Securities Law & Instruments

Headnote

Subsection 74(1) - relief granted from the prospectus and registration requirements inconnection with trades in common shares of U.S public issuer and trades inexchangeable shares of non-reporting Canadian issuer, upon exercise of various rightsattached to the exchangeable shares - first trade relief granted in respect of trades inthe underlying common shares received upon the exercise of rights attaching to theexchangeable shares.

Statutes Cited

Securities Act, R.S.O. 1990, c.S.5, as am.

35(1)(12)(ii)

35(1)(16)

35(1)(17)

72(1)(f)(ii)

72(1)(j)

72(1)(k)

Rules Cited

Rule 45-501

Rule 72-501


IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")

AND

IN THE MATTER OF
QUEST SOFTWARE, INC., 1397639 ONTARIO INC. AND MESSAGEWISE INC.

RULING
(Subsection 74(1))


UPON the application of Quest Software, Inc. ("Quest") and 1397639 Ontario Inc.(the "Purchaser") to the Ontario Securities Commission (the "Commission") for a rulingpursuant to subsection 74(1) of the Act that the following trades are exempt from sections25 and 53 of the Act:

(a) the trades by Quest or by the Purchaser, in shares of common stock of Quest (the"Quest Shares"), with or to the holders (the "Shareholders") of exchangeableshares of the Purchaser (the "Exchangeable Shares") resident in Ontario upon theexercise of certain retraction rights and exchange rights of the Shareholders,redemption rights of the Purchaser or call rights of Quest in respect of theExchangeable Shares, as described in sections 13(a), (b) and (c) below;

(b) the issuance by Quest of Quest Shares to the Purchaser in connection with theliquidation, dissolution or winding up of the Purchaser as described in section 13(d)below; and

(c) the trades by the Shareholders in the Exchangeable Shares to Quest upon theexercise of certain call rights of Quest in respect of the Exchangeable Shares, asdescribed in section 13(e) below.

AND UPON considering the application and the recommendation of staff of theCommission;

AND UPON Quest having represented to the Commission as follows:

1. The Purchaser is a company incorporated under the Ontario Business CorporationsAct. The authorized capital of the Purchaser consists of an unlimited number ofcommon shares without nominal or par value (the "Purchaser Shares") and anunlimited number of Exchangeable Shares, of which 550 Purchaser Shares and201,572 Exchangeable Shares were issued and outstanding as at April 30, 2000.Quest owns all of the issued and outstanding Purchaser Shares.

2. Quest is a U.S. public company incorporated under the laws of the State ofCalifornia. The authorized capital of Quest consists of 150,000,000 Quest Sharesand 5,000,000 preferred shares, of which 85,289,182 Quest Shares (excludingoptions to acquire Quest Shares) and no preferred shares were issued andoutstanding as at April 17, 2000.

3. Quest is subject to the requirements of the Securities Exchange Act of 1934, asamended, of the United States, and the Quest Shares are quoted on the NasdaqStock Market - National Market System ("NASDAQ") under the symbol "QSFT".

4. Quest is not and has no present intention of becoming a reporting issuer under theAct.

5. MessageWise Inc. ("MessageWise") is a company incorporated under the OntarioBusiness Corporations Act. The authorized capital of MessageWise consists of anunlimited number of Class A common shares, an unlimited number of Class Bcommon shares and an unlimited number of preferred shares.

6. In accordance with the terms of an agreement (the "Share Purchase Agreement")dated April 24, 2000 among Harold J. Dyck, Steve Denison, Razmik Malek-Adamian, John McFetridge, Kevin Foisy, Annmarie Brady, Curtis Johnstone, LesleyPurtell, Bob Albert, David Jones, Maynard Denison, Robert Mitchell and RickDoyon, each (with the exception of John McFetridge) an individual residing in theCity of Ottawa in the Province of Ontario, and Mercator Investments Limited, acompany incorporated pursuant to the laws of the Province of Ontario, HBSCorporate Finance Inc., a company incorporated pursuant to the laws of theProvince of Ontario, and The Branham Group Inc., a company incorporatedpursuant to the laws of Canada (each, individually a "Vendor"), Harold J. Dyck (asvendor's agent), MessageWise, the Purchaser and Quest, the Purchaser agreedto purchase all the outstanding shares of MessageWise in exchange for acombination of cash and Exchangeable Shares.

7. The Exchangeable Shares provide the Vendors with a security of a Canadian issuerhaving economic rights which are, as nearly as practicable, equivalent to those ofa Quest Share.

8. The rights, provisions, restrictions and conditions attaching to the ExchangeableShares (the "Exchangeable Share Provisions") provide that each holder ofExchangeable Shares is entitled to dividends from the Purchaser payable on theExchangeable Shares at the same time as, and in an amount equivalent to, eachdividend paid by Quest on a Quest Share.

