<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Quality Systems, Inc.
___________________________________________________________________________
(Name of Registrant as Specified in Its Charter)
___________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
_______________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
_______________________________________________________________________
(3) Filing Party:
_______________________________________________________________________
(4) Date filed:
_______________________________________________________________________
<PAGE> 2
[logo]
Quality Systems, Inc.
17822 East 17th Street, Suite 210
Tustin, California 92780
________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 10, 1997
To The Shareholders of Quality Systems, Inc.
The Annual Meeting of Shareholders of Quality Systems, Inc. (the
"Company") will be held at The Center Club, 650 Town Center Drive, Costa
Mesa, California, on Wednesday, September 10, 1997, at 3:00 P.M. Pacific
Time, for the following purposes:
1. To elect eight (8) persons to serve as directors of the
Company until the next annual meeting. The nominees for election to
the Board of Directors are named in the attached Proxy Statement,
which is a part of this Notice.
2. To ratify the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending
March 31, 1998.
3. To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
Only shareholders of record at the close of business on July 16, 1997,
are entitled to notice of and to vote at the Annual Meeting and at any
adjournments of the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. Whether or not you plan to attend the Annual Meeting, please sign
the enclosed proxy and return it in the enclosed addressed envelope. Your
promptness in returning the proxy will assist in the expeditious and
orderly processing of the proxy and will assure that you are represented at
the Annual Meeting. If you return your proxy card, you may nevertheless
attend the Annual Meeting and vote your shares in person, if you wish.
By Order of the Board of Directors,
QUALITY SYSTEMS, INC.
/s/ Janet M. Razin
Janet M. Razin
Vice President and
Corporate Secretary
Tustin, California
July 23, 1997
<PAGE> 3
[logo]
Quality Systems, Inc.
17822 East 17th Street, Suite 210
Tustin, California 92780
________________________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 10, 1997
________________________
PROXY STATEMENT
________________________
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of
Quality Systems, Inc. (the "Company") for use at the Company's Annual
Meeting of Shareholders to be held at The Center Club, 650 Town Center
Drive, Costa Mesa, California on Wednesday, September 10, 1997, at 3:00
P.M. Pacific Time, and at any and all adjournments thereof. All shares
represented by each properly executed and unrevoked proxy received in time
for the meeting will be voted in the manner specified therein.
Any shareholder has the power to revoke his or her proxy at any time
before it is voted. A proxy may be revoked by delivering a written notice
of revocation to the Secretary of the Company, by submitting prior to or at
the meeting a later dated proxy executed by the person executing the prior
proxy, or by attendance at the meeting and voting in person by the person
executing the proxy.
This proxy statement, the accompanying proxy card and the Company's
Annual Report are being mailed to the Company's shareholders on or about
July 23, 1997. The cost of soliciting proxies will be borne by the
Company. The solicitation will be made by mail and expenses will include
reimbursement paid to brokerage firms and others for their expenses in
forwarding solicitation material regarding the Annual Meeting to beneficial
owners of the Company's Common Stock. Further solicitation of proxies may
be made by telephone or oral communications with some shareholders. All
such further solicitations will be made by the Company's regular employees
who will not receive additional compensation for the solicitation.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 5,989,512 shares of the Company's Common
Stock outstanding at the close of business on July 16, 1997, are entitled
to notice of and to vote at the Annual Meeting or any adjournment thereof.
