR FEE OPTION GRANT PROGRAM

I. OPTION GRANTS

The Board may implement the Director Fee Option Grant Program
as of the first day of any calendar year beginning after the Underwriting Date.
Upon such implementation of the Program, each non-employee Board member may
elect to apply all or any portion of the annual retainer fee otherwise payable
in cash for his or her service on the Board to the acquisition of a special
option grant under this Director Fee Option Grant Program. Such election must be
filed with the Corporation's Chief Financial Officer prior to the first day of
the calendar year for which the election is to be in effect. Each non-employee
Board member who files such a timely election with respect to the annul retainer
fee shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
that fee would otherwise be payable.

II. OPTION TERMS

Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.

A. EXERCISE PRICE.

1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.

B. NUMBER OF OPTION SHARES. The number of shares of Common
Stock subject to the option shall be determined pursuant to the following
formula (rounded down to the nearest whole number):

X = A / (B x 66-2/3%), where

X is the number of option shares,

A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and

B is the Fair Market Value per share of Common Stock on the
option grant date.

C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of

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<PAGE> 20

each month of Board service during the calendar year in which the option is
granted. Each option shall have a maximum term of ten (10) years measured from
the option grant date.

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

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

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

III. CHANGE IN CONTROL/HOSTILE TAKE-OVER

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

B. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each of his or her outstanding options. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the excess of
(i) the Option Surrender Value of the shares of Common Stock at the time subject
to each surrendered option (whether or not the Optionee is otherwise at the time

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<PAGE> 21

vested in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.

IV. REMAINING TERMS

The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for options
made under the Discretionary Option Grant Program.

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<PAGE> 22

ARTICLE SEVEN

MISCELLANEOUS

I. NO IMPAIRMENT OF AUTHORITY

Outstanding awards shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

II. FINANCING

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

III. TAX WITHHOLDING

A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of options or the issuance or vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.

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

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

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

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<PAGE> 23

IV. FINANCIAL REPORTS

The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.

V. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan shall become effective immediately upon the Plan
Effective Date. However, the Salary Investment Option Grant and Director Fee
Option Grant Programs shall not be implemented until such time as the Primary
Committee or the Board may deem appropriate. Options may be granted under the
Discretionary Option Grant Program at any time on or after the Plan Effective
Date. However, no options granted under the Plan may be exercised, and no shares
shall be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.

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

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

D. The Plan shall terminate upon the earliest of (i) June 8,
2009, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.

VI. AMENDMENT OF THE PLAN

A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents

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<PAGE> 24

to such amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws or regulations.

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

VII. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.

VIII. REGULATORY APPROVALS

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

B. No shares of Common Stock or other assets shall be issued
or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws, including
the filing and effectiveness of the Form S-8 registration statement for the
shares of Common Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.

IX. NO EMPLOYMENT/SERVICE RIGHTS

Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.

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<PAGE> 25

APPENDIX

The following definitions shall be in effect under the Plan:

A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic
option grant program in effect under the Plan.

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

C. BOARD shall mean the Corporation's Board of Directors.

D. CHANGE IN CONTROL shall mean a change in ownership or
control of the Corporation effected through any of the following transactions:

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

(ii) any stockholder-approved transfer or other disposition of all or
substantially all of the Corporation's assets, or

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

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

F. COMMON STOCK shall mean the Corporation's common stock.

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

H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the director
fee option grant program in effect under the Plan.

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I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.

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

K. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.

L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

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

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

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

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

M. HOSTILE TAKE-OVER shall mean:

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

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

N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.

O. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:

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

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

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

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

R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.

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

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T. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.

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

V. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.

W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.

X. PLAN shall mean the Corporation's 1999 Stock Incentive
Plan, as set forth in this document.

Y. PLAN ADMINISTRATOR shall mean the particular entity,
whether the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant, Salary Investment
Option Grant and Stock Issuance Programs with respect to one or more classes of
eligible persons, to the extent such entity is carrying out its administrative
functions under those programs with respect to the persons under its
jurisdiction. However, the Primary Committee shall have the plenary authority to
make all factual determinations and to construe and interpret any and all
ambiguities under the Plan to the extent such authority is not otherwise
expressly delegated to any other Plan Administrator.

Z. PLAN EFFECTIVE DATE shall mean June 9, 1999, the date on
which the Plan was adopted by the Board.

AA. PREDECESSOR PLAN shall mean the Corporation's pre-existing
1998 Stock Option/Stock Issuance Plan in effect immediately prior to the Plan
Effective Date hereunder.

BB. PRIMARY COMMITTEE shall mean the committee of two (2) or
more non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program with
respect to all eligible individuals.

CC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the
salary investment grant program in effect under the Plan.

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DD. SECONDARY COMMITTEE shall mean a committee of one (1) or
more Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.

EE. SECTION 12 REGISTRATION DATE shall mean the date on which
the Common Stock is first registered under Section 12(g) of the 1934 Act.

FF. SECTION 16 INSIDER shall mean an officer or director of
the Corporation subject to the short-swing profit liabilities of Section 16 of
the 1934 Act.

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

HH. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.

II. STOCK ISSUANCE PROGRAM shall mean the stock issuance
program in effect under the Plan.

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

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

LL. UNDERWRITING AGREEMENT shall mean the agreement between
the Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

MM. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.

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

A-5

<PAGE> 1

EXHIBIT 10.9

OFFICE SPACE LEASE

BETWEEN

THE IRVINE COMPANY

AND

QUEST SOFTWARE, INC.

<PAGE> 2
OFFICE SPACE LEASE

THIS LEASE is made as of the 17th day of June, 1999, by and between THE
IRVINE COMPANY, hereafter called "Landlord," and QUEST SOFTWARE, INC., a
California corporation, hereinafter called "Tenant."

ARTICLE I. BASIC LEASE PROVISIONS

Each reference in this Lease to the "Basic Lease Provisions" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.

1. TENANT'S TRADE NAME: N/A

2. PREMISES: Suite Nos. 200, 500 & 600 (the Premises are more particularly
described in Section 2.1).

ADDRESS OF BUILDING: 8001 Irvine Center Drive, Irvine, CA 92618

PROJECT DESCRIPTION (IF APPLICABLE): 8001 Tower and attendant Common
Area

3. USE OF PREMISES: General Office and for no other use.

4. ESTIMATED COMMENCEMENT DATE: October 1, 1999

5. LEASE TERM: Seventy-Four (74) months, plus such additional days as may
be required to cause this Lease to terminate on the final day of the
calendar month.

6. BASIC RENT: One Hundred Fifty-Five Thousand Two Hundred Fifty-Two
Dollars ($155,252.00) per month.

RENTAL ADJUSTMENTS:

Commencing twelve (12) months following the Commencement Date, the
Basic Rent shall be One Hundred Sixty-Two Thousand Two Dollars
($162,002.00) per month.

Commencing twenty-four (24) months following the Commencement Date, the
Basic Rent shall be One Hundred Sixty-Eight Thousand Seven Hundred
Fifty-Three Dollars ($168,753.00) per month.

Commencing thirty-six (36) months following the Commencement Date, the
Basic Rent shall be One Hundred Seventy-Five Thousand Five Hundred
Three Dollars ($175,503.00) per month.

Commencing forty-eight (48) months following the Commencement Date, the
Basic Rent shall be One Hundred Eighty-Two Thousand Two Hundred
Fifty-Three Dollars ($182,253.00) per month.

Commencing sixty (60) months following the Commencement Date, the Basic
Rent shall be One Hundred Eighty-Nine Thousand Three Dollars
($189,003.00) per month.

Commencing seventy-two (72) months following the Commencement Date, the
Basic Rent shall be One Hundred Ninety-Five Thousand Seven Hundred
Fifty-Three Dollars ($195,753.00) per month.

7. PROPERTY TAX BASE: The Property Taxes (as defined in Section 4.2(f)
below) per rentable square foot for the twelve month period ending June
30, 2000.

BUILDING COST BASE: The Building Costs (as defined in Section 4.2(f)
below) per rentable square foot for the twelve month period ending June
30, 2000.

EXPENSE RECOVERY PERIOD: Every twelve month period during the Term (or
portion thereof during the first and last Lease years) ending June 30.

8. FLOOR AREA OF PREMISES: approximately 67,501 rentable square feet

9. SECURITY DEPOSIT: $172,820.00 (see Section 4.3)

10. BROKER(S): None

11. PLAN APPROVAL DATE: N/A

12. PARKING: Fifteen (15) reserved and Three Hundred (300) unreserved
vehicle parking spaces.

<PAGE> 3

13. ADDRESS FOR PAYMENTS AND NOTICES:

<TABLE>
<CAPTION>
LANDLORD TENANT
<S> <C>
The Irvine Company Quest Software, Inc.
c/o Insignia Commercial Group 8001 Irvine Center Drive
8001 Irvine Center Drive, Suite 1160 Suite 200
Irvine, CA 92618 Irvine, CA 92618
Attn: Property Manager

with a copy of notices to:

THE IRVINE COMPANY
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Operations - Office Properties
</TABLE>

<PAGE> 4

ARTICLE II. PREMISES

SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant
rents from Landlord the premises shown in Exhibit A (the "Premises"), containing
approximately the floor area set forth in Item 8 of the Basic Lease Provisions
and known by the suite number identified in Item 2 of the Basic Lease
Provisions. The Premises are located in the building identified in Item 2 of the
Basic Lease Provisions (which together with the underlying real property, is
called the "Building"), and is a portion of the project described in Item 2 (the
"Project"). If, upon completion of the space plans for the Premises, Landlord's
architect or space planner determines that the rentable square footage of the
Premises differs from that set forth in the Basic Lease Provisions, then
Landlord shall so notify Tenant and the Basic Rent (as shown in Item 6 of the
Basic Lease Provisions) shall be promptly adjusted in proportion to the change
in square footage. Within five (5) days following Landlord's request, the
parties shall memorialize the adjustments by executing an amendment to this
Lease prepared by Landlord.

SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither
Landlord nor any representative of Landlord has made any representation or
warranty with respect to the Premises or the Building or the suitability or
fitness of either for any purpose, except as set forth in this Lease. The taking
of possession or use of the Premises by Tenant for any purpose other than
construction shall conclusively establish that the Premises were in satisfactory
condition and in conformity with the provisions of this Lease in all respects,
except for latent defects and those matters which Tenant shall have brought to
Landlord's attention on a written punch list. The list shall be delivered to
Landlord within thirty (30) days after the term ("Term") of this Lease commences
as provided in Article III below, except that with respect to HVAC performance
Tenant shall deliver such list within one hundred twenty (120) days. Nothing
contained in this Section shall affect the commencement of the Term or the
obligation of Tenant to pay rent. Landlord shall diligently complete all punch
list items of which it is notified as provided above.

SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building and/or the Project
as any part of Tenant's corporate or trade name. Landlord shall have the right
to change the name, number or designation of the Building or Project without
liability to Tenant.

SECTION 2.4. RIGHT OF FIRST OFFER. Provided Tenant is not then in
default hereunder and is not then subleasing any portion of the Premises (except
for subleases to "Related Entities" as defined in Section 9.1(d) below), and
provided further that any third party tenants holding rights to lease the First
Right Space (as hereinafter defined) elect not to exercise their rights,
Landlord hereby grants Tenant the continuing right ("First Right") to lease any
space which may become available for lease in the Building ("First Right Space")
in accordance with and subject to the provisions of this Section 2.4; provided
that the First Right shall not be in effect (i) prior to the date Tenant
commences the payment of Basic Rent for the "Second Floor Storage Area" (as
defined below) and (ii) during the final twelve (12) months of the initial Lease
Term unless Tenant has timely delivered the "Exercise Notice" pursuant to
Section 3.3. It is understood, however, that Tenant's First Right is expressly
further conditioned upon the prior delivery by Tenant of written notice to
Landlord in good faith of Tenant's need for additional space in the Building
(the "Space Requirement Notice"). At any time during the Term of this Lease, and
provided that all of the foregoing conditions have been satisfied, prior to
leasing the First Right Space, or any portion thereof, to any other party,
Landlord shall give Tenant written notice of its intention to lease same, which
notice (the "First Right Notice") shall describe the particular space to be
leased (the "Designated Space"). At Tenant's election, the parties shall
thereupon negotiate in good faith the economic terms (including without
limitation mutually approved tenant improvements and parking allotments)
pursuant to which Tenant would lease the Designated Space for a term coextensive
with the Term of this Lease. If, despite such good faith negotiations, the
parties are unable mutually to agree on terms within ten (10) business days
following delivery of the First Right Notice, then Landlord shall have the right
to lease the Designated Space to a third party; provided that should the
Designated Space again become available for lease during the Term hereof, the
provisions of this Section shall apply ab initio. Conversely, should the parties
timely agree on economic terms for Tenant's lease of the Designated Space, then
Landlord shall promptly prepare and deliver to Tenant an amendment to this Lease
consistent with such agreement, and Tenant shall execute and return same to
Landlord within ten (10) days. Tenant's failure to timely return the amendment
shall, if not rectified within two (2) days after notice of nonperformance from
Landlord, entitle Landlord to lease such space to a third party. Notwithstanding
the foregoing, it is understood that Tenant's First Right shall be subject to
any extension or expansion rights granted by Landlord to any third party tenant
now or hereafter occupying the First Right Space or any portion thereof, and in
no event shall any such First Right Space be deemed available for leasing until
the existing tenant thereof shall have vacated the First Right Space. Tenant's
rights under this Section 2.4 shall belong solely to Quest Software, Inc., a
California corporation, and may not otherwise be assigned or transferred by it
except in connection with an

<PAGE> 5

assignment of this Lease to a "Tenant Affiliate" (as defined in Section 9.1(e)
below). Any other attempted assignment or transfer shall be void and of no force
or effect.

