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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 2000
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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QUEST SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0231678
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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8001 IRVINE CENTER DRIVE, IRVINE, CALIFORNIA 92618
(949) 754-8000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
J. MICHAEL VAUGHN
GENERAL COUNSEL
QUEST SOFTWARE, INC.
8001 IRVINE CENTER DRIVE
IRVINE, CA 92618
(949) 754-8000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies to:
CHRISTOPHER D. IVEY
STRADLING YOCCA CARLSON & RAUTH, A PROFESSIONAL CORPORATION
660 NEWPORT CENTER DRIVE, SUITE 1600
NEWPORT BEACH, CALIFORNIA 92660
(949) 725-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
Proposed
Maximum Proposed
Title of Each Amount to be Offering Price Maximum Aggregate Amount of
Class of Securities to be Registered Registered Per Share(1) Offering Price(2) Registration Fee
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (no par value) 4,225,912 $59.50 $251,441,764 $66,381
=====================================================================================================================
</TABLE>
(1) The offering price is estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(c) under the Securities Act on the
basis of the average of the high and low reported sale prices of the
Registrant's common stock on September 21, 2000 as reported on the Nasdaq
National Market.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
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SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 2000
QUEST SOFTWARE, INC.
4,225,912 SHARES OF COMMON STOCK
----------------
This prospectus relates to the public offering, which is not being
underwritten, of 4,225,912 shares of our common stock which are held by some of
our current shareholders.
The prices at which such shareholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares.
Our common stock is traded on the Nasdaq National Market under the
symbol "QSFT." On September __, 2000, the closing price of our common stock was
$__________.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
-----------
The date of this prospectus is September ___, 2000.
<PAGE> 3
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus in connection with
this offering, and if given or made, such information or representations may not
be relied upon as having been authorized by Quest Software, Inc., by any selling
shareholder or by any other person. Neither the delivery of this prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that information herein is correct as of any time subsequent to the date hereof.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the securities covered by this prospectus,
nor does it constitute an offer to or a solicitation of any person in any
jurisdiction in which an offer or solicitation may not lawfully be made.
----------------
TABLE OF CONTENTS
Page
----
About Quest Software, Inc.................................... 2
Risk Factors................................................. 3
Forward Looking Statements................................... 10
Use of Proceeds.............................................. 10
Plan of Distribution......................................... 10
Selling Shareholders......................................... 12
Legal Matters................................................ 13
Experts...................................................... 13
Where You Can Find More Information.......................... 13
ABOUT QUEST SOFTWARE, INC.
In this prospectus, the terms "Quest", "we", "us", and "our" refer to
Quest Software, Inc. and its subsidiaries.
Quest provides application and information availability software
solutions that enhance the performance and reliability of an organization's
e-business, enterprise and custom applications and enable the delivery of
information across the entire enterprise. Our application availability products
are designed to help ensure uninterrupted and high performance access to
software systems by utilizing a number of integrated products that enhance the
performance of applications and the underlying database which stores an
enterprise's critical information. Other primary components of our application
availability solution include our database products that maintain a real-time
copy of a database for offloading critical systems and assuring high
availability, as well as products that manage the complex and error-prone
process of development and deployment of rapidly changing applications. Our
information availability products deliver an enterprise, report-based
information management solution that captures, manages and distributes report
data or electronic documents from virtually any application for instant
distribution over intranets or over the Internet.
Our principal executive offices are located at 8001 Irvine Center
Drive, Irvine, California 92618.
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RISK FACTORS
Your investment in our common stock involves a high degree of risk. You
should consider the risks described below and the other information contained in
this prospectus and incorporated by reference in this prospectus carefully
before deciding to invest in our common stock. If any of the following risks
actually occur, our business, financial condition and operating results would be
harmed. As a result, the trading price of our common stock could decline, and
you could lose a part or all of your investment.
RISKS RELATED TO OUR BUSINESS
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, AND, AS A
RESULT, WE MAY FAIL TO MEET EXPECTATIONS OF INVESTORS AND ANALYSTS, CAUSING OUR
STOCK PRICE TO FLUCTUATE OR DECLINE
Our revenues and operating results may vary significantly from quarter
to quarter due to a number of factors. These factors
include the following:
o the size and timing of customer orders. See "-- The size and timing
of our customer orders may vary significantly from quarter to
quarter which could cause fluctuations in our revenues."
o increased expenses, whether related to sales and marketing, product
development or administration;
o our ability to attain market acceptance of new products and services
and enhancements to our existing products;
o delays in introducing new products;
o new product introductions by competitors;
o lack of order backlog;
o changes in our pricing policies or the pricing policies of our
competitors;
o costs related to acquisitions of technologies or businesses;
o the timing of releases of new versions of third-party software
products that our products support, including, without limitation,
product releases by Oracle; and
o the amount and timing of expenditures related to expansion of our
operations.