A majority of the shares, represented in person or by proxy, will
constitute a quorum for the transaction of business. All proxies delivered
to the Company will be counted in determining the presence of a quorum,
including those providing for abstention or withholding of authority and
those delivered by brokers voting without beneficial owner instruction and
exercising a non-vote on certain matters. The eight nominees for director
receiving the highest number of affirmative votes will be elected; votes
withheld and votes against a nominee have no legal effect. In matters
other than election of directors, the affirmative votes of a majority of
<PAGE> 4
the shares represented and voting at a meeting at which a quorum is present
is required for approval; in such matters, abstentions and broker non-votes
are not counted. Each shareholder will be entitled to one vote, in person
or by proxy, for each share of Common Stock held of record on the record
date, except that all shareholders have cumulative voting rights and in the
event any shareholder gives notice at the Annual Meeting, prior to the
voting, of an intention to cumulate his or her votes in the election of
directors, then all shareholders entitled to vote at the Annual Meeting may
cumulate their votes in the election of directors. Cumulative voting means
that a shareholder has the right to give any one candidate whose name has
been properly placed in nomination prior to the voting a number of votes
equal to the number of directors to be elected, multiplied by the number of
shares such shareholder would otherwise be entitled to vote, or to
distribute such votes on the same principle among as many nominees (up to
the number of persons to be elected) as the shareholder may wish. The
proxy being solicited by the Board of Directors confers discretionary
authority to cumulate votes.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of July 16, 1997 by
(i) each person known by the Company to beneficially own more than 5% of
the outstanding shares of Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers (as hereinafter
defined), and (iv) all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
Number of Shares Percent of
of Common Stock Common Stock
Beneficially Beneficially
Name Of Beneficial Owner(1) Owned(2) Owned(2)
- ------------------------ ---------------- ------------
<S> <C> <C>
Janet Razin and
Sheldon Razin(3) 1,510,220 25.21%
Ahmed Hussein(4) 1,147,400 19.16%
Patrick Cline 110,325 1.84%
Graeme Frehner 56,554 (6)
John Bowers, M.D. 41,230 (6)
Greg Flynn 31,030(5) (6)
George Bristol 13,500 (6)
William Bowers 10,200 (6)
Robert McGraw 8,500(5) (6)
Robert Beck 5,000 (6)
Gordon Setran 1,500 (6)
All directors and officers as
a group (14 persons, including
those named above) 1,833,359 (5) 30.21%
</TABLE>
- ----------------
(1) Unless otherwise indicated, the address of each of these persons is
c/o Quality Systems, Inc., 17822 East 17th Street, Suite 210, Tustin,
California 92780. Unless otherwise indicated, to the Company's
knowledge, the persons named in the table have sole voting and sole
investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
(2) Applicable percentage ownership is based on 5,989,512 shares of Common
Stock outstanding as of July 16, 1997. Any securities not outstanding
<PAGE> 5
but subject to options exercisable as of July 16, 1997 or exercisable
within 60 days after such date are deemed to be outstanding for the
purpose of computing the percentage of outstanding Common Stock
beneficially owned by the person holding such options but are not
deemed to be outstanding for the purpose of computing the percentage
of Common Stock beneficially owned by any other person.
(3) Janet Razin and Sheldon Razin, each of whom is an officer and director
of the Company, are married to each other and own their shares as
community property.
(4) As reflected in the Schedule 13D/A dated May 13, 1997. The address
for Mr. Hussein is 30 Rockefeller Center, Suite 1936, New York, New
York 10112.
(5) Includes shares of Common Stock subject to stock options which were
exercisable as of July 16, 1997 or exercisable within 60 days after
July 16, 1997, and are, respectively, as follows: Mr. Flynn, 29,000
shares; Mr. McGraw, 7,500 shares; and all directors and officers as a
group, 79,500 shares.
(6) Less than one percent.
ELECTION OF DIRECTORS
(Proposal No. 1)
Directors are elected at each Annual Meeting of Shareholders and hold
office until their respective successors are duly elected and qualified.
The full Board consists of eight directors. Certain information with
respect to the eight nominees for election as directors is set forth below.
All of the nominees are now serving as directors and were elected to their
present terms of office by the shareholders. Although it is anticipated
that each nominee will be available to serve as a director, should any
nominee become unavailable to serve, the proxies will be voted for such
other person as may be designated by the Company's Board of Directors.
Unless the authority to vote for directors has been withheld in the
proxy, the persons named in the enclosed proxy intend to vote at the Annual
Meeting for the election of the nominees presented below. However,
discretionary authority to cumulate votes represented by proxies and to
cast such votes for any or all of the nominees named below is solicited by
the Board of Directors because, in the event nominations are made in
opposition to the nominees of the Board of Directors, it is the intention
of the persons named in the enclosed proxy to cumulate votes represented by
proxies in accordance with their best judgment for individual nominees in
order to assure the election of as many of the nominees to the Board of
Directors as possible.
In the election of directors, assuming a quorum is present, the eight
nominees receiving the highest number of votes cast at the meeting will be
elected directors. As a result, proxies voted to "Withhold Authority" and
broker non-votes will have no practical effect upon the election of
directors, although proxies specifying "Withhold Authority" will be counted
for purposes of determining whether a quorum is present, as would proxies
delivered by brokers voting without beneficial owner instruction and
exercising a non-vote on certain matters.
<PAGE> 6
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ELECTION OF
EACH OF THE NOMINEES NAMED BELOW.