SECTION 2.5. OPTION TO EXPAND. Provided that Tenant is not then in
default under any provision of this Lease, Tenant shall have the right to lease
all of the space which is not then leased by Tenant on the ninth floor
(comprising approximately 23,840 rentable square feet) of the Building (the
"Option Space") in accordance with and subject to the provisions of this Section
2.5. Tenant shall deliver written notice to Landlord of its irrevocable
commitment to lease the Expansion Space at any time prior to June 1, 2000 (the
"Expansion Commitment"). If Tenant fails to timely deliver the Expansion
Commitment, Landlord shall be free thereafter to lease the Option Space to one
or more third parties, subject to Section 2.4 above. The Option Space shall be
subject to all of the terms of this Lease, except that (i) subject to Landlord's
rights in the event of "Tenant Delays" as described in Exhibit X hereto, the
term shall be coterminous with this Lease commencing on the date Landlord has
substantially completed the tenant improvements for the Option Space, which date
shall be on the earliest possible date agreed to by Landlord and Tenant, but in
no event later than August 31, 2001; (ii) the Basic Rent for the Option Space
shall be at the prevailing market rental rate (including periodic adjustments)
for comparable and similarly improved space within the Building and the adjacent
building at 8105 Irvine Center Drive (the "8105 Building") as of the
commencement of the Term of the Option Space, based on a reasonable
extrapolation of leasing rates actually achieved in recent transactions in the
Building and the 8105 Building and, if Tenant is not then being represented by a
broker, giving greater weight to transactions in which no third party brokerage
commission was paid; (iii) Landlord shall provide Tenant with five (5) employee
parking spaces for every one thousand (1,000) usable square feet of the Option
Space, which allotment shall include a limited number of reserved spaces equal
to one (1) reserved stall for every four thousand (4,000) usable square feet of
the Option Space; and (iv) Landlord shall cause to be constructed tenant
improvements for the Expansion Space consistent with those provided for the
initial Premises pursuant to Exhibit X hereto, which improvements shall be
completed in accordance with a space plan approved by the parties. Landlord
agrees that in the event the tenant improvement work requested by Tenant for the
Expansion Space exceeds the amount of the Landlord's tenant improvement
contribution therefor, then Landlord shall, at Tenant's request, submit the
tenant improvement work for the Expansion Space to a competitive bidding process
involving Landlord-approved contractors. Landlord further agrees that should the
Expansion Space comprise the entire rentable area of the ninth floor, then as
part of the approved tenant improvement work, Tenant shall have the right to
remove the existing corridor space and to convert such space to usable office
space, provided that such reconfiguration is in compliance with all building
codes and other legal requirements and provided further that Tenant may be
required by Landlord, concurrently with Landlord's approval of Tenant's final
construction drawings, to restore the corridor to a Building standard condition
at the end of the Term. Should the parties be unable to agree upon the rental
rate for the Option Space within thirty (30) days following delivery of the
Expansion Commitment, then either party may cause the rate to be determined by
arbitration pursuant to Section 14.7(b). Tenant understands and agrees that
Landlord's obligation to deliver certain suites on the ninth floor of the
Building shall be contingent upon Landlord's ability to relocate the existing
tenants thereof at a reasonable cost (which cost shall be funded by Tenant);
should Landlord be unable to do so despite its good faith efforts, then Landlord
shall so notify Tenant and the Option Space shall be deemed to exclude those
applicable suites. Upon Tenant's exercise of its rights under this Section 2.5
and the determination of the final economic terms for Tenant's lease of the
Option Space, Landlord shall prepare an appropriate amendment to this Lease
respecting same and Tenant shall execute and deliver the amendment to Landlord
within ten (10) days after receipt. Tenant's rights under this Section 2.5 shall
belong solely to Quest Software, Inc., a California corporation, and may not
otherwise be assigned or transferred except in connection with an assignment of
this Lease to a Tenant Affiliate. Any other attempted assignment or transfer
shall be void and of no force or effect.

SECTION 2.6. SECOND FLOOR STORAGE AREA. Landlord hereby agrees that
Tenant shall be permitted to utilize a portion of space on the second floor of
the Building comprising approximately 8,599 rentable square feet and shown on
Exhibit A-1 hereto for storage purposes only (the "Second Floor Storage Area").
Notwithstanding any contrary provision in this Lease, Landlord agrees that
provided Tenant is not in default under the Lease, and provided further that
Tenant is not using the Second Floor Storage Area for its business operations,
Tenant shall not be obligated to pay Basic Rent for the Second Floor Storage
Area during the initial six (6) months of the Lease Term, which rental credit
shall equal Nineteen Thousand Seven Hundred Seventy-Eight Dollars ($19,778.00)
per month. Tenant understands and agrees that at Landlord's election and
expense, the Second Floor Storage Area shall be demised from the remainder of
space on the second floor and shall be kept locked at all times by Landlord.
Tenant further understands and agrees that should it require temporary access to
the Second Floor Storage Area, Tenant shall so notify Landlord, and Landlord's
management agent for the Building shall then permit such access to the Second
Floor Storage Area as soon as reasonably possible following the request by
Tenant. If, at any time during the first six (6) months of the Term, Tenant
desires to commence using the Second Floor Storage Area for its business
operations, Tenant shall so notify Landlord in writing and the Second

<PAGE> 6

Floor Storage Area shall thereupon be made continuously available to Tenant;
concurrently therewith, the foregoing rental credit shall be reduced to Nine
Thousand Eight Hundred Eighty-Nine Dollars ($9,889.00) per month for the
remainder of the initial six month period, with any mid-month reduction
appropriately prorated based on the number of days in that month.

ARTICLE III. TERM

SECTION 3.1. GENERAL. The Term shall be for the period shown in Item 5
of the Basic Lease Provisions. The Term shall commence ("Commencement Date") on
the earlier of (a) subject to the provisions of Section 3.2, five (5) days
following the date that the Premises have been tendered to Tenant, ready for
occupancy as described in section 3.2, but in no event earlier than the
Estimated Commencement Date as set forth in Item 4 of the Basic Lease
Provisions, or (b) the date Tenant commences its business activities within the
Premises. Promptly following request by Landlord, the parties shall memorialize
on a form provided by Landlord the actual Commencement Date and the expiration
date ("Expiration Date") of this Lease.

SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on or before the
Estimated Commencement Date, this Lease shall not be void or voidable nor shall
Landlord be liable to Tenant for any resulting loss or damage. However, Tenant
shall not be liable for any rent and the Commencement Date shall not occur until
Landlord delivers possession of the Premises and the Premises are in fact ready
for occupancy as defined below, except that if Landlord's failure to so deliver
possession on the Estimated Commencement Date is attributable to any action or
inaction by Tenant (including without limitation any Tenant Delay described in
the Work Letter, if any, attached to this Lease), then the Commencement Date
shall not be advanced to the date on which possession of the Premises is
tendered to Tenant, and Landlord shall be entitled to full performance by Tenant
(including the payment of rent) from the date Landlord would have been able to
deliver the Premises to Tenant but for Tenant's Delay(s). The Premises shall be
deemed ready for occupancy upon the tendered date, but only if and when
Landlord, to the extent applicable, (a) has put into operation all building
services essential for the use of the Premises by Tenant, (b) has provided
reasonable access to the Premises for Tenant so that they may be used without
unnecessary interference, (c) has substantially completed all the work required
to be done by Landlord in this Lease, and (d) has obtained requisite
governmental approvals to Tenant's occupancy.

SECTION 3.3. RIGHT TO EXTEND. Provided that Tenant is not then in
default under any provision of this Lease, Tenant may extend the Term of this
Lease for one period of sixty (60) months. Tenant shall exercise such right to
extend the Term by and only by delivering to Landlord, not less than twelve (12)
months prior to the scheduled expiration date of the Term, Tenant's written
notice of its irrevocable election to extend (the "Exercise Notice"). Tenant's
failure timely to deliver the Exercise Notice shall cause this extension right
to lapse and be of no further force or effect.

The Basic Rent payable under the Lease during the extension of the Term shall be
at ninety-five percent (95%) of the prevailing rental rate and other economic
terms for office space being leased by Landlord in the Building and the 8105
Building with a term commencing at or about the commencement of the applicable
extension period, as determined based on a reasonable extrapolation of
then-current leasing rates actually achieved in such buildings (the "Prevailing
Rate"). In determining the Prevailing Rate, recent new and renewal leases with
non-equity tenants of the Project shall be considered. The Prevailing Rate shall
reflect the rental rate and terms payable in those third party transactions,
taking into account pertinent economic concessions then generally being granted
by Landlord such as "free rent," Operating Expense base years, parking charge
limitations, and the like. It is understood, however, that no consideration
shall be given to brokerage commissions, lease "takeover" payments, moving
allowances, or tenant improvement allowances (other than retrofit allowances
granted to renewal tenants). The rental rates payable in any third party
transactions executed more than six (6) months prior to the commencement of the
extension period shall be reasonably extrapolated, if applicable, to reflect
anticipated changes in the Prevailing Rate based on current rental trends.

Following Tenant's delivery of the Exercise Notice, but not later than six (6)
months prior to the expiration date of the Term, Landlord shall notify Tenant in
writing ("Landlord's Notice") of Landlord's calculation of the Prevailing Rate
for the extension period based on the foregoing criteria. Should Tenant dispute
Landlord's calculation, then Tenant may, by written notice to Landlord within
thirty (30) days following Landlord's Notice, submit the reasonableness of
Landlord's calculation of the Prevailing Rate to arbitration in accordance with
Section 14.7(b) of the Lease (the "Arbitration Election"). Should Tenant fail
timely to make the Arbitration Election, then Landlord's determination of the
Prevailing Rate shall be conclusive.

<PAGE> 7

Within twenty (20) days after the determination of the Prevailing Rate, Landlord
shall prepare a reasonably appropriate amendment to this Lease for the extension
period and Tenant shall execute and return same to Landlord within fifteen (15)
days. Should the Prevailing Rate not be established by the commencement of the
extension period, then Tenant shall continue paying rent at the rate in effect
during the month preceding such commencement, and a lump sum adjustment shall be
made promptly upon the determination of such new rental.

The right to extend granted in this Section shall be personal to Quest Software,
Inc., a California corporation, and any Tenant Affiliate thereof to which this
Lease may be assigned. Any other attempt to assign or transfer such right shall
be void from its inception. Time is specifically made of the essence in this
Section.

ARTICLE IV. RENT AND OPERATING EXPENSES

SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset (except as expressly provided
in this Lease) a Basic Rent for the Premises in the total amount shown
(including subsequent adjustments, if any) in Item 6 of the Basic Lease
Provisions. Any rental adjustment shown in Item 6 shall be deemed to occur on
the specified monthly anniversary of the Commencement Date, whether or not that
date occurs at the end of a calendar month. The rent shall be due and payable in
advance commencing on the Commencement Date (as prorated for any partial month)
and continuing thereafter on the first day of each successive calendar month of
the Term. No demand, notice or invoice shall be required. An installment of rent
in the amount of one (1) full month's Basic Rent at the initial rate specified
in Item 6 of the Basic Lease Provisions shall be delivered to Landlord
concurrently with Tenant's execution of this Lease and shall be applied against
the Basic Rent first due hereunder.

SECTION 4.2. OPERATING EXPENSE INCREASE.

(a) Commencing on the first day of the thirteenth month of the
Lease Term, Tenant shall compensate Landlord, as additional rent, for Tenant's
proportionate shares of "Building Costs" and "Property Taxes," as those terms
are defined below, incurred by Landlord in the operation of the Building and
Project. Property Taxes and Building Costs are mutually exclusive and may be
billed separately or in combination as determined by Landlord. Tenant's
proportionate share of Property Taxes shall equal the product of the rentable
floor area of the Premises multiplied by the difference of (i) Property Taxes
per rentable square foot less (ii) the Property Tax Base set forth in Item 7 of
the Basic Lease Provisions. Tenant's proportionate share of Building Costs shall
equal the product of the rentable floor area of the Premises multiplied by the
difference of (i) Building Costs per rentable square foot less (ii) the Building
Cost Base set forth in Item 7 of the Basic Lease Provisions. Tenant acknowledges
Landlord's rights to make changes or additions to the Building and/or Project
from time to time pursuant to Section 6.5 below, in which event the total
rentable square footage within the Building and/or Project may be adjusted. For
convenience of reference, Property Taxes and Building Costs may sometimes be
collectively referred to as "Operating Expenses."

(b) Commencing prior to the start of the first full "Expense
Recovery Period" of the Lease (as defined in Item 7 of the Basic Lease
Provisions), and prior to the start of each full or partial Expense Recovery
Period thereafter, Landlord shall give Tenant a written estimate of the amount
of Tenant's proportionate shares of Building Costs and Property Taxes for the
Expense Recovery Period or portion thereof. Commencing on the first day of the
thirteenth month of the Lease Term, Tenant shall pay the estimated amounts to
Landlord in equal monthly installments, in advance, with Basic Rent. If Landlord
has not furnished its written estimate for any Expense Recovery Period by the
time set forth above, Tenant shall continue to pay cost reimbursements at the
rates established for the prior Expense Recovery Period, if any; provided that
when the new estimate is delivered to Tenant, Tenant shall, at the next monthly
payment date, pay any accrued cost reimbursements based upon the new estimate.
Landlord may from time to time change the Expense Recovery Period to reflect a
calendar year or a new fiscal year of Landlord, as applicable, in which event
Tenant's share of Operating Expenses shall be equitably prorated for any partial
year.

(c) Within one hundred twenty (120) days after the end of each
Expense Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Property Taxes and Building Costs
incurred by Landlord during the period, and the parties shall within thirty (30)
days thereafter make any payment or allowance necessary to adjust Tenant's
estimated payments, if any, to Tenant's actual proportionate shares as shown by
the annual statement. If Tenant has not made estimated payments during the
Expense Recovery Period, any amount owing by Tenant pursuant to subsection (a)
above shall be paid to Landlord in accordance with Article XVI. If actual

<PAGE> 8

Property Taxes or Building Costs allocable to Tenant during any Expense Recovery
Period are less than the Property Tax Base or the Building Cost Base,
respectively, Landlord shall not be required to pay the differential to Tenant.
Should Tenant fail to object in writing to Landlord's determination of actual
Operating Expenses within one (1) year following delivery of Landlord's expense
statement, Landlord's determination of actual Operating Expenses for the
applicable Expense Recovery Period shall be conclusive and binding on Tenant.

(d) Even though the Lease has terminated and the Tenant has
vacated the Premises, when the final determination is made of Tenant's share of
Property Taxes and Building Costs for the Expense Recovery Period in which the
Lease terminates, Tenant shall upon notice pay the entire increase due over the
estimated expenses paid. Conversely, any overpayment made in the event expenses
decrease shall be rebated by Landlord to Tenant.

(e) If Tenant is notified by December 1 of any Expense
Recovery Period that any one or more of the Operating Expenses are increased to
a rate(s) or amount(s) in excess of the rate(s) or amount(s) used in calculating
the estimated expenses for the year, then Tenant's estimated share of Property
Taxes or Building Costs, as applicable, shall be increased, effective as of the
following January 1, by an amount equal to Tenant's proportionate share of the
increase; provided that any increase attributable to the period prior to January
1 shall be amortized and spread over the remainder of the Expense Recovery
Period from and after January 1. Landlord shall give Tenant written notice of
the amount or estimated amount of the increase, the month in which the increase
will become effective, Tenant's monthly share thereof and the months for which
the payments are due. Tenant shall pay the increase to Landlord as a part of
Tenant's monthly payments of estimated expenses as provided in paragraph (b)
above.

(f) The term "Building Costs" shall include all expenses of
operation and maintenance of the Building and the Project, together with all
appurtenant Common Areas (as defined in Section 6.2), and shall include the
following charges by way of illustration but not limitation: water and sewer
charges; insurance premiums or reasonable premium equivalents should Landlord
elect to self-insure any risk that Landlord is authorized to insure hereunder;
license, permit, and inspection fees; heat; light; power; janitorial services;
repairs; air conditioning; supplies; materials; equipment; tools; tenant
services; programs instituted to comply with transportation management
requirements; amortization of capital investments reasonably intended to produce
a reduction in operating charges or energy conservation; amortization of capital
investments necessary to bring the Building into compliance with applicable laws
and building codes enacted subsequent to the completion of construction of the
Building; labor; reasonably allocated wages and salaries, fringe benefits, and
payroll taxes for administrative and other personnel directly applicable to the
Building and/or Project, including both Landlord's personnel and outside
personnel; any expense incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and
10.2 and Exhibits B and C below; and a reasonable overhead/management fee. It is
understood that Building Costs shall include competitive charges for direct
services provided by any subsidiary or division of Landlord. The term "Property
Taxes" as used herein shall include the following: (i) all real estate taxes or
personal property taxes, as such property taxes may be reassessed from time to
time; and (ii) other taxes, charges and assessments which are levied with
respect to this Lease or to the Building and/or the Project, and any
improvements, fixtures and equipment and other property of Landlord located in
the Building and/or the Project, except that documentary transfer fees, general
net income and franchise taxes imposed against Landlord shall be excluded; and
(iii) any tax, surcharge or assessment which shall be levied in addition to or
in lieu of real estate or personal property taxes, other than taxes covered by
Article VIII; and (iv) costs and expenses incurred in contesting the amount or
validity of any Property Tax by appropriate proceedings. Property Taxes shall
specifically exclude penalties and/or interest charges for failure to timely and
fully pay Property Taxes and the amount of any taxes, fees, charges or
assessments levied upon or with respect to other tenants of the Building or the
Project. Notwithstanding anything to the contrary contained herein, if there is
an increase in Property Taxes as a result of any change in ownership of the
Building during the initial seventy-four (74) months of the Term, then for the
remainder of the initial Term only, Tenant's proportionate share of Property
Taxes shall in no event exceed the maximum that might otherwise have been
allocated to Tenant pursuant to the provisions of Proposition 13 based on the
assumptions that (A) the change of ownership had not occurred and (B) the
maximum assessment permissible had been imposed by the taxing authority. A copy
of Landlord's unaudited statement of expenses shall be made available to Tenant
upon request. The Building Costs may be extrapolated by Landlord to reflect at
least ninety-five percent (95%) occupancy of the rentable area of the Building.

