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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 4)*
Quality Systems, Inc.
(Name of Issuer)
Common Stock
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(Title of Class of Securities)
747582104
(CUSIP Number)
Andrew E. Shapiro, Manager Christopher J. Rupright, Esq.
Lawndale Capital Management, LLC Shartsis Friese & Ginsburg
One Sansome Street, Suite 3900 One Maritime Plaza, 18th Floor
San Francisco, CA 94104 San Francisco, CA 94111
(415) 288-2330 (415) 421-6500
- ------------------------------------------------------------
August 24, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box / /.
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom
copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that section of the Act but shall be subject to all other provisions of
the Act (however, see the Notes).
Potential persons who are to respond to the collection of information
contained in this form are not required to respond unless the form
displays a currently valid OMB control number.
SEC 1746 (10-97)
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CUSIP No. 747582104 Page 2 of 13 pages
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1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Lawndale Capital Management, LLC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / X
/
(b) / /
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3 SEC USE ONLY
- --------------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- --------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(E)
/ /
- --------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- --------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 595,000
REPORTING -------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
595,000
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
595,000
- --------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
/ /
- --------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.5
- --------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO and IA
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CUSIP No. 747582104 Page 3 of 13 pages
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- -
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Andrew E. Shapiro
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) /X /
(b) / /
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3 SEC USE ONLY
- --------------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- --------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(E) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
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NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 595,000
REPORTING -------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
595,000
- --------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
595,000
- --------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
/ /
- --------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.5
- --------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
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CUSIP No. 747582104 Page 4 of 13 pages
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1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Diamond A Partners, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) /X /
(b) / /
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3 SEC USE ONLY
- --------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(E) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
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NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 504,600
REPORTING -------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
504,600
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
504,600
- --------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
/ /
- --------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.1
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14 TYPE OF REPORTING PERSON*
PN
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CUSIP No. 747582104 Page 5 of 13 pages
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1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Diamond A Investors, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) /X /
(b) / /
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(E) / /
- --------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
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NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 90,400
REPORTING -------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
90,400
- --------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
90,400
- --------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
/ /
- --------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.5
- --------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
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CUSIP No. 747582104 Page 6 of 13 pages
ITEM 1. SECURITY AND ISSUER.
This statement relates to Common Stock (the "Stock") of Quality Systems,
Inc. ("QSII"). The principal executive office of QSII is located at 17822
East 17th Street, Tustin, CA 92780.
ITEM 2. IDENTITY AND BACKGROUND.
The persons filing this statement and the persons enumerated in
Instruction C of Schedule 13D and, where applicable, their respective
places of organization, general partners, directors, executive officers
and controlling persons, and the information regarding them, are as
follows:
(a) Lawndale Capital Management, LLC, a California limited liability
company ("LCM"); Diamond A Partners, L.P., a California limited
partnership ("DAP"); Diamond A Investors, L.P., a California limited
partnership ("DAI"); and Andrew E. Shapiro ("Shapiro").
(b) The business address of LCM, DAP, DAI and Shapiro is One Sansome
Street, Suite 3900, San Francisco, California 94104.
(c) LCM is the investment adviser to and general partner of DAP and DAI,
which are investment limited partnerships. Shapiro is the sole manager of
LCM.
(d) During the last five years, none of such persons has been convicted
in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) During the last five years, none of such persons was a party to a
civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
(f) Shapiro is a citizen of the United States of America.
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CUSIP No. 747582104 Page 7 of 13 pages
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The source and amount of funds used in purchasing the Stock were as
follows:
Purchaser Source of Funds Amount
LCM Funds Under Management(1) $3,965,149
DAP Working Capital $3,358,113
DAI Working Capital $ 607,036
(1) Includes funds of DAP and DAI invested in Stock.
ITEM 4. PURPOSE OF TRANSACTION.
Lawndale has reviewed QSII's proxy statement for QSII's September 9, 1998,
annual meeting. In particular, Lawndale has carefully analyzed ITEM 2
relating to QSII's proposed 1998 Stock Option Plan. Despite its desire
for greater ownership of QSII by QSII's employees, Lawndale concurs with
the recommendation of two institutional proxy advisory services, Proxy
Monitor and Institutional Shareholder Services (ISS), to vote "against"
ITEM 2. The advisory firms' and our bases for opposing this particular
stock plan include its potentially significant dilutive effect on
shareholders as well as the very broad powers expressly granted to the
Board to issue deeply discounted options, to immediately vest them and at
any time to reprice them. (see exhibit B for QSII proxy analysis by Proxy
Monitor available over First Call)
Lawndale has been and may continue to be in contact with management,
members of the Board of Directors and other shareholders of QSII to
discuss the strategies QSII plans to employ to maximize shareholder value,
including, but not limited to, the proposed 1998 Stock Option Plan,
changes in the composition of QSII's Board of Directors, the integration
of QSII's separate businesses and QSII's announced, but not executed,
Stock buyback plan.
Lawndale incorporates by reference the additional disclosure provided in
Amendment No. 3 to its Schedule 13D.
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CUSIP No. 747582104 Page 8 of 13 pages
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
The beneficial ownership of the Stock of the persons named in Item 2 of
this statement is as follows at the date hereof:
Aggregate
Beneficially
Owned Voting Power Dispositive Power
Name Number Percent Sole Shared Sole Shared
LCM 595,000 9.5 -0- 595,000 -0- 595,000
Shapiro 595,000 9.5 -0- 595,000 -0- 595,000
DAP 504,600 8.1 -0- 504,600 -0- 504,600
DAI 90,400 1.5 -0- 90,400 -0- 90,400
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CUSIP No. 747582104 Page 9 of 13 pages
The persons filing this statement effected the following transactions in
the Stock on the dates indicated, and such transactions are the only
transactions in the Stock by the persons filing this statement since July
29, 1998.
Purchase Number Price
Name or Sale Date of Shares Per Share
DAP P 07/29