<TABLE>
<CAPTION>
First Year
Became
Nominee's Name Age Principal Occupation Director
- ------------------- --- ----------------------------------- ---------
<S> <C> <C> <C>
Sheldon Razin 59 Chairman of the Board of Directors 1974
and President and Chief Executive
Officer of the Company
John Bowers, M.D. 59 Chief Executive Officer 1987
Heart Institute of Nevada
William Bowers 68 Retired 1989
George Bristol 48 Director of Corporate Finance 1982
Ernst & Young
Patrick Cline 36 Executive Vice President of the 1996
Company and President and Chief
Operating Officer of Clinitec
International, Inc., the
Company's wholly-owned subsidiary
Graeme Frehner 58 Retired 1982
Janet Razin 57 Vice President and Corporate 1974
Secretary of the Company
Gordon Setran 75 Retired 1982
</TABLE>
Sheldon Razin is the founder of the Company and has served as Chairman
of the Board of Directors and Chief Executive Officer since the Company's
inception. He also has served as the Company's President since its
inception except for the period from August 1990 to August 1991.
Additionally, Mr. Razin served as Treasurer from the Company's inception
until October 1982. Prior to founding the Company, he held various
technical and managerial positions with Rockwell International Corporation
and was a founder of the Company's predecessor, Quality Systems, a sole
proprietorship engaged in the development of software for commercial and
space applications and in management consulting work. Mr. Razin holds a
B.S. degree in Mathematics from the Massachusetts Institute of Technology.
Mr. Razin is the husband of Janet Razin.
John Bowers, M.D., has served as a Director since June 1987, and is
the founder and Chief Executive Officer of the Heart Institute of Nevada, a
major freestanding cardiac catheterization and diagnostic center. In 1970,
Dr. Bowers moved to Las Vegas, Nevada to associate with Dr. P.R. Akre, who
organized the first catheterization laboratory in Nevada. He subsequently
became Director of Cardiology at Sunrise Hospital and Valley Hospital. On
June 1, 1975, he founded Cardiology Associates of Nevada, John A. Bowers,
M.D., FACC, a professional corporation, and the forerunner of the Heart
Institute of Nevada. Prior to 1970, Dr. Bowers practiced cardiology in
Santa Paula, California, after serving in the U.S. Air Force. Dr. Bowers
graduated from Indiana University School of Medicine.
William Bowers has served as a Director since June 1989. He was co-
founder and Chairman of MSI Data Corporation, a leading manufacturer of
"on-the-move" hand-held data collection systems, headquartered in Costa
<PAGE> 7
Mesa, California. Founded in 1967, MSI was a public company until it was
acquired by Symbol Technologies, Inc. in 1988. Mr. Bowers is also a
Director of D.H. Technology, Inc., a publicly-owned company. Mr. Bowers
has two Bachelors degrees, one in Advertising from USC and another in
Electrical Engineering from UCLA.
George Bristol, who has served as a Director since December 1982, has
been a member of the corporate finance group of Ernst & Young LLP, an
international professional services firm, since February 1992. Prior to
joining Ernst & Young LLP, Mr. Bristol was a Managing Director with the
investment banking firms of Dean Witter Reynolds Inc. from September 1989
until February 1992 and Prudential Securities, Inc., for more than eight
years, until September 1989. Prior to joining Prudential Securities, Inc.,
Mr. Bristol served as First Vice President of Blyth Eastman Paine Webber
Incorporated, an investment banking firm. He holds a B.A. degree from the
University of Michigan and an M.B.A. degree from the Harvard Business
School.
Patrick Cline has served as a Director and Executive Vice President
since May 1996. Mr. Cline is a co-founder of Clinitec International, Inc.
("Clinitec") and has served as its President since its inception in January
1994 and as its Chief Operating Officer since May 1996 when it was acquired
by the Company. Mr. Cline served as Clinitec's Chairman of the Board of
Directors and Chief Executive Officer from January 1994 until May 1996.
Prior to co-founding Clinitec, Mr. Cline served, from July 1987 to January
1994, as Vice President of Sales and Marketing with Script Systems, Inc., a
subsidiary of InfoMed, a healthcare information systems company. From
January 1994 to May 1994, after the founding of Clinitec, Mr. Cline
continued to serve, on a part-time basis, as Script Systems' Vice President
of Sales and Marketing. Mr. Cline has held senior positions in the health
care information systems industry since 1981.
Graeme Frehner, a co-founder of the Company, has served as a Director
since November 1982. He served as the Company's Vice President-Software
from October 1982 until January 1996, when he retired from active
management in the Company. Despite this retirement, he intends to consult
with the Company from time to time. Mr. Frehner joined Quality Systems,
the Company's predecessor, shortly after it was founded. Prior to that
time, he held a number of technical, managerial and consulting positions
with Planning Research Corporation and with Autonetics, formerly a division
of North American Aviation and later a division of Rockwell International
Corporation. Mr. Frehner holds a B.S. degree in Mathematics, Education and
Physics from Brigham Young University.
