Insight Venture Partners Buys Quest Software At $2 Billion (Teh & Lee).pdf

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MARCH 9, 2012, 10:32 AM

Quest Software Agrees to BuyoutBY KEVIN ROOSE

Brent Lewin/Bloomberg NewsAn office of Quest Software in Ottawa.

Quest Software, a provider of database applications and other corporate I.T. must-haves, said Friday that it hadagreed to be taken private by a New York-based venture capital andprivate equityfirm, Insight Venture Partners.

The offer, which values Quest at roughly $2 billion, will give shareholders $23 a share in cash, a 19 percentpremium to the companys closing price on Thursday.

Vincent C. Smith, the companys chief executive, and members of Mr. Smiths management team will continue torun Quest after it is taken private, and the companys headquarters will remain in California, the statement said. Mr.Smith owns about 34 percent of the companys shares.

As a private company, we will have increased flexibility to drive innovation across our product lines and executeour long-term strategy, Mr. Smith said in a statement. This move to a private company also will create excitingcareer opportunities for our employees, while retaining our commitment to continuing to provide excellent service toour customers.

Quests board voted unanimously to approve the deal, the company said. Now, a special committee composed ofthree directors will oversee a 60-day go shop period to consider outside bids. The agreement forged betweenInsight and Quest calls for a $4.2 million breakup fee paid to Insight in the event that the deal falls through duringthat period, which rises to a $6.3 million breakup fee after the end of the period.

The deal is expected to close this fall, the company said. Insight has committed $210 million in equity to the take-private deal, which will be combined with more than $1 billion in prearranged debt financing fromJPMorgan Chase,RBC Capital Markets andBarclaysCapital, according to the statement. Mr. Smiths shares will be rolled over intothe newly private company if the deal goes through.

RBC Capital Markets and Barclays Capital acted as financial advisers on the deal .Morgan Stanleyadvised thespecial committee of the Quest board.

The law firm Potter Anderson & Corroon also advised the special committee. Latham & Watkins served as legalcounsel to Quest, and Willkie Farr & Gallagher advised Insight. Cadwalader, Wickersham & Taftserved as legalcounsel to Mr. Smith.

We are pleased to have successfully negotiated a transaction that includes an attractive upfront premium forQuests shareholders, an all-cash deal that would eliminate ongoing execution risk following a transaction, and thatcompares favorably with Quests standalone alternatives, said H. John Dirks, who chaired the special committee.

Quests share price, which fell nearly 30 percent in the previous year, jumped more than 20 percent on news of thedeal, and was trading at around $23.50 on Friday morning.

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PRESS RELEASE

Quest Software Enters Into Agreement with Insight VenturePartners to Become Private Company in Transaction Valued at

$2.0 Billion

Quest Shareholders to Receive $23.00 cash per share60-day Go-shop period to solicit alternative proposals

ALISO VIEJO, Calif. Friday, March 9, 2012 Quest Software, Inc. (NASDAQ: QSFT) (the Company orQuest), today announced that it had entered into definitive agreements with affiliates of Insight Venture Partners(Insight), 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 willcontinue 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 aSpecial Committee of the Companys Board of Directors, which comprised three independent and disinteresteddirectors. The Special Committee was advised by independent financial and legal advisors. The entire Board, withthe 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 atransaction that includes an attractive upfront premium for Quests shareholders, an all-cash deal that wouldeliminate ongoing execution risk following a transaction, and that compares favorably with Quests standalonealternatives. In addition, the transaction agreements include a robust go-shop provision and a low termination feestructure. The Special Committee pursued this option after a review with their advisors of the Companys strategicalternatives, and the Special Committee and the Board recommend that the Companys stockholders vote in favor ofthe proposed transaction.

Upon closing, Quest expects to become a privately held company and will continue to be led by Vinny Smith andthe 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 executeour long-term strategy. We expect this strategic partnership with Insight, with whom we have worked for manyyears, will ensure the Company has a

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secure foundation and a commitment to investment in the Companys long-term growth, said Vinny Smith. Thismove to a private company also will create exciting career opportunities for our employees, while retaining ourcommitment 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 thestability and long-term focus required for the Company to achieve its potential, said Michael Triplett, ManagingDirector at Insight. We believe that our track record of success working with leading infrastructure managementsoftware companies enables us to be strong partners to management while they increase value to all stakeholders inthe 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 thisprocess will result in a superior offer. The Company and the Special Committee do not intend to disclose

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developments with respect to the solicitation process unless and until the Special Committee and the Board havemade 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 themerger 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 theCompanys outstanding shares, which will be sought at a special meeting of the stockholders of the Company. Inaddition, the transaction is subject to a non-waivable condition, pursuant to which more than 50 percent of theoutstanding shares held by the Companys stockholders who are not rolling over shares in the transaction mustapprove the transaction, and other customary closing conditions and regulatory approvals. Subject to the closingconditions and the receipt of no superior proposal, the transaction is expected to close in the third quarter of 2012.

Vinny Smiths Support of the Transaction

In connection with the agreement, Vinny Smith has agreed to roll over all of his existing shares and restricted stockunits 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 agreementis terminated, he will be released from this obligation.

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For further information regarding all terms and conditions contained in the definitive merger agreement, please seeQuest's Current Report on Form 8-K, which will be filed in connection with this transaction.

The transaction will be financed through a combination of a $210 million equity commitment from Insight, arollover of Vinny Smiths existing shares and $1.195 billion of debt financing commitments from J.P. MorganChase Bank N.A., RBC Capital Markets and Barclays Capital. RBC Capital Markets and Barclays Capital also actedas financial advisors.

Morgan Stanley & Co. LLC acted as financial advisor to the Special Committee and provided a fairness opinion inconnection with the transaction. Potter Anderson & Corroon LLP acted as legal counsel to the Special Committee inconnection with the transaction. Willkie Farr & Gallagher LLP served as legal counsel to Insight in connection withthe 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.

About Quest

Established in 1987, Quest (NASDAQ: QSFT) provides simple and innovative IT management solutions that enablemore than 100,000 global customers to save time and money across physical and virtual environments. Quest

products solve complex IT challenges ranging from database management, data protection, identity and accessmanagement, monitoring, user workspace management to Windows management. For more information, goto www.Quest.com.

About Insight Venture Partners

Insight Venture Partners is a leading private equity and venture capital firm focused on the global software,infrastructure software, Internet and data-services industries. Founded in 1995, Insight has raised more than $5

billion and made more than 150 investments. Insight has a successful two-team structure: the firms investment team

evaluates thousands of companies globally each year, while the Insight Onsite team of consultants works withgrowth-stage management to provide resources and advice to enable them to achieve long-term success. For moreinformation, visit www.Insightpartners.com.

Additional Information and Where to Find It

The Company intends to file with the Securities and Exchange Commission (the SEC) a proxy statemen t andintends to furnish or file other materials with the SEC in connection with the proposed transaction. The definitive

proxy statement will be sent or given to the stockholders of the Company and will contain important information

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about the proposed transaction and related matters. Before making any voting decision, Quests stockholders areurged to read the proxy statement and those other materials carefully and

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in their entirety because they will contain important information about the Company and the proposed transaction.The proxy statement and other relevant materials (when they become available), and any other documents filed byQuest with the SEC, may be obtained free of charge at the SECs website at www.sec.gov. In addition, securityholders will be able to obtain free copies of the proxy statement from Quest by contacting Quests Investor Rela tionsDepartment (i) by mail to Quest Software, 5 Polaris Way, Aliso Viejo, CA 92656, (ii) by telephone at 949-754-8383or (iii) by e-mail to [email protected]. The contents of the websites referenced above are not deemed to beincorporated by reference into the proxy statement.

Participants in the Solicitation

The Company and its directors and executive officers may be deemed to be participants in the solicitation of proxiesfrom the Companys stockholders in connection with the proposed transaction. Information about the Companysdirectors and executive officers is set forth in the Companys proxy statement for its 2011 Annual Meeting ofStockholders, which was filed with the SEC on April 28, 2011, and its Annual Report on Form 10-K for the yearended December 31, 2011, which was filed with the SEC on February 29, 2012. These documents are available freeof charge at the SECs website at www.sec.gov, and from the Company by contacting the Companys InvestorRelations Department (i) by mail to Quest Software, 5 Polaris Way, Aliso Viejo, CA 92656, (ii) by telephone at 949-754-8383 or (iii) by e-mail to [email protected]. Additional information regarding the interests of

participants in the solicitation of proxies in connection with the transaction will be included in the proxy statementthat the Company intends to file with the SEC.

