Informational Slide Presentation, to U.S. employees of Quest Software

Disclaimer

•

This presentation is only intended to provide you

–

an overview, and

–

an opportunity to ask questions.

•

The actual “Offer”

is contained in the Schedule TO

filed with the Securities and Exchange Commission

on June 2, 2008.

What is the Offer?

•

Problem:

–

Some employees hold options with exercise prices that may

be lower than the FMV of our stock on the grant date

(determined for tax and accounting purposes).

–

These

options

are

likely

subject

potential

adverse

tax

consequences

under

Section

409A

(“Section

409A”)

the

U.S.

Internal

Revenue

Code

(the

“Code”).

60%

80%

aggregate

tax

rate

–

even

you

never

exercise!

What is the Offer?

•

Solution:

–

Amend and, if applicable, replace these options to avoid or

minimize adverse taxation.

–

If options are amended to a price in excess of the current

exercise price, a cash bonus will be paid to offset the

increased exercise price.

What is Section 409A?

•

Section 409A is a new tax law intended to address

“abuses”

in deferred compensation –

that is,

compensation which is “earned”

in one year, but paid

and taxed in a later year.

–

Stock options are not “deferred compensation”

subject

to Section 409A IF

they are granted with a strike price

= FMV on the grant date

–

“Discounted”

stock options are “deferred

compensation”

subject to adverse tax consequences

under Section 409A

How Did I Receive “Discounted Options”?

•

Quest determined that, with respect to certain option

grants, the measurement date for accounting purposes

differed from the date of grant.

•

FMV on the revised measurement date >

FMV on original

grant date = discounted options

•

Discounted options are taxed as NSOs

and are also

subject to additional 20% -

40% tax

U.S. Option Taxation Generally –

NSOs

Example

•

Option is granted with an exercise price of $13 with a 5-

year vesting schedule:

–

No tax at grant

or at vesting

–

Value at exercise

= $20:

•

Employee recognizes $7 of taxable ordinary income at exercise

–

that is, the “gain”

= ($20-$13) = $7

–

Employee

recognizes

capital

gain

capital

loss

sale

any

additional

gain

loss

(sale

price-$20)

U.S. Option Taxation -

Section 409A

•

“Discounted”

options are:

–

In the year that discounted options vest (even if you never

exercise):

•

Ordinary income and withholding taxes,

•

20% additional federal income tax under 409A,

•

20% additional state income tax under state 409A (e.g., California), and

•

Additional 409A “interest”

taxes (federal and state).

–

Subject to same taxes in the years between vesting and

exercise (even if you never exercise)

–

Subject to same taxes in year of exercise

–

Tax is calculated based on “spread”

at applicable dates

•

In short: aggregate taxes of approximately 60 -

80% or

more on the “value”

of the option –

even if you never

exercise!

U.S. 409A Taxation

Example

•

Option granted on October 1, 2001 for 1,000 shares, with a 5-year

vesting schedule.

•

Exercise price = $10.74

•

Revised measurement date = January 14, 2002

•

FMV on revised measurement date = $24.40.

•

Vesting: 200 shares vest in each of 2002, 2003, 2004, 2005 and 2006

•

CONCLUSION:

400

may

subject

§409A

because:

–

Option granted at less than FMV on the grant date

–

The 400 shares vested in 2005 and 2006.

Example (continued)

•

Assume that, as of 12/31/2008, Quest stock price = $17.00

•

W-2 Income: $2,504.00 = 400 shares x $6.26; $6.26 = ($17.00-$10.74)

•

Total Taxes: $2,199.61

Fed Ordinary Income

$ 876.40

35.0%

CA Ordinary Income

$ 232.87

9.3%

Aggregate Ordinary Income

$ 1,109.27

44.3%

409A Tax (Fed + CA)

$ 1,001.60

40.0%

Interest (Fed + CA)

$ 88.74

8.0% of reg

tax*

Tax Rate w/§409A

$ 2,199.61

87.8%**

•

Tax due each year until exercise or expiration based on any increases in the

value (no offset for decreases in value).

