Quest Software Intends To Buy Up to $400 Million of Its Common Stock

Quest Software recently announced that its board of directors has authorized a modified Dutch auction tender offer to repurchase between $135 million and $400 million of its common stock at a price per share expected to be not less than $13.25 and not greater than $15.50.

Based on the midpoint of the price range, this would represent between 9 percent and 26 percent of the shares of Quest common stock currently issued and outstanding. The company anticipates obtaining debt financing in an aggregate principal amount of up to $300 million to provide financing for a portion of the repurchase. If Quest is unable to secure such financing on acceptable terms, Quest still expects to proceed with the tender offer or to commence an open-market repurchase program, but the repurchase would be funded from cash on-hand, subject to applicable California corporate law limitations, and the aggregate size of the repurchase would likely be at the low end of the range stated above.

In light of the recent extreme volatility of trading in the companys common stock and because the size of the prospective tender offer has yet to be determined, the companys board of directors will decide the actual price range for the tender offer when such offer is commenced based on all of the circumstances at that time. Quest intends to commence the tender offer or other repurchase program and to announce the final number of shares, the timing and other details of the offer or other program later this month.

The modified Dutch auction would allow Quests shareholders to tender some or all of their shares at a price within the specified range. Based on the number of shares tendered and the prices specified by the tendering shareholders, Quest will determine the lowest price per share within the range that will enable it to purchase the total number of shares subject to the offer, or such lesser aggregate amount of its common stock that is properly tendered. All shares accepted in the tender offer will be purchased at the same price per share even if a shareholder tendered at a lower price. Vinny Smith, executive chairman of Quest, intends to tender three million shares in the tender offer, which constitutes approximately 9% of the shares beneficially owned by him. We cannot yet determine the extent to which our other directors and executive officers may participate in the tender offer.

With the assistance of the companys executive management and outside advisors, Quests board of directors has evaluated the companys operations, strategy and expectations and has determined that repurchasing a portion of Quests shares of common stock is a prudent use of the companys financial resources. Quest believes that its current stock price levels do not reflect the current performance or long-term growth prospects of its business. Accordingly, Quest believes that an investment in its own stock at the range of offered prices represents an attractive strategic transaction.

The tender offer, when commenced, will be subject to a number of terms and conditions, including any applicable corporate and regulatory requirements and, in the event of a leveraged tender offer, the receipt of financing described above, all of which terms and conditions will be specified in an offer to purchase to be filed with the Securities and Exchange Commission on the date the offer is commenced.

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