(g) Notwithstanding the foregoing, Building Costs shall not
include the following: (i) rent and other payments made by Landlord under any
ground lease or other lease underlying this Lease, and interest, principal,
points or fees on debt or amortization of any debt encumbering the Building or
Project; (ii) costs incurred to correct any latent defects, or for repair or
replacement to the extent of proceeds of insurance received by Landlord, any
reimbursement which Landlord receives under any warranties from third parties,
and reimbursements from any other responsible parties; (iii) depreciation on the
Project or any portion thereof; (iv) costs, expense and penalties (including
without limitation attorneys'

<PAGE> 9

fees) incurred due to Landlord's violation of any lease in the Project,
Landlord's violation of any deed of trust, mortgage or ground lease, and
Landlord's violation of any law, covenant, condition or restriction applicable
to the Project; (v) any and all costs incurred with respect to the installation
of tenant improvements or other refurbishment of space for other tenants or
occupants of the Project, for furnishing items or services exclusively to a
third party tenant of the Project, or for significant aesthetic, decorative or
other similar upgrades to the Project; (vi) advertising, marketing, media and
promotional expenditures regarding the Project, leasing commissions, attorneys'
fees and other costs and expenses incurred in connection with the negotiation,
execution, enforcement or termination of leases of premises within the Project,
and any other costs or expenses relating to leasing of the Project in general;
(vii) compensation, benefits or other amounts payable to employees or affiliates
of Landlord other than as expressly set forth herein, or any actual or imputed
rental of space within the Project (other than the management and conference
offices in the Building not exceeding 4,000 rentable square feet collectively);
(viii) costs of any capital improvements made by Landlord not otherwise
expressly permitted herein, and with respect to the cost of permitted capital
improvements, only to the extent that the annual amount thereof does not exceed
the total costs amortized at a market cost of funds over the useful life of such
improvements or, if greater, the amount of any other cost savings resulting from
the applicable improvement; (ix) all utilities submetered to other tenants of
the Project or charged to other tenants of the Project for usage in excess of
customary utility usage during normal business hours; (x) expenses in connection
with services or other benefits of a type which are not standard for the
Building or the Project, and which are not available to Tenant without specific
charge therefor, but which are provided to another tenant or occupant of the
Project whether or not such other tenant or occupant is specifically charge
therefor by Landlord; (xi) the costs of any services (other than normal parking)
directly contracted and paid for by other tenants in the Project; (xii) any
costs incurred to test, survey, cleanup, contain, abate, remove or otherwise
remedy hazardous or toxic materials from the Project; (xiii) management fees,
overhead and profit increments paid to subsidiaries or affiliates of Landlord
for management or other services on or to the Project or for supplies or other
materials, to the extent that the costs thereof exceed the costs that would have
been paid had the same been provided by unaffiliated parties on a competitive
basis; (xiv) property insurance on the Building or the Project exceeding the
full replacement value thereof, or rental abatement insurance exceeding one (1)
year; (xv) any other expense that under generally accepted accounting principles
consistently applied and practiced would not be considered a normal maintenance
or operating expense; (xvi) any cost or expense previously charged by Landlord,
and in no event shall there be any duplication of charges; and (xvii) should
Landlord elect to self-insure earthquake property damage, imputed self-insurance
premiums for such coverage that exceed the earthquake insurance premium
component of the Building Cost Base.

(h) Provided Tenant is not then in default hereunder, Tenant
shall have the right to cause a qualified auditor working on a fixed fee (and
not continency basis) to audit Operating Expenses by inspecting Landlord's
general ledger of expenses and supporting documents reasonably requested by
Tenant not more than once during any Expense Recovery Period. Tenant shall give
notice to Landlord of Tenant's intent to audit within ten (10) months after
Tenant's receipt of Landlord's expense statement which sets forth Landlord's
actual Operating Expenses. Such audit shall be conducted at a mutually agreeable
time during normal business hours at the office of Landlord or its management
agent where such accounts are maintained and shall be completed within sixty
(60) days. If Tenant's audit determines that actual Operating Expenses have been
overstated by more than five percent (5%), then subject to Landlord's right to
review and/or contest the audit results, Landlord shall reimburse Tenant for the
reasonable out-of-pocket costs of such audit. Tenant's rent shall be
appropriately adjusted to reflect any overstatement in Operating Expenses. In
addition, if any component of Operating Expenses is determined to be either
inappropriate or excessive during an Expense Recovery Period, and if the
Building Cost Base or Property Tax Base also included such component, then the
appropriate Base shall concurrently be adjusted if and to the extent
appropriate. In the event of a dispute between Landlord and Tenant regarding the
results of such audit, either party may elect to submit the matter for binding
arbitration pursuant to Section 14.7(b) below. All of the information obtained
by Tenant and/or its auditor in connection with such audit, as well as any
compromise, settlement, or adjustment reached between Landlord and Tenant as a
result thereof, shall be held in strict confidence and, except as may be
required pursuant to litigation, shall not be disclosed to any third party,
directly or indirectly, by Tenant or its auditor or any of their officers,
agents or employees. Landlord may require Tenant's auditor to execute a separate
confidentiality agreement affirming the foregoing as a condition precedent to
any audit. In the event of a violation of this confidentiality covenant in
connection with any audit, then in addition to any other legal or equitable
remedy available to Landlord, Tenant shall have no further audit rights under
this Lease.

SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of
this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9
of the Basic Lease Provisions (the "Security Deposit"), in the form of (i) cash
equal to the difference between such Security Deposit and the security deposit
currently held by Landlord under the Existing Lease described in Section 22.6
below (the "Existing Deposit") and (ii) the transfer of the Existing Deposit by
Landlord to this Lease upon the Commencement Date hereof. The Security Deposit
shall be held by Landlord as security for the full and faithful

<PAGE> 10

performance of Tenant's obligations under this Lease to pay any rent as and when
due, including without limitation such additional rent as may be owing under any
provision hereof, and to maintain the Premises as required by Sections 7.1 and
15.3. Upon any breach of those obligations by Tenant, Landlord may apply all or
part of the Security Deposit as full or partial compensation. If any portion of
the Security Deposit is so applied, Tenant shall within five (5) days after
written demand by Landlord deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount. Notwithstanding the
foregoing, however, provided Tenant is not, and has not theretofore been, in
default under this Lease, Landlord agrees to reduce the principal balance of the
Security Deposit to Fifty Thousand Dollars ($50,000.00) if and only if (i)
Tenant's capital stock is then publicly-traded and (ii) Tenant has a net worth
(exclusive of good will) of at least Ten Million Dollars ($10,000,000.00) as
evidenced by current audited financial statements reasonably acceptable to
Landlord. Should the Security Deposit be so reduced and should Tenant fail
thereafter to maintain the foregoing minimum net worth, then Tenant shall, upon
written demand by Landlord, restore the Security Deposit to its original amount.
Landlord shall not be required to keep this Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant fully performs its obligations under this Lease, the Security
Deposit or any balance thereof shall be returned to Tenant or, at Landlord's
option, to the last assignee of Tenant's interest in this Lease.

ARTICLE V. USES

SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions. The parties agree that any
contrary use shall be deemed to cause material and irreparable harm to Landlord
and shall entitle Landlord to injunctive relief in addition to any other
available remedy. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way interfere with the rights or quiet enjoyment
of other occupants of the Building or the Project, or use or allow the Premises
to be used for any unlawful purpose, nor shall Tenant permit any nuisance or
commit any waste in the Premises or the Project. Tenant shall not do or permit
to be done anything which will invalidate or increase the cost of any insurance
policy(ies) covering the Building, the Project and/or their contents, and shall
comply with all applicable insurance underwriters rules and the requirements of
the Pacific Fire Rating Bureau or any other organization performing a similar
function. Tenant shall comply at its expense with all present and future laws,
ordinances and requirements of all governmental authorities that pertain to
Tenant or its use of the Premises, including without limitation all federal and
state occupational health and safety and handicap access requirements, whether
or not Tenant's compliance will necessitate expenditures or interfere with its
use and enjoyment of the Premises. Tenant shall not generate, handle, store or
dispose of hazardous or toxic materials (as such materials may be identified in
any federal, state or local law or regulation) in the Premises or Project
without the prior written consent of Landlord; provided that the foregoing shall
not be deemed to proscribe the use by Tenant of customary office supplies in
normal quantities so long as such use comports with all applicable laws. Tenant
agrees that it shall promptly complete and deliver to Landlord any disclosure
form regarding hazardous or toxic materials that may be required by any
governmental agency. Tenant shall also, from time to time upon request by
Landlord, execute such affidavits concerning Tenant's best knowledge and belief
regarding the presence of hazardous or toxic materials in the Premises. Landlord
shall have the right at any time to perform an assessment of the environmental
condition of the Premises and of Tenant's compliance with this Section. As part
of any such assessment, Landlord shall have the right, upon reasonable prior
notice to Tenant, to enter and inspect the Premises and to perform tests,
provided those tests are performed in a manner that minimizes disruption to
Tenant. Tenant will cooperate with Landlord in connection with any assessment
by, among other things, promptly responding to inquiries and providing relevant
documentation and records relating to hazardous or toxic materials at the
Premises. The reasonable cost of the assessment/testing shall be reimbursed by
Tenant to Landlord if such assessment/testing determines that Tenant failed to
comply with the requirements of this Section; otherwise, the same shall be at
Landlord's expense and not a Building Cost. In all events Tenant shall indemnify
Landlord in the manner elsewhere provided in this Lease from any release of
hazardous or toxic materials caused by Tenant, its agents, employees,
contractors, subtenants or licensees. The foregoing covenants shall survive the
expiration or earlier termination of this Lease.

SECTION 5.2. SIGNS.

(a) Tenant, upon obtaining the approval of Landlord in
writing, which approval shall not be withheld for signage conforming to the sign
criteria described below, may affix a sign (restricted solely to Tenant's name
as set forth herein or such other name as Landlord may consent to in writing)
adjacent to the entry door of the Premises and shall maintain the sign in good
condition and repair during the Term; provided that such signage may include
Tenant's logo if and for so long as the signage is installed on any floor
occupied in its entirety by Tenant. The sign shall conform to the criteria for
signs established by Landlord and shall be ordered through Landlord. Tenant
shall not place or allow to be placed any other sign, decoration or advertising
matter of any kind that is visible from the exterior of the

<PAGE> 11

Premises. Any violating sign or decoration may be immediately removed by
Landlord at Tenant's expense without notice and without the removal constituting
a breach of this Lease or entitling Tenant to claim damages.

(b) During the twelve (12) month period following the
execution of this Lease, Tenant shall have the right to install a building-top
sign on two (2) sides of the exterior of the Building. The type, location and
design of such signage shall be subject to the prior approval of Landlord and
the City of Irvine, and shall be subject to the 8001 Tower Sign Criteria.
Notwithstanding the foregoing, Landlord hereby approves of either of the two (2)
depictions of signage shown on Exhibit Y attached hereto, and agrees that each
of those signs conforms to the 8001 Tower Sign Criteria. Fabrication,
installation, insurance, and maintenance of such signage shall be at Tenant's
sole cost and expense. Except for the foregoing, no sign, advertisement or
notice visible from the exterior of the Premises shall be inscribed, painted or
affixed by Tenant on any part of the Premises without the prior consent of
Landlord. Tenant's signage right shall belong solely to and shall identify only
Quest Software, Inc., or any Tenant Affiliate thereof (unless Landlord in good
faith and reasonably determines that the name of such Tenant Affiliate is
inappropriate for display on a first class office building), and may not
otherwise be transferred or assigned without Landlord's prior written consent,
which may be withheld by Landlord in Landlord's sole discretion. In the event
Quest Software, Inc. and/or any Tenant Affiliate thereof fails to occupy a
substantial portion of the Premises, then Tenant shall, within thirty (30) days
following notice from Landlord, remove the exterior signage at Tenant's expense.
Tenant shall also remove such signage promptly following the expiration or
earlier termination of this Lease. Any such removal shall be at Tenant's sole
expense, and Tenant shall bear the cost of any resulting repairs to the Building
that are reasonably necessary due to the removal.

ARTICLE VI. LANDLORD SERVICES

SECTION 6.1. UTILITIES AND SERVICES. Landlord shall furnish to the
Premises the utilities and services described in Exhibit B, subject to the
conditions and payment obligations and standards set forth in this Lease.
Landlord shall not be liable for any failure to furnish any services or
utilities when the failure is the result of any accident or other cause beyond
Landlord's reasonable control, nor shall Landlord be liable for damages
resulting from power surges or any breakdown in telecommunications facilities or
services. Landlord's temporary inability to furnish any services or utilities
shall not entitle Tenant to any damages, relieve Tenant of the obligation to pay
rent or constitute a constructive or other eviction of Tenant, except that
Landlord shall diligently attempt to restore the service or utility promptly;
provided that if Landlord is unable to do so within five (5) business days and
such failure prevents Tenant's reasonable use of the Premises for its intended
purposes, rent shall be abated from and after the sixth (6th) business day until
the utility or service is restored. Tenant shall comply with all rules and
regulations which Landlord may reasonably establish for the provision of
services and utilities, and shall cooperate with all reasonable conservation
practices established by Landlord. Landlord shall at all reasonable times have
free access to all electrical and mechanical installations of Landlord.

SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the
Term, Landlord shall operate all Common Areas within the Building and the
Project. The term "Common Areas" shall mean all areas within the Building and
other buildings in the Project which are not held for exclusive use by persons
entitled to occupy space, and all other appurtenant areas and improvements
provided by Landlord for the common use of Landlord and tenants and their
respective employees and invitees, including without limitation parking areas
and structures, driveways, sidewalks, landscaped and planted areas, hallways and
interior stairwells not located within the premises of any tenant, common
entrances and lobbies, elevators, and restrooms not located within the premises
of any tenant. In the event Landlord is required to rectify any
currently-existing violations of the Americans with Disabilities Act within the
Common Areas, Landlord shall do so at its sole expense and the cost thereof
shall not be included in the Building Costs allocated to Tenant (including the
Building Cost Base).

SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the
Premises shall include the use of the Common Areas in common with Landlord and
with all others for whose convenience and use the Common Areas may be provided
by Landlord, subject, however, to compliance with all nondiscriminatory rules
and regulations as are reasonably prescribed from time to time by Landlord.
Landlord shall at all times during the Term have exclusive control of the Common
Areas, and may restrain any use or occupancy, except as authorized by Landlord's
rules and regulations. Tenant shall keep the Common Areas clear of any
obstruction or unauthorized use related to Tenant's operations. Landlord may
temporarily close any portion of the Common Areas for repairs, remodeling and/or
alterations, to prevent a public dedication or the accrual of prescriptive
rights, or for any other reasonable purpose, so long as Tenant's access to and
use of the Premises is not impaired.

<PAGE> 12

SECTION 6.4. PARKING. Landlord hereby leases to Tenant, and Tenant
hereby agrees to lease from Landlord for the Term of this Lease, the number of
vehicle parking spaces set forth in Item 12 of the Basic Lease Provisions. It is
understood that twenty percent (20%) of the allotted unreserved parking spaces
may, at Landlord's election, be located outside the Parking Area of the Project
at a location reasonably designated by Landlord from time to time, which
location may include the parking area for the building at 8105 Irvine Center
Drive; provided, however, that any such location shall be comparably paved,
striped, lighted and maintained and shall be no further from the Building than
the farthest boundary of the Parking Area. The costs associated with the
operation of any remote parking location shall only be included in Building
Costs to the extent such costs are actually incurred by Landlord and are
required to be allocated to parking provided to tenants of the Building. The
parking spaces shall be provided in accordance with the provisions set forth in
Exhibit C to this Lease.

SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Building or the Project, or to the
attendant fixtures, equipment and Common Areas. No change shall entitle Tenant
to any abatement of rent or other claim against Landlord, provided that the
change does not deprive Tenant of reasonable access to or use of the Premises.

ARTICLE VII. MAINTAINING THE PREMISES

SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole
expense shall make all repairs necessary to keep the Premises in the condition
as existed on the Commencement Date (or on any later date that the improvements
may have been installed), excepting ordinary wear and tear, damage and
destruction under Article XI, and Landlord's obligations under this Lease. All
repairs shall be at least equal in quality to the original work. Any third party
contractor utilized by Tenant shall be subject to Landlord's standard
requirements for contractors, as modified from time to time. Landlord may impose
reasonable restrictions and requirements with respect to repairs, as provided in
Section 7.3, and the provisions of Section 7.4 shall apply to all repairs.
Alternatively, Landlord may elect to make any such repair on behalf of Tenant
and at Tenant's expense, and Tenant shall promptly reimburse Landlord as
additional rent for all costs at market rates reasonably incurred upon
submission of an invoice.

SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR.

(a) Subject to Section 7.1 and Article XI, Landlord shall
provide service, maintenance and repair with respect to any air conditioning,
ventilating or heating equipment which serves the Premises (exclusive of any
supplemental HVAC equipment installed by or at the request of Tenant), shall
comply with all laws affecting the systems, structure and Common Areas of the
Building and Project, shall maintain all services under Exhibit B, and shall
maintain in good repair the roof, foundations, footings, the exterior surfaces
of the exterior walls of the Building, and the structural, electrical, plumbing
(other than plumbing fixtures in the Premises), sewer, telecommunications
risers, and mechanical systems (including without limitation elevators)
servicing the Premises and the Building, except that Tenant at its expense shall
make all repairs which Landlord deems reasonably necessary as a result of the
act or negligence of Tenant, its agents, employees, invitees, subtenants or
contractors. Landlord shall have the right to employ or designate any reputable
person or firm, including any employee or agent of Landlord or any of Landlord's
affiliates or divisions, to perform any service, repair or maintenance function.
Landlord need not make any other improvements or repairs except as specifically
required under this Lease, and nothing contained in this Section shall limit
Landlord's right to reimbursement from Tenant for maintenance, repair costs and
replacement costs as provided elsewhere in this Lease. Tenant understands that
it shall not make repairs at Landlord's expense or by rental offset.

(b) Except as provided in Sections 11.1 and 12.1 below, there
shall be no abatement of rent and no liability of Landlord by reason of any
injury to or interference with Tenant's business arising from the making of any
repairs, alterations or improvements to any portion of the Building, including
repairs to the Premises, nor shall any related activity by Landlord constitute
an actual or constructive eviction; provided, however, that in making repairs,
alterations or improvements, Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises and shall
comply with Tenant's reasonable security procedures and requirements.

SECTION 7.3. ALTERATIONS. Tenant shall make no alterations, additions
or improvements to the Premises without the prior written consent of Landlord.
Landlord's consent shall not be unreasonably withheld as long as the proposed
changes do not adversely affect the structural, electrical or mechanical
components or systems of the Building and are not visible from the exterior of
the Premises. Landlord may impose, as a condition to its consent, any reasonable
requirements, including but not limited to (i) a requirement that any work
anticipated to cost in excess of $175,000.00 be covered by a lien and completion
bond satisfactory to Landlord and (ii) requirements as to the manner, time, and
contractor

<PAGE> 13
for performance of the work. Without limiting the generality of the foregoing,
Tenant shall use Landlord's designated mechanical and electrical contractors for
all work affecting the mechanical or electrical systems of the Building. Tenant
shall obtain all required permits for the work and shall perform the work in
compliance with all applicable laws, regulations and ordinances. Landlord shall
be entitled to a supervision fee in the amount of five percent (5%) of the cost
of the work if Landlord or its management agent for the Project is actively
involved in the supervision of the work. Under no circumstances shall Tenant
make any improvement which incorporates asbestos-containing construction
materials into the Premises. Any request for Landlord's consent shall be made in
writing and shall contain architectural plans describing the work in detail
reasonably satisfactory to Landlord. Unless Landlord otherwise agrees in
writing, all alterations, additions or improvements affixed to the Premises
(excluding moveable trade fixtures and furniture) shall become the property of
Landlord and shall be surrendered with the Premises at the end of the Term,
except that Landlord may, by notice to Tenant given at the time of Landlord's
consent to the alteration or improvement, require Tenant to remove by the
Expiration Date, or sooner termination date of this Lease, all or any
alterations, decorations, fixtures, additions, improvements and the like
installed either by Tenant or by Landlord at Tenant's request and to repair any
damage to the Premises arising from that removal. However, Tenant shall be
required to fund the cost of removing an improvement shown in the "Plan" (as
defined in Exhibit X hereto) only to the extent so specifically provided in
Exhibit X. Except as otherwise provided in this Lease or in any Exhibit to this
Lease, should Landlord make any alteration or improvement to the Premises at the
request of Tenant, Landlord shall be entitled to prompt reimbursement from
Tenant for all costs reasonably incurred.

SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or obligations
incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly cause
any such lien to be released by posting a bond in accordance with California
Civil Code Section 3143 or any successor statute. In the event that Tenant shall
not, within thirty (30) days following the imposition of any lien, cause the
lien to be released of record by payment or posting of a proper bond, Landlord
shall have, in addition to all other available remedies, the right to cause the
lien to be released by any means it deems proper, including payment of or
defense against the claim giving rise to the lien. All expenses so incurred by
Landlord, including Landlord's attorneys' fees, shall be reimbursed by Tenant
promptly following Landlord's demand, together with interest from the date of
payment by Landlord at the maximum rate permitted by law until paid. Tenant
shall give Landlord no less than twenty (20) days' prior notice in writing
before commencing construction of any kind on the Premises so that Landlord may
post and maintain notices of nonresponsibility on the Premises.

SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon at least 24 hour prior written or oral notice (except in
emergencies) and subject to Tenant's reasonable security procedures and
requirements, have the right to enter the Premises to inspect them, to supply
services in accordance with this Lease, to protect the interests of Landlord in
the Premises, to make repairs and renovations as reasonably deemed necessary by
Landlord, and to submit the Premises to prospective or actual purchasers or
encumbrance holders (or, during the last one hundred and eighty (180) days of
the Term or when an uncured Tenant default exists, to prospective tenants), all
without being deemed to have caused an eviction of Tenant and without abatement
of rent except as provided elsewhere in this Lease. Landlord shall at all times
have and retain a key which unlocks all of the doors in the Premises, excluding
Tenant's vaults and safes, and Landlord shall have the right to use any and all
means which Landlord may deem proper to open the doors in an emergency in order
to obtain entry to the Premises, and any entry to the Premises obtained by
Landlord shall not under any circumstances be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant
from the Premises. In exercising its rights under this Section, Landlord shall
use best efforts to minimize interference with Tenant's use of the Premises.

ARTICLE IX. ASSIGNMENT AND SUBLETTING

SECTION 9.1. RIGHTS OF PARTIES.

(a) Notwithstanding any provision of this Lease to the
contrary, Tenant will not, either voluntarily or by operation of law, assign,
sublet, encumber, or otherwise transfer all or any part of Tenant's interest in
this Lease, or permit the Premises to be occupied by anyone other than Tenant,
without Landlord's prior written consent, which consent shall not unreasonably
be withheld in accordance with the provisions of Section 9.1.(c). No assignment
(whether voluntary, involuntary or by operation of law) and no subletting shall
be valid or effective without Landlord's prior written consent and, at
Landlord's election, shall constitute a material default of this Lease. Landlord
shall not be deemed to have given its consent to any assignment or subletting by
any other course of action, including its acceptance of any name for listing in
the Building directory. To the extent not prohibited by provisions of the
Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"),
including Section 365(f)(1), Tenant on behalf of itself and its creditors,
administrators and assigns waives the applicability of Section 365(e) of the
Bankruptcy Code unless the proposed assignee of the Trustee for the estate of
the bankrupt meets Landlord's standard for consent as set forth in Section
9.1(c) of this Lease. If this Lease is assigned to any person or entity pursuant
to the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is

12
<PAGE> 14

assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord an
instrument confirming that assumption.

(b) If Tenant is a corporation, or is an unincorporated
association or partnership, the transfer of any stock or interest in the
corporation, association or partnership which results in a change in the voting
control of Tenant shall be deemed an assignment within the meaning and
provisions of this Article; provided, however, that the foregoing shall not
apply to any stock transfer to a Tenant Affiliate or to any transfer of capital
stock in connection with a public offering of shares or the subsequent trading
of those shares by members of the public.

(c) If Tenant desires to transfer an interest in this Lease,
it shall first notify Landlord of its desire and shall submit in writing to
Landlord: (i) the name and address of the proposed transferee; (ii) the nature
of any proposed subtenant's or assignee's business to be carried on in the
Premises; (iii) the terms and provisions of any proposed sublease or assignment;
and (iv) any other information requested by Landlord and reasonably related to
the transfer. Except as provided in Subsection (d) of this Section, Landlord
shall not unreasonably withhold its consent, provided: (1) the use of the
Premises will be consistent with the provisions of this Lease; (2) fifty percent
(50%) of any excess rent received by the Tenant from the assignment or
subletting, whether during or after the Term of this Lease, shall be paid to
Landlord when received; (3) any proposed assignee (but not subtenant)
demonstrates that it is financially responsible by submission to Landlord of all
reasonable information as Landlord may request concerning the proposed assignee,
including, but not limited to, a balance sheet of the proposed assignee as of a
date within ninety (90) days of the request for Landlord's consent and
statements of income or profit and loss of the proposed assignee for the
two-year period preceding the request for Landlord's consent; (4) the proposed
assignee or subtenant is neither an existing tenant of the Building or Project
nor a prospective tenant with whom Landlord is then actively negotiating; and
(5) the proposed transfer will not impose additional burdens or adverse tax
effects on Landlord. If Landlord consents to the proposed transfer, Tenant may
within ninety (90) days after the date of the consent effect the transfer upon
the terms described in the information furnished to Landlord; provided that any
material change in the terms shall be subject to Landlord's consent as set forth
in this Section. Landlord shall approve or disapprove any requested transfer
within thirty (30) days following receipt of Tenant's written request and the
information set forth above. Tenant shall pay to Landlord a transfer fee of Five
Hundred Dollars ($500.00) if and when any transfer requested by Tenant is
approved.

(d) Notwithstanding the provisions of Subsection (c) above, in
lieu of consenting to a proposed assignment of this Lease or subletting of at
least 10,000 rentable square feet of the Premises for substantially all of the
remaining Term of this Lease, Landlord may elect to (i) sublease the Premises
(or the portion proposed to be subleased), or take an assignment of Tenant's
interest in this Lease, upon the same terms as offered to the proposed subtenant
or assignee (excluding terms relating to the purchase of personal property, the
use of Tenant's name or the continuation of Tenant's business), or (ii)
terminate this Lease as to the portion of the Premises proposed to be subleased
or assigned with a proportionate abatement in the rent payable under this Lease,
effective on the date that the proposed sublease or assignment would have become
effective. Landlord may thereafter, at its option, assign or re-let any space so
recaptured to any third party, including without limitation the proposed
transferee of Tenant. Notwithstanding the foregoing, this Subsection 9.1(d)
shall not apply to any proposed assignment or sublease to either a Tenant
Affiliate or an entity with which Tenant has a substantial ongoing business
relationship (collectively, "Related Entity").

(e) Notwithstanding the foregoing, provided Tenant is not then
in default hereunder, Tenant may, without Landlord's consent but with prior
written notice to Landlord, assign this Lease or sublet all or any portion of
the Premises to (i) any entity resulting from a merger or reorganization of
Tenant, (ii) any entity succeeding to the business and assets of Tenant, or
(iii) any entity controlling, controlled by, or under common control with,
Tenant (collectively, a "Tenant Affiliate").

SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant, or any successor-in-interest to
Tenant hereunder, of its obligation to pay rent and to perform all its other
obligations under this Lease. Moreover, Tenant shall indemnify and hold Landlord
harmless, as provided in Section 10.3, for any act or omission by an assignee or
subtenant. Each assignee shall be deemed to assume all obligations of Tenant
under this Lease and shall be liable jointly and severally with Tenant for the
payment of all rent, and for the due performance of all of Tenant's obligations,
under this Lease. Such joint and several liability shall not be discharged or
impaired by any subsequent modification or extension of this Lease. Except for a
transfer to a Tenant Affiliate, no transfer shall be binding on Landlord unless
any document memorializing the transfer is delivered to Landlord and both the
assignee/subtenant and Tenant deliver to Landlord an executed consent to
transfer instrument prepared by Landlord and consistent with the requirements of
this Article. The acceptance by Landlord of any payment due under this Lease
from any other person shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any transfer. Consent by Landlord
to one or more transfers shall not operate as a waiver or estoppel to the future
enforcement by Landlord of its rights under this Lease. In addition to the
foregoing, no change in the status of Tenant or any party jointly and severally
liable with Tenant as aforesaid (e.g., by conversion to a limited liability
company or partnership) shall serve to abrogate the liability of any person or
entity for the obligations of Tenant, including any obligations that may be
incurred by Tenant after the status change by exercise of a pre-existing right
in this Lease.

<PAGE> 15
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be included in each sublease:

(a) Tenant hereby irrevocably assigns to Landlord all of
Tenant's interest in all rentals and income arising from any sublease of the
Premises, and Landlord may collect such rent and income and apply same toward
Tenant's obligations under this Lease; provided, however, that until a default
occurs in the performance of Tenant's obligations under this Lease, Tenant shall
have the right to receive and collect the sublease rentals. Landlord shall not,
by reason of this assignment or the collection of sublease rentals, be deemed
liable to the subtenant for the performance of any of Tenant's obligations under
the sublease. Tenant hereby irrevocably authorizes and directs any subtenant,
upon receipt of a written notice from Landlord stating that an uncured default
exists in the performance of Tenant's obligations under this Lease, to pay to
Landlord all sums then and thereafter due under the sublease. Tenant agrees that
the subtenant may rely on that notice without any duty of further inquiry and
notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have
no right or claim against the subtenant or Landlord for any rentals so paid to
Landlord. In the event Landlord collects amounts from subtenants that exceed the
total amount then due from Tenant hereunder, Landlord shall promptly remit the
excess to Tenant.