Janet Razin has served as a Director, Vice President and Corporate
Secretary of the Company since its inception and served as the Company's
Controller until November 1981. She served as Vice President Chief
Financial Officer from October 1982 until October 1984. Prior to joining
the Company, she was a computer programmer for Rockwell International
Corporation. Mrs. Razin holds a B.A. degree in Mathematics from
Northeastern University. Mrs. Razin is the wife of Sheldon Razin.
Gordon Setran has served as a Director since November 1982, and was a
Vice President of California Federal Savings & Loan Association from 1975
until his retirement in December 1985. Mr. Setran was a co-founder,
President and Director of First Federal Savings & Loan Association of
Corona which was acquired by California Federal Savings & Loan Association
in 1975.
<PAGE> 8
BOARD OF DIRECTORS MEETINGS AND RELATED MATTERS
During the fiscal year ended March 31, 1997, the Board of Directors
held eight meetings and acted twice by unanimous written consent. No
director attended less than 75% of the aggregate of all meetings of the
Board of Directors and all meetings of committees of the Board of Directors
on which the Directors served that were held during the fiscal year.
The Board of Directors has an Audit Committee consisting of Messrs.
Setran, Bristol, William Bowers and Dr. John Bowers, all of whom are non-
employee directors of the Company. The duties of the Audit Committee
include meeting with the independent auditors of the Company to review the
scope of the annual audit and to review the quarterly and annual financial
statements of the Company before the statements are released to the
Company's shareholders. The Audit Committee also evaluates the independent
auditors' performance and makes recommendations to the Board of Directors
as to whether the auditing firm should be retained by the Company for the
ensuing fiscal year. In addition, the Audit Committee reviews the
Company's internal accounting and financial controls and reporting systems
practices. During the fiscal year ended March 31, 1997, the Audit
Committee held four meetings.
There are currently no other standing committees of the Board of
Directors.
Directors of the Company who are also employees of the Company are not
compensated for their services as directors or committee members.
Directors of the Company who are not also employees receive a fee of $2,500
per year for serving on the Board of Directors. Directors who serve on a
committee of the Board of Directors receive an additional annual fee of
$1,000 and a fee of $250 for each committee meeting attended, together with
reasonable expenses of attendance at committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee and the related
functions carried out by such a committee are performed by the entire Board
of Directors. No director or executive officer of the Company serves as an
officer, director or member of a compensation committee of any other entity
for which an executive officer or director thereof is also a member of the
Company's Board of Directors.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Company applies a consistent philosophy to compensation for all
employees, including senior management. This philosophy is based on the
premise that the achievements of the Company result from the coordinated
efforts of all individuals working toward common objectives. The Company
strives to achieve those objectives through teamwork that is focused on
meeting the expectations of customers and shareholders.
Compensation Philosophy
The goals of the compensation program are to align compensation with
business objectives and performance, and to enable the Company to attract,
retain and reward executive officers who contribute to the long-term
success of the Company. The Company's compensation program for executive
<PAGE> 9
officers is based on the same four principles applicable to compensation
decisions for all employees of the Company:
The Company pays competitively. The Company is committed to
providing a pay program that helps attract and retain the best
people in the industry. To ensure that pay is competitive, the
Company regularly compares its pay practices with those of other
leading companies and sets its pay parameters based on this
review.
The Company pays for relative sustained performance. Executive
officers are rewarded based upon corporate performance, business
unit performance and individual performance. Corporate
performance and business unit performance are evaluated by
reviewing the extent to which strategic and business plan goals
are met, including such factors as operating profit, performance
relative to competitors and timely new product introductions.
Individual performance is evaluated by reviewing organizational
and management development progress against set objectives and
the degree to which teamwork and Company values are fostered.
The Company strives for fairness in the administration of pay.
The Company strives to achieve a balance of the compensation paid
to a particular individual and the compensation paid to other
executives both inside the Company and at comparable companies.
The Company believes that employees should understand the
performance evaluation and pay administration process. The
process of assessing performance is as follows:
1. At the beginning of the performance cycle, the
evaluating manager sets objectives and key goals.
2. The evaluating manager gives the employee ongoing
feedback on performance.
3. At the end of the performance cycle, the manager
evaluates the accomplishments of objectives/key goals.
4. The manager compares the results to the results of peers
within the Company.
5. The evaluating manager communicates the comparative
results to the employee.
6. The comparative result affects decisions on salary
and, if applicable, bonus and, if applicable, stock
options.
Compensation Vehicles
The Company has had a long and successful history of using a simple
total compensation program that consists of cash- and equity-based
compensation. Having a compensation program that allows the Company to
successfully attract and retain key employees permits it to provide useful
products and services to customers, enhance shareholder value, motivate
technological innovation, foster teamwork, and adequately reward employees.