9. Upon the liquidation, dissolution or winding up of the Purchaser, a holder ofExchangeable Shares will be entitled to receive from the Purchaser for eachExchangeable Share held an amount per share equal to the current market priceof a Quest Share, to be satisfied by delivery of one Quest Share, together with alldeclared and unpaid dividends on each such Exchangeable Share held by theholder (collectively, the "Liquidation Amount"). Notwithstanding the foregoing,upon any proposed liquidation, dissolution or winding-up of the Purchaser, Questwill have an overriding call right (the "Liquidation Call Right") to purchase all ofthe outstanding Exchangeable Shares from the holders thereof for an amount perExchangeable Share equal to the current market price of a Quest Share, to besatisfied by delivery of one Quest Share, together with all declared and unpaiddividends on each such Exchangeable Share.

10. The Exchangeable Shares will be non-voting (except as required by theExchangeable Share Provisions or by applicable law) and will be retractable at theoption of the holder at any time. Upon retraction, a holder of Exchangeable Shareswill be entitled to receive from the Purchaser for each Exchangeable Shareretracted an amount per share equal to the current market price of a Quest Share,to be satisfied by delivery of one Quest Share, together with, on the designatedpayment date therefor, all declared and unpaid dividends on each such retractedExchangeable Share held by the holder (collectively the "Retraction Amount").Notwithstanding the foregoing, upon being notified by the Purchaser of a proposedretraction of Exchangeable Shares, Quest will have an overriding call right (the"Retraction Call Right") to purchase from the holders all of the ExchangeableShares that are the subject of the retraction notice for an amount per ExchangeableShare retracted equal to the current market price of a Quest Share, to be satisfiedby delivery of one Quest Share, together with, on the designated payment datetherefor, all declared and unpaid dividends on each such retracted ExchangeableShare.

11. The Purchaser may redeem all of the Exchangeable Shares then outstanding at anytime on or after April 27, 2005, subject to certain adjustments (the "RedemptionDate"). Upon such redemption, a holder of Exchangeable Shares will be entitledto receive from the Purchaser for each Exchangeable Share redeemed an amountper share equal to the current market price of a Quest Share, to be satisfied by thedelivery of one Quest Share, together with all declared and unpaid dividends oneach such redeemed Exchangeable Share held by the holder on any dividendrecord date prior to the Date of Redemption (collectively, the "RedemptionAmount"). Notwithstanding the foregoing, upon being notified by the Purchaser ofa proposed redemption of Exchangeable Shares, Quest will have an overriding callright (the "Redemption Call Right") to purchase all of the outstandingExchangeable Shares from the holders thereof for an amount per ExchangeableShare redeemed equal to the current market price of a Quest Share, to be satisfiedby delivery of one Quest Share, together with all declared and unpaid dividends oneach such redeemed Exchangeable Share held by the holder on any dividendrecord date prior to the Redemption Date.

12. Pursuant to the terms of the Share Purchase Agreement, Quest has agreed toprovide such assets, funds and other property as may be necessary in order thatthe Purchaser will have sufficient assets, funds and other property to pay andotherwise perform its obligations to satisfy all dividends, the Liquidation Amount,the Retraction Amount and the Redemption Amount.

13. The following trades in securities may be subject to the registration and prospectusrequirements of the Act unless the ruling sought is granted (the "Non-ExemptTrades"):

(a) the issuance by Quest and the transfer of Quest Shares through thePurchaser to the Shareholders upon retraction by such holders of theExchangeable Shares or upon redemption of the Exchangeable Shares bythe Purchaser on the Redemption Date;

(b) the issuance by Quest of Quest Shares to the Shareholders upon theexercise by Quest of the Liquidation Call Right, the Retraction Call Right orthe Redemption Call Right;

(c) the issuance by Quest of Quest Shares to the Shareholders upon theexercise by the Shareholders of the Exchange Right or upon the deemedexercise of the Automatic Exchange Right;

(d) the issuance by Quest of Quest Shares to the Purchaser in connection withthe transfer of Quest Shares to the Shareholders by the Purchaser on theliquidation, dissolution or winding up of the Purchaser; and

(e) the transfer by the Shareholders of Exchangeable Shares to Quest upon theexercise by Quest of the Liquidation Call Right, the Retraction Call Right orthe Redemption Call Right or upon the exercise by the Shareholders of theExchange Right or upon the deemed exercise of the Automatic ExchangeRight.

14. If the Shareholders acquired the maximum number of Quest Shares to which theyare entitled pursuant to the Exchangeable Share Provisions then, as at April 17,2000, Ontario residents would have constituted less than 10% of the total numberof registered holders of Quest Shares holding less than 10% of the total issued andoutstanding Quest Shares.

15. There is no market, and none is expected to develop, for the Quest Shares in theProvince of Ontario.

16. All disclosure material furnished to the holders of Quest Shares resident in theUnited States is concurrently furnished to the holders of Exchangeable Sharesresident in the Province of Ontario.

AND UPON the Commission being satisfied that to do so would not be prejudicialto the public interest;

IT IS RULED, pursuant to subsection 74(1) of the Act, that the Non-Exempt Tradesare exempt from sections 25 and 53 of the Act provided that the first trade in Quest Sharesacquired pursuant to this Ruling shall be a distribution unless such trade is executedthrough the facilities of a stock exchange outside of Ontario or on NASDAQ.

June 30th, 2000.

"Howard I. Wetston"     "Robert W. Davis"