Assumes an aggregate interest rate on the ordinary income under §409A and applicable CA law

of 8%. Rate is subject to change based on changes in applicable

federal interest rate.

Assumes no deduction for state 409A taxes and certain timing on tax payments that may not be

applicable to your situation. Consult your own tax advisor to determine your potential tax

liability.

Quest’s Offer to Amend or Replace –

U.S.

•

Amend unexercised Eligible U.S. Options to increase the exercise

price to

the lower of (i) FMV on the revised measurement date or (ii) closing price on

the Expiration Date of the Offer.

–

This “lower”

price is the Adjusted U.S. Exercise Price.

–

No additional changes--number of shares, vesting schedule, and

expiration date remain the same.

•

If Adjusted U.S. Exercise Price would

be the same or lower than the current

“discounted”

price, the Eligible U.S. Option will be:

–

repriced up to the FMV on the revised measurement date,

–

cancelled, and

–

replaced with a new option under the 1999 Plan identical to the existing

option (i.e., keep your current exercise price) but with a new grant date.

–

No additional changes--number of shares, vesting schedule and

expiration date remain the same.

Quest’s Cash Bonus –

U.S.

•

Pay U.S. Cash Bonus if exercise price of amended option

is more than original exercise price.

•

Formula: the product of

–

the amount by which the Adjusted U.S. Exercise Price

exceeds the exercise price per share currently in

effect for that Eligible U.S. Option and

–

the number of shares of our common stock

purchasable under that Amended U.S. Option

•

Paid lump sum January 2009, whether or not you remain

employed with Quest in January 2009 and whether or not

you ever exercise the options.

•

No bonus paid on new “replacement”

options

Eligibility –

U.S.

•

“Eligible U.S. Optionee”:

–

A current employee (both at start and end of the Offer);

–

Holds an Eligible U.S. Option; and

–

Is or may be subject to US taxation on the Eligible U.S.

Option.

•

“Eligible U.S. Options”:

–

Granted under the 1999 Stock Incentive Plan or the 2001

Stock Incentive Plan;

–

FMV on revised measurement date > current exercise price;

–

Held by an Eligible U.S. Optionee; and

–

Option had not vested in full before January 1, 2005

U.S. Example #1 –

Amendment + Cash Bonus

Assume:

•

Your unexercised option covers 1,000 shares with a “grant date”

of 10/1/01

and an exercise price per share of $10.74.

•

Revised measurement date was 1/14/02 with FMV of $24.40 per share.

•

The option vests in annual installments over 5 years, so 400 shares were

unvested on 1/1/05.

•

FMV on the Expiration Date is $17.00 per share.

Analysis:

•

400 shares that had not vested by 1/1/05 = Eligible U.S. Option

•

If you tender your Eligible U.S. Option, then the Eligible U.S. Option will be

amended to increase the exercise price to $17.00 per share for those 400

shares.

•

You will receive a U.S. Cash Bonus = $2,504:

–

400 shares x $6.26 (that is, $17.00 -

$10.74)

–

Your U.S. Cash Bonus will be paid on Quest’s first regularly scheduled

payroll date in January, 2009, subject to applicable withholdings.

U.S. Example #2 –

Amendment + Cash Bonus

Assume:

•

Your unexercised option covers 1,000 shares with a “grant date”

4/29/02 and an exercise price per share of $11.91.

•

Revised measurement date was 6/3/02 with FMV of $12.96 per share.

•

The option vests in annual installments over 5 years, so 500 shares

were unvested on 1/1/05.

•

FMV on the Expiration Date is $17.00 per share.

Analysis:

•

500 shares that had not vested by 1/1/05 = Eligible U.S. Option

•

If you tender your Eligible U.S. Option, then the Eligible U.S. Option will

be amended to increase the exercise price to $12.96 per share for

those 500 shares.