THE SIZE AND TIMING OF OUR CUSTOMER ORDERS MAY VARY SIGNIFICANTLY FROM QUARTER
TO QUARTER WHICH COULD CAUSE FLUCTUATIONS IN OUR REVENUES
In any given quarter, sales of some of our products have involved large
financial commitments from a relatively small number of customers, and
cancellation or deferral of these large contracts would reduce our revenues. In
addition, the sales cycles for Vista Plus and SharePlex have been up to six
months and often require pre-purchase evaluation periods and customer education.
These relatively long sales cycles may cause significant periodic variation in
our license revenues. Also, we have often booked a large amount of our sales in
the last month or weeks of each quarter and delays in the closing of sales near
the end of a quarter could cause quarterly revenue to fall short of anticipated
levels. Finally, while a portion of our revenues each quarter is recognized from
previously deferred revenue, our quarterly performance will depend primarily
upon entering into new contracts to generate revenues for that quarter.
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MANY OF OUR PRODUCTS ARE DEPENDENT ON ORACLE'S TECHNOLOGIES AND IF ORACLE'S
TECHNOLOGIES LOSE MARKET SHARE OR BECOME INCOMPATIBLE WITH OUR PRODUCTS, THE
DEMAND FOR OUR PRODUCTS COULD SUFFER
We believe that our success has depended in part, and will continue to
depend in part for the foreseeable future, upon our relationship with Oracle and
our status as a complementary software provider for Oracle's database and
application products. Many versions of our principal products, including
SharePlex, SQLab Xpert, and SQL Navigator, are designed specifically to be used
with Oracle databases. Although a number of our products work with other
environments, our competitive advantage consists in substantial part on the
integration between our products and Oracle's products, and our extensive
knowledge of Oracle's technology. Currently, a significant portion of our total
revenues are derived from products that specifically support Oracle-based
products. If Oracle for any reason decides to promote technologies and standards
that are not compatible with our technology, or if Oracle loses market share for
its database products, our business, operating results and financial condition
would be materially adversely affected.
MANY OF OUR PRODUCTS ARE VULNERABLE TO DIRECT COMPETITION FROM ORACLE
We currently compete with Oracle in the market for database management
solutions. We expect that Oracle's commitment to and presence in the database
management product market will increase in the future and therefore
substantially increase competitive pressures. We believe that Oracle will
continue to incorporate database management technology into its server software
offerings, possibly at no additional cost to its users. We believe that Oracle
will also continue to enhance its database management technology. Furthermore,
Oracle could attempt to increase its presence in this market by acquiring or
forming strategic alliances with our competitors, and Oracle may be in better
position to withstand and respond to the current factors impacting this
industry. Oracle has a longer operating history, a larger installed base of
customers and substantially greater financial, distribution, marketing and
technical resources than we do. In addition, Oracle has well-established
relationships with many of our present and potential customers. As a result, we
may not be able to compete effectively with Oracle in the future which could
materially adversely affect our business, operating results and financial
condition.
ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR
BUSINESS AND DIVERSION OF MANAGEMENT ATTENTION
We have in the past made and we expect to continue to make acquisitions
of complementary companies, products or technologies. If we make any additional
acquisitions, we will be required to assimilate the operations, products and
personnel of the acquired businesses and train, retain and motivate key
personnel from the acquired businesses. We may be unable to maintain uniform
standards, controls, procedures and policies if we fail in these efforts.
Similarly, acquisitions may subject us to liabilities and risks that are not
known or identifiable at the time of the acquisition or may cause disruptions in
our operations and divert management's attention from day-to-day operations,
which could impair our relationships with our current employees, customers and
strategic partners. We may have to incur debt or issue equity securities to pay
for any future acquisitions. The issuance of equity securities for any
acquisition could be substantially dilutive to our shareholders. In addition,
our profitability may suffer because of acquisition-related costs or
amortization costs for acquired goodwill and other intangible assets. In
consummating acquisitions, we are also subject to risks of entering geographic
and business markets in which we have no or limited prior experience. If we are
unable to fully integrate acquired businesses, products or technologies with our
existing operations, we may not receive the intended benefits of acquisition.
OUR ABILITY TO INCREASE OUR REVENUES DEPENDS ON OUR ABILITY TO EXPAND OUR
INDIRECT SALES CHANNELS
Our ability to increase revenues in the future substantially depends on
our ability to expand our indirect sales channel. In certain domestic and
international markets we may miss sales opportunities if we are unable to enter
into successful relationships with locally based resellers. In the future, we
intend to augment our current limited indirect sales distribution methods
through additional third-party distribution arrangements and, therefore, we will
likely become more dependent on these type of relationships. There can be no
assurance that we will successfully augment these arrangements or that the
expansion of indirect sales distribution methods will increase revenues.