Forward-Looking Statements

This release may include predictions, estimates and other information that might be considered forward-lookingstatements, including, without limitation, statements relating to the completion of this transaction. These statementsare based on current expectations and assumptions that are subject to risks and uncertainties. Actual results coulddiffer materially from those anticipated as a result of various factors, including: (1) the Company may be unable toobtain stockholder approval as required for the transaction; (2) conditions to the closing of the transaction may not

be satisfied; (3) the transaction may involve unexpected costs, liabilities or delays; (4) the business of the Companymay suffer as a result of uncertainty surrounding the transaction; (5) the outcome of any legal proceedings related tothe transaction; (6) the Company may be adversely affected by other economic, business, and/or competitive factors;(7) the occurrence of any event, change or other circumstances that could give rise to the termination of thetransaction agreement; (8) the ability to recognize benefits of the transaction; (9) risks that the transaction disruptscurrent plans and operations and the potential difficulties in employee retention as a result of the transaction; and(10) other risks to consummation of the transaction, including the risk that the transaction will not be consummatedwithin the expected time period or at all. If the transaction is consummated, stockholders unaffiliated with thetransaction will cease to have any equity interest in the Company

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and will have no right to participate in its earnings and future growth. Additional factors that may affect the futureresults of the Company are set forth in its filings with the SEC, including its Annual Report on Form 10-K for theyear ended December31, 2011, which is available on the SECs website at www.sec.gov. Readers are cautioned not

to place undue reliance on these forward-looking statements, which speak only as of the date thereof. The Companyundertakes no obligation to update forward-looking statements to reflect events or circumstances after the datethereof.

Contacts: Quest Software, Inc.Media:Tracy Benelli / 949-754-8633or The Abernathy MacGregor GroupTom Johnson / 212-371-5999 / [email protected] Lucas / 213-630-6550 / [email protected]

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Investors:Thomas Patterson / 949-754-8336 / [email protected] Stephen Wideman / 949-754-8142 / [email protected]

Insight Venture PartnersErica Harris / 212-230-9276 / [email protected]

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Entry into Material Definitive Agreement.Agreement and Plan of Merger

On March 8, 2012, Quest Software, Inc., a Delaware corporation (Quest or the Company), enteredinto an Agreement and Plan of Merger (the Merger Agreement) with Expedition Holding Company, Inc., aDelaware corporation (Parent), and Expedition Merger Sub, Inc., a Delaware corporation and wholly ownedsubsidiary of Parent (Merger Sub), providing for the merger of Merger Sub with and into the Company (the

Merger), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Subare beneficially owned by funds affiliated with Insight Venture Management, LLC, a Delaware limited liabilitycompany (Insight). The Merger Agreement was approved by the Companys Board of Directors (the Board),acting upon the unanimous recommendation of a special committee composed of independent and disinterestedmembers of the Board (the Special Committee).

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the EffectiveTime), each share of common stock of Quest, par value $0.001, issued and outstanding immediately prior to theEffective Time, will be converted into the right to receive $23.00 in cash (the Merger Consideration), excluding(1) shares owned by stockholders who have perfected, and not withdrawn a demand for or lost the right to, appraisalrights under Delaware law, (2) treasury shares, (3) shares held by Parent, Merger Sub or any other wholly ownedsubsidiary of Parent and (4) shares to be contributed to Parent by the Rollover Investors (defined below) pursuant tothe Rollover Letter (defined below).

Each of Quest, Parent and Merger Sub has made customary representations and warranties in theMerger Agreement, and each has agreed to use its reasonable best efforts to consummate the Merger. Quest has alsoagreed to various covenants in the Merger Agreement, including, among others, (i) to conduct its business in allmaterial respects in the ordinary course consistent with past practice during the period between the execution of theMerger Agreement and the Effective Time and (ii) to cause a special meeting of Quests stockholders to be held toconsider the approval of the Merger Agreement.

Pursuant to the terms of a go-shop provision in the Merger Agreement, during the period beginningon the date of the Merger Agreement and continuing until 12:00 a.m. New York time on the 61 st calendar daythereafter (the No-Shop Period Start Date), Quest and its subsidiaries and their respective representatives mayinitiate, solicit and encourage any alternative acquisition proposals from third parties and may provide non-publicinformation to and participate in discussions and engage in negotiations with third parties with respect to alternativeacquisition proposals, subject to the terms of the Merger Agreement. Beginning on the No-Shop Period Start Date,Quest will become subject to customary no-shop restrictions on its ability to solicit alternative acquisition

proposals from third parties and to provide information to and participate in discussions and engage in negotiationswith third parties regarding alternative acquisition proposals, provided that Quest may continue to engage in theaforementioned activities with certain third parties that made an alternative acquisition proposal prior to the No-Shop Period Start Date and that the Board has determined constitutes or could reasonably be expected to lead to aSuperior Proposal (as defined in the Merger Agreement).

Notwithstanding the limitations applicable after the No-Shop Period Start Date, prior to the requisitestockholder approval of the Merger, the no-shop provision is subject to a customary fiduciary-out provision thatallows Quest, under certain circumstances, to provide information to and participate in discussions and engage innegotiations with third parties with respect to an alternative acquisition proposal that the Board, or any committeethereof, has determined is, or could reasonably be expected to result in, a Superior Proposal (as defined in theMerger Agreement). In addition, the Board may change its recommendation with respect to the Merger if the Boarddetermines in good faith, after consultation with outside legal counsel, that the failure to do so would be inconsistent

with the Boards fiduciary duties under applicable law.

Consummation of the Merger is subject to various conditions, including, (i) the affirmative vote by theholders of a majority of the outstanding shares of common stock, (ii) the affirmative vote by the holders of amajority of the outstanding unaffiliated shares of common stock, which excludes any shares of common stock held

by Parent, Merger Sub or any of the Rollover Investors (as defined below), (iii) the absence of any law, injunction,judgment or ruling enjoining or prohibiting the Merger, (iv) the accuracy of the representations and warranties madeby the parties, (v) the performance by the parties in all material respects of their covenants, obligations andagreements under the Merger Agreement, (vi) the expiration or early termination of the waiting period applicable to

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the Merger under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of otherrequired government approvals, (vii) the absence of a material adverse effect on the Company, (viii) that thecommon stock of the Company is listed on The Nasdaq Global Select Market on the Closing Date (as defined in theMerger Agreement) and (ix) certain other customary conditions. Parent also is not required to consummate theMerger until after completion of a marketing period for the financing it is using to fund a portion of the MergerConsideration.

The Merger Agreement contains certain termination rights for Quest and Parent. Upon termination ofthe Merger Agreement under specified circumstances, Quest will be required to pay Parent a termination fee and, inaddition, reimburse Parent, Merger Sub and their respective affiliates for their out-of-pocket expenses incurred inconnection with the Merger Agreement, up to a maximum of $7.0 million (the Parent Expenses). If thetermination fee becomes payable as a result of Quest entering into an alternative acquisition agreement thatconstitutes a Superior Proposal (as defined in the Merger Agreement) during the go -shop period, the amount ofthe termination fee (excluding any Parent Expenses) is $4.2 million. If the termination fee becomes payable underany other circumstances, the amount of the termination fee (excluding any Parent Expenses) is $6.3 million. Inaddition, in the event that the Merger Agreement is terminated under certain specified circumstances, including dueto a willful or intentional breach of the Company, then payment of the termination fee and/or Parent Expenses by theCompany shall not relieve or release the Company from any additional liability up to a maximum of $12.6 million(inclusive of the termination fee previously paid).

The Merger Agreement also provides that Parent will be required to pay the Company a reversetermination fee of $9.0 million (the Parent Termination Fee) if the Merger Agreement is terminated under certainspecified circumstances. Under certain other specified circumstances, including in the case of the Companystermination due to an intentional breach by Parent or Merger Sub causing a failure of the debt financing to be funded,or certain other intentional or willful breaches of Parent or Merger Sub, payment of the Parent Termination Fee shallnot relieve or release Parent or Merger Sub from any additional liability up to a maximum of $18.0 million(inclusive of the Parent Termination Fee previously paid) (the Damages Remedy).