(b) In the event of the termination of this Lease, Landlord
may, at its sole option, take over Tenant's entire interest in any sublease and,
upon notice from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance rental payments or deposits
under the sublease that have not been actually delivered to Landlord, nor shall
Landlord be bound by any sublease modification executed without Landlord's
consent or for any advance rental payment by the subtenant in excess of one
month's rent. The general provisions of this Lease, including without limitation
those pertaining to insurance and indemnification, shall be deemed incorporated
by reference into the sublease despite the termination of this Lease.

(c) Tenant agrees that Landlord may, at its sole option,
authorize a subtenant of the Premises to cure a default by Tenant under this
Lease.

ARTICLE X. INSURANCE AND INDEMNITY

SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.

SECTION 10.2. LANDLORD'S INSURANCE. Landlord shall provide all of the
following types of insurance, with or without deductible and in amounts and
coverages as may be determined by Landlord in its discretion: "all risk"
property insurance for at least eighty percent (80%) of the replacement cost of
the Building, subject to standard exclusions, covering the Building and Project,
and such other risks as Landlord or its mortgagees may from time to time deem
appropriate, and commercial general liability coverage in limits of not less
than $1,000,000.00 per occurrence and $5,000,000.00 in the aggregate. Landlord
shall not be required to carry insurance of any kind on Tenant's leasehold
improvements, trade fixtures, furnishings, equipment, interior plate glass,
signs and all other items of personal property, and shall not be obligated to
repair or replace that property should damage occur. All proceeds of insurance
maintained by Landlord upon the Building and Project shall be the property of
Landlord, whether or not Landlord is obligated to or elects to make any repairs.

SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by
law, Tenant shall defend, indemnify and hold harmless Landlord, its agents,
lenders, and any and all affiliates of Landlord, from and against any and all
claims, liabilities, costs or expenses arising either before or after the
Commencement Date from Tenant's use or occupancy of the Premises, the Building
or the Common Areas, or from the conduct of its business, or from any activity,
work, or thing done, permitted or suffered by Tenant or its agents, employees,
subtenants, invitees or licensees in or about the Premises, the Building or the
Common Areas (except to the extent contributed to by the gross negligence or
willful misconduct of Landlord, its agents or employees), or from any default in
the performance of any obligation on Tenant's part to be performed under this
Lease, or from any act or negligence of Tenant or its agents, employees,
subtenants, invitees or licensees. Landlord may, at its option, require Tenant
to assume Landlord's defense in any action covered by this Section through
counsel reasonably satisfactory to Landlord.

SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all claims
against Landlord, its employees and agents for loss of or damage to any
property, or any injury to any person, or loss or interruption of business or
income, resulting from any condition including, but not limited to, fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak or flow from or into any part of the Premises or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works or other fixtures in
the Building, whether the damage or injury results from conditions arising in
the Premises or in other portions of the Building. It is understood that any
such condition may require the temporary evacuation or closure of all or a
portion of the Building. Should

14
<PAGE> 16

Tenant elect to receive any service from a concessionaire, licensee or third
party tenant of Landlord, Tenant shall not seek recourse against Landlord for
any breach or liability of that service provider. Neither Landlord nor its
agents shall be liable for interference with light or other similar intangible
interests. Tenant shall promptly following discovery by senior management notify
Landlord in case of fire or accident in the Premises, the Building or the
Project and of defects in any improvements or equipment.

ARTICLE XI. DAMAGE OR DESTRUCTION

SECTION 11.1. RESTORATION.

(a) If the Building of which the Premises are a part is
damaged as the result of an event of casualty, Landlord shall repair that damage
as soon as reasonably possible unless: (i) Landlord reasonably determines that
the cost of repair would exceed ten percent (10%) of the full replacement cost
of the Building ("Replacement Cost") and the damage is not covered by Landlord's
fire and extended coverage insurance (or by a normal extended coverage policy
for full Replacement Cost should Landlord fail to carry that insurance); or (ii)
Landlord reasonably determines that the cost of repair would exceed twenty-five
percent (25%) of the Replacement Cost; or (iii) Landlord reasonably determines
that the cost of repair would exceed ten percent (10%) of the Replacement Cost
and the damage occurs during the final twelve (12) months of the Term, as the
Term may have been extended. Should Landlord elect not to repair the damage for
one of the preceding reasons, Landlord shall so notify Tenant in the "Casualty
Notice" (as defined below), and this Lease shall terminate thereafter on the
earlier of (i) sixty (60) days following the date of delivery of the Casualty
Notice or (ii) the date Tenant vacates the Premises.

(b) As soon as reasonably practicable following the casualty
event but not later than sixty (60) days thereafter, Landlord shall notify
Tenant in writing ("Casualty Notice") of Landlord's election, if applicable, to
terminate this Lease. If this Lease is not so terminated, the Casualty Notice
shall set forth the anticipated period for repairing the casualty damage. If the
anticipated repair period exceeds one hundred eighty (180) days and if the
damage is so extensive as to reasonably prevent Tenant's substantial use and
enjoyment of the Premises, then Tenant may elect to terminate this Lease by
written notice to Landlord within ten (10) days following delivery of the
Casualty Notice.

(c) From and after the sixth business day following the
casualty event, the rental to be paid under this Lease shall be abated in the
same proportion that the floor area of the Premises that is rendered unusable by
the damage from time to time bears to the total floor area of the Premises.

(d) The provisions of this Section shall not be deemed to
require Landlord to repair any improvements or fixtures that Tenant is obligated
to repair or insure pursuant to any other provision of this Lease.

SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.

ARTICLE XII. EMINENT DOMAIN

SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of
the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the Building or
Project, other than the Premises, is taken or sold in lieu of taking, and if
Landlord elects to restore the Building in such a way as to alter the Premises
materially, either party may terminate this Lease, by written notice to the
other party, effective on the date of vesting of title. In the event neither
party has elected to terminate this Lease as provided above, then Landlord shall
promptly, after receipt of a sufficient condemnation award, proceed to restore
the Premises to substantially their condition prior to the taking, and a
proportionate allowance shall be made to Tenant for the rent corresponding to
the time during which, and to the part of the Premises of which, Tenant is
deprived on account of the taking and restoration. In the event of a taking,
Landlord shall be entitled to the entire amount of the condemnation award
without deduction for any estate or interest of Tenant; provided that nothing in
this Section shall be deemed to give Landlord any interest in, or prevent Tenant
from seeking any award against the taking authority for, the taking of personal
property and fixtures belonging to Tenant or for relocation or business
interruption expenses or loss of goodwill recoverable from the taking authority.

SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent, and
any award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed ninety (90)
days.

SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide sufficient
parking to comply with this Lease, Landlord may substitute reasonably equivalent
parking in a location reasonably close to the Building;

<PAGE> 17

provided that if Landlord fails to make that substitution within thirty (30)
days following the taking and if the taking materially impairs Tenant's use and
enjoyment of the Premises, Tenant may, at its option, terminate this Lease by
written notice to Landlord. If this Lease is not so terminated by Tenant, there
shall be no abatement of rent and this Lease shall continue in effect.

ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE

SECTION 13.1. SUBORDINATION. At the option of Landlord or any of its
mortgagees/deed of trust beneficiaries, this Lease shall be either superior or
subordinate to all ground or underlying leases, mortgages and deeds of trust, if
any, which may hereafter affect the Building, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
that so long as Tenant is not in default under this Lease, this Lease shall not
be terminated or Tenant's quiet enjoyment of the Premises disturbed in the event
of termination of any such ground or underlying lease, or the foreclosure of any
such mortgage or deed of trust, to which Tenant has subordinated this Lease
pursuant to this Section. In the event of a termination or foreclosure, Tenant
shall become a tenant of and attorn to the successor-in-interest to Landlord
upon the same terms and conditions as are contained in this Lease, and shall
promptly execute any instrument reasonably required by Landlord's successor for
that purpose. Tenant shall also, within thirty (30) days following written
request of Landlord (or the beneficiary under any deed of trust encumbering the
Building), execute and deliver all instruments as may be required from time to
time by Landlord or such beneficiary (including without limitation any
subordination, nondisturbance and attornment agreement in the form customarily
required by such beneficiary, provided such form is consistent with the
provisions of this Lease and is reasonably approved by Tenant) to subordinate
this Lease and the rights of Tenant under this Lease to any ground or underlying
lease or to the lien of any mortgage or deed of trust; provided, however, that
any such beneficiary may, by written notice to Tenant given at any time,
subordinate the lien of its deed of trust to this Lease. Failure of Tenant to
execute any commercially reasonable statements or instruments necessary or
desirable to effectuate the provisions of this Article, within thirty (30) days
after written request by Landlord, shall constitute a default under this Lease.
In that event, Landlord, in addition to any other rights or remedies it might
have, shall have the right, by written notice to Tenant, to terminate this Lease
as of a date not less than twenty (20) days after the date of Landlord's notice
unless Tenant executes and return the document to Landlord prior to such date.
Landlord's election to terminate shall not relieve Tenant of any liability for
its default. Tenant acknowledges that Landlord's mortgagees and
successors-in-interest and all beneficiaries under deeds of trust encumbering
the Building are intended third party beneficiaries of this Section. Landlord
agrees that it shall use its best efforts to obtain a commercially reasonable
nondisturbance agreement in favor of Tenant from any existing mortgagee/deed of
trust beneficiary of the Building as of the date hereof.

SECTION 13.2. ESTOPPEL CERTIFICATE.

(a) Tenant shall, at any time upon not less than thirty (30)
days prior written notice from Landlord, execute, acknowledge and deliver to
Landlord, in any form that Landlord may reasonably require, a statement in
writing in favor of any prospective purchaser or encumbrancer of the Building
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of the modification and certifying that this
Lease, as modified, is in full force and effect) and the dates to which the
rental, additional rent and other charges have been paid in advance, if any, and
(ii) acknowledging that, to Tenant's knowledge, there are no uncured defaults on
the part of Landlord, or specifying each default if any are claimed, and (iii)
setting forth all further information that Landlord may reasonably require.
Tenant's statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the Building or Project. Tenant's failure
to deliver any estoppel statement within the provided time shall constitute a
default under this Lease and shall be conclusive upon Tenant that (i) this Lease
is in full force and effect, without modification except as may be represented
by Landlord, (ii) there are no uncured defaults in Landlord's performance, and
(iii) not more than one month's rental has been paid in advance.

(b) Landlord shall, at any time upon not less than thirty (30)
days prior written notice from Tenant, execute, acknowledge and deliver to
Tenant, in any form that Tenant may reasonably require, a statement in writing
in favor of any other party reasonably requested by Tenant for legitimate
business reasons (i) certifying that this Lease is unmodified and in full force
and effect (or, if modified, stating the nature of the modification and
certifying that this Lease, as modified, is in full force and effect), the
amount of any security deposit then held by Landlord, and the dates to which the
rental, additional rent and other charges have been paid in advance, if any, and
(ii) acknowledging that, to Landlord's knowledge, there are no uncured defaults
on the part of Tenant, or specifying each default if they are claimed, and (iii)
setting forth all further information that Tenant may reasonably require.
Landlord's statement may be relied upon by the third party beneficiary to which
the statement is addressed. Landlord's failure to deliver any estoppel statement
within the provided time shall constitute a default by Landlord under this Lease
and shall be conclusive upon Landlord that (i) this Lease is in full force and
effect, without modification except as may be represented by Tenant, (ii) there
are no uncured defaults in Tenant's performance, (iii) the amount of any
security deposit as set forth in the Lease is then being held by Landlord, and
(iv) not more than one month's rental has been paid in advance.

<PAGE> 18

ARTICLE XIV. DEFAULTS AND REMEDIES

SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of
default set forth in this Lease, the occurrence of any one or more of the
following events shall constitute a default by Tenant:

(a) The failure by Tenant to make any payment of rent or
additional rent required to be made by Tenant, as and when due, where the
failure continues for a period of three (3) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161 and 1161(a) as amended. For purposes of these default and
remedies provisions, the term "additional rent" shall be deemed to include all
amounts of any type whatsoever other than Basic Rent to be paid by Tenant
pursuant to the terms of this Lease.

(b) Assignment, sublease, encumbrance or other transfer of the
Lease by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord.

(c) The discovery by Landlord that any financial statement
provided by Tenant, or by any affiliate, successor or guarantor of Tenant, was
materially false.

(d) The failure or inability by Tenant to observe or perform
any of the covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in any other subsection of this Section, where
the failure continues for a period of thirty (30) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161 and 1161(a) as amended. However, if the nature of the
failure is such that more than thirty (30) days are reasonably required for its
cure, then Tenant shall not be deemed to be in default if Tenant commences the
cure within thirty (30) days, and thereafter diligently pursues the cure to
completion.

(e) (i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing by or against Tenant of a petition to have
Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within sixty (60) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event described
in this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.

SECTION 14.2. LANDLORD'S REMEDIES.

(a) In the event of any default by Tenant, then in addition to
any other remedies available to Landlord, Landlord may exercise the following
remedies:

(i) Landlord may terminate Tenant's right to
possession of the Premises by any lawful means, in which case this Lease shall
terminate and Tenant shall immediately surrender possession of the Premises to
Landlord. Such termination shall not affect any accrued obligations of Tenant
under this Lease. Upon termination, Landlord shall have the right to reenter the
Premises and remove all persons and property. Landlord shall also be entitled to
recover from Tenant:

(1) The worth at the time of award of the
unpaid rent and additional rent which had been earned at the time of
termination;

(2) The worth at the time of award of the
amount by which the unpaid rent and additional rent which would have been earned
after termination until the time of award exceeds the amount of such loss that
Tenant proves could have been reasonably avoided;

(3) The worth at the time of award of the
amount by which the unpaid rent and additional rent for the balance of the Term
after the time of award exceeds the amount of such loss that Tenant proves could
be reasonably avoided;

(4) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course of things would
be likely to result from Tenant's default, including, but not limited to, the
cost of recovering possession of the Premises, commissions and other expenses of
reletting, including necessary repair, renovation, improvement and alteration of
the Premises for a new tenant, reasonable attorneys' fees, and any other
reasonable costs; and

(5) At Landlord's election, all other
amounts in addition to or in lieu of the foregoing as may be permitted by law.
The term "rent" as used in this Lease shall be deemed to mean the Basic Rent and
all other sums required to be paid by Tenant to Landlord pursuant to the terms

<PAGE> 19

of this Lease. Any sum, other than Basic Rent, shall be computed on the basis of
the average monthly amount accruing during the twenty-four (24) month period
immediately prior to default, except that if it becomes necessary to compute
such rental before the twenty-four (24) month period has occurred, then the
computation shall be on the basis of the average monthly amount during the
shorter period. As used in subparagraphs (1) and (2) above, the "worth at the
time of award" shall be computed by allowing interest at the rate of ten percent
(10%) per annum. As used in subparagraph (3) above, the "worth at the time of
award" shall be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).