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OUR PAST AND FUTURE GROWTH MAY STRAIN OUR MANAGEMENT, ADMINISTRATIVE,
OPERATIONAL AND FINANCIAL INFRASTRUCTURE
We have recently experienced a period of rapid growth in our operations
that has placed and will continue to place a strain on our management,
administrative, operational and financial infrastructure. During this period, we
have experienced an increase in the number of our employees, increasing demands
on our operating and financial systems and personnel, and an expansion in the
geographic coverage of our operations. The number of our full-time employees
increased from 415 as of June 30, 1999 to 1,000 as of June 30, 2000. Our ability
to manage our operations and growth requires us to continue to improve our
operational, financial and management controls, and reporting systems and
procedures. In addition, we will be required to hire additional management,
financial, and sales and marketing personnel to manage our expanding operations.
If we are unable to manage this growth effectively, our business, operating
results and financial condition may be materially adversely affected.
WE MAY NOT GENERATE INCREASED BUSINESS FROM OUR CURRENT CUSTOMERS WHICH COULD
SLOW OUR REVENUE GROWTH IN THE FUTURE
Most of our customers initially make a purchase of our products for a
single department or location. Many of these customers may choose not to expand
their use of our products. If we fail to generate expanded business from our
current customers, our business, operating results and financial condition could
be materially adversely affected. In addition, as we deploy new modules and
features for our existing products or introduce new products, our current
customers may choose not to purchase this new functionality or these new
products. Moreover, if customers elect not to renew their maintenance
agreements, our service revenues would be materially adversely affected.
BECAUSE THE MARKET FOR E-BUSINESS SOLUTIONS IS NEW AND EVOLVING, WE CANNOT
ACCURATELY PREDICT THE FUTURE GROWTH RATE OF THIS MARKET OR ITS ULTIMATE SIZE
We are increasingly focusing our selling efforts on providing
application and information availability solutions for e-business applications
and we expect such sales to constitute an increasing portion of our future
revenue growth. We believe that most companies currently are not yet aware of
our products and capabilities within this evolving market, and, as a result,
such companies have not deployed our solutions. While we have devoted
significant resources to promoting awareness of our products and the problems
these products address for this evolving market, these efforts may not be
sufficient to build market awareness of the need for our products. Failure of a
significant market for e-business application and information availability
products to develop, or failure of our products to achieve broad market
acceptance, could have a material adverse effect on our business, operating
results and financial condition.
WE EXPECT TO INCUR SIGNIFICANT INCREASES IN OUR OPERATING EXPENSES IN THE
FORESEEABLE FUTURE, WHICH MAY AFFECT OUR FUTURE PROFITABILITY
We intend to substantially increase our operating expenses for the
foreseeable future as we:
o increase our sales and marketing activities, including expanding our
direct sales and telesales forces;
o increase our research and development activities;
o expand our general and administrative activities; and
o expand our customer support organizations.
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Accordingly, we will be required to significantly increase our revenues in order
to maintain profitability. These expenses will be incurred before we generate
any revenues by this increased spending. If we do not significantly increase
revenues from these efforts, our business and operating results would be
negatively impacted.
OUR INTERNATIONAL OPERATIONS AND OUR PLANNED EXPANSION OF OUR INTERNATIONAL
OPERATIONS EXPOSES US TO CERTAIN RISKS
Substantially all of our current international revenues are derived
from the operations of our wholly-owned subsidiaries in Canada, Australia, the
United Kingdom and Germany. Revenues from licenses and services to customers
outside of United States were $5.8 million in 1998, representing 16.7% of total
revenues, $15.3 million in the year ended December 31, 1999, representing 21.6%
of total revenues, $4.8 million for the six months ended June 30, 1999,
representing 13% of total revenues, and $15.4 million for the six months ended
June 30, 2000, representing 18% of total revenues. As a result, we face
increasing risks from doing business on an international basis, including, among
others:
o difficulties in staffing and managing foreign operations;
o longer payment cycles;
o seasonal reductions in business activity in Europe;
o increased financial accounting and reporting burdens and
complexities;
o potentially adverse tax consequences;
o delays in localizing our products;
o compliance with a wide variety of complex foreign laws and treaties;
o reduced protection for intellectual property rights in some
countries; and
o licenses, tariffs and other trade barriers.
In addition, because our international subsidiaries conduct business in the
currency of the country in which they operate, we are subject to currency
fluctuations and currency transaction losses or gains which are outside of our
control.
We plan to expand our international operations as part of our business
strategy. The expansion of our existing international operations and entry into
additional international markets will require significant management attention
and financial resources and will place additional burdens on our management,
administrative, operational and financial infrastructure. We cannot be certain
that our investments in establishing facilities in other countries will produce
desired levels of revenue or profitability. In addition, we have sold our
products internationally for only a few years and we have limited experience in
developing localized versions of our products and marketing and distributing
them internationally. As our international operations expand, our exposure to
exchange rate fluctuations will increase as we use an increasing number of
foreign currencies. We have not yet entered into any hedging transactions to
date to mitigate our expense to currency fluctuations.
