Quest Software to Become Private

Quest Software, Inc. had entered into definitive agreements with affiliates of Insight Venture Partners under which stockholders not affiliated with the buyout group would receive $23.00 per share in cash, valuing the company at approximately $2.0 billion.

The shares of chairman and CEO Vinny Smith, who will continue to lead the company after the closing of the proposed transaction, will be ‘rolled over’ into the surviving privately owned entity. The purchase price represents a 19 percent premium to the closing price on March 8, 2012.

The proposed merger with an affiliate of Insight was negotiated and unanimously recommended to the Board by a Special Committee of the company’s Board of Directors, which comprised three independent and disinterested directors. The Special Committee was advised by independent financial and legal advisors. The entire Board, with the exception of Vinny Smith who recused himself from the vote, voted in favor of the proposed transaction.

H. John Dirks, Chairman of the Special Committee stated: "We are pleased to have successfully negotiated a transaction that includes an attractive upfront premium for Quest’s shareholders, an all-cash deal that would eliminate ongoing execution risk following a transaction, and that compares favorably with Quest’s standalone alternatives. In addition, the transaction agreements include a robust ‘go-shop’ provision and a low termination fee structure. The Special Committee pursued this option after a review with their advisors of the company’s strategic alternatives, and the Special Committee and the Board recommend that the company’s stockholders vote in favor of the proposed transaction."

Upon closing, Quest expects to become a privately-held company and will continue to be led by Vinny Smith and the existing senior management team. The company plans to maintain its headquarters in California.

"As a private company, we will have increased flexibility to drive innovation across our product lines and execute our long-term strategy. We expect this strategic partnership with Insight, with whom we have worked for many years, will ensure the company has a secure foundation and a commitment to investment in the company’s long-term growth," said Vinny Smith. "This move to a private company also will create exciting career opportunities for our employees, while retaining our commitment to continuing to provide excellent service to our customers."

"Insight has known Vinny Smith for many years and is pleased to support him and management as they seek the stability and long-term focus required for the company to achieve its potential," said Michael Triplett, Managing Director at Insight. "We believe that our track record of success working with leading infrastructure management software companies enables us to be strong partners to management while they increase value to all stakeholders in the company, including employees and customers."

Special Committee to Oversee a 60-Day ‘Go-Shop’ Process
The Special Committee negotiated a 60-day period (the ‘go-shop’ period) during which the Special Committee – with the assistance of its independent financial and legal advisors – will actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals. There can be no assurance that this process will result in a superior offer. The company and the Special Committee do not intend to disclose developments with respect to the solicitation process unless and until the Special Committee and the Board have made a decision with respect to any potential superior proposal. The period commences on the date of the agreement.

The agreement also calls for the company to pay a break-up fee to Insight of $4.2 million for termination of the merger agreement during the go-shop period in connection with a superior proposal. After the end of the go-shop period, the break-up fee for superior proposals is $6.3 million.

Closing of the transaction is subject to the affirmative vote in favor of the transaction of holders of a majority of the company’s outstanding shares, which will be sought at a special meeting of the stockholders of the company. In addition, the transaction is subject to a non-waivable condition, pursuant to which more than 50 percent of the outstanding shares held by the company’s stockholders who are not rolling over shares in the transaction must approve the transaction, and other customary closing conditions and regulatory approvals. Subject to the closing conditions and the receipt of no superior proposal, the transaction is expected to close in the third quarter of 2012.

Vinny Smith’s Support of the Transaction
In connection with the agreement, Vinny Smith has agreed to roll over all of his existing shares and restricted stock units in the company (representing approximately 34 percent of current shares outstanding) into the newly-created private company. Smith has agreed to vote his shares in favor of the transaction. However, if the merger agreement is terminated, he will be released from this obligation.

The transaction will be financed through a combination of a $210 million equity commitment from Insight, a rollover of Vinny Smith’s existing shares and $1.195 billion of debt financing commitments from J.P. Morgan Chase Bank N.A., RBC Capital Markets and Barclays Capital. RBC Capital Markets and Barclays Capital also acted as financial advisors.

Morgan Stanley & Co. LLC acted as financial advisor to the Special Committee and provided a fairness opinion in connection with the transaction. Potter Anderson & Corroon LLP acted as legal counsel to the Special Committee in connection with the transaction. Willkie Farr & Gallagher LLP served as legal counsel to Insight in connection with the transaction. Cadwalader, Wickersham & Taft LLP served as legal counsel to Mr. Smith in connection with the transaction. Latham & Watkins LLP served as legal counsel to the company in connection with the transaction.