In addition, subject to certain limitations, either party may terminate the Merger Agreement if theMerger is not consummated by September 8, 2012.

Parent and Merger Sub are entitled to seek specific performance in order to enforce Quests obligationsunder the Merger Agreement and, subject to certain exceptions, Quest is entitled to seek specific performance inorder to enforce Parent and Merger Subs obligations under the Merger Agreement, including causing the equityfinancing to be funded or to consummate the Merger.

The foregoing description of the Merger Agreement and the transactions contemplated thereby is not

complete and is subject to and qualified in its entirety by reference to the Merger Agreement, a copy of which isattached hereto as Exhibit 2.1 and the terms of which are incorporated herein by reference. The Merger Agreementhas been attached as an exhibit in order to provide information regarding its terms. It is not intended to provide anyother factual information about Quest, Parent, Merger Sub or their respective subsidiaries and affiliates. Therepresentations, warranties, covenants and agreements contained in the Merger Agreement were made only for

purposes of that agreement and as of specific dates; were solely for the benefit of the parties to the MergerAgreement; may be subject to limitations agreed upon by the contracting parties (including being qualified byconfidential disclosures made for the purpose of allocating contractual risk between the parties to the MergerAgreement instead of establishing such matters as facts); and may be subject to standards of materiality applicable tothe contracting parties that differ from those applicable to investors. Investors are not third party beneficiaries underthe Merger Agreement and should not rely on the representations, warranties, covenants and agreements, or any

description thereof, as characterizations of the actual state of facts or condition of Quest, Parent or Merger Sub orany of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of therepresentations and warranties may change after the date of the Merger Agreement, which subsequent informationmay or may not be fully reflected in public disclosures by Quest and Parent.

Rollover LetterVincent C. Smith, Chairman and Chief Executive Officer of Quest, and the Vincent C. Smith Annuity

Trust 2010-1, the Vincent C. Smith Annuity Trust 2010-2 and the Vincent C. Smith Annuity Trust 2011-1(collectively, the Rollover Investors) entered into a commitment letter (the Rollover Letter) with Parent

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pursuant to which the Rollover Investors will contribute, prior to the closing and subject to the terms and conditionstherein, all of their shares of common stock, stock options and restricted stock units of Quest to Parent in exchangefor equity interests in Parent. Quest is not a party to the Rollover Letter. The form of Rollover Letter is included asExhibit A to the Merger Agreement attached hereto as Exhibit 2.1 and is incorporated herein by reference.

Limited Guaranty

The Rollover Investors and funds affiliated with Insight have delivered to Quest a limited guaranty withrespect to their respective specified percentage of Parents obligation to pay any Parent Termination Fee, DamagesRemedy and certain expenses of Quest, as applicable, due pursuant to the Merger Agreement (the Guaranty). TheGuaranty is attached hereto as Exhibit 10.1 and is incorporated herein by reference.

Commitment LettersTo support its and Merger Subs obligations under the Merger Agreement, Parent has obtained equity

financing commitments in an amount of $210 million from funds affiliated with Insight as well as $1.195 billion ofdebt financing commitments from J.P. Morgan Chase Bank N.A., RBC Capital Markets and Barclays Capital. Questis not a party to any of these commitment letters.

Voting AgreementThe Rollover Investors beneficially own approximately 34% of the outstanding Company common

stock and, concurrently with the execution of the Merger Agreement and in their capacities as stockholders of theCompany, have entered into a voting agreement (the Voting Agreement) with the Company, pursuant to whichthey have agreed to, among other things, vote their shares in favor of the approval of the Merger Agreement andother proposals necessary to consummate the Merger unless such Voting Agreement is terminated pursuant to itsterms. The Voting Agreement is attached hereto as Exhibit 10.2 and is incorporated herein by reference.

Severance PlanOn March 8, 2012, the Board adopted the Quest Software, Inc. Change in Control Severance Plan (the

Plan) in order to encourage certain management-level employees of Quest to continue to focus on the bestinterests of the Companys stockholders and provide severance protections to such employees in the event theiremployment is terminated in connection with a change in control of the Company under the circumstances describedin the Plan. For purposes of the Plan, the term change in control is defined as consummation of any transactionthat the Board shall have determined is a Superior Proposal (as defined in the Merger Agreement). The

consummation of the Merger will not be considered a change in control for purposes of the Plan.Under the terms of the Plan and subject to the conditions thereof, participants in the Plan will receive

severance benefits and accrued rights if his or her employment is terminated involuntarily by the Company or any ofits affiliates other than for cause (as defined in the Plan), or by resignation of the employee for good reason (asdefined in the Plan), on or before the two-year anniversary of a change in control. An employee who leaves his or

her employment for any reason other than good reason, as defined in the Plan, shall not receive severance benefits.A Plan participant shall receive a cash severance benefit, payable in a lump sum, equal to the product of (i) 1/12 ofthe participants annual rate of base salary in effect immediately prior to such participants termination date and(ii) the number of months in such participants severance multiple as specified in the Plan, as well as continuedwelfare benefits equivalent to those available to a similar executive who is still employed by the Company, for thenumber of months in such participants severance multiple as specified in the Plan, subject to certain contribution

payments and other conditions. Such qualifying participant will also receive payment of all unpaid base salary,bonus or other amount accrued through his or her termination date.

In addition, subject to certain conditions, if a participants employment is terminated by the Company orany of its affiliates during the six-month period prior to, and in connection with, a change in control, then such

participant is entitled to payment of the severance benefits and accrued rights described above. The foregoingsummary of the Plan is qualified in its entirety by the full text of the Plan, which is attached hereto as Exhibit 10.3and is incorporated herein by reference.

Press Release and Employee Communications

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On March 9, 2012, Quest and Insight issued a joint press release announcing the execution of theMerger Agreement. A copy of the press release is filed as Exhibit 99.1 and incorporated herein by reference. Inaddition, the Company circulated an internal announcement of the Merger to Company employees on March 9, 2012,which is attached hereto as Exhibit 99.2, along with certain of the Companys other communications materialswhich are attached hereto as Exhibits 99.3 to 99.7.

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Execution Version

AGREEMENT AND PLAN OF MERGER

Dated as of March 8, 2012

among

Expedition Holding Company, Inc.,

Expedition Merger Sub, Inc.

and

Quest Software, Inc.

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TABLE OF CONTENTS

Page

ARTICLE I The Merger 2Section 1.1 The Merger 2Section 1.2 Closing 2

Section 1.3 Effective Time 2Section 1.4 Effects of the Merger 3Section 1.5 Certificate of Incorporation and Bylaws of the Surviving Corporation 3Section 1.6 Directors and Officers of the Surviving Corporation 3

ARTICLE II Effect of the Merger on Capital Stock; Exchange of Certificates; Company Stock Optionsand Restricted Stock Units 3

Section 2.1 Effect on Capital Stock 3Section 2.2 Exchange of Certificates and Book-Entry Shares 4Section 2.3 Appraisal Rights 6Section 2.4 Company Stock Options and Restricted Stock Units 7Section 2.5 Adjustments 8

ARTICLE III Representations and Warranties of the Company 9Section 3.1 Organization, Standing and Corporate Power 9Section 3.2 Capitalization 9Section 3.3 Authority; Noncontravention; Voting Requirements 12Section 3.4 Governmental Approvals 13Section 3.5 Company SEC Documents; Undisclosed Liabilities 13Section 3.6 Absence of Certain Changes 15Section 3.7 Legal Proceedings 15Section 3.8 Compliance With Laws; Permits; Regulations 16Section 3.9 Affiliate Transactions 16Section 3.10Tax Matters 17Section 3.11Employee Benefits 18Section 3.12Labor and Employment Matters 20Section 3.13Environmental Matters 21Section 3.14Intellectual Property 21

Section 3.15Rights Agreement; Anti-Takeover Provisions 23Section 3.16Property 23Section 3.17Contracts 25Section 3.18Suppliers 27Section 3.19Insurance 27Section 3.20Opinion of Financial Advisor 27Section 3.21Brokers and Other Advisors 27Section 3.22No Other Representations or Warranties 27

