SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 22, 1996
QUALITY SYSTEMS, INC.
__________________________________________________
(Exact Name of Registrant as Specified in Charter)
California 0-13801 95-2888568
________________________________________________________________________
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
17822 East 17th Street, Tustin, California 92780
________________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (714) 731-7171
N/A
_______________________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
This Report is filed pursuant to Item 5 of Form 8-K
to report the adoption of a shareholder rights plan by Quality
Systems, Inc. Pursuant to General Instruction F of Form 8-K,
the following documents are incorporated by reference herein
and attached as exhibits hereto:
Exhibits
1. Quality Systems, Inc. Press Release of November
22, 1996 regarding the adoption of a shareholder rights plan.
2. Form of Letter to Shareholders announcing the
adoption of a shareholder rights plan and transmitting a
summary of the rights.
3. Summary of the Rights issued pursuant to the
Rights Agreement dated as of November 25, 1996 between Quality
Systems, Inc. and U.S. Stock Transfer Corporation, as Rights
Agent.
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto
duly authorized.
Date: December 4, 1996 QUALITY SYSTEMS, INC.
By: /s/ Robert G. McGraw
Name: Robert G. McGraw
Its: Chief Financial Officer
<PAGE>
<TABLE>
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
_________ ______________________________________________________________
<S> <C> <C>
1 Quality Systems, Inc. Press Release of November 22, 4
1996 regarding the adoption of a shareholder rights
plan.
2 Form of Letter to Shareholders announcing the adoption 5
of a shareholder rights plan and transmitting a
summary of the rights.
3 Summary of the Rights issued pursuant to the Rights 7
Agreement dated as of November 25, 1996
between Quality Systems, Inc. and U.S. Stock
Transfer Corporation, as Rights Agent.
</TABLE>
<PAGE>
EXHIBIT 1
Press Release.
QUALITY SYSTEMS, INC. IMPLEMENTS SHAREHOLDER RIGHTS PLAN
Tustin, CA. November 22 -- Quality Systems, Inc.
(Nasdaq National Market: QSII) announced today that its board of
directors has approved the adoption of a shareholder rights
plan.
The rights plan provides for the distribution to
Quality Systems shareholders of record as of December 2, 1996 of
one common stock purchase "right" for each outstanding share of
common stock. The rights will trade with the Company's common
stock and will not be exercisable until the occurrence of
certain triggering events including the acquisition by any
person or group of 15% or more of the outstanding common stock
of Quality Systems. After a triggering event, the holders of
rights (other than the acquiring person or group) would, under
certain circumstances, have the right to purchase additional
shares of Quality Systems common stock (or, in some cases, stock
of an acquiring entity) at a discount of 50% from the then
market price. Existing shareholder positions in excess of 15%
of the outstanding common stock will not trigger the rights.
However, no such shareholder may acquire additional shares
without prior board consent. The rights can be redeemed by the
Company at any time, and will otherwise expire on November 25,
2006.
"The shareholder rights plan is intended to help the
board of directors effectively represent the interests of
shareholders in the event of takeover activity" said Sheldon
Razin, the Company's President and Chief Executive Officer. "We
believe the Company is undervalued at current trading prices for
our stock and the board determined that adoption of a rights
plan would be an important step in protecting shareholder
interests."
Quality Systems, Inc. is one of the leading developers
and providers of computer-based practice management systems for
medical and dental group practices, with a customer base of
approximately 500 clients in 45 states, Canada and Saudi Arabia.
<PAGE>
EXHIBIT 2
Form of
Letter to Shareholders.
December 2, 1996
Dear Shareholder:
On November 22, 1996, your Board of Directors
adopted a shareholder rights plan in an effort to assure that
all Quality Systems, Inc. shareholders receive maximum value
in the event of an attempted or actual takeover of the
Company. We have enclosed a summary description of the plan
which we urge you to read carefully.
Adoption of rights plans is a common practice among
public companies in the United States. Rights plans are
intended to provide the Board of Directors with additional
time and bargaining power to protect shareholder interests in
the event of an unsolicited takeover bid. The Quality Systems
rights plan will not prevent a takeover of the Company on
terms that are in the best interests of all shareholders.
However, the rights plan should encourage a potential acquiror
to negotiate with the Board prior to attempting a takeover.
This should position the Board to protect your interests.
The Quality Systems rights plan involves
distribution of one "Right" for each share of common stock
outstanding on December 2, 1996. Thereafter, each newly
issued share of common stock will also include a Right.