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FAILURE TO DEVELOP STRATEGIC RELATIONSHIPS COULD HARM OUR BUSINESS BY DENYING US
SELLING OPPORTUNITIES AND OTHER BENEFITS
Our current collaborative relationships may not prove to be beneficial
to us, and they may not be sustained. We also may not be able to enter into
successful new strategic relationships in the future, which could have a
material adverse effect on our business, operating results and financial
condition. From time to time, we have collaborated with other companies,
including Hewlett-Packard and Oracle and certain regional offices of a number of
the national accounting firms that provide system integration services, in areas
such as product development, marketing, distribution and implementation. We
could lose sales opportunities if we fail to work effectively with these
parties. Moreover, we expect that maintaining and enhancing these and other
relationships will become a more meaningful part of our business strategy in the
future. However, many of our current partners are either actual or potential
competitors with us. In addition, many of these third parties also work with
competing software companies and we may not be able to maintain these existing
relationships, due to the fact that these relationships are informal or, if
written, are terminable with little or no notice.
OUR PROPRIETARY RIGHTS MAY BE INADEQUATELY PROTECTED, AND THERE IS RISK OF
INFRINGEMENT CLAIMS OR INDEPENDENT DEVELOPMENT OF COMPETING TECHNOLOGY THAT
COULD HARM OUR COMPETITIVE POSITION
Our success and ability to compete are dependent on our ability to
develop and maintain the proprietary aspects of our technology. We rely on a
combination of trademark, trade secret, copyright law and contractual
restrictions to protect the proprietary aspects of our technology.
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Litigation may be necessary in the
future to enforce our intellectual property rights, to protect our trade
secrets, and to determine the validity and scope of the proprietary rights of
others. Any such resulting litigation could result in substantial costs and
diversion of resources.
Our means of protecting our proprietary rights may prove to be
inadequate and competitors may independently develop similar or superior
technology. Policing unauthorized use of our products is difficult, and we
cannot be certain that the steps we have taken will prevent misappropriation of
our technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the United States. We also believe that,
because of the rapid rate of technological change in the software industry,
trade secret and copyright protection are less significant than factors such as
the knowledge, ability and experience of our employees, frequent product
enhancements and the timeliness and quality of customer support services.
Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. Third parties
may claim infringement by us of their intellectual property rights. In the event
of a successful claim of product infringement against us and our failure or
inability to either license the infringed or similar technology or develop
alternative technology on a timely basis, we may incur substantial licensing
fees, be liable for infringement damage, or be unable to market our products.
OUR BUSINESS WILL SUFFER IF OUR SOFTWARE CONTAINS ERRORS
The software products we offer are inherently complex. Despite testing
and quality control, we cannot be certain that errors will not be found in
current versions, new versions or enhancements of our products after
commencement of commercial shipments. Significant technical challenges also
arise with our products because our customers purchase and deploy our products
across a variety of computer platforms and integrate it with a number of
third-party software applications and databases. If new or existing customers
have difficulty deploying our products or require significant amounts of
customer support, our operating margins could be harmed. Moreover, we could face
possible claims and higher development costs if our software contains undetected
errors or if we fail to meet our customers' expectations. As a result of the
foregoing, we could experience:
o loss of or delay in revenues and loss of market share;
o loss of customers;
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o damage to our reputation;
o failure to achieve market acceptance;
o diversion of development resources;
o increased service and warranty costs;
o legal actions by customers against us which could, whether or not
successful, increase costs and distract our management; and
o increased insurance costs.
In addition, a product liability claim, whether or not successful,
could harm our business by increasing our costs and distracting our management.
WE INCORPORATE SOFTWARE LICENSED FROM THIRD PARTIES INTO SOME OF OUR PRODUCTS
AND ANY SIGNIFICANT INTERRUPTION IN THE AVAILABILITY OF THESE THIRD-PARTY
SOFTWARE PRODUCTS OR DEFECTS IN THESE PRODUCTS COULD REDUCE THE DEMAND FOR, OR
PREVENT THE SHIPPING OF, OUR PRODUCTS
Our SQL Navigator, TOAD, Vista Plus, Foglight and Benchmark Factory
products contain components developed and maintained by third-party software
vendors. For example, we incorporate software licensed from Inso Corporation and
Artifex Software into add-on options for our Vista Plus products. Similarly, our
Foglight product incorporates software licensed from Inxight. We expect that we
may have to incorporate software from third-party vendors in our future
products. We may not be able to replace the functionality provided by the
third-party software currently offered with our products if that software
becomes obsolete, defective or incompatible with future versions of our products
or is not adequately maintained or updated. Any significant interruption in the
availability of these third-party software products or defects in these products
could harm our sales unless and until we can secure an alternative source.