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ARTICLE IV Representations and Warranties of Parent and Merger Sub 28Section 4.1 Organization; Standing 28Section 4.2 Authority; Noncontravention 28Section 4.3 Governmental Approvals 29Section 4.4 Ownership and Operations of Merger Sub 29Section 4.5 Financing 29Section 4.6 Guaranty 30Section 4.7 Solvency 30Section 4.8 DGCL Section 203 31Section 4.9 Brokers and Other Advisors 31Section 4.10Absence of Litigation 31

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Section 4.11WARN Act 32Section 4.12Vote/Approval Required 32Section 4.13Non-Reliance on Company Estimates, Projections, Forecasts, Forward Looking Statements

and Business Plans 32Section 4.14Investigation; No Other Company Representations or Warranties 32Section 4.15Information in Proxy Statement 33

ARTICLE V Additional Covenants and Agreements 33Section 5.1 Conduct of Business 33Section 5.2 Solicitation; Change in Recommendation 37Section 5.3 Preparation of the Proxy Statement; Stockholders Meeting 41Section 5.4 Reasonable Best Efforts 42Section 5.5 Financing 44Section 5.6 Public Announcements 47Section 5.7 Access to Information; Confidentiality 47Section 5.8 Notification of Certain Matters 48Section 5.9 Indemnification and Insurance 48Section 5.10Rule 16b-3 51Section 5.11Employee Matters 51Section 5.12Notification of Certain Matters; Stockholder Litigation 52

Section 5.13SEC Filings 52Section 5.14Director Resignations 52

ARTICLE VI Conditions Precedent 53Section 6.1 Conditions to Each Partys Obligation to Effect the Merger 53Section 6.2 Conditions to Obligations of Parent and Merger Sub 53Section 6.3 Conditions to Obligations of the Company 54

ARTICLE VII Termination 55Section 7.1 Termination 55Section 7.2 Effect of Termination 57Section 7.3 Termination Fee 57

ARTICLE VIII Miscellaneous 61Section 8.1 No Survival of Representations and Warranties 61

Section 8.2 Amendment or Supplement 61Section 8.3 Extension of Time, Waiver, Etc. 61

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Section 8.4 Assignment 61Section 8.5 Counterparts 61Section 8.6 Entire Agreement; No Third-Party Beneficiaries 62Section 8.7 Governing Law; Jurisdiction 62Section 8.8 Specific Enforcement 63Section 8.9 WAIVER OF JURY TRIAL 63Section 8.10Notices 64Section 8.11Severability 65

Section 8.12Definitions 65Section 8.13Fees and Expenses 74Section 8.14Interpretation 75

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER, dated as of March 8, 2012 (this Agreement),is by and among Expedition Holding Company, Inc., a Delaware corporation (Parent), Expedition Merger Sub,Inc., a Delaware corporation and a wholly owned Subsidiary of Parent ( Merger Sub), and Quest Software, Inc., aDelaware corporation (the Company). Certain capitalized terms used in this Agreement are used as definedinSection 8.12.

WHEREAS, the parties intend that Merger Sub be merged with and into the Company (theMerger), with the Company surviving the Merger on the terms and subject to the conditions set forth in thisAgreement and becoming a wholly-owned Subsidiary of Parent as a result of the Merger;

WHEREAS, the board of directors of the Company (the Company Board) has established aspecial committee consisting solely of independent directors (the Special Committee) to, among other things,consider and negotiate any proposal made by Parent, including the Merger and the other transactions contemplated

by this Agreement, and to make a recommendation to the Company Board with respect thereto;

WHEREAS, the Special Committee has (i) determined that this Agreement and the transactionscontemplated hereby, including the Merger (collectively, the Transactions), are advisable and fair to, and in the

best interests of, the Company and its stockholders, and (ii) recommended that the Company Board adoptresolutions approving and declaring advisable this Agreement and the Merger and recommending that the

stockholders adopt this Agreement;WHEREAS, the Company Board has (i) determined that the Transactions are advisable and fair

to, and in the best interests of, the Company and its stockholders, (ii) approved and declared advisable thisAgreement and the Merger, and (iii) directed that this Agreement be submitted for consideration by the stockholdersof the Company and resolved to recommend that the stockholders of the Company adopt this Agreement;

WHEREAS, the board of directors of each of Parent and Merger Sub have approved thisAgreement and declared it advisable for Parent and Merger Sub, respectively, to enter into this Agreement;

WHEREAS, immediately prior to consummation of the Merger and as an integral part of thetransactions contemplated hereby, (i) the Rollover Investors will transfer to Parent shares of Company CommonStock in exchange for stock of Parent, and (ii) other Persons will transfer to Parent cash in exchange for stock ofParent, such that the transfers described in clauses (i) and (ii), together, are intended to qualify as transfers within themeaning of Section 351(a) of the Code;

WHEREAS, concurrently with the execution of this Agreement, and as a condition andinducement to the Companys willingness to enter into this Agreement, each of Insight Venture Partners VII, L.P.,Insight Venture Partners (Cayman) VII, L.P., Insight Venture Partners (Co-Investors) VII, L.P., Insight VenturePartners (Delaware) VII, L.P., Insight Venture

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Partners Coinvestment Fund II, L.P., Vincent C. Smith, the Vincent C. Smith Annuity Trust 2010-1, the Vincent C.Smith Annuity Trust 2010-2, and the Vincent C. Smith Annuity Trust 2011-1 (each, a Guarantor and, collectively,the Guarantors) is entering into a limited guaranty in favor of the Company with respect to certain obligations ofParent and Merger Sub under this Agreement; and

WHEREAS, simultaneously with the execution of this Agreement, the Rollover Investors andthe Company are entering into an agreement in the form attached as Exhibit A hereto pursuant to which the RolloverInvestors have agreed, in certain circumstances, to vote their shares of Company Common Stock in favor of theadoption of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in thisAgreement and for other good and valuable consideration, the receipt and adequacy of which are herebyacknowledged, Parent, Merger Sub and the Company hereby agree as follows:

ARTICLE I

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THE MERGER

Section 1.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and inaccordance with the General Corporation Law ofthe State of Delaware (the DGCL), at the Effective Time MergerSub shall be merged with and into the Company, and the separate corporate existence of Merger Sub shall thereuponcease, and the Company shall continue as the surviving corporation in the Merger (the Surviving Corporation).

Section 1.2 Closing. The closing of the Merger (the Closing) shall take place at 10:00 a.m. (New York Citytime), on a date to be specified by Parent and the Company (the Closing Date), which shall be no later than thethird business day after satisfaction or waiver (to the extent permitted by applicable Law) of the conditions set forthin Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to thesatisfaction or waiver of those conditions at such time), at the offices of Willkie Farr & Gallagher LLP, 787 SeventhAvenue, New York, New York 10019, unless another date, time, or place is agreed to in writing by Parent and theCompany; provided, that notwithstanding the satisfaction or waiver of the conditions set forth in Article VI hereof, ifthe Marketing Period has not ended at the time of the satisfaction or waiver of such conditions (other than thoseconditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of thoseconditions at such time), neither Parent nor Merger Sub shall be required to effect the Closing until the earlier of(a) a date during the Marketing Period specified by Parent to the Company on no less than three business dayswritten notice to the Company and (b) the next business day after the final day of the Marketing Period.

Section 1.3 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on the Closing

Date the parties shall file with the Secretary of State of the State of Delaware a certificate of merger, executed inaccordance with, and in such form as is required by, the relevant provisions of the DGCL (the Certificate ofMerger). The Merger shall become

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effective upon the filing of the Certificate of Merger or at such later time as is agreed to by the parties hereto andspecified in the Certificate of Merger (the time at which the Merger becomes effective is herein referred to as theEffective Time).

Section 1.4 Effects of the Merger. The Merger shall have the effects set forth herein and in the applicableprovisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time,all the properties, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in theSurviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts,liabilities and duties of the Surviving Corporation.

Section 1.5 Certificate of Incorporation and Bylaws of the Surviving Corporation. At the Effective Time,(i) the certificate of incorporation of the Company shall be amended and restated to conform to Exhibit B; and(ii) the bylaws of the Company shall be amended and restated to conform to Exhibit C, as in effect immediately

prior to the Effective Time.