Initially, there will be no separate Rights certificates.
Instead, each Right will simply be a part of the share of
common stock to which it is attached. It will be represented
by the common stock certificate, it will trade automatically
with the common stock, and it will not be separable or
exercisable unless certain events occur.
If a person or group acquires 15% or more of Quality
Systems' outstanding common stock, each Right not owned by the
acquiror or its affiliates will entitle its holder to pay the
Company $40.00 (the exercise price per Right) and receive
newly issued shares of common stock worth $80.00. For
example, if the stock were trading at $10, each Right would
entitle its holder to purchase 8 shares for $40, or $5 per
share. This ability of shareholders other than the acquiror
to purchase additional shares at a 50% discount from market
would cause an unapproved takeover to be much more expensive
to an acquiror. As a result, a potential acquiror would have
a strong incentive not to pursue a hostile strategy, and
instead to negotiate with your Board of Directors to redeem
the Rights or approve the transaction so that the Rights do
not become exercisable.
Adoption of the rights plan does not affect the
financial strength of the Company and will not interfere with
our business strategy and plans. The issuance of the Rights
alone will not affect earnings per share or change the way in
which you can presently trade the Company's shares.
<PAGE>
The attached summary describes the Rights in more detail.
Thank you for your continued support of Quality Systems, Inc.
Sincerely,
<PAGE>
EXHIBIT 3
Summary of the Rights.
On November 22, 1996 (the "Rights Dividend Declaration
Date"), the Board of Directors of Quality Systems, Inc. (the
"Company") declared a dividend of one right (a "Right") to
purchase one share of the Company's common stock, par value $0.01
per share (the "Common Stock") and, under certain circumstances,
other securities, for each outstanding share of the Company's
common stock, to be distributed to stockholders of record at the
close of business on December 2, 1996 (the "Record Date"). The
description and terms of the Rights are set forth in a
Shareholder Rights Agreement (the "Rights Agreement") dated as of
November 25, 1996 between the Company and U.S. Stock Transfer
Corporation, as Rights Agent.
The following is a brief description of the Rights. It
is intended to provide a general description only and is
qualified in its entirety by reference to the Rights Agreement
which has been filed as an exhibit to the Company's Registration
Statement on Form 8-A filed with the Securities and Exchange
Commission concurrently herewith.
A. Issuance of the Rights
Each share of Common Stock outstanding at the close of
business on the Record Date (approximately 5,987,712 shares) will
receive one Right. In addition, prior to the earliest of the
Distribution Date, a Section 13 Event or the Expiration Date (as
each is hereinafter defined), one additional Right (as such
number may be adjusted pursuant to the provisions of the Rights
Agreement) shall be issued with each share of Common Stock issued
after the Record Date. Following the Distribution Date and prior
to the expiration or redemption of the Rights, the Company will
issue one Right (as such number may be adjusted pursuant to the
provisions of the Rights Agreement) for each share of Common
Stock issued pursuant to the exercise of stock options or under
employee plans or upon the exercise, conversion or exchange of
securities issued by the Company prior to the Distribution Date.
The "Expiration Date" shall mean the earliest of (i) November 25,
2006; (ii) the date of redemption of the Rights; or (iii) the
date the Board orders an exchange of Rights.
B. Common Stock Certificates Represent the Rights Prior to
the Distribution Date
Prior to the Distribution Date (as hereinafter
defined), no separate Rights certificates will be issued.
Instead, the Rights will be evidenced by the certificates for the
Common Stock to which they are attached and will be transferred
with and only with such Common Stock certificates. The surrender
for transfer of any certificates for Common Stock outstanding
will also constitute the transfer of the Rights associated with
the Common Stock represented by such certificate. New Common
Stock certificates issued after the Record Date will contain a
legend incorporating the Rights Agreement by reference.
C. Distribution Date; Issuance of Rights Certificates
The Rights will separate from the Common Stock and
become exercisable and a Distribution Date will occur (the
"Distribution Date") upon the earlier of ten days after: (i) the
first date of public announcement that a person or group of
affiliated or associated persons has acquired beneficial
ownership of 15% or more of the outstanding shares of Common
Stock (an "Acquiring Person") or such earlier date as a majority
of the directors shall become aware of the existence of an
Acquiring Person (the "Stock Acquisition Date"), or (ii) the date
of a tender or exchange offer by any person or group, if upon
consummation thereof, such person or group of affiliated or
associated persons would be the beneficial owner of 15% or more
of the shares of Common Stock then outstanding. As soon as
practicable after the Distribution Date, Rights certificates will
be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the
separate Rights certificates alone will represent the Rights.