•

You will receive a U.S. Cash Bonus = $525:

–

500 shares x $1.05 (that is, $12.96 -

$11.91)

–

Your U.S. Cash Bonus will be paid on Quest’s first regularly

scheduled payroll date in January, 2009, subject to applicable

withholdings

U.S. Example #3 –

Amendment & Replacement

Assume:

•

Your unexercised option covers 1,000 shares with a “grant date”

of 1/2/01

and an exercise price per share of $23.69.

•

Revised measurement date was 5/9/01 with FMV of $31.00 per share.

•

The option vests in annual installments over 5 years, so 400 shares were

unvested on 1/1/05.

•

FMV on the Expiration Date is $17.00 per share.

Analysis:

•

400 shares that had not vested by 1/1/05 = Eligible U.S. Option

•

If you tender your Eligible U.S. Option, then the Eligible U.S. Option will be

amended to increase the exercise price to $31.00 per share for those 400

shares.

•

The amended option will then be cancelled, and you will be granted a new

option under the 1999 Plan to purchase 400 shares with an exercise price of

$23.69 per share, with no loss of vesting or change in expiration date.

•

No cash bonus

will be paid to you.

What happens if I reject the Offer?

•

U.S. Tax Impact:

–

Income

taxation

prior

exercise

•

Ordinary income and withholding taxes

•

20% 409A tax

•

Potential federal tax in the nature of interest

•

State “409A”

income taxes (if applicable, such as CA)

•

Tax due on the increase in “value”

each year until exercise or

expiration of the discounted options.

•

Quest must report the “value”

to the IRS and you may have to amend

prior tax returns.

•

This

Offer

Amend

one-time

offer

help

minimize

avoid

adverse

tax

consequences.

How Do I Participate?

•

Tender Offer Begins: June 2, 2008.

•

Tender Offer Expires: June 27, 2008 = Expiration Date.

–

All elections MUST be received by 11:59 PM (Pacific

Daylight Time) on the Expiration Date.

–

Late submissions will not be accepted.

•

Submit your election via email, fax, hand delivery,

certified mail, FedEx or interoffice mail.

•

Election Confirmation Statement will be emailed to you

within 3 business days.

•

Participation is voluntary -

failure to submit an election

will

deemed

election

not

participate.

Where can I get more information?

•

You have received 2 emails that include:

–

Your personalized Election Form

–

Commencement Notice and copies of the Offer to

Amend or Replace and related documents –

all are

part of Schedule TO filed with SEC

•

You may request a written copy of any or all of these

materials at no charge by contacting Quest Stock

Administration at tenderoffer@quest.com.

•

Offer to Amend or Replace and all related documents

and forms are also available on IQ

Terms of the Offer

•

Must tender all

Eligible Options in the Offer if you wish to

participate.

•

Participation in the Offer is at your own risk:

–

There is no guarantee that Eligible U.S. Options will not be

subject to potential adverse tax consequences.

•

Acceptance of the Offer and amendment and/or

replacement of your Eligible Options does not occur until

after the Offer expires.

•

Acceptance of the Offer gives you no additional right to

continue to remain employed by or in service of Quest.

What About Exercised Options?

•

Only unexercised stock options are eligible for the Offer.

•

Discounted options that were exercised prior to January 1, 2006 are

exempt from Section 409A.

•

Discounted options exercised on or after January 1, 2006 may be

subject to Section 409A taxes:

–

Discounted options that vested before January 1, 2005 are

generally “grandfathered”

and may be exercised without triggering

adverse taxation under Section 409A.

–

Discounted

options

that

are

exercised

connection

with

termination

service

may

exempt

–

talk

your

tax

advisor.

–

All other exercised discounted options are generally subject to

adverse taxation under Section 409A.

•

Quest has reported or will report such exercise to the IRS and has

sent or will send you a revised W-2 reflecting such exercise.

How Do I Accept the Offer?

•

Complete the Election Form indicating acceptance of the

Offer by “checking the box”.

–

Return the Election Form to Quest Stock Plan

Administration.