Section 1.6 Directors and Officers of the Surviving Corporation.

(a) Each of the parties hereto shall take all necessary action to cause the directors of Merger Subimmediately prior to the Effective Time to be the directors of the Surviving Corporation immediately following theEffective Time, until their respective successors are duly elected or appointed and qualified or their earlier death,resignation or removal in accordance with the certificate of incorporation and bylaws of the Surviving Corporation.

(b) The officers of the Company immediately prior to the Effective Time shall be the officers of theSurviving Corporation until their respective successors are duly appointed and qualified or their earlier death,resignation or removal in accordance with the certificate of incorporation and bylaws of the Surviving Corporation.

ARTICLE II

EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES; COMPANY STOCKOPTIONS AND RESTRICTED STOCK UNITS

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Section 2.1 Effect on Capital Stock. Subject to Section 2.3, at the Effective Time, by virtue of the Merger andwithout any action on the part of the Company, Parent, Merger Sub or the holder of any shares of common stock,

par value $0.001 per share, of the Company (Company Common Stock) or any shares of capital stock of MergerSub:

(a) Capital Stock of Merger Sub. Each issued and outstanding share of capital stock of Merger Sub shallbe converted into and become one validly issued, fully paid and nonassessable share of common stock, par value

$0.01 per share, of the Surviving Corporation.

(b) Cancellation of Treasury Stock and Parent-Owned Stock; Treatment of Stock Held by CompanySubsidiaries. All shares of Company Common Stock that are owned by the Company as treasury stock and anyshares of Company Common Stock owned by Parent, Merger Sub or any other direct or indirect wholly-ownedSubsidiary of Parent immediately prior

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to the Effective Time (including all shares of Company Common Stock contributed to Parent by the RolloverInvestors (collectively, the Rollover Shares)), shall be cancelled and shall cease to exist and no consideration shall

be delivered in exchange therefor. Any shares of Company Common Stock owned by any direct or indirect wholly-owned Subsidiary of the Company shall not represent the right to receive the Merger Consideration and shall, at theelection of Parent, either (i) convert into shares of a class of stock of the Surviving Corporation designated by Parentin connection with the Merger or (ii) be cancelled.

(c) Conversion of Company Common Stock. Each issued and outstanding share of Company CommonStock (other than shares to be cancelled in accordance with Section 2.1(b), Rollover Shares and Dissenting Shares)shall be converted into the right to receive an amount in cash equal to $23.00 without interest (the MergerConsideration). As of the Effective Time, all such shares of Company Common Stock shall no longer beoutstanding and shall automatically be cancelled and shall cease to exist, and each holder of a certificate, whichimmediately prior to the Effective Time represented any such shares of Company Common Stock (each, aCertificate), or non-certificated shares of Company Common Stock represented by book-entry shares (Book-Entry Shares) shall cease to have any rights with respect thereto, except the right to receive the MergerConsideration to be paid in consideration therefor upon surrender of such Certificate in accordancewith Section 2.2(b), without interest.

Section 2.2 Exchange of Certificates and Book-Entry Shares.

(a) Paying Agent. Prior to the Effective Time, Parent shall designate a bank or trust company reasonablyacceptable to the Company to act as agent for the holders of shares of Company Common Stock in connection withthe Merger (the Paying Agent) to receive, on terms reasonably acceptable to the Company, for the benefit ofholders of shares of Company Common Stock, the aggregate Merger Consideration to which holders of shares ofCompany Common Stock shall become entitled pursuant to Section 2.1(c). Parent shall deposit or cause to bedeposited such aggregate Merger Consideration with the Paying Agent at or prior to the Effective Time. Suchaggregate Merger Consideration deposited with the Paying Agent shall, pending its disbursement to such holders, beinvested by the Paying Agent as directed by Parent in (i) short-term direct obligations of the United States ofAmerica, (ii) short-term obligations for which the full faith and credit of the United States of America is pledged to

provide for the payment of principal and interest, (iii) short-term commercial paper rated the highest quality byeither Moodys Investors Service, Inc. or Standard and Poors Ratings Services, (iv) certificates of deposit, bankrepurchase agreements or bankers acceptances of commercial banks with capital exceeding $10 billion or

(v) money market funds having a rating in the highest investment category granted by a recognized credit ratingagency at the time of such investment. No such investment, and no losses thereon, shall affect the aggregate MergerConsideration payable to former holders of Company Common Stock. Parent shall promptly replace or cause to bereplaced any funds deposited with the Paying Agent lost through any investment made pursuant tothis Section 2.2(a).

(b) Payment Procedures. Promptly after the Effective Time (but in no event more than three businessdays thereafter), the Surviving Corporation shall cause the Paying Agent to mail to each holder of record ofCompany Common Stock (i) a letter of transmittal (which shall

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specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery ofthe Certificates to the Paying Agent, and which shall be in such form and shall have such other customary provisionsas Parent and the Company may reasonably agree to prior to the Effective Time) and (ii) instructions for use ineffecting the surrender of the Certificates or Book-Entry Shares in exchange for payment of the Merger

Consideration. Upon surrender of a Certificate (or affidavit of loss thereof) or Book-Entry Share for cancellation tothe Paying Agent, together with such letter of transmittal, duly completed and validly executed in accordance withthe instructions (and such other customary documents as may reasonably be required by the Paying Agent), theholder of such Certificate or Book-Entry Share shall be entitled to receive in exchange therefor a check in an amountequal to the product of (x) the number of shares of Company Common Stock previously represented by suchCertificate (or affidavit of loss in lieu thereof) or Book-Entry Shares multiplied by (y) the Merger Consideration,and the Certificate or Book-Entry Shares so surrendered shall forthwith be cancelled. If payment of the MergerConsideration is to be made to a Person other than the Person in whose name the surrendered Certificate or Book-Entry Share is registered, it shall be a condition of payment that (x) the Certificate or Book-Entry Share sosurrendered shall be properly endorsed or shall otherwise be in proper form for transfer and (y) the Personrequesting such payment shall have paid any transfer and other Taxes required by reason of the payment of theMerger Consideration to a Person other than the registered holder of such Certificate or Book-Entry Sharesurrendered and shall have established to the reasonable satisfaction of the Surviving Corporation that such Taxeither has been paid or is not applicable. Until surrendered as contemplated by this Section 2.2, each Certificate andBook-Entry Share shall be deemed at any time after the Effective Time to represent only the right to receive theMerger Consideration as contemplated by this Article II, without interest.

(c) Transfer Books; No Further Ownership Rights in Company Stock. The Merger Consideration paid inrespect of shares of Company Common Stock upon the surrender for exchange of Certificates or Book-Entry Sharesin accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights

pertaining to the shares of Company Common Stock previously represented by such Certificates or Book-EntryShares, and at the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall

be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares ofCompany Common Stock that were outstanding immediately prior to the Effective Time. From and after theEffective Time, the holders of Certificates that evidenced ownership of shares of Company Common Stockoutstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares ofCompany Common Stock, except as otherwise provided for herein or by applicable Law. Subject to Section 2.2(e),

if, at any time after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, theyshall be cancelled and exchanged as provided in this Article II.

(d) Lost, Stolen or Destroyed Certificates. If any Certificate shall have been lost, stolen or destroyed,upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyedand, if required by the Surviving Corporation, the posting by such Person of a bond, in such reasonable amount asParent may direct, as indemnity against any claim that may be made against it with respect to such Certificate, thePaying Agent will pay, in exchange for such lost, stolen or destroyed Certificate, the applicable MergerConsideration to be paid in respect of the shares of Company Common Stock formerly represented by suchCertificate, as contemplated by this Article II.

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(e) Termination of Fund. At any time following the first anniversary of the Closing Date, the Surviving

Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest receivedwith respect thereto) that had been made available to the Paying Agent and which have not been disbursed to holdersof Certificates or Book-Entry Shares, and thereafter such holders shall be entitled to look only to Parent and theSurviving Corporation (subject to abandoned property, escheat or other similar Laws) as general creditors thereofwith respect to the payment of any Merger Consideration that may be payable upon surrender of any Certificates orBook-Entry Shares held by such holders, as determined pursuant to this Agreement, without any interest thereon.Any amounts remaining unclaimed by such holders at such time at which such amounts would otherwise escheat toor become property of any Governmental Authority shall become, to the extent permitted by applicable Law, the

property of Parent or its designee, free and clear of all claims or interest of any Person previously entitled thereto.