<PAGE>
D. Exercise of the Rights
Rights Initially Not Exercisable. Prior to the
Distribution Date, the Rights are not exercisable.
Exercise of the Rights to Purchase Common Stock of the
Company. At any time after the Distribution Date but prior to
the earlier of the expiration or redemption of the Rights or an
adjustment as described below, each Right may be exercised at the
stated purchase price of $40.00 (subject to adjustment, the
"Exercise Price") for one share of Common Stock.
Exercise of the Rights to Purchase Common Stock of the
Company at an Adjusted Purchase Price. In the event that any
person, alone or with affiliates, becomes the beneficial owner of
15% or more of the then outstanding shares of the Company's
Common Stock, then (subject to the grandfather provision
described in Paragraph J below) each holder of a Right will
thereafter have the right to exercise the Right for shares of
Common Stock (or, in certain circumstances, cash, property or
other securities of the Company) having a value equal to two
times the Exercise Price of the Right. If the Company does not
have sufficient Common Shares available for all Rights to be
exercised, the Company may substitute for all or any portion of
the Common Stock that would be issuable upon exercise of the
Rights, cash, assets, or other securities having the same
aggregate value as such Common Stock. The Rights are exercisable
as described in this paragraph only after the Company's right of
redemption (as described below) has expired. Notwithstanding any
of the foregoing, following the occurrence of the event set forth
in this paragraph (a "Section 11(a)(ii) Event"), all Rights that
are, or under certain circumstances specified in the Rights
Agreement were, beneficially owned by an Acquiring Person will be
null and void.
Exercise of the Rights to Purchase Common Stock of An
Acquiring Company. In the event that, at any time following the
Stock Acquisition Date, (i) the Company is merged or consolidated
with another company in a business combination transaction in
which the Company is not the surviving corporation or (ii) the
Company is merged or consolidated with another company in a
business combination transaction in which the Company is the
surviving corporation and all or part of the Common Stock of the
Company is exchanged for stock of any other person, cash or any
other property, or (iii) more than 50% of the assets or earning
power of the Company and its subsidiaries (taken as a whole) is
sold or transferred, then each holder of a Right (except Rights
which previously have been voided as set forth above) shall
thereafter have the right to exercise the Right for common stock
of the acquiring company or survivor having a value equal to two
times the Exercise Price of the Right. (An event described in
this paragraph is a "Section 13 Event.")
Adjustment of Number of Rights, Purchase Price and
Number of Units of Common Stock. The Exercise Price payable
and/or the number of shares of Common Stock or other securities
or property issuable upon exercise of the Rights are subject to
proportionate adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Common Stock, (ii) in the
event all holders of the Common Stock are granted certain rights
or warrants to subscribe for Common Stock or convertible
securities at less than the current market price of the Common
Stock, or (iii) upon the distribution to holders of the Common
Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants
(other than those referred to above). If at any time after the
Rights Dividend Declaration Date and prior to the Distribution
Date the Company declares a stock dividend on, subdivides or
combines the outstanding shares of Common Stock, the number of
Rights associated with each share of Common Stock shall be
proportionately adjusted.
<PAGE>
E. Fractional Rights and Fractional Shares
The Company is generally not required to issue
fractional Rights or fractional shares of Common Stock and, in
lieu thereof, an adjustment in cash will be made based on the
market price of the Rights or Common Stock, respectively.
F. Redemption of the Rights
In general, the Company may redeem all (but not less
than all) of the Rights at a price of $0.001 per Right (subject
to adjustment to reflect stock splits, stock dividends, or
similar transactions), at any time until the earlier of the tenth
day following the Stock Acquisition Date or the time following
the Stock Acquisition Date that a majority of the directors of
the Company are persons who were not directors immediately prior
to the Stock Acquisition Date. This redemption period may be
extended by the Board of Directors by amending the Rights
Agreement as described in Paragraph H below prior to the time
when the Rights become nonredeemable. The redemption price may
be paid in cash, shares of Common Stock, or any other
consideration the Board of Directors deems appropriate.
Immediately upon the action of the Board of Directors ordering
redemption of the Rights, the Rights will terminate and the only
right of the holders of Rights will be to receive the $0.001
redemption price.