Although we believe there are adequate alternate sources for the technology
licensed to us by Inso, Artifex and Inxight, such alternate sources may not
provide us with the same functionality as that currently provided to us.
Further, we may experience a delay in obtaining an alternate source for the file
viewing technology licensed to us by Inso if our license with Inso becomes
unavailable for any reason.
RISKS RELATED TO OUR INDUSTRY
YEAR 2000 ISSUES PRESENT TECHNOLOGICAL RISKS AND COULD CAUSE DISRUPTION TO OUR
BUSINESS
Although we have not experienced any Year 2000 problems, it is possible
that, even after January 1, 2000, Year 2000-related issues may cause problems or
disruptions. While we believe that all of our systems are Year 2000 compliant,
we cannot assure you that we will not discover a problem during 2000 that needs
to be upgraded, modified or replaced. In addition, we depend on a number of
third-party vendors to provide both information and non-information technology
systems and services. While we believe that our material third-party systems and
services are Year 2000 compliant, we cannot be sure that we will not experience
any problems during 2000. We also cannot provide any assurance that governmental
agencies, utility companies, Internet access companies and others outside of our
control will not experience any future Year 2000 problems.
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THE DEMAND FOR OUR PRODUCTS WILL DEPEND ON OUR ABILITY TO ADAPT TO RAPID
TECHNOLOGICAL CHANGE
Our future success will depend on our ability to continue to enhance
our current products and to develop and introduce new products on a timely basis
that keep pace with technological developments and satisfy increasingly
sophisticated customer requirements. Rapid technological change, frequent new
product introductions and enhancements, uncertain product life cycles, changes
in customer demands and evolving industry standards characterize the market for
our products. The introduction of products embodying new technologies and the
emergence of new industry standards can render our existing products obsolete
and unmarketable. As a result of the complexities inherent in today's computing
environments and the performance demanded by customers for embedded databases
and Web-based products, new products and product enhancements can require long
development and testing periods. As a result, significant delays in the general
availability of such new releases or significant problems in the installation or
implementation of such new releases could have a material adverse effect on our
business, operating results and financial condition. We may not be successful
in:
o developing and marketing, on a timely and cost-effective basis, new
products or new product enhancements that respond to technological
change, evolving industry standards or customer requirements;
o avoiding difficulties that could delay or prevent the successful
development, introduction or marketing of these products; or
o achieving market acceptance for our new products and product
enhancements.
WE MAY NOT BE ABLE TO ATTRACT AND RETAIN PERSONNEL
Our future success depends on the continued service of our executive
officers and other key administrative, sales and marketing and support
personnel, many of whom have recently joined our company. In addition, the
success of our business is substantially dependent on the services of our Chief
Executive Officer and our President and Chief Technical Officer. We intend to
hire a significant number of additional sales, support, marketing,
administrative and research and development personnel over at least the next 12
months. There has in the past been and there may in the future be a shortage of
personnel that possess the technical background necessary to sell, support and
develop our products effectively. Competition for skilled personnel is intense,
and we may not be able to attract, assimilate or retain highly qualified
personnel in the future. Our business may not be able to grow if we cannot
attract qualified personnel. Hiring qualified sales, marketing, administrative,
research and development and customer support personnel, is very competitive in
our industry, particularly in Southern California, where Quest is headquartered.
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into this
prospectus contain forward-looking statements that are based on current
expectations, estimates and projections about our industry, management's
beliefs, and assumptions made by management. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," and variations
of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict; therefore, actual results may differ materially from
those expressed or forecasted in any forward-looking statements. The risks and
uncertainties include those noted in "Risk Factors" above and in the documents
incorporated by reference. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
USE OF PROCEEDS
All net proceeds from the sale of the common stock covered by this
prospectus will go to the selling shareholders. We will not receive any proceeds
from the sale of the common stock by the selling shareholders.
PLAN OF DISTRIBUTION
Quest Software is registering all 4,225,912 shares of common stock on
behalf of certain selling shareholders. Of the shares owned by the Selling
Shareholders, 201,572 shares are issued or issuable to the former shareholders
of MessageWise Inc. who now own exchangeable shares issued by 1397639 Ontario
Inc., a Canadian subsidiary of Quest Software, which acquired MessageWise in
April 1999, 1,382,979 shares are issued or issuable to the former shareholders
and option holders of FastLane Technologies, Inc. who now own exchangeable
shares of 881229 Alberta Ltd., another Canadian subsidiary of Quest Software,
which acquired FastLane in September 2000, and 41,119 shares are held by the
former shareholders of OnWire Technologies, Inc., which was acquired by Quest
Software in September 2000. The remaining shares were acquired by certain
investors who acquired shares of preferred stock from us in a private placement
of securities in April 1999, which shares were converted into shares of common
stock in connection with our initial public offering in August 1999.