(ii) Landlord may elect not to terminate
Tenant's right to possession of the Premises, in which event Landlord may
continue to enforce all of its rights and remedies under this Lease, including
the right to collect all rent as it becomes due. Efforts by the Landlord to
maintain, preserve or relet the Premises, or the appointment of a receiver to
protect the Landlord's interests under this Lease, shall not constitute a
termination of the Tenant's right to possession of the Premises. In the event
that Landlord elects to avail itself of the remedy provided by this subsection
(ii), Landlord shall not unreasonably withhold its consent to an assignment or
subletting of the Premises subject to the reasonable standards for Landlord's
consent as are contained in this Lease.

(b) The various rights and remedies reserved to Landlord in
this Lease or otherwise shall be cumulative and, except as otherwise provided by
California law, Landlord may pursue any or all of its rights and remedies at the
same time. No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of the right or remedy or of any default by
Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other than
the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a default
under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent required by this Lease shall be deemed to be other than a
partial payment on account of the earliest due stipulated rent, nor shall any
endorsement or statement on any check or letter be deemed an accord and
satisfaction and Landlord shall accept the check or payment without prejudice to
Landlord's right to recover the balance of the rent or pursue any other remedy
available to it. Tenant hereby waives any right of redemption or relief from
forfeiture under California Code of Civil Procedure Section 1174 or 1179, or
under any other present or future law, in the event this Lease is terminated by
reason of any default by Tenant. No act or thing done by Landlord or Landlord's
agents during the Term shall be deemed an acceptance of a surrender of the
Premises, and no agreement to accept a surrender shall be valid unless in
writing and signed by Landlord. No employee of Landlord or of Landlord's agents
shall have any power to accept the keys to the Premises prior to the termination
of this Lease, and the delivery of the keys to any employee shall not operate as
a termination of the Lease or a surrender of the Premises.

SECTION 14.3. LATE PAYMENTS.

(a) Any rent due under this Lease that is not paid to Landlord
within five (5) days of the date when due shall bear interest at the maximum
rate permitted by law from the date due until fully paid. The payment of
interest shall not cure any default by Tenant under this Lease. In addition,
Tenant acknowledges that the late payment by Tenant to Landlord of rent will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impracticable to ascertain. Those costs
may include, but are not limited to, administrative, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
ground lease, mortgage or trust deed covering the Premises. Accordingly, if any
rent due from Tenant shall not be received by Landlord or Landlord's designee
within five (5) days after the date due, then Tenant shall pay to Landlord, in
addition to the interest provided above, a late charge in the amount of one
hundred dollars ($100.00) for each delinquent payment. Acceptance of a late
charge by Landlord shall not constitute a waiver of Tenant's default with
respect to the overdue amount, nor shall it prevent Landlord from exercising any
of its other rights and remedies.

(b) Following each third consecutive installment of rent that
is not paid within five (5) days following notice of nonpayment from Landlord,
Landlord shall have the option to require that beginning with the first payment
of rent next due, rent shall no longer be paid in monthly installments but shall
be payable quarterly three (3) months in advance. Should Tenant deliver to
Landlord, at any time during the Term, two (2) or more insufficient checks, the
Landlord may require that all monies then and thereafter due from Tenant be paid
to Landlord by cashier's check.

SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and
agreements to be performed by Tenant under this Lease shall be performed at
Tenant's sole cost and expense and without any abatement of rent or right of
set-off. If Tenant fails to pay any sum of money, or fails to perform any other
act on its part to be performed under this Lease, and the failure continues
beyond any applicable grace period set forth in Section 14.1, then in addition
to any other available remedies, Landlord may, at its election make the payment
or perform the other act on Tenant's part. Landlord's election to make the
payment or perform the act on Tenant's part shall not give rise to any
responsibility of Landlord to continue making the same or similar payments or
performing the same or similar acts. Tenant shall, promptly upon demand by
Landlord, reimburse Landlord for all sums paid by Landlord and all necessary
incidental costs,

<PAGE> 20

together with interest at the maximum rate permitted by law from the date of the
payment by Landlord.

SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be
in default in the performance of any obligation under this Lease unless and
until it has failed to perform the obligation within thirty (30) days after
written notice by Tenant to Landlord specifying in reasonable detail the nature
and extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion.

SECTION 14.6. EXPENSES AND LEGAL FEES. Should either Landlord or Tenant
bring any action in connection with this Lease, the prevailing party shall be
entitled to recover as a part of the action its reasonable attorneys' fees, and
all other costs. The prevailing party for the purpose of this paragraph shall be
determined by the trier of the facts.

SECTION 14.7. WAIVER OF JURY TRIAL/RIGHT TO ARBITRATE.

(A) LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF
AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHT TO
TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND
RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST
ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED
ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF
INJURY OR DAMAGE.

(B) SHOULD A DISPUTE ARISE BETWEEN THE PARTIES REGARDING ANY
MATTER DESCRIBED ABOVE, THEN EXCEPT WITH RESPECT TO ACTIONS FOR UNLAWFUL OR
FORCIBLE DETAINER EITHER PARTY MAY CAUSE THE DISPUTE TO BE SUBMITTED TO
JAMS/ENDISPUTE OR ITS SUCCESSOR ("JAMS") IN THE COUNTY IN WHICH THE BUILDING IS
SITUATED FOR BINDING ARBITRATION BEFORE A SINGLE ARBITRATOR. HOWEVER, EACH PARTY
RESERVES THE RIGHT TO SEEK A PROVISIONAL REMEDY BY JUDICIAL ACTION. NO
ARBITRATION ELECTION BY EITHER PARTY PURSUANT TO THIS SUBSECTION SHALL BE
EFFECTIVE IF MADE LATER THAN THIRTY (30) DAYS FOLLOWING SERVICE OF A JUDICIAL
SUMMONS AND COMPLAINT BY OR UPON SUCH PARTY CONCERNING THE DISPUTE. THE
ARBITRATION SHALL BE CONDUCTED IN ACCORDANCE WITH THE RULES OF PRACTICE AND
PROCEDURE OF JAMS AND OTHERWISE PURSUANT TO THE CALIFORNIA ARBITRATION ACT (CODE
OF CIVIL PROCEDURE SECTIONS 1280 ET SEQ.). NOTWITHSTANDING THE FOREGOING, THE
ARBITRATOR IS SPECIFICALLY DIRECTED TO LIMIT DISCOVERY TO THAT WHICH IS
ESSENTIAL TO THE EFFECTIVE PROSECUTION OR DEFENSE OF THE ACTION. THE ARBITRATOR
SHALL APPORTION THE COSTS OF THE ARBITRATION, TOGETHER WITH THE ATTORNEYS' FEES
OF THE PARTIES, IN THE MANNER DEEMED EQUITABLE BY THE ARBITRATOR, IT BEING THE
INTENTION OF THE PARTIES THAT THE PREVAILING PARTY ORDINARILY BE ENTITLED TO
RECOVER ITS REASONABLE COSTS AND FEES. JUDGMENT UPON ANY AWARD RENDERED BY THE
ARBITRATOR MAY BE ENTERED BY ANY COURT HAVING JURISDICTION.

ARTICLE XV. END OF TERM

SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term, Landlord may, at its option, treat Tenant as a tenant
at sufferance only, commencing on the first (1st) day following the termination
of this Lease. Any hold-over by Tenant shall be subject to all of the terms of
this Lease, except that the monthly rental shall be one hundred fifty percent
(150%) of the total monthly rental for the month immediately preceding the date
of termination, subject to Landlord's right to modify same upon thirty (30) days
notice to Tenant. If Tenant fails to surrender the Premises upon the expiration
of this Lease despite demand to do so by Landlord, Tenant shall indemnify and
hold Landlord harmless from all loss or liability, including without limitation,
any claims made by any succeeding tenant that has a signed lease for all or a
portion of the Premises relating to such failure to surrender. Acceptance by
Landlord of rent after the termination shall not constitute a consent to a
holdover or result in a renewal of this Lease. The foregoing provisions of this
Section are in addition to and do not affect Landlord's right of re-entry or any
other rights of Landlord under this Lease or at law.

<PAGE> 21

SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender
of this Lease by Tenant, or a mutual termination of this Lease, shall terminate
any or all existing subleases unless Landlord, at its option, elects in writing
to treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.

SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, reasonable wear and tear and repairs which are Landlord's obligation
excepted, and shall, without expense to Landlord, remove or cause to be removed
all wallpapering installed by Tenant except in connection with the initial
tenant improvement work, together with all personal property and debris, except
for any items that Landlord may by written authorization allow to remain. Tenant
shall repair all damage to the Premises resulting from the removal, which repair
shall include the patching and filling of holes and repair of structural damage,
provided that Landlord may instead elect to repair any structural damage at
Tenant's expense. If Tenant shall fail to comply with the provisions of this
Section, Landlord may effect the removal and/or make any repairs, and the cost
to Landlord shall be additional rent payable by Tenant upon demand. If requested
by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an
instrument in writing releasing and quitclaiming to Landlord all right, title
and interest of Tenant in the Premises.

ARTICLE XVI. PAYMENTS AND NOTICES

All sums payable by Tenant to Landlord shall be paid, without deduction
or offset, in lawful money of the United States to Landlord at its address set
forth in Item 13 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis of a thirty (30) day
month and a three hundred sixty (360) day year. Any notice, election, demand,
consent, approval or other communication to be given or other document to be
delivered by either party to the other may be delivered to the other party, at
the address set forth in Item 13 of the Basic Lease Provisions, by personal
service or telegram, telecopier, or electronic facsimile transmission, or by any
courier or "overnight" express mailing service, or may be deposited in the
United States mail, postage prepaid. Either party may, by written notice to the
other, served in the manner provided in this Article, designate a different
address. If any notice or other document is sent by mail, it shall be deemed
served or delivered three (3) business days after mailing or, if sooner, upon
actual receipt. If more than one person or entity is named as Tenant under this
Lease, service of any notice upon any one of them shall be deemed as service
upon all of them.

ARTICLE XVII. RULES AND REGULATIONS

Tenant agrees to comply with the Rules and Regulations attached as
Exhibit E, and any reasonable and nondiscriminatory amendments, modifications
and/or additions as may be adopted and published by written notice to tenants by
Landlord for the safety, care, security, good order, or cleanliness of the
Premises, Building, Project and/or Common Areas. Landlord shall not be liable to
Tenant for any violation of the Rules and Regulations or the breach of any
covenant or condition in any lease or any other act or conduct by any other
tenant, and the same shall not constitute a constructive eviction hereunder. One
or more waivers by Landlord of any breach of the Rules and Regulations by Tenant
or by any other tenant(s) shall not be a waiver of any subsequent breach of that
rule or any other. Tenant's failure to keep and observe the Rules and
Regulations and to cure such failure as provided in Section 14.1(d) above shall
constitute a default under this Lease. In the case of any conflict between the
Rules and Regulations and this Lease, this Lease shall be controlling.

ARTICLE XVIII. BROKER'S COMMISSION

The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Each party warrants that it has had no dealings with any other real
estate broker or agent in connection with the negotiation of this Lease, and
agrees to indemnify and hold the other party harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent employed
or claiming to represent or to have been employed by the indemnifying party in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the termination of this Lease.

<PAGE> 22

ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST

In the event of any transfer of Landlord's interest in the Premises,
the transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or deed
of trust to which this Lease is or may be subordinate shall be responsible in
connection with the Security Deposit, unless the mortgagee or holder of the deed
of trust or the landlord actually receives the Security Deposit. It is intended
that the covenants and obligations contained in this Lease on the part of
Landlord shall, subject to the foregoing, be binding on Landlord, its successors
and assigns, only during and in respect to their respective successive periods
of ownership.

ARTICLE XX. INTERPRETATION

SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.

SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.

SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.

SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights
and liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.

SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to
the performance of every provision of this Lease in which time of performance is
a factor.

SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.

SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by law.

SECTION 20.8. WAIVER. One or more waivers by Landlord or Tenant of any
breach of any term, covenant or condition contained in this Lease shall not be a
waiver of any subsequent breach of the same or any other term, covenant or
condition. Consent to any act by one of the parties shall not be deemed to
render unnecessary the obtaining of that party's consent to any subsequent act.
No breach of this Lease shall be deemed to have been waived unless the waiver is
in a writing signed by the waiving party.

SECTION 20.9. INABILITY TO PERFORM. In the event that either party
shall be delayed or hindered in or prevented from the performance of any work or
in performing any act required under this Lease by reason of any cause beyond
the reasonable control of that party, then the performance of the work or the
doing of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent.

SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further effect.
Tenant waives its rights to rely on any representations or promises made by
Landlord or others which are not contained in this Lease. No verbal agreement or
implied covenant shall be held to modify the provisions of this Lease, any
statute, law, or custom to the contrary notwithstanding.

SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of
all the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.

<PAGE> 23

SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.

ARTICLE XXI. EXECUTION AND RECORDING

SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.

SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If either party is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms.

SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.

SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.

SECTION 21.5. AMENDMENTS. No amendment or mutual termination of this
Lease shall be effective unless in writing signed by authorized signatories of
Tenant and Landlord, or by their respective successors in interest. No actions,
policies, oral or informal arrangements, business dealings or other course of
conduct by or between the parties shall be deemed to modify this Lease in any
respect.

ARTICLE XXII. MISCELLANEOUS

SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any other tenant
or apparent prospective tenant of the Building or Project, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees under
this Lease, its lenders, accountants and other consultants, and in connection
with any securities filing, sale, merger or similar transaction.

SECTION 22.2. REPRESENTATIONS BY TENANT. The application, financial
statements and tax returns, if any, submitted and certified to by Tenant as an
accurate representation of its financial condition have been prepared, certified
and submitted to Landlord as an inducement and consideration to Landlord to
enter into this Lease. The application and statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of execution of this Lease by Tenant.
Tenant shall during the Term promptly furnish Landlord with annual financial
statements reflecting Tenant's financial condition upon written request from
Landlord.

SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Building, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not increase the obligations of Tenant, diminish the rights of Tenant, or
adversely affect the leasehold interest created by this Lease.

SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the
part of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Building
whose address has been furnished to Tenant and (b) such beneficiary is afforded
the opportunity to cure the default by Landlord for a period of thirty (30) days
following the later of (i) the expiration of Landlord's cure period under
Section 14.5 above or (ii) the delivery to the beneficiary of Tenant's notice.

SECTION 22.5. DISCLOSURE STATEMENT. Tenant acknowledges that it has
read, understands and, if applicable, shall comply with the provisions of
Exhibit F to this Lease, if that Exhibit is attached.

<PAGE> 24
SECTION 22.6. TERMINATION OF EXISTING LEASE. Landlord and Tenant are
currently parties to an office space lease dated January 11, 1991, as
subsequently amended, for certain premises situated at 610 Newport Center Drive,
Newport Beach, California (as amended, the "Existing Lease"). The parties agree
that the Existing Lease shall terminate effective as of the day preceding the
Commencement Date of this Lease, provided that such termination shall not
relieve Tenant of (a) any accrued obligation or liability under the Existing
Lease as of said termination date, or (b) any obligation under the Existing
Lease which was reasonably intended to survive the expiration or termination
thereof. Any advance rental paid by Tenant under the Existing Lease shall be
rebated by Landlord or applied to the rent due hereunder. In the event that the
Premises are not ready for occupancy by Tenant as of the Estimated Commencement
Date set forth herein, and provided such failure is not attributable to any
Tenant Delay, then any Basic Rental increase under the Existing Lease that is
scheduled to occur on or after the Estimated Commencement Date hereof shall be
suspended.