•

Via facsimile -

Attention: Tender Offer at (949) 754-1933

•

Via email: TenderOffer@Quest.com

•

Via hand delivery, certified mail, FedEx or interoffice mail to

Amada Zapata-Gill, Quest’s Stock Plan Administrator –

Aliso

Viejo Office.

•

Quest must receive

the Election Form by June 27, 2008,

at 11:59 p.m. Pacific Daylight Time.

How Do I Reject the Offer?

•

Complete the Election Form indicating rejection of the

Offer by “checking the box”.

–

Return the Election Form to Quest Stock Administration.

•

Via facsimile, ATTN: Tender Offer at (949) 754-1933

•

Via email: TenderOffer@Quest.com

•

Via hand delivery, certified mail, FedEx or interoffice mail to

Amada

Zapata-Gill,

Quest’s

Stock

Plan

Administrator

–

Aliso

Viejo

Office.

•

Fail to return the Election Form by the deadline.

What do I need to do?

•

Carefully review the Offer to Amend or Replace, exhibits,

and business and financial information provided to you.

•

Consult with your own tax advisors.

•

Consider which alternative is best for you:

–

Accept the Offer, or

–

Reject the Offer.

•

Quest does not know what choice is best for you and will

not make specific recommendations.

•

If considering exercising your Eligible Options during

2008, consider delaying exercising your Eligible Options

until you have decided what to do about the Offer. Your

Eligible Options will no longer qualify as “Eligible Options”

once they have been exercised.

Risks of U.S. Tax Rule Uncertainty

•

Quest believes that the Offer “cures”

the potential

problem of discounted options under Section 409A,

but it cannot provide an absolute guarantee.

•

Section 409A is relatively new, and guidance from the

Treasury and IRS has been limited and sporadic to

date.

•

No assurance that subsequent guidance may not

cause unfavorable tax consequences to you under

Section 409A, despite your participation in the Offer.

•

State tax law uncertainty.

Important Information

THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY

AND IS NOT AN OFFER TO PURCHASE OR THE SOLICITATION OF

AN OFFER TO SELL ANY SECURITIES. THE SOLICITATION AND

THE OFFER TO AMEND ARE MADE ONLY PURSUANT TO AN

OFFER TO AMEND AND RELATED MATERIALS THAT QUEST

SOFTWARE FILED WITH THE SECURITIES AND EXCHANGE

COMMISSION (“SEC”) ON JUNE 2, 2008 AS PART OF AN

OFFERING MEMORANDUM. OPTIONEES WHO ARE ELIGIBLE TO

PARTICIPATE IN THE TENDER OFFER SHOULD READ THE

OFFERING MEMORANDUM AND THE RELATED MATERIALS

CAREFULLY BECAUSE THEY CONTAIN IMPORTANT

INFORMATION ABOUT THE TENDER OFFER. OPTIONEES MAY

OBTAIN THE OFFERING MEMORANDUM AND THE RELATED

MATERIALS FREE OF CHARGE FROM THE SEC’S WEBSITE AT

WWW.SEC.GOV.

Reminders

•

Cooley Godward Kronish LLP is not a financial or investment

advisor.

•

Circular

230

Disclaimer.

THE

FOLLOWING

DISCLAIMER

PROVIDED

ACCORDANCE

WITH

THE

INTERNAL

REVENUE

SERVICE’S

CIRCULAR

230

(21

C.F.R.

PART

10).

THIS

PRESENTATION

NOT

INTENDED

WRITTEN

USED,

AND

CANNOT

USED

YOU

FOR

THE

PURPOSE

AVOIDING

ANY

PENALTIES

THAT

MAY

IMPOSED

YOU.

THIS

PRESENTATION

WAS

WRITTEN

SUPPORT

THE

PROMOTION

MARKETING

PARTICIPATION

THE

COMPANY’S

EQUITY

INCENTIVE

PROGRAMS.

YOU

SHOULD

SEEK

ADVICE

BASED

YOUR

PARTICULAR

CIRCUMSTANCES

FROM

INDEPENDENT

TAX

ADVISOR.