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(f) No Liability. Notwithstanding any provision of this Agreement to the contrary, none of the partieshereto, the Surviving Corporation or the Paying Agent shall be liable to any Person for Merger Considerationdelivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(g) Withholding Taxes. Parent, the Surviving Corporation and the Paying Agent shall be entitled todeduct and withhold from the consideration otherwise payable pursuant to this Agreement such amounts any ofthem reasonably determines are required to be deducted and withheld with respect to the making of such payment

under the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (theCode), or under any provision of state, local or foreign Tax Law. To the extent amounts are so withheld and paidover to the appropriate Governmental Authority, the withheld amounts shall be treated for all purposes of thisAgreement as having been paid to the Person in respect of which such deduction and withholding was made.

Section 2.3 Appraisal Rights. Notwithstanding anything in this Agreement to the contrary, shares of CompanyCommon Stock that are issued and outstanding immediately prior to the Effective Time and which are held by astockholder who is entitled to demand and properly demands appraisal of such share of Company Common Stock

pursuant to, and who complies in all respects with, the provisions of Section 262 of the DGCL (the DissentingStockholders) shall not be converted into or be exchangeable for the right to receive the Merger Consideration (theDissenting Shares), but instead shall be entitled to receive the fair value of such shares of Company CommonStock as may be determined to be due to such Dissenting Stockholder pursuant to Section 262 of the DGCL (and atthe Effective Time, such Dissenting Shares shall no longer be outstanding and shall automatically be cancelled andshall cease to exist, and such holder shall cease to have any rights with respect thereto, except the rights set forth inSection 262 of the DGCL), unless and until such holder shall have failed to perfect or shall have effectivelywithdrawn or lost rights to appraisal under the DGCL. If any Dissenting Stockholder shall have failed to perfect orshall have effectively withdrawn or lost such right,

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such holders shares of Company Common Stock shall thereupon be treated as if they had been converted into andbecome exchangeable for the right to receive, as of the Effective Time, the Merger Consideration for each suchshare of Company Common Stock, in accordance with Section 2.1, without any interest thereon. The Company shallgive Parent (i) prompt notice of any written demands for appraisal of any shares of Company Common Stock,attempted withdrawals of such demands and any other instruments served pursuant to the DGCL and received by theCompany relating to stockholders rights of appraisal and (ii) the opportunity to participate in all negotiations and

proceedings with respect to such demands for appraisal. Without limiting the generality of the foregoing, prior to the

Effective Time the Company shall not, except with the prior written consent of Parent, make any payment or agreeto make any payment with respect to any demands for appraisal or offer to settle or settle any such demands.

Section 2.4 Company Stock Options and Restricted Stock Units.

(a) At or prior to the Effective Time, the Company shall take all actions necessary to:

(i) terminate each Company Stock Plan as of the Effective Time;

(ii) cancel, as of the Effective Time, each option to purchase shares of Company CommonStock granted under any Company Stock Plan (each, an Option) that is outstanding and unexercised (withoutregard to the exercise price of such Option), as of immediately prior to the Effective Time (in each case, without thecreation of additional liability to the Company or any of its Subsidiaries), subject, if applicable, to payment pursuantto Section 2.4(b) or (c); and

(iii) cancel, as of the Effective Time, each outstanding restricted stock unit to acquire orreceive shares of Company Common Stock granted under any Company Stock Plan (each, a Restricted Stock Unit)that is outstanding, as of immediately prior to the Effective Time (in each case, without the creation of additionalliability to the Company or any of its Subsidiaries), subject, if applicable, to payment pursuant toSection 2.4(d); and

(iv) ensure that, after the Effective Time, neither Parent nor the Surviving Corporation willbe required to deliver Company Common Stock or other capital stock of the Company to any Person pursuant to orin settlement of Options or Restricted Stock Units.

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(b) Except as otherwise agreed to by Parent and a holder of a Vested Option, each Vested Option that isoutstanding and unexercised as of immediately prior to the Effective Time and has an exercise price per share that isless than the per share Merger Consideration shall be converted into the right to receive as soon as reasonably

practicable after the Effective Time (but in any event no later than five business days after the Effective Time) acash amount equal to the Designated Consideration for each share of Company Common Stock then subject to theVested Option (subject to applicable Tax withholding and without interest). Each Vested Option, when so converted,shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist and eachholder of such Vested Option shall cease to have any rights with respect thereto, except the right to receive theDesignated Consideration. In the event that the exercise price per share of any Vested Option or Unvested Option isequal to or greater than the

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per share Merger Consideration, such Vested Option or Unvested Option shall be cancelled without paymenttherefor and have no further force or effect. For purposes of this Agreement, Designated Consideration means,with respect to any share of Company Common Stock issuable under a particular Option, an amount equal to theexcess, if any, of (i) the Merger Consideration over (ii) the exercise price payable per share of Company CommonStock issuable under such Option.

(c) Except as otherwise agreed to by Parent and a holder of an Unvested Option, each Unvested Option

that is outstanding and unexercised as of immediately prior to the Effective Time and has an exercise price per sharethat is less than the per share Merger Consideration shall be canceled and converted into the right to receive anamount in cash equal to the product of (i) the number of shares of Company Common Stock subject to suchUnvested Option, and (ii) the Designated Consideration (subject to applicable Tax withholding and without interest).Payments pursuant to this Section 2.4(c) will be payable on such date or dates and subject to such conditions(including the holders continued employment through any date(s)) as determined by the Company in accordancewith the Company Stock Plans, subject to the approval of the Rollover Investor. Each Unvested Option, when soconverted, shall no longer represent the right to acquire Company Common Stock and shall represent the right toreceive the Designated Consideration as set forth in this Section 2.4(c). Except as otherwise provided in a CompanyStock Plan or an individual grant agreement related to the Options, no acceleration of the vesting of the Optionsshall take place as a result of the consummation of the Transactions.

(d) Each Restricted Stock Unit that is outstanding as of immediately prior to the Effective Time shall beconverted into the right to receive, on the same terms and conditions (except as specifically provided in this

Agreement) as were applicable to such Restricted Stock Unit, on each date (each a RSU Vesting Event) in whichshares of Company Common Stock subject to such Restricted Stock Unit would have become vested and exercisable,and provided that the holder of such Restricted Stock Unit is still employed by the Company or the Parent on suchdate a cash amount equal to the Merger Consideration for each share of Company Common Stock then subject to theRestricted Stock Unit that would have otherwise vested on such RSU Vesting Event (subject to applicable Taxwithholding and without interest). Each Restricted Stock Unit, when so converted, shall no longer represent the rightto acquire Company Common Stock and shall represent the right to receive the cash consideration as set forth inthis Section 2.4(d). Except as otherwise provided in a Company Stock Plan or an individual grant agreement relatedto the Restricted Stock Units, no acceleration of the vesting of the Restricted Stock Units shall take place as a resultof the consummation of the transactions contemplated hereby, including the Merger.

Section 2.5 Adjustments. Notwithstanding any provision of this Article II to the contrary, if between the dateof this Agreement and the Effective Time the outstanding shares of Company Common Stock shall have beenchanged into a different number of shares or a different class by reason of the occurrence or record date of any stockdividend, subdivision, reclassification, recapitalization, split, combination, exchange of shares or similar transaction,the Merger Consideration shall be appropriately adjusted to reflect such stock dividend, subdivision, reclassification,recapitalization, split, combination, exchange of shares or similar transaction.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

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The Company represents and warrants to Parent and Merger Sub that the statements contained inthis Article III are true and correct, except as (A) set forth in such statement or in the corresponding Section of thedefinitive disclosure letter delivered by the Company to Parent and Merger Sub on the date of this Agreement (theCompany Disclosure Letter) (it being understood that each disclosure set forth in the Company Disclosure Lettershall qualify or modify each of the representations and warranties set forth in this Article III to the extent theapplicability of the disclosure to each other section is reasonably apparent from the text of the disclosure made) or(B) disclosed in any Company SEC Document (as hereinafter defined) filed on or after January 1, 2011 and prior tothe date hereof (the Filed SEC Documents), other than the exhibits and schedules to the Filed SEC Documents ordisclosures in such Filed SEC Documents referred to in the Risk Factors and Forward Looking Statementssections thereof or any other disclosures in the Filed SEC Documents which are forward-looking in nature.