The vehicles are:
<PAGE> 10
Salary
The Company sets base salary for employees other than the Chief
Executive Officer ("CEO") by reviewing the base salary for competitive
positions in the market. Because of the CEO's ownership of a substantial
portion of the Company's outstanding Common Stock, it has not been
necessary to offer regular salary increases or incentives to the CEO, and
consequently his salary has been adjusted only infrequently and
incrementally.
Stock Option Program
The purpose of this program is to provide additional incentives to
employees to work to maximize shareholder value. The option program also
utilizes vesting periods to encourage key employees to continue in the
employ of the Company. The Company grants stock options annually to a
broad-based population. All stock option grants are made by the Board of
Directors. Stock options are granted with an exercise price equal to the
fair market value of the underlying common stock on the date of grant and
generally vest in equal annual installments over a four-year period.
BOARD OF DIRECTORS
Sheldon Razin, Chairman Patrick Cline
John Bowers, M.D. Graeme Frehner
William Bowers Janet Razin
George Bristol Gordon Setran
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as
amended, the directors and officers of the Company and any person who owns
more than ten percent of the Company's Common Stock are required to report
their initial ownership of the Company's Common Stock and any subsequent
changes in that ownership to the Securities and Exchange Commission (the
"SEC") and the Nasdaq National Market. Officers, directors and greater
than 10% shareholders are required by SEC regulations to furnish the
Company with copies of all forms they file in accordance with Section
16(a).
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5
were required for those persons, the Company believes that, during the
fiscal year ended March 31, 1997, its officers, directors and greater than
10% shareholders complied with all filing requirements applicable to such
persons, with the exception of the following three reports. Mr. Patrick
Cline, a director and Executive Vice President of the Company, filed two
reports inadvertently late. The first late filing occurred in connection
with Mr. Cline's appointment as a director and Executive Vice President of
the Company, which Form 3 was filed three days late. Mr. Cline's second
late filing covered a purchase transaction and the related Form 4 reporting
obligation was filed approximately two months late. Mr. William Bowers, a
director of the Company, filed a Form 4 covering a purchase transaction
approximately three months late.
<PAGE> 11
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation received for the three
fiscal years ended March 31, 1997, 1996 and March 31, 1995, respectively,
by the Chief Executive Officer and the four other highest paid executive
officers of the Company serving as such at the end of the 1997 fiscal year
whose aggregate total annual salary and bonus for such year exceeded
$100,000 (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
-------------
Annual Compensation Awards
--------------------- -------------
Securities
Underlying All
Name and Options/ Other
Principal SARs Compensation
Position Year Salary($) Bonus($) (#) ($)(1)
- ----------------- ---- --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sheldon Razin 1997 225,000 -- -- 3,073
Chief Executive 1996 225,000 -- -- 3,014
Officer and 1995 213,750 -- -- 2,873
President
Robert Beck 1997 147,496 -- 2,500 2,778
Executive 1996 144,996 -- -- 2,787
Vice President 1995 144,996 -- -- 2,740
Patrick Cline(2) 1997 145,576 -- -- 1,456
Executive 1996 -- -- -- --
Vice President 1995 -- -- -- --
Greg Flynn 1997 130,000 38,333 30,000 1,834
Vice President 1996 111,667 20,000 -- 1,457
Sales & Marketing 1995 108,929 -- -- 1,224
Robert McGraw(3) 1997 125,000 18,750 40,000 151
Vice President 1996 15,106 -- -- --
Chief Financial 1995 -- -- -- --
Officer
</TABLE>
(1) This column reflects amounts attributable to Company contributions
to the Company's Deferred Compensation Plan (in the case of Mr. Cline,
Clinitec's Retirement Plan with 401(k) features)and income
attributable to the provision of additional life insurance for the
named individuals. For fiscal year ended March 31, 1997 such
amounts were, respectively, as follows: Mr. Razin, $2,250 and
$823; Mr. Beck, $1,595 and $1,183; Mr. Cline, $1,456 and none;
Mr. Flynn, $1,683 and $151; and Mr. McGraw, none and $151.
(2) Mr. Cline's employment with the Company commenced in May 1996.
(3) Mr. McGraw's employment with the Company commenced in February 1996.
<PAGE> 12
Option /SAR Grants in Last Fiscal Year
The following table provides information concerning the grant of stock
options to the Named Executive Officers during fiscal 1997.