LANDLORD: TENANT:

THE IRVINE COMPANY QUEST SOFTWARE, INC.

By /s/ WILLIAM R. HALFORD By /s/ VINCENT C. SMITH
--------------------------------- -----------------------------------
William R. Halford, President, Printed Name Vincent C. Smith
Irvine Office Company, -------------------------
a division of The Irvine Company Title CEO
--------------------------------

By /s/ VINCENT P. HAYES By /s/ DAVID DOYLE
--------------------------------- -----------------------------------
Vincent P. Hayes Printed Name David Doyle
Assistant Secretary -------------------------
Title President
--------------------------------

<PAGE> 25

EXHIBIT B

UTILITIES AND SERVICES

The following standards for utilities and services shall be in effect
at the Building. Landlord reserves the right to adopt nondiscriminatory
modifications and additions to these standards which are reasonable and do not
materially adversely affect Tenant's rights under the Lease. In the case of any
conflict between these standards and the Lease, the Lease shall be controlling.
Subject to all of the provisions of the Lease, including but not limited to the
restrictions contained in Section 6.1, the following shall apply:

1. Landlord shall furnish to the Premises during the hours of 8:00
a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on
Saturday, generally recognized national holidays and Sundays excepted,
reasonable air conditioning, heating and ventilation services. Subject to the
provisions set forth below, Landlord shall also furnish the Building with
elevator service (if applicable), reasonable amounts of electric current for
normal lighting by Landlord's standard overhead fluorescent and incandescent
fixtures and for fractional horsepower office machines, and water for lavatory
and drinking purposes. Tenant will not, without the prior written consent of
Landlord, consume electricity in the Premises at a level in excess of 3 watts
per square foot or otherwise increase the amount of electricity, gas or water
usually furnished or supplied for use of the Premises as general office space;
nor shall Tenant connect any apparatus, machine or device with water pipes or
electric current (except through existing electrical outlets in the Premises)
for the purpose of using electric current or water. This paragraph shall at all
times be subject to applicable governmental regulations.

2. Upon request from Tenant a reasonable period of time prior to the
period for which service is requested, but during normal business hours,
Landlord will provide any of the foregoing building services to Tenant at such
times when such services are not otherwise available. Landlord may install
systems within the Building that permit Tenant to directly access after hour
services. Tenant agrees to pay Landlord for those afterhour services at rates
that Landlord may establish from time to time. If Tenant requires electric
current in excess of that which Landlord is obligated to furnish under this
Exhibit B, Tenant shall first obtain the consent of Landlord, and Landlord may
cause an electric current meter to be installed in the Premises to measure the
amount of electric current consumed. The cost of installation, maintenance and
repair of the meter shall be paid for by Tenant, and Tenant shall reimburse
Landlord promptly upon demand for all electric current consumed for any special
power use as shown by the meter. The reimbursement shall be at the rates charged
for electrical power by the local public utility furnishing the current, plus
any additional expense incurred in keeping account of the electric current
consumed.

3. If any lights, machines or equipment (including without limitation
electronic data processing machines) are used by Tenant in the Premises which
materially affect the temperature otherwise maintained by the air conditioning
system, or generate substantially more heat in the Premises than would be
generated by the building standard lights and usual fractional horsepower office
equipment, Landlord shall have the right at its election to install or modify
any machinery and equipment to the extent Landlord reasonably deems necessary to
restore temperature balance. The cost of installation, and any additional cost
of operation and maintenance, shall be paid by Tenant to Landlord promptly upon
demand.

4. Landlord shall furnish water for drinking, personal hygiene and
lavatory purposes only. If Tenant requires or uses water for any purposes in
addition to ordinary drinking, cleaning and lavatory purposes, Landlord may, in
its discretion, install a water meter to measure Tenant's water consumption.
Tenant shall pay Landlord for the cost of the meter and the cost of its
installation, and for consumption throughout the duration of Tenant's occupancy.
Tenant shall keep the meter and installed equipment in good working order and
repair at Tenant's own cost and expense, in default of which Landlord may cause
the meter to be replaced or repaired at Tenant's expense. Tenant agrees to pay
for water consumed, as shown on the meter and when bills are rendered, and on
Tenant's default in making that payment Landlord may pay the charges on behalf
of Tenant. Any costs or expenses or payments made by Landlord for any of the
reasons or purposes stated above shall be deemed to be additional rent payable
by Tenant to Landlord upon demand.

5. In the event that any utility service to the Premises is
separately metered or billed to Tenant, Tenant shall pay all charges for that
utility service to the Premises and the cost of furnishing the utility to tenant
suites shall be excluded from the Operating Expenses as to which reimbursement
from Tenant is required in the Lease. If any utility charges are not paid when
due Landlord may pay them, and any amounts paid by Landlord shall immediately
become due to Landlord from Tenant as additional rent. If Landlord elects to
furnish any utility service to the Premises, Tenant shall purchase its
requirements of that utility from Landlord as long as the rates charged by
Landlord do not exceed those which Tenant would be required to pay if the
utility service were furnished it directly by a public utility.

<PAGE> 26

6. Landlord shall provide janitorial services five days per week,
equivalent to that furnished in comparable buildings, and window washing as
reasonably required; provided, however, that Tenant shall pay for any additional
or unusual janitorial services required by reason of any nonstandard
improvements in the Premises, including without limitation wall coverings and
floor coverings installed by or for Tenant, or by reason of any use of Premises
other than exclusively as offices. The cleaning services provided by Landlord
shall also exclude refrigerators, eating utensils (plates, drinking containers
and silverware), and interior glass partitions. Tenant shall pay to Landlord the
cost of removal of any of Tenant's refuse and rubbish, to the extent that they
exceed the refuse and rubbish usually attendant with general office usage.

7. Tenant shall have access to the Building 24 hours per day, 7 days
per week, 52 weeks per year; provided that Landlord may install access control
systems as it deems advisable for the Building. Such systems may, but need not,
include full or part-time lobby supervision, the use of a sign-in sign-out log,
a card identification access system, building parking and access pass system,
closing hours procedures, access control stations, fire stairwell exit door
alarm system, electronic guard system, mobile paging system, elevator control
system or any other access controls. In the event that Landlord elects to
provide any or all of those services, Landlord may discontinue providing them at
any time with or without notice. Landlord may impose a reasonable charge for
access control cards and/or keys issued to Tenant; provided that Landlord agrees
to furnish, at its expense, the same number of initial access control devices as
Tenant is currently utilizing under the Existing Lease, whether by reprogramming
those existing devices or supplying new devices. Landlord shall have no
liability to Tenant for the provision by Landlord of improper access control
services, for any breakdown in service, or for the failure by Landlord to
provide access control services. Tenant further acknowledges that Landlord's
access systems may be temporarily inoperative during building emergency and
system repair periods. Tenant agrees to assume responsibility for compliance by
its employees with any regulations established by Landlord with respect to any
card key access or any other system of building access as Landlord may
establish. Tenant shall be liable to Landlord for any loss or damage resulting
from its or its employees use of any access system.

<PAGE> 27

EXHIBIT C

PARKING

The following parking regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable, nondiscriminatory modifications
and additions to the regulations by written notice to Tenant. In the case of any
conflict between these regulations and the Lease, the Lease shall be
controlling.

1. Landlord agrees to maintain, or cause to be maintained, an
automobile parking area ("Parking Area") in reasonable proximity to the Building
for the benefit and use of the visitors and patrons and, except as otherwise
provided, employees of Tenant, and other tenants and occupants of the Building.
The Parking Area shall include, whether in a surface parking area or a parking
structure, the automobile parking stalls, driveways, entrances, exits, sidewalks
and attendant pedestrian passageways and other areas designated for parking.
Landlord shall have the right and privilege of determining the nature and extent
of the automobile Parking Area, whether it shall be surface, underground or
other structure, and of making such changes to the Parking Area from time to
time which in its opinion are desirable and for the best interests of all
persons using the Parking Area. Landlord shall keep the Parking Area in a neat,
clean and orderly condition, and shall repair any damage to its facilities.
Landlord shall not be liable for any damage to motor vehicles of visitors or
employees, for any loss of property from within those motor vehicles, or for any
injury to Tenant, its visitors or employees, unless ultimately determined to be
caused by the active negligence or willful misconduct of Landlord. Unless
otherwise instructed by Landlord, every parker shall park and lock his or her
own motor vehicle. Landlord shall also have the right to establish, and from
time to time amend, and to enforce against all users of the Parking Area all
reasonable rules and regulations (including the designation of areas for
employee parking) as Landlord may deem necessary and advisable for the proper
and efficient operation and maintenance of the Parking Area. Garage managers or
attendants are not authorized to make or allow any exceptions to these
regulations.

2. Landlord may, if it deems advisable in its sole discretion, charge
for parking and may establish for the Parking Area a system or systems of permit
parking for Tenant, its employees and its visitors, which may include, but not
be limited to, a system of charges against nonvalidated parking, verification of
users, a set of regulations governing different parking locations, and an
allotment of reserved or nonreserved parking spaces based upon the charges paid
and the identity of users. In no event shall Tenant or its employees park in
reserved stalls leased to other tenants or in stalls within designated visitor
parking zones, nor shall Tenant or its employees utilize more than the number of
parking stalls allotted in this Lease to Tenant. It is understood that Landlord
shall not have any obligation to cite improperly parked vehicles or otherwise
attempt to enforce reserved parking rules during hours when parking attendants
are not present at the Parking Area. Tenant shall comply with such system in its
use (and in the use of its visitors, patrons and employees) of the Parking Area,
provided, however, that the system and rules and regulations shall apply to all
persons entitled to the use of the Parking Area, and all charges to Tenant for
use of the Parking Area shall be no greater than Landlord's then current
scheduled charge for parking. The foregoing shall otherwise be subject to
Paragraphs 7 and 10 below.

3. Tenant shall, upon request of Landlord from time to time, furnish
Landlord with a list of its employees' names and of Tenant's and its employees'
vehicle license numbers. Tenant agrees to acquaint its employees with these
regulations and assumes responsibility for compliance by its employees with
these parking provisions, and shall be liable to Landlord for all unpaid parking
charges incurred by its employees. Any amount due from Tenant shall be deemed
additional rent. Tenant authorizes Landlord to tow away from the Building any
vehicle belonging to Tenant or Tenant's employees parked in violation of these
provisions, and/or to attach violation stickers or notices to those vehicles. In
the event Landlord elects or is required to limit or control parking by tenants,
employees, visitors or invitees of the Building, whether by validation of
parking tickets, parking meters or any other method of assessment, Tenant agrees
to participate in the validation or assessment program under reasonable rules
and regulations as are established by Landlord and/or any applicable
governmental agency.

4. Landlord may establish an identification system for vehicles of
Tenant and its employees which may consist of stickers, magnetic parking cards
or other identification devices supplied by Landlord. All identification devices
shall remain the property of Landlord, shall be displayed as required by
Landlord or upon request and may not be mutilated or obliterated in any manner.
Those devices shall not be transferable and any such device in the possession of
an unauthorized holder shall be void and may be confiscated. Landlord may impose
a reasonable fee for identification devices and a replacement charge for devices
which are lost or stolen; provided that Landlord agrees to furnish, at its
expense, the same number of initial identification devices as Tenant is
currently utilizing under the Existing Lease, whether by reprogramming those
existing devices or supplying new devices. Each identification device shall be
returned to Landlord promptly following the Expiration Date or sooner
termination of this Lease. Loss or theft of parking identification devices shall
be reported to Landlord or its Parking Area operator immediately and a written
report of the loss filed if requested by Landlord or its Parking Area operator.

<PAGE> 28

5. Persons using the Parking Area shall observe all directional signs
and arrows and any posted speed limits. Unless otherwise posted, in no event
shall the speed limit of 5 miles per hour be exceeded. All vehicles shall be
parked entirely within painted stalls, and no vehicles shall be parked in areas
which are posted or marked as "no parking" or on or in ramps, driveways and
aisles. Only one vehicle may be parked in a parking space. In no event shall
Tenant interfere with the use and enjoyment of the Parking Area by other tenants
of the Building or their employees or invitees.

6. Parking Areas shall be used only for parking vehicles. Washing,
waxing, cleaning or servicing of vehicles, or the parking of any vehicle on an
overnight basis (except in connection with occasional business trips), in the
Parking Area (other than emergency services) by any parker or his or her agents
or employees is prohibited unless otherwise authorized by Landlord. Tenant shall
have no right to install any fixtures, equipment or personal property (other
than vehicles) in the Parking Area, nor shall Tenant make any alteration to the
Parking Area.

7. It is understood that the employees of Tenant and the other
tenants of Landlord within the Building and Project shall not be permitted to
park their automobiles in the portions of the Parking Area which may from time
to time be designated for patrons of the Building and/or Project and that
Landlord shall at all times have the right to establish rules and regulations
for employee parking. Notwithstanding the foregoing, but subject to Paragraph 10
below, the monthly stall charge for the reserved and unreserved stalls allotted
herein to Tenant within the Parking Area or one of the off-site lots described
in Section 6.4 of the Lease shall be Seventy-Five Dollars ($75.00) per stall and
Fifteen Dollars ($15.00) per reserved and unreserved stall, respectively, during
the initial Term of this Lease; thereafter, Tenant shall pay to Landlord or its
agents for the use of parking spaces the amounts as Landlord shall from time to
time determine. Landlord may authorize persons other than those described above,
including occupants of other buildings, to utilize the Parking Area. In the
event of the use of the Parking Area by other persons, those persons shall pay
for that use in accordance with the terms established above; provided, however,
Landlord may allow those persons to use the Parking Area on weekends, holidays,
and at other non-office hours without payment.

8. Notwithstanding the foregoing paragraphs 1 through 7, Landlord
shall be entitled to pass on to Tenant its proportionate share of any charges or
parking surcharge or transportation management costs levied by any governmental
agency. The foregoing parking provisions are further subject to any governmental
regulations which limit parking or otherwise seek to encourage the use of
carpools, public transit or other alternative transportation forms or traffic
reduction programs. Tenant agrees that it will use reasonable efforts to
cooperate, including registration and attendance, in programs which may be
undertaken to reduce traffic. Tenant acknowledges that as a part of those
programs, it may be required to distribute employee transportation information,
participate in employee transportation surveys, allow employees to participate
in commuter activities, designate a liaison for commuter transportation
activities, distribute commuter information to all employees, and otherwise
participate in other programs or services initiated under a transportation
management program.

9. Should any parking spaces be allotted by Landlord to Tenant,
either on a reserved or nonreserved basis, Tenant shall not assign or sublet any
of those spaces, either voluntarily or by operation of law, without the prior
written consent of Landlord, except in connection with an authorized or
permitted assignment of this Lease or subletting of the Premises.

10. Tenant acknowledges that it has been advised that Landlord may
undertake the construction of a parking structure in the Parking Area of the
Building and that such construction shall result in temporarily relocating
Tenant's allotted parking spaces to another surface parking area reasonably
close to the Building. During the period of such temporary relocation, Landlord
shall waive all monthly stall charges under Paragraphs 2 and 7 hereof with
respect to the stalls so relocated. Tenant further acknowledges that should
Landlord complete construction of the parking structure, Tenant's allotted
parking stalls shall be permanently relocated to said structure and the stall
charges payable by Tenant pursuant to Paragraph 7 above shall be adjusted to
Sixty-Five Dollars ($65.00) per unreserved stall per month and One Hundred
Twenty Dollars ($120.00) per reserved stall per month during the initial
seventy-four (74) month Lease Term, thereafter, the stall charges shall be
Landlord's asking rates for covered parking from time to time.