Section 3.1 Organization, Standing and Corporate Power.

(a) The Company is a corporation duly organized, validly existing and in good standing under the Lawsof the State of Delaware and has all requisite corporate power and authority necessary to own or lease all of its

properties and assets and to carry on its business as it is now being conducted. The Company is duly licensed orqualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted byit or the character or location of the properties and assets owned or leased by it makes such licensing or qualificationnecessary, except where the failure to be so licensed, qualified or in good standing has not had and would notreasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company.

(b) Each of the Companys Subsidiaries is duly organized, validly existing and in good standing underthe laws of the jurisdiction of its organization except where the failure to be so organized, existing and in goodstanding does not have and would not reasonably be expected to have, individually or in the aggregate, a MaterialAdverse Effect.

Section 3.2 Capitalization.

(a) The authorized capital stock of the Company consists of 200,000,000 shares of Company CommonStock and 10,000,000 shares of preferred stock, par value $0.001 per share (Company Preferred Stock). At theclose of business on March 5, 2012 (the Capitalization Date), (i) 83,546,877 shares of Company Common Stockwere issued and outstanding, (ii) no shares of Company Common Stock were held by the Company in its treasury,(iii) 15,816,222 shares of Company Common Stock were reserved for issuance pursuant to outstanding Options andRestricted Stock Units under the Company Stock Plans and (iv) no shares of Company Preferred Stock were issuedor outstanding.

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(b) Section 3.2(b) of the Company Disclosure Letter sets forth, as of the Capitalization Date, (i) a list ofall holders of Options under the Company Stock Plans, the date of grant, the expiration date, the number of shares ofCompany Common Stock subject to such Option, the price per share at which such Option may be exercised and theCompany Stock Plan under which such Option was issued and (ii) a list of all holders of Restricted Stock Units, thedate of grant, the number of Restricted Stock Units owned by each such holder, the vesting schedule thereof and theCompany Stock Plan under which such Restricted Stock Unit was issued. Each Option and Restricted Stock Unit(A) was appropriately authorized by the Company Board (or an authorized committee thereof) and granted incompliance with all applicable Laws and all of the terms and conditions of the Company Stock Plan pursuant towhich it was issued, (B) with respect to each Option, each Option has an exercise price per share of CompanyCommon Stock equal to or greater than the fair market value of a share of Company Common Stock on the date of

such grant and (C) has a grant date identical to the date on which the Company Board or a committee thereofactually awarded such Option. Other than those that have been corrected in accordance with applicable IRSguidance, no Option or Restricted Stock Unit is or has ever been nonqualified deferred compensation subject toSection 409A of the Code.

(c) Except as described in this Section 3.2 or in Section 3.2(b) of the Company Disclosure Letter, as ofthe Capitalization Date, there were (i) no outstanding shares of capital stock of, or other equity or voting interest in,the Company, (ii) no outstanding securities of the Company convertible into or exchangeable for shares of capitalstock of, or other equity or voting interest in, the Company, (iii) no outstanding options, warrants, rights or othercommitments or agreements to acquire from the Company, or that obligate the Company to issue, any capital stock

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of, or other equity or voting interest in, or any securities convertible into or exchangeable for shares of capital stockof, or other equity or voting interest in, the Company, (iv) no obligations of the Company to grant, extend or enterinto any subscription, warrant, right, convertible or exchangeable security or other similar agreement or commitmentrelating to any capital stock of, or other equity or voting interest (including any voting debt) in, the Company (theitems in clauses (i), (ii), (iii) and (iv), together with the capital stock of the Company, being referred to collectivelyas Company Securities) and (v) no other obligations by the Company or any of its Subsidiaries to make any

payments based on the price or value of any Company Securities or dividends paid thereon or revenues, earnings orfinancial performance or any other attribute of the Company. There are no outstanding agreements of any kind(other than the Company Stock Plans) which obligate the Company or any of its Subsidiaries to repurchase, redeemor otherwise acquire any Company Securities, or obligating the Company to grant, extend or enter into any suchagreements relating to any Company Securities, including any agreements granting any preemptive rights,subscription rights, anti-dilutive rights, rights of first refusal or similar rights with respect to any CompanySecurities. No direct or indirect Subsidiary of the Company owns any Company Common Stock. Other than as setforth in Section 3.2(c) of the Company Disclosure Letter, none of the Company or any Subsidiary of the Company isa party to any stockholders agreement, voting trust agreement, registration rights agreement, rights agreement,poison pill anti-takeover plan or other similar agreement or understanding relating to any Company Securities orany other agreement relating to the disposition, voting or dividends with respect to any Company Securities. Alloutstanding shares of Company Common

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Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights.Since the Capitalization Date, neither the Company nor any of its Subsidiaries has (1) issued any CompanySecurities or incurred any obligation to make any payments based on the price or value of any Company Securitiesor dividends paid thereon or revenues, earning or financial performance or any other attribute of the Company, otherthan pursuant to the Options or Restricted Stock Units referred to above that were outstanding as of theCapitalization Date or (2) established a record date for, declared, set aside for payment or paid any dividend on, ormade any other distribution in respect of, any shares of its capital stock.

(d) The Company Common Stock constitutes the only outstanding class of securities of the Company orits Subsidiaries registered under the Securities Exchange Act of 1934, as amended, and the rules and regulations

promulgated thereunder (collectively, the Exchange Act).

(e) Section 3.2(e) of the Company Disclosure Letter sets forth, as of the date of this Agreement, the

name and jurisdiction of organization of each Subsidiary of the Company. All of the outstanding shares of capitalstock of, or other equity or voting interests in, each Subsidiary of the Company (except for directors qualifyingshares or the like) are owned directly or indirectly, beneficially and of record, by the Company free and clear of allliens, pledges, security interests and transfer restrictions (including any restriction on the right to vote, sell orotherwise dispose of such shares of capital stock or other equity or voting interests), except for such transferrestrictions of general applicability as may be provided under the Securities Act of 1933, as amended, and the rulesand regulations promulgated thereunder (collectively, the Securities Act) or other applicable securities Laws. Eachoutstanding share of capital stock of each Subsidiary of the Company, which is held, directly or indirectly, by theCompany, is duly authorized, validly issued, fully paid, nonassessable (in each case, to the extent applicable) andfree of preemptive rights, and there are no subscriptions, options, warrants, rights, calls, contracts or othercommitments, understandings, restrictions or arrangements relating to the issuance, acquisition, redemption,repurchase or sale of any shares of capital stock or other equity or voting interests of any Subsidiary of the Company,including any right of conversion or exchange under any outstanding security, instrument or agreement, any

agreements granting any preemptive rights, subscription rights, anti-dilutive rights, rights of first refusal or similarrights with respect to any securities of any Subsidiary. None of the Subsidiaries has any outstanding equitycompensation plans or policies relating to the capital stock of, or other equity or voting interests in, any Subsidiaryof the Company. Neither the Company nor any of its Subsidiaries has any obligation to make any payments basedon the price or value of any securities of any Subsidiary of the Company or dividends paid thereon or revenues,earnings or financial performance or any other attribute of any Subsidiary of the Company.

(f) As of the date of this Agreement, there was no outstanding Indebtedness of the Company or itsSubsidiaries other than Indebtedness identified in Section 3.2(f) of the Company Disclosure Schedule. For purposes

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of this Section 3.2(f) only, the term Indebtedness shall include only those items referred to in clauses (i) and (ii) ofIndebtedness as such term is defined in Section 8.12.

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Section 3.3 Authority; Noncontravention; Voting Requirements.