Individual Grants
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Potential
Realized Value
% of at Assumed
Number of Total Annual Rates
Securities Options/ of Stock Price
Underlying SARs Appreciation
Options/ Granted to Exercise for Option
SARs Employees or Base Term(2)
Granted in Fiscal Price Expiration ---------------
Name (#)(1) Year ($/Sh) Date 5%($) 10%($)
- ------------- ---------- ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sheldon Razin -- -- -- -- -- --
Robert Beck 2,500 0.89 6.75 02/12/02 4,662 10,302
Patrick Cline -- -- -- -- -- --
Greg Flynn 20,000 7.16 27.50 06/12/01 151,955 335,781
10,000 3.58 6.75 02/12/02 18,649 41,209
Robert McGraw 30,000 10.73 27.50 06/12/01 227,932 503,671
10,000 3.58 6.75 02/12/02 18,649 41,209
</TABLE>
(1) Stock options vest in four equal annual installments commencing one
year from the date of each respective grant and expire five years from
the date of each respective grant.
(2) The compounding assumes a five-year period for all option grants.
Pursuant to applicable regulations, these amounts represent certain
assumed rates of appreciation only. Actual gain, if any, on stock
option exercises are dependent on the future performance of the Common
Stock and overall stock market conditions. The amounts reflected in
this table may not necessarily be achieved.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Values
The following table provides information on option exercises in fiscal
1997 by the Named Executive Officers and unexercised options held by them
at the close of such fiscal year. No Named Executive Officer exercised any
stock appreciation rights during fiscal 1997 or held any stock appreciation
rights at the end of such fiscal year.
<PAGE> 13
<TABLE>
<CAPTION>
Number of Unexercised
Options (Number of
Shares)
at March 31, 1997(#)
Shares Acquired Value ---------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable
- ------------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Sheldon Razin -- -- -- --
Robert Beck 21,250 116,875 -- 2,500
Patrick Cline -- -- -- --
Greg Flynn -- -- 18,500 35,500
Robert McGraw -- -- -- 40,000
</TABLE>
<TABLE>
<CAPTION>
Value of Unexercised
In-the-Money Options
at March 31, 1997($)(1)
---------------------------
Name Exercisable Unexercisable
- ------------- ----------- -------------
<S> <C> <C>
Sheldon Razin -- --
Robert Beck -- 1,250
Patrick Cline -- --
Greg Flynn 107,625 36,625
Robert McGraw -- 5,000
</TABLE>
(1) Calculated on the basis of $7.25, the closing sale price of the
Company's Common Stock on March 31, 1997, minus the exercise price
of the option, multiplied by the number of shares subject to the
option.
Employment Contracts and Change in Control Arrangements
The Company has an arrangement with Robert Beck under which Mr. Beck
will receive, if the Company attains an after-tax profit of at least $2.5
million in any fiscal year in which the Company's sales are at least $25.0
million, a one-time grant of options for shares representing the difference
between 225,000 shares of Common Stock and the number of shares of Common
Stock Mr. Beck has been granted by the Company up to such date pursuant to
stock options. As of July 16, 1997, Mr. Beck had been granted options to
purchase 77,500 shares and had exercised 75,000 of such options.
In connection with the May 1996 purchase of Clinitec, the Company
entered into an employment agreement with Mr. Cline, a co-founder,
President and the then Chairman of the Board of Clinitec. Under this
employment agreement, Mr. Cline became Executive Vice President of the
Company and the President and Chief Operating Officer of the Company's
wholly-owned subsidiary which was newly formed to conduct the Clinitec
business. The employment agreement commenced on May 17, 1996 and has a
three-year term. Mr. Cline receives a base annual salary of $153,000 over
the agreement term with additional annual salary based upon Clinitec's
<PAGE> 14
annual revenues and an annual bonus based upon Clinitec's operating income
in excess of certain minimum specified levels. The maximum total salary
and bonus that Mr. Cline may earn for each of the fiscal years ending March
31, 1998 and 1999 is $275,000 and $302,000, respectively.
Other than the above described arrangements with Messrs. Beck and
Cline, the Company does not have any employment contracts in effect with
the Chief Executive Officer or any of the other Named Executive Officers.
The Board of Directors, as the administrator of the Company's 1989
Stock Option Plan, has the discretion to accelerate any outstanding options
held by the Named Executive Officers in the event of an acquisition of the
Company by a merger or asset sale in which the outstanding options under
such plan are not to be assumed by the successor corporation or substituted
with options to purchase shares of such corporation.
FIVE-YEAR PERFORMANCE COMPARISON
The following graph compares the cumulative total returns of the
Company's Common Stock(1), the CRSP Total Return Index for The Nasdaq Stock
Market (2), and the CRSP Nasdaq Computer & Data Processing Services Stock
Index (2) over the five-year period ended March 31, 1997 assuming $100 was
invested on April 1, 1992 with all dividends, if any, reinvested.