Quest Software will receive no proceeds from this offering. The selling
shareholders named in the table below or pledgees, donees, transferees or other
successors-in-interest selling shares received from a named selling stockholder
as a gift, partnership distribution or other non-sale-related transfer after the
date of this prospectus (collectively, the "Selling Shareholders") may sell the
shares from time to time. The Selling Shareholders will act independently of
Quest Software in making decisions with respect to the timing, manner and size
of each sale. The sales may be made on one or more exchanges or in the
over-the-counter market or otherwise, at prices and at terms then prevailing at
prices related to the then current market price or in negotiated transactions.
The Selling Shareholders may effect such transactions by selling the shares to
or through broker-dealers. The shares may be sold by one or more of, or a
combination of, the following:
- a block trade in which the broker-dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus;
- an exchange distribution in accordance with the rules of such
exchange;
10
<PAGE> 12
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
- in privately negotiated transactions.
To the extent required, this prospectus may be amended or supplemented
from time to time to describe a specific plan of distribution. In effecting
sales, broker-dealers engaged by the Selling Shareholders may arrange for other
broker-dealers to participate in the resales. Broker-dealers or agents may
receive compensation in the form of commissions, discounts or concessions from
Selling Shareholders. Broker-dealers or agents may also receive compensation
from the purchasers of the shares for whom they act as agents or to whom they
sell as principals, or both. Compensation as to a particular broker-dealer might
be in excess of customary commissions and will be in amounts to be negotiated in
connection with the sale. Broker-dealers or agents and any other participating
broker-dealers or the Selling Shareholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act in connection with
sales of the shares. Accordingly, any such commission, discount or concession
received by them and any profit on the resale of the shares purchased by them
may be deemed to be underwriting discounts or commissions under the Securities
Act. Because Selling Shareholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the Selling Shareholders will be
subject to the prospectus delivery requirements of the Securities Act.
In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 promulgated under the Securities Act may be sold
under Rule 144 rather than pursuant to this prospectus. There is no underwriter
or coordinating broker acting in connection with the proposed sale of shares by
Selling Shareholders. The shares will be sold only through registered or
licensed brokers or dealers if required under applicable state securities laws.
In addition, in certain states the shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations of the Exchange Act, any person
engaged in the distribution of the shares may not simultaneously engage in
market making activities with respect to our common stock for a period of two
business days prior to the commencement of such distribution. In addition, each
Selling Shareholder will be subject to applicable provisions of the Exchange Act
and the associated rules and regulations under the Exchange Act, including
Regulation M, which provisions may limit the timing of purchases and sales of
shares of our common stock by the Selling Shareholders. Quest Software will make
copies of this prospectus available to the Selling Shareholders and has informed
them of the need for delivery of copies of this prospectus to purchasers at or
prior to the time of any sale of the shares.
Quest Software will bear all costs, expenses and fees in connection
with the registration of the shares, except that certain of the Selling
Shareholders have agreed to reimburse us for a portion of the SEC registration
fee relating to their participation in this offering. The Selling Shareholders
will bear all commissions and discounts, if any, attributable to the sales of
the shares. The Selling Shareholders may agree to indemnify any broker-dealer or
agent that participates in transactions involving sales of the shares against
certain liabilities, including liabilities arising under the Securities Act.
11
<PAGE> 13
SELLING SHAREHOLDERS
The following table sets forth the number of shares owned by each of the
Selling Shareholders. The Selling Shareholders named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where applicable.
No estimate can be given as to the number of shares that will be held by the
Selling Shareholders after completion of this offering because the Selling
Shareholders may offer all or some of the shares and because there currently are
no agreements, arrangements or understandings with respect to the sale of any of
the shares. The shares offered by this prospectus may be offered from time to
time by the Selling Shareholders named below:
<TABLE>
<CAPTION>
Shares
of Common Stock
Number of Shares Beneficially Owned
of Common Stock Number of Shares Following the Offering(2)
Beneficially Owned of Common Stock -------------------------
Name Before Offering(1) Offered Hereby Number % of Class
---- ------------------- ---------------- -------------------------
<S> <C> <C> <C> <C>
Insight Capital Partners (Cayman) II, L.P. 204,000 204,000 * *
Insight Capital Partners II, L.P. 1,836,002 1,836,002 * *
UBS Capital II, LLC 847,240 560,240 287,000 *
Harold Dyck 121,749 121,749 * *
10930 Newfoundland Inc. 158,200 158,200 * *
10931 Newfoundland Inc. 152,268 152,268 * *
Alcatel Networks Corporation 278,137 278,137 * *
10729 Newfoundland Limited 207,555 207,555 * *
Ontario Teachers Pension Plan Board 137,731 137,731 * *
Peter Buchthal 32,241 32,241 * *
All other selling shareholders who 449,088 449,088 * *
are former shareholders or option
holders of FastLane Technologies,
Inc. together beneficially own
less than 1% of the total
outstanding shares prior to this
offering (240 persons)
All other selling shareholders who 79,823 79,823 * *
are former shareholders or option
holders of MessageWise, Inc.