(a) The Company has all necessary corporate power and authority to execute and deliver this Agreementand, subject to obtaining the Company Stockholder Approval, to perform its obligations hereunder and toconsummate the Transactions. The execution, delivery and performance by the Company of this Agreement, and theconsummation by it of the Transactions, have been duly authorized and approved by the Company Board, andexcept for obtaining the Company Stockholder Approval, no other corporate action on the part of the Company isnecessary to authorize the execution, delivery and performance by the Company of this Agreement and theconsummation by it of the Transactions. This Agreement has been duly executed and delivered by the Company and,assuming due authorization, execution and delivery hereof by the other parties hereto, constitutes a legal, valid and

binding obligation of the Company, enforceable against the Company in accordance with its terms, except that suchenforceability (i) may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium andother similar laws of general application affecting or relating to the enforcement of creditors rights generally and(ii) is subject to general principles of equity, whether considered in a proceeding at law or in equity.

(b) The Company Board has (i) determined that the Merger is fair to, and in the best interests of, theCompany and its stockholders, (ii) declared advisable this Agreement, the Merger and the Transactions,(iii) approved this Agreement, the Merger and the Transactions and (iv) resolved, subject to Section 5.2, torecommend adoption of this Agreement to the holders of Company Common Stock. The Company Board hasdirected that this Agreement be submitted to the holders of Company Common Stock for their adoption.

(c) Neither the execution and delivery of this Agreement by the Company nor the consummation by theCompany of the Transactions, nor performance or compliance by the Company with any of the terms or provisionshereof, will (i) conflict with or violate any provision of the Company Charter Documents or of the similarorganizational documents of any of the Companys Subsidiaries or (ii) assuming that the authorizations, consentsand approvals referred to in Section 3.4 and the Company Stockholder Approval are obtained and the filings referredto in Section 3.4 are made, (x) violate any Law, judgment, writ or injunction of any Governmental Authorityapplicable to the Company or any of its Subsidiaries, (y) violate or constitute a default under any of the terms,conditions or provisions of any loan or credit agreement, debenture, note, bond, mortgage, indenture, deed of trust,

lease, sublease, license, contract or other agreement (each, a Contract) to which the Company or any of itsSubsidiaries is a party or accelerate the Companys or, if applicable, any of itsSubsidiaries, obligations under anysuch Contract or (z) result in the creation of any Lien on any properties or assets of the Company or any of itsSubsidiaries, except, in the case of clause (ii), for such violations, defaults or accelerations as would not reasonably

be expected to have, individually or in the aggregate, a Material Adverse Effect.

(d) The affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares ofCompany Common Stock at the Company Stockholders Meeting, or any adjournment or postponement thereof, infavor of the adoption of this Agreement (the Majority Stockholder Approval) is the only vote or approval of theholders of any class or series of

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capital stock of the Company or any of its Subsidiaries which is legally required to adopt this

Agreement; provided, however that in addition to the foregoing the Company shall require the affirmative vote (inperson or by proxy) of the holders of a majority of the outstanding shares of Company Common Stock, with suchoutstanding shares of Company Common Stock used for purposes of calculating a majority thereof excluding anyshares of Company Common Stock held by Parent, Merger Sub or any of the Rollover Investors, at the CompanyStockholders Meeting or any adjournment or postponement thereof, in favor of the adoption of this Agreement(together with the Majority Stockholder Approval, the Company Stockholder Approval).

Section 3.4 Governmental Approvals. Except for (i) the filing with the Securities and Exchange Commission(the SEC) of a proxy statement relating to the Company Stockholders Meeting (as amended or supplemented fromtime to time, the Proxy Statement) and other filings required under, and in compliance with other applicable

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requirements of, the Exchange Act, and the rules of The Nasdaq Global Select Market, (ii) the filing of theCertificate of Merger with the Secretary of State of the State of Delaware pursuant to the DGCL, (iii) filingsrequired under, and compliance with other applicable requirements of, the Antitrust Laws and (iv) the approvals setforth in Section 3.4 of the Company Disclosure Letter (the Company Approvals), no consent or approval of, orfiling, license, permit or authorization, declaration or registration with, any Governmental Authority or any stockmarket or stock exchange on which shares of Company Common Stock are listed for trading are necessary for theexecution and delivery of this Agreement by the Company, the performance by the Company of its obligationshereunder and the consummation by the Company of the Transactions, other than such other consents, approvals,filings, licenses, permits or authorizations, declarations or registrations that, if not obtained, made or given, wouldnot reasonably be expected to have a, individually or in the aggregate, Material Adverse Effect.

Section 3.5 Company SEC Documents; Undisclosed Liabilities.

(a) Since January 1, 2010, the Company has filed with or furnished to the SEC, on a timely basis, allrequired registration statements, certifications, reports and proxy statements (collectively, and in each case includingall exhibits and schedules thereto and documents incorporated by reference therein, the Company SECDocuments). As of their respective effective dates (in the case of Company SEC Documents that are registrationstatements filed pursuant to the requirements of the Securities Act) and as of their respective SEC filing dates (in thecase of all other Company SEC Documents), the Company SEC Documents complied in all material respects withthe requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act of 2002 (as amended andincluding the rules and regulations promulgated thereunder) (the Sarbanes-Oxley Act), as the case may be,applicable to such Company SEC Documents, and none of the Company SEC Documents as of such respectivedates (or, if amended prior to the date of this Agreement, the date of the filing of such amendment, with respect tothe disclosures that are amended) contained any untrue statement of a material fact or omitted to state a material factrequired to be stated therein or necessary to make the statements therein, in light of the circumstances under whichthey were made, not misleading. As of the date of this Agreement, there are no outstanding or unresolved commentsin comment letters received from the SEC or its staff. There has been no correspondence between the SEC and theCompany since January 1, 2010 (other than is publicly available). To the Knowledge of the

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Company, none of the Company SEC Documents is the subject of ongoing SEC review. None of the CompanysSubsidiaries is subject to the reporting requirements of Section 13(a) or 15(d) under the Exchange Act.

(b) The consolidated financial statements of the Company (including all related notes or schedules)included or incorporated by reference in the Company SEC Documents complied as to form, as of their respectivedates of filing with the SEC, in all material respects with all applicable accounting requirements and with the

published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAPapplied on a consistent basis during the periods involved (except (i) with respect to financial statements included inCompany SEC Documents filed as of the date of this Agreement, as may be indicated in the notes thereto or (ii) as

permitted by Regulation S-X under the Securities Act) and fairly present in all material respects the consolidatedfinancial position of the Company and its Subsidiaries as of the dates thereof and the consolidated results of theiroperations and changes in shareholders equity and cash flows of such companies as of the dates and for the periodsshown (subject, in the case of unaudited financial statements, to normal year-end audit adjustments, to the absenceof notes and to any other adjustments described therein, including any notes thereto) in accordance with GAAP(except as may be indicated therein or in the notes thereto). Since January 1, 2010, there has been no materialchange in the Companys accounting methods or principles that would be required to be disclosed in the Companysfinancial statements in accordance with GAAP, except as described in the notes thereto.

(c) Neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature

(whether accrued, absolute, contingent or otherwise), except liabilities or obligations (i) disclosed in the balancesheet of the Company and its Subsidiaries as of December 31, 2011 (the Balance Sheet Date) (other than in thenotes thereto) included in the Filed SEC Documents (the Company Balance Sheet), (ii) incurred after the BalanceSheet Date in the ordinary course of business, (iii) as contemplated by this Agreement or otherwise in connectionwith the Transactions, (iv) incurred under any Material Contract (as defined below) other than liabilities orobligations due to breach thereunder, or (v) as have not had and would not reasonably be expected to have,individually or in the aggregate, a Material Adverse Effect. There are no unconsolidated Subsidiaries of the

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Company or any off-balance sheet arrangements of any type (including any off-balance sheet arrangement requiredto be disclosed pursuant to Item 303(a)(4) of Regulation S-K promulgated under the Securities Act) that have not

been so described in the Company SEC Documents nor any obligations to enter into any such arrangements.

(d) The Company has designed and maintained a system of internal controls over financial reporting (asdefined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) sufficient to provide reasonable assurances regardingthe reliability of financial reporting. The Company (i) has designed and maintains disclosure controls and

procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) to ensure that material informationrequired to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded,

processed, summarized and reported within the time periods specified in the SECs rules and forms and isaccumulated and communicated to the Companys management