Quest Software Special Committee Reports Findings of Stock Option Investigation

Business Wire, Jan 15, 2007

ALISO VIEJO, Calif. -- Quest Software, Inc. (Nasdaq:QSFT) today announced that a special committee of its board of directors (the "Special Committee") has substantially completed its investigation into the company's stock option grant practices and related accounting and reported its principle findings to the company's Board of Directors.

The Special Committee was comprised of two independent disinterested members of the Board and retained independent outside legal counsel, Duane Morris LLP, and forensic consultants, Navigant LLC, to assist in the investigation. In the course of its seven-month investigation, the investigation team reviewed and analyzed more than one million pages of electronic and other documents and conducted interviews of twenty-three current and former officers, directors, employees of and advisors to Quest Software.

The primary focus of the Special Committee's investigation was the company's stock option grant practices and related accounting during the period from the Company's initial public offering in August 1999 to June 30, 2003, with selected testing and sampling before and after that period. The Special Committee's findings included a determination that accounting measurement dates for most of the stock option grants to employees from July 1998 to May 2002 differed from the recorded grant dates.

The results of the investigation confirm the company's determination, as previously announced, that it will restate certain of its historical financial statements to reflect the additional non-cash stock-based compensation expense that should have been recorded with respect to stock option grants whose accounting measurement dates are being revised, or "misdated stock options." The Special Committee's preliminary estimate of the aggregate pre-tax, non-cash stock-based compensation expense arising from its findings is approximately $150 million through the period ended March 31, 2006. The company has not yet determined the tax consequences or monetary tax obligations that will arise from these matters. Management is continuing to analyze the accounting impact of the Special Committee's findings and working to complete the necessary restatements to the company's prior financial reports as soon as practicable.

The Special Committee indicated that both current and former senior management of the company bear varying degrees of responsibility for the deficiencies in the stock option administration practices and related accounting internal controls. The Special Committee made no finding of fraud or intentional misconduct by any current or former employees, officers or directors, and concluded that no further changes in the company's executive officers will be recommended. In addition to certain financial matters described below, the Special Committee also made recommendations to the Board of Directors with respect to adoption of "best practices" in stock option administrative practices, which will be reviewed and considered by the Compensation Committee.

At the direction of the Special Committee, the company is taking certain additional remedial steps to require that its current and former executive officers eliminate actual and potential benefits received from their receipt of misdated stock options. The Special Committee has directed the company to reprice these stock options to an exercise price equal to the fair market value of the company's common stock as of the corrected accounting measurement dates determined by the Special Committee, and to attempt to recover all or substantial portions of the amount of the after-tax gains these executive officers realized from exercises of these stock options. As of December 31, 2006, outstanding stock options covering approximately 1.6 million shares of common stock have been repriced to levels significantly greater than the current market value of the company's common stock.

The Special Committee and the company continue to cooperate with the Securities and Exchange Commission and the United States Attorney's Office for the Central District of California in response to the SEC's informal inquiry into the company's stock option grant practices. As announced by the company on January 9, 2007, it has requested an extension of its conditional listing status on the NASDAQ Global Select Market.

About Quest Software, Inc.

Quest Software, Inc. delivers innovative products that help organizations get more performance and productivity from their applications, databases and Windows infrastructure. Through a deep expertise in IT operations and a continued focus on what works best, Quest helps more than 50,000 customers worldwide meet higher expectations for enterprise IT. Quest Software can be found in offices around the globe and at www.quest.com.

Quest and Quest Software are registered trademarks of Quest Software, Inc. The Quest Software logo and all other Quest Software product or service names and slogans are registered trademarks or trademarks of Quest Software, Inc. All other trademarks and registered trademarks are property of their respective owners.