G. Exchange of the Rights
At any time after the Stock Acquisition Date and before
(i) any person or group acquires 50% or more of the outstanding
Common Stock or (ii) the time following the Stock Acquisition
Date that a majority of the directors of the Company are persons
who were not directors immediately prior to the Stock Acquisition
Date, the Company may by majority vote of the Board of Directors
exchange some or all of the outstanding and exercisable Rights
for Common Stock at a one-to-one exchange ratio (appropriately
adjusted to reflect stock splits, dividends or similar
transactions). Rights may not be exercised after the Board
orders their exchange. If there is not sufficient authorized
unissued Common Stock to fund an exchange, the Board by majority
vote may fund the exchange through other consideration, including
issuance of debt and/or equity. In addition, at any time before
any person or group becomes an Acquiring Person, the Board by
majority vote, may exchange some or all of the Rights for rights
of substantially equivalent value.
H. Amendments
Other than those provisions relating to the redemption
price or the final expiration date of the Rights, any of the
provisions of the Rights Agreement may be supplemented or amended
by the Board of Directors of the Company, without approval of the
Rights holders, prior to the earlier of (i) the Distribution Date
or (ii) the time following the Stock Acquisition Date that a
majority of the directors of the Company are persons who were not
directors immediately prior to the Stock Acquisition Date,
whether or not the supplement or amendment is adverse to the
Rights holders. After the earlier of the dates described above,
any provisions of the Rights Agreement (other than those
provisions relating to the redemption price or the final
expiration date of the Rights) may be amended by the Board of
Directors in order to (i) cure any ambiguous, defective or
inconsistent provision, (ii) shorten or lengthen any time period,
or (iii) otherwise change a provision which the Board of
Directors may deem necessary or desirable and which does not
materially and adversely affect the interests of holders of
Rights (other than any Acquiring Person or such Person's
affiliates); provided, the Rights Agreement may not be amended to
(A) make the Rights again redeemable after the Rights have ceased
to be redeemable, or (B) change any other time period unless such
change is for the purpose of protecting, enhancing or clarifying
the rights of, and/or the benefits to the holders of the Rights
(other than any Acquiring Person).
<PAGE>
I. Expiration
The Rights will expire upon the earliest to occur of
(i) the close of business on November 25, 2006 or (ii) the
exchange or redemption of the Rights by the Company.
J. Shareholders With Pre-Existing Holdings Equaling or Exceeding 15%
Any shareholder who already owned 15% or more of the
Company's outstanding stock on the Rights Dividend Declaration
Date (an "Original 15% Shareholder") is "grandfathered" under the
terms of the Rights Agreement and will not trigger the plan,
unless such Original 15% Shareholder subsequently acquires any
shares without the board's prior approval, and after such
acquistion would, together with affiliates and associates, own
15% or more of the Company's outstanding stock.
K. No Shareholder Rights Prior to Exercise
Until a Right is exercised, the holder thereof, as
such, will have no rights as a shareholder of the Company,
including, without limitation, the right to vote or to receive
dividends.
L. Anti-Takeover Effects
The Rights are designed to protect and maximize the
value of shareholders' interests in the Company in the event of
an unsolicited takeover attempt in a manner or on terms not
approved by the Board of Directors. Takeover attempts frequently
include coercive tactics to deprive the Board of Directors and
shareholders of any real opportunity to determine the destiny of
the Company. The Rights have been declared by the Board in order
to deter such tactics, including a gradual accumulation in the
open market of a 15% or greater position, followed by a merger or
a partial or two-tier tender offer that does not treat all
shareholders equally. These tactics can unfairly pressure
shareholders, cash them out of their investment without giving
them any real choice and deprive them of the full value of their
shares.
The Rights are not intended to prevent a takeover of
the Company and will not do so. The rights may be redeemed by
the Company as described in paragraph F, and accordingly, the
Rights should not interfere with any merger or business
combination approved by the Board of Directors.
<PAGE>
Issuance of the Rights does not weaken the Company or
interfere with its business plans. The issuance of the Rights
themselves has no dilutive effect, will not affect reported
earnings per share, should not be taxable to the Company or to
its shareholders, and will not change the way in which the
Company's shares are presently traded. The Company's Board of
Directors believes that the Rights represent a sound and
reasonable means of addressing the complex issues of corporate
policy created by the current takeover environment.
However, the Rights may have the effect of rendering
more difficult or discouraging an acquisition of the Company
deemed undesirable by the Board of Directors. The Rights may
cause substantial dilution to a person or group that attempts to
acquire the Company on terms or in a manner not approved by the
Company's Board of Directors.