together beneficially own less
than 1% of the total outstanding
shares prior to this offering
(18 persons)
All other selling shareholders who 8,878 8,878 * *
are former shareholders or option
holders of OnWire, Inc. together
beneficially own less than 1% of
the total outstanding shares prior to
this offering (13 persons)
</TABLE>
----------------
* Represents less than 1%
(1) Assumes the exchange of all exchangeable shares of our Canadian subsidiaries
for shares of our common stock at the exchange rate of one for one.
(2) Assumes all shares being offered by each selling shareholder are sold in
this offering.
12
<PAGE> 14
The shares offered by this prospectus by the selling shareholders
include shares that have been acquired or are to be acquired by certain selling
shareholders pursuant to exchanges of shares of our Canadian subsidiaries for
shares of our common stock. Exchangeable shares of our Canadian subsidiaries
were issued in connection with our acquisitions of MessageWise, Inc. in April
2000 and FastLane Technologies, Inc. in September 2000.
Jerry Murdock, Jr. is a managing member of the general partners of
InSight Capital Partners II, L.P. and InSight Capital Partners (Cayman) II,
L.P., which are selling shareholders. Mr. Murdock has served as a director of
Quest since April 1999. None of the other Selling Shareholders has held any
position or office or had a material relationship with Quest Software within the
past three years other than as a result of the ownership of the shares or other
securities of Quest Software or as a result of their employment with Quest
Software as of the date of the closing of the acquisitions.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
hereby will be passed upon for Quest by Stradling Yocca Carlson & Rauth, a
Professional Corporation, Newport Beach, California.
EXPERTS
The Consolidated Financial Statements of Quest as of December 31, 1998
and 1999 and for each of the three years in the period ended December 31, 1999,
incorporated in this prospectus by reference from Quest's Annual Report on Form
10-K for the year ended December 31, 1999, and the financial statements of
Foglight Software, Inc. as of December 31, 1999 and for the year then ended,
incorporated in this prospectus by reference from Quest's Current Report on Form
8-K dated January 7, 2000 (as amended), have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports, which are incorporated
herein by reference, and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The financial statements of MBR Technologies, Inc. as of March 31, 1999
and for the period from April 23, 1998 (inception) to March 31, 1999
incorporated by reference in this prospectus have been audited by Swenson
Advisors, LLP, independent auditors, as stated in their report with respect
thereto, are included in this prospectus and is given upon the authority of
Swenson Advisors, LLP, as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, and Chicago.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public at the SEC's
web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them which means that we can disclose important information to you by
referring you to those documents instead of having to repeat the information in
this prospectus. The information incorporated by reference is considered to be
part of this
13
<PAGE> 15
prospectus, and later information that we file with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings made with the SEC under Sections 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until the selling
shareholders sell all the shares covered by this prospectus:
o Our Annual Report on Form 10-K for the fiscal year ended December
31, 1999;
o Our Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2000 and June 30, 2000;
o Our Current Reports on Form 8-K dated December 17, 1999 (as
amended), January 7, 2000 (as amended), March 10, 2000, June 28,
2000 and September 11, 2000; and
o The description of our common stock contained in the registration
statement on Form 8-A filed on August 4, 1999, under Section 12 of
the Exchange Act, including any amendment or reports filed for the
purpose of updating such description.
You can request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Quest Software, Inc.
Attn: Investor Relations
8001 Irvine Center Drive
Irvine, California 92618
(949) 754-8000
You should rely only on the information contained in this prospectus or
any supplement and in the documents incorporated by reference. We have not
authorized anyone else to provide you with different information. The selling
shareholders will not make an offer of these shares in any state where the offer
is not permitted. You should not assume that the information in this prospectus
or any supplement or in the documents incorporated by reference is accurate on
any date other than the date on the front of those documents.
This prospectus is part of a registration statement we filed with the
SEC. This prospectus does not contain all of the information in the registration
statement or the exhibits to the registration statement, as permitted by SEC
rules. You may read and copy the full registration statement and its exhibits at
the SEC's public reference rooms or their web site.
14
<PAGE> 16
================================================================================
4,225,912 SHARES OF COMMON STOCK
QUEST SOFTWARE, INC.