<PAGE> 29

EXHIBIT D

TENANT'S INSURANCE

The following standards for Tenant's insurance shall be in effect at
the Building. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions to those standards. Tenant agrees to obtain and
present evidence to Landlord that it has fully complied with the insurance
requirements.

1. Tenant shall, at its sole cost and expense, commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term, procure, pay for and keep in full force and effect: (i) commercial general
liability insurance with respect to the Premises and the operations of or on
behalf of Tenant in, on or about the Premises, including but not limited to
personal injury, nonowned automobile, blanket contractual, independent
contractors, broad form property damage, fire legal liability, products
liability (if a product is sold from the Premises), liquor law liability (if
alcoholic beverages are sold, served or consumed within the Premises), and cross
liability and severability of interest clauses, which policy(ies) shall be
written on an "occurrence" basis and for not less than $2,000,000 combined
single limit (with a $50,000 minimum limit on fire legal liability) per
occurrence for bodily injury, death, and property damage liability, or the
current limit of liability carried by Tenant, whichever is greater, and subject
to such increases in amounts as Landlord may determine from time to time; (ii)
workers' compensation insurance coverage as required by law, together with
employers' liability insurance coverage; (iii) with respect to improvements,
alterations, and the like required or permitted to be made by Tenant under this
Lease, builder's all-risk insurance, in amounts satisfactory to Landlord; (iv)
insurance against fire, vandalism, malicious mischief and such other additional
perils as may be included in a standard "all risk" form, insuring the leasehold
improvements, trade fixtures, furnishings, equipment and items of personal
property in the Premises, in an amount equal to not less than ninety percent
(90%) of their actual replacement cost (with replacement cost endorsement),
which policy shall also include loss of income/business interruption/extra
expense coverage in an amount not less than nine months loss of income from
Tenant's business in the Premises. In no event shall the limits of any policy be
considered as limiting the liability of Tenant under this Lease.

2. All policies of insurance required to be carried by Tenant
pursuant to this Exhibit shall be written by responsible insurance companies
authorized to do business in the State of California and with a general
policyholder rating of not less than "A" and financial rating of not less than
"X" in the most current Best's Insurance Report. Any insurance required of
Tenant may be furnished by Tenant under any blanket policy carried by it or
under a separate policy. A certificate of insurance, certifying that the policy
has been issued, provides the coverage required by this Exhibit and contains the
required provisions, together with endorsements acceptable to Landlord
evidencing the waiver of subrogation and additional insured provisions required
under Paragraph 3 below, shall be delivered to Landlord prior to the date Tenant
is given the right of possession of the Premises. Proper evidence of the renewal
of any insurance coverage shall also be delivered to Landlord not less than
thirty (30) days prior to the expiration of the coverage. Landlord may at any
time, and from time to time, inspect and/or copy any and all insurance policies
required by this Lease.

3. Unless otherwise provided below, each policy evidencing insurance
required to be carried by Tenant pursuant to this Exhibit shall contain the
following provisions and/or clauses satisfactory to Landlord: (i) with respect
to Tenant's commercial general liability insurance, a provision that the policy
and the coverage provided shall be primary and that any coverage carried by
Landlord shall be excess and noncontributory, together with a provision
including Landlord and any other parties in interest designated by Landlord as
additional insureds; (ii) a waiver by the insurer of any right to subrogation
against Landlord, its agents, employees, contractors and representatives which
arises or might arise by reason of any payment under the policy or by reason of
any act or omission of Landlord, its agents, employees, contractors or
representatives; and (iii) a provision that the insurer will not cancel or
change the coverage provided by the policy without first giving Landlord thirty
(30) days prior written notice.

4. In the event that Tenant fails to procure, maintain and/or pay
for, at the times and for the durations specified in this Exhibit, any insurance
required by this Exhibit, or fails to carry insurance required by any
governmental authority, Landlord may at its election procure that insurance and
pay the premiums, in which event Tenant shall repay Landlord all sums paid by
Landlord, together with interest at the maximum rate permitted by law and any
related costs or expenses incurred by Landlord, within ten (10) days following
Landlord's written demand to Tenant.

NOTICE TO TENANT: IN ACCORDANCE WITH THE TERMS OF THIS LEASE, TENANT MUST
PROVIDE EVIDENCE OF THE REQUIRED INSURANCE TO LANDLORD'S MANAGEMENT AGENT PRIOR
TO OCCUPANCY OF THE PREMISES.

<PAGE> 30
EXHIBIT E

RULES AND REGULATIONS

The following Rules and Regulations shall be in effect at the
Building. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions at any time. In the case of any conflict between
these regulations and the Lease, the Lease shall be controlling.

1. Except with the prior written consent of Landlord, Tenant shall
not sell, or permit the retail sale of, newspapers, magazines, periodicals, or
theater tickets, in or from the Premises, nor shall Tenant carry on, or permit
or allow any employee or other person to carry on, the business of stenography,
typewriting or any similar business in or from the Premises for the service or
accommodation of occupants of any other portion of the Building. Tenant shall
not allow the Premises to be utilized for any manufacturing of any kind, or the
business of a public barber shop, beauty parlor, or a manicuring and chiropodist
business, or any business other than that specifically provided for in the
Lease.

2. The sidewalks, halls, passages, elevators, stairways, and other
common areas shall not be obstructed by Tenant or used by it for storage or for
any purpose other than for ingress to and egress from the Premises. The halls,
passages, entrances, elevators, stairways, balconies and roof are not for the
use of the general public, and Landlord shall in all cases retain the right to
control and prevent access to those areas of all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character, reputation
and interests of the Building and its tenants. Nothing contained in this Lease
shall be construed to prevent access to persons with whom Tenant normally deals
only for the purpose of conducting its business on the Premises (such as
clients, customers, office suppliers and equipment vendors and the like) unless
those persons are engaged in illegal activities. Neither Tenant nor any employee
or contractor of Tenant shall go upon the roof of the Building without the prior
written consent of Landlord.

3. The sashes, sash doors, windows, glass lights, solar film and/or
screen, and any lights or skylights that reflect or admit light into the halls
or other places of the Building shall not be covered or obstructed. The toilet
rooms, water and wash closets and other water apparatus shall not be used for
any purpose other than that for which they were constructed, and no foreign
substance of any kind shall be thrown in those facilities, and the expense of
any breakage, stoppage or damage resulting from the violation of this rule shall
be borne by Tenant.

4. No sign, advertisement or notice visible from the exterior of the
Premises shall be inscribed, painted or affixed by Tenant on any part of the
Building or the Premises without the prior written consent of Landlord. If
Landlord shall have given its consent at any time, whether before or after the
execution of this Lease, that consent shall in no way operate as a waiver or
release of any of the provisions of this Lease, and shall be deemed to relate
only to the particular sign, advertisement or notice so consented to by Landlord
and shall not be construed as dispensing with the necessity of obtaining the
specific written consent of Landlord with respect to any subsequent sign,
advertisement or notice. If Landlord, by a notice in writing to Tenant, shall
object to any curtain, blind, tinting, shade or screen attached to, or hung in,
or used in connection with, any window or door of the Premises, the use of that
curtain, blind, tinting, shade or screen shall be immediately discontinued and
removed by Tenant. No awnings shall be permitted on any part of the Premises.

5. Tenant shall not do or permit anything to be done in the Premises,
or bring or keep anything in the Premises, which shall in any way increase the
rate of fire insurance on the Building, or on the property kept in the Building,
or obstruct or interfere with the rights of other tenants, or in any way injure
or annoy them, or conflict with the regulations of the Fire Department or the
fire laws, or with any insurance policy upon the Building, or any portion of the
Building or its contents, or with any rules and ordinances established by the
Board of Health or other governmental authority.

6. The installation and location of any unusually heavy equipment in
the Premises, including without limitation file storage units, safes and
electronic data processing equipment, shall require the prior written approval
of Landlord. Landlord may restrict the weight and position of any equipment that
may exceed the weight load limits for the structure of the Building, and may
further require, at Tenant's expense, the reinforcement of any flooring on which
such equipment may be placed and/or an engineering study to be performed to
determine whether the equipment may safely be installed in the Building and the
necessity of any reinforcement. The moving of large or heavy objects shall occur
only between those hours as may be designated by, and only upon previous written
notice to, Landlord, and the persons employed to move those objects in or out of
the Building must be reasonably acceptable to Landlord. No freight, furniture or
bulky matter of any description shall be received into or moved out of the lobby
of the Building or carried in any elevator other than the freight elevator
designated by Landlord unless approved in writing by Landlord.

7. Landlord shall clean the Premises as provided in the Lease, and
except with the written consent of Landlord, no person or persons other than
those approved by Landlord will be permitted to enter the Building for that
purpose. Tenant shall not cause unnecessary labor by reason of Tenant's
carelessness and indifference in the preservation of good order and cleanliness.
Landlord shall not be responsible to Tenant or its employees for loss or damage
to property in connection with the provision of janitorial services by third
party contractors.

1
<PAGE> 31

8. Tenant shall not sweep or throw, or permit to be swept or thrown,
from the Premises any dirt or other substance into any of the corridors or halls
or elevators, or out of the doors or windows or stairways of the Building, and
Tenant shall not use, keep or permit to be used or kept any foul or noxious gas
or substance in the Premises, or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors and/or vibrations, or interfere in any
way with other tenants or those having business with other tenants, nor shall
any animals or birds be kept by Tenant in or about the Building. Smoking or
carrying of lighted cigars, cigarettes, pipes or similar products anywhere
within the Premises or Building is strictly prohibited, and Landlord may enforce
such prohibition pursuant to Landlord's leasehold remedies. Smoking is permitted
outside the Building and within the project only in areas designated by
Landlord.

9. No cooking shall be done or permitted by Tenant on the Premises,
except pursuant to the normal use of a U.L. approved microwave oven and coffee
maker for the benefit of Tenant's employees and invitees, nor shall the Premises
be used for lodging.

10. Tenant shall not use or keep in the Building any kerosene,
gasoline, or inflammable fluid or any other illuminating material, or use any
method of heating other than that supplied by Landlord.

11. If Tenant desires telephone, telegraph, burglar alarm or similar
connections, Landlord will direct electricians as to where and how the wires are
to be introduced. No boring or cutting for wires or otherwise shall be made
without directions from Landlord.

12. Upon the termination of its tenancy, Tenant shall deliver to
Landlord all the keys to offices, rooms and toilet rooms and all access cards
which shall have been furnished to Tenant or which Tenant shall have had made.

13. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises, except to
install normal wall hangings. Tenant shall not affix any floor covering to the
floor of the Premises in any manner except by a paste, or other material which
may easily be removed with water, the use of cement or other similar adhesive
materials being expressly prohibited. The method of affixing any floor covering
shall be subject to approval by Landlord. The expense of repairing any damage
resulting from a violation of this rule shall be borne by Tenant.

14. On Saturdays, Sundays and legal holidays, and on other days
between the hours of 6:00 p.m. and 8:00 a.m., access to the Building, or to the
halls, corridors, elevators or stairways in the Building, or to the Premises,
may be refused unless the person seeking access complies with any access control
system that Landlord may establish. Landlord shall in no case be liable for
damages for the admission to or exclusion from the Building of any person whom
Landlord has the right to exclude under Rules 2 or 18 of this Exhibit. In case
of invasion, mob, riot, public excitement, or other commotion, or in the event
of any other situation reasonably requiring the evacuation of the Building,
Landlord reserves the right at its election and without liability to Tenant to
prevent access to the Building by closing the doors or otherwise, for the safety
of the tenants and protection of property in the Building.

15. Tenant shall be responsible for protecting the Premises from
theft, which includes keeping doors and other means of entry closed and securely
locked. Tenant shall cause all water faucets or water apparatus to be shut off
before Tenant or Tenant's employees leave the Building, and that all
electricity, gas or air shall likewise be shut off, so as to prevent waste or
damage, and for any default or carelessness Tenant shall make good all injuries
sustained by other tenants or occupants of the Building or Landlord.

16. Tenant shall not alter any lock or install a new or additional
lock or any bolt on any door of the Premises without the prior written consent
of Landlord. If Landlord gives its consent, Tenant shall in each case promptly
furnish Landlord with a key for any new or altered lock.

17. Tenant shall not install equipment, such as but not limited to
electronic tabulating or computer equipment, requiring electrical or air
conditioning service in excess of that to be provided by Landlord under the
Lease except in accordance with Exhibit B.

18. Landlord shall have full and absolute authority to regulate or
prohibit the entrance to the Premises of any vendor, supplier, purveyor,
petitioner, proselytizer or other similar person. In the event any such person
is a guest or invitee of Tenant, Tenant shall notify Landlord in advance of each
desired entry, and Landlord shall authorize the person so designated to enter
the Premises, provided that in the sole and absolute discretionary judgment of
Landlord, such person will not be involved in general solicitation activities,
or the proselytizing, petitioning, or disturbance of other tenants or their
customers or invitees, or engaged or likely to engage in conduct which may in
Landlord's opinion distract from the use of the Premises for its intended
purpose. Notwithstanding the foregoing, Landlord reserves the absolute right and
discretion to limit or prevent access to the Buildings by any food or beverage
vendor, whether or not invited by Tenant, and Landlord may condition such access
upon the vendor's execution of an entry permit agreement which may contain
provisions for insurance coverage and/or the payment of a fee to Landlord.

2
<PAGE> 32

19. Tenant shall be required to utilize the third party contractor
designated by Landlord for the Building to provide any telephone wiring services
from the minimum point of entry of the telephone cable in the Building to the
Premises. Notwithstanding the foregoing, however, in the event Tenant does not
have a telephone switch within the Premises, Tenant may, with Landlord's
approval and supervision, use a trained contractor to provide such wiring
services, but only from the Premises to the telephone room on the floor on which
the Premises are situated.

20. Landlord may from time to time grant tenants individual and
temporary variances from these Rules, provided that any variance does not have a
material adverse effect on the use and enjoyment of the Premises by Tenant.

<PAGE> 1
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE

To the Board of Directors and Stockholders of
Quest Software, Inc. and subsidiaries

We consent to the use in Amendment No. 2 to Registration Statement No. 333-80543
of Quest Software, Inc. and subsidiaries on Form S-1 of our report dated June 9,
1999, (except for paragraphs 3 of note 1 and the 1999 Stock Incentive Plan and
1999 Employee Stock Purchase Plan described in note 5 as to which the date is
June , 1999) appearing in the Prospectus, which is a part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.

Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Quest Software, Inc. and
subsidiaries, listed in Item 16. This financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

Costa Mesa, California
June , 1999

The above consent is in the form which will be signed by Deloitte & Touche
LLP upon the consummation of the items described in notes 1 and 5 of the notes
to the consolidated financial statements and assuming that from June 9, 1999 to
the effective date of such items, no other events have occurred that would
affect the accompanying consolidated financial statements and notes thereto.

Deloitte & Touche LLP
Costa Mesa, California
July 21, 1999

<ARTICLE> 5

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<PERIOD-START> JAN-01-1999
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<SECURITIES> 0
<RECEIVABLES> 11,629,000
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<PP&E> 4,536,000
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25,340,000
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