[Appearing at this point in this Proxy Statement is a graph plotting the
information in the following table with "DOLLARS" listed on the vertical
axis and the dates March 31, 1992, 1993, 1994, 1995, 1996 and 1997,
respectively, listed across the horizontal axis. A separate line graph is
plotted for each of Quality Systems, Inc., the Nasdaq Stock Market and The
Nasdaq Computer & Data Processing Services Stocks.
<TABLE>
<CAPTION>
03/31/92 03/31/93 03/31/94 03/31/95 03/29/96 03/31/97
-------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Quality Systems,
Inc. 100 118 436 236 1,600 527
The Nasdaq Stock
Market 100 115 124 138 187 208
The Nasdaq
Computer & Data
Processing
Services Stocks 100 112 114 154 219 239]
</TABLE>
(1) Information regarding the prices of the last trade of the Company's
Common Stock on March 31, 1992, 1993 and 1994 was not readily
available, and thus, the closing bid price on each of those dates are
published by The Nasdaq Stock Market was utilized to compute the total
cumulative return for the Company's Common Stock for the periods ended
March 31, 1993 and 1994, respectively. The last trade prices of the
Company's Common Stock on March 31, 1995, 1996 and 1997 is published by
The Nasdaq Stock Market and, accordingly for the periods ended
March 31, 1995, 1996 and 1997, the reported last trade price was
utilized to compute the total cumulative return for the Company's
Common Stock for the respective periods then ended.
(2) CRSP is the Center for Research in Securities Prices at the University
of Chicago.
<PAGE> 15
CERTAIN TRANSACTIONS
The Company sold a computer system for $334,600 to the Heart Institute
of Nevada during the quarter ended December 31, 1995. John Bowers, M.D.,
the founder and Chief Executive Officer of the Heart Institute of Nevada,
is a member of the Company's Board of Directors. The Company's gross
profit on the sale is comparable to the gross profit on sales of similar
computer systems. The Company has been paid in full in connection with the
sale of the computer system. Also in connection with this system sale, the
Company entered into an agreement to pay a license fee based upon future
revenues, if any, from certain software templates that may be developed by
the Heart Institute of Nevada. As of July 16, 1997, no such license fees
have been earned.
In April 1995, the Company entered into a strategic relationship with
Clinitec International, Inc. ("Clinitec"), a developer of electronic
medical records software systems. In May 1995 as part of this
relationship, the Company acquired a 25% equity interest in Clinitec by
purchasing all of Clinitec's newly issued convertible preferred stock for
$1.0 million in cash. In May 1996, the Company acquired the remaining 75%
of Clinitec by purchasing 100% of the outstanding shares of Clinitec common
stock directly from Clinitec's common stock shareholders for approximately
$4.9 million in cash plus 309,846 shares of the Company's Common Stock. In
connection with the May 1996 stock purchase transaction, Mr. Patrick Cline,
a co-founder, President and Chairman of the Board of Clinitec, became a
Director and Executive Vice President of the Company. In accordance with
the terms of the May 1996 stock purchase transaction, each Clinitec common
stock shareholder received a pro rata share of the cash and Common Stock
paid by the Company determined by the number of shares of Clinitec common
stock owned by each Clinitec common stock shareholder divided by the total
number of outstanding shares of Clinitec common stock. As a result of the
May 1996 stock purchase transaction, Mr. Cline received $1,703,600 in cash
plus 107,825 shares of the Company's Common Stock for his shares of
Clinitec common stock.
On May 15, 1997, the Company acquired substantially all of the assets
of MicroMed Healthcare Information Systems, Inc. ("MicroMed"), a developer
and marketer of proprietary information systems utilizing a graphical user
interface client/server platform for medical group practices. The purchase
price consists of an initial cash payment of $4.8 million paid at the
closing of the transaction and an additional payment of up to $6.0 million
due no later than June 29, 1998. The additional payment will be determined
using a formula based primarily upon Revenues and Pre-Tax Operating Income
of the MicroMed Business, each as defined in the related Asset Purchase
Agreement, for the twelve months ending March 31, 1998. Up to 15% of the
additional payment, if any, is payable in the Company's Common Stock at the
sole election of the Company with the balance of any such payment payable
in cash. In connection with the May 1997 asset purchase transaction, Mr.
Stephen Puckett, a co-founder, President and Chairman of the Board of
MicroMed, became Executive Vice President of the Company. On the closing
date of the asset purchase transaction, Mr. Puckett had a 37.5% ownership
interest in MicroMed.