PROSPECTUS
SEPTEMBER __, 2000
================================================================================
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the costs and expenses, all of which shall be
borne by the Registrant, in connection with the offering of the securities
pursuant to this Registration Statement:
Registration Fee.......................................... $ 66,381
Accounting Fees and Expenses.............................. $ 10,000
Legal Fees and Expenses................................... $ 10,000
Printing Expenses......................................... $ 10,000
Miscellaneous............................................. $ 3,619
--------
Total................................................. $100,000
========
--------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Articles of Incorporation limit the personal liability of our
directors for monetary damages to the fullest extent permitted by the California
General Corporation Law. Under the California General Corporation Law, a
director's liability to a company or its shareholders may not be limited with
respect to the following items: (1) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (2) acts or omissions
that a director believes to be contrary to the best interests of the company or
its shareholders or that involve the absence of good faith on the part of the
director, (3) any transaction from which a director derived an improper personal
benefit, (4) acts or omissions that show a reckless disregard for the director's
duty to the company or its shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the company or its
shareholders, (5) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the company
or its shareholders, (6) contracts or transactions between the company and a
director within the scope of Section 310 of the California General Corporation
Law or (7) improper dividends, loans and guarantees under Section 316 of the
California General Corporation Law. The limitation of liability does not affect
the availability of injunctions and other equitable remedies available to our
shareholders for any violation by a director of the director's fiduciary duty to
us or our shareholders.
Our Articles of Incorporation also include an authorization for Quest
to indemnify its "agents," as defined in Section 317 of the California General
Corporation Law, through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this provision, our bylaws provide
for indemnification of our directors, officers and employees. In addition, we
may, at our discretion, provide indemnification to persons whom we are not
obligated to indemnify. The bylaws also allow us to enter into indemnity
agreements with individual directors, officers, employees and other agents. We
have entered into these indemnity agreements with all of our directors and
executive officers. These agreements provide the maximum indemnification
permitted by law. These agreements, together with our bylaws and articles of
incorporation, may require us, among other things, to (1) indemnify our
directors or executive officers, other than for liability resulting from willful
misconduct of a culpable nature, (2) advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to indemnification,
and (3) obtain directors' and officers' insurance if available on reasonable
terms. Section 317 of the California General Corporation Law and our bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities, including reimbursement of expenses incurred,
arising under the Securities Act of 1933, as amended.
II-1
<PAGE> 18
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NUMBER DESCRIPTION
------- -----------
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.
23.1 Consent of Deloitte & Touche LLP, relating to the financial
statements of Quest Software, Inc. and Foglight Software, Inc.
23.2 Consent of Swenson Advisors, LLP, relating to the financial
statements of MBR Technologies, Inc.
23.3 Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (included in exhibit 5.1).
24.1 Power of Attorney (included on the signature page to this
Registration Statement.)
ITEM 17. UNDERTAKINGS
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3, Form S-8 or
Form F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is
II-2
<PAGE> 19
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and where, interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or give, the
latest quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on September 26, 2000.
QUEST SOFTWARE, INC.
By: /s/ DAVID M. DOYLE
----------------------------
David M. Doyle
President and Secretary
POWER OF ATTORNEY
We, the undersigned directors and officers of Quest Software, Inc., do
hereby constitute and appoint Vincent C. Smith, David M. Doyle and John J.
Laskey, or any one of them, our true and lawful attorneys-in-fact and agents,
each with full power to sign for us or any of us in our names and in any and all
capacities, any and all amendments (including post-effective amendments) to this
Registration Statement, or any related registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto and other documents
required in connection therewith, and each of them with full power to do any and
all acts and things in our names and in any and all capacities, which such
attorneys-in-fact and agents, or either of them, may deem necessary or advisable
to enable Quest Software, Inc. to comply with the Securities Act of 1933, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement; and we
hereby do ratify and confirm all that the such attorneys-in-fact and agents, or
either of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ VINCENT C. SMITH Chief Executive Officer and September 26, 2000
-------------------------------------- Chairman of the Board
Vincent C. Smith (principal executive officer)
/s/ JOHN J. LASKEY Chief Financial Officer and September 26, 2000
-------------------------------------- Vice President, Finance
John J. Laskey (principal financial officer)
/s/ DAVID M. DOYLE President, Secretary and Director September 26, 2000
--------------------------------------
David M. Doyle
/s/ KEVIN BROOKS Corporate Controller September 26, 2000
-------------------------------------- (principal accounting officer)
Kevin Brooks
/s/ DORAN G. MACHIN Director September 26, 2000
--------------------------------------
Doran G. Machin
/s/ JERRY MURDOCK, JR. Director September 26, 2000
--------------------------------------
Jerry Murdock, Jr.
</TABLE>
II-4
<PAGE> 21
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.
23.1 Consent of Deloitte & Touche LLP, relating to the financial
statements of Quest Software, Inc. and Foglight Software, Inc.
23.2 Consent of Swenson Advisors, LLP, relating to the financial
statements of MBR Technologies, Inc.
23.3 Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (included in exhibit 5.1).
24.1 Power of Attorney (included on the signature page to this
Registration Statement.)