RATIFICATION OF INDEPENDENT AUDITORS
(Proposal No. 2)
The Board of Directors of the Company appointed the firm of Deloitte &
Touche LLP as its independent auditors for the fiscal year ended March 31,
1997. The Board of Directors of the Company has also appointed Deloitte &
<PAGE> 16
Touche LLP to serve again as the Company's independent auditors for the
fiscal year ending March 31, 1998, subject to ratification by the holders
of a majority of the shares represented either in person or proxy at the
Annual Meeting. In the event that the shareholders do not ratify the
selection of Deloitte & Touche LLP as the Company's independent auditors,
the selection of another independent auditing firm will be considered by
the Board of Directors.
Representatives of Deloitte & Touche LLP are expected to attend the
Annual Meeting and will be available to respond to appropriate questions.
The representatives of Deloitte & Touche LLP also will have the opportunity
to make a formal statement, if they so desire.
ANNUAL REPORT
The Company's Annual Report containing audited financial statements
for the fiscal years ended March 31, 1997 and 1996 accompanies this Proxy
Statement but such report is not incorporated herein and is not deemed to
be a part of this proxy solicitation material.
PROPOSALS OF SHAREHOLDERS
Pursuant to the rules of the SEC, proposals by shareholders which are
intended to be presented at the Company's next Annual Meeting must be
received by the Company by March 25, 1998, in order to be considered for
inclusion in the Company's proxy materials. Such proposals should be
addressed to the Company's Secretary and may be included in next year's
proxy materials if they comply with certain rules and regulations of the
SEC.
OTHER MATTERS
The Board of Directors knows of no other matters which will be acted
upon at the Annual Meeting. If any other matters are presented properly
for action at the Annual Meeting or at any adjournment thereof, it is
intended that the proxy will be voted with respect thereto in accordance
with the best judgment and in the discretion of the proxy holder.
By Order of the Board of Directors,
QUALITY SYSTEMS, INC.
/s/ Janet M. Razin
Janet M. Razin
Vice President and
Corporate Secretary
Tustin, California
July 23, 1997
SHAREHOLDERS MAY OBTAIN FREE OF CHARGE A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 1997, (WITHOUT
EXHIBITS) AS FILED WITH THE SEC BY WRITING TO: INVESTOR RELATIONS, QUALITY
SYSTEMS, INC., 17822 EAST 17TH STREET, SUITE 210, TUSTIN, CALIFORNIA 92780
OR CALL (714) 731-7171.
<PAGE> 17
PROXY
- -----
QUALITY SYSTEMS, INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 10, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Sheldon Razin and Janet Razin, and each of
them, individually, as attorneys and proxies, with full power of
substitution, to represent the undersigned and to vote, as designated
below, all the shares of Common Stock of Quality Systems, Inc. which the
undersigned is entitled to vote at its Annual Meeting of Shareholders to be
held at The Center Club, 650 Town Center Drive, Costa Mesa, California, on
Wednesday, September 10, 1997, at 3:00 P.M. Pacific Time, or at any
adjournment thereof.
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed below (except as marked to the contrary
below)
/ / WITHHOLD AUTHORITY to vote for all nominees listed below
Sheldon Razin, John Bowers, M.D., William Bowers, George Bristol,
Patrick Cline, Graeme Frehner, Janet Razin and Gordon Setran.
(INSTRUCTION: To withhold authority to vote for any nominee, write the
nominee's name in the space provided below.)
------------------------------------------------------
2. Ratification of selection of Deloitte & Touche LLP as the Company's
Independent Auditors:
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, upon other business which properly comes before
the Meeting or any adjournment thereof.
IMPORTANT -- PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY.
(Continued on the reverse side)
<PAGE> 18
(continued from other side)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER ON THE REVERSE SIDE OF THIS PROXY. WHERE NO DIRECTION IS
GIVEN, SUCH SHARES WILL BE VOTED "FOR" THE ELECTION OF THE DIRECTORS NAMED
ON THE REVERSE SIDE OF THIS PROXY AND "FOR" PROPOSAL 2. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY TO CUMULATE VOTES FOR ANY OR ALL OF THE NOMINEES
FOR ELECTION OF DIRECTORS FOR WHICH AUTHORITY TO VOTE HAS NOT BEEN
WITHHELD.
Dated: , 1997
--------------------
----------------------------------------
(Signature of Shareholder)
----------------------------------------
Please sign your name exactly as it
appears hereon. Executors,
administrators, guardians, officers of
corporations, and others signing in a
fiduciary capacity, should state their
full titles as such. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, YOU ARE
URGED TO SIGN AND RETURN THIS PROXY,
WHICH MAY BE REVOKED AT ANY TIME PRIOR
TO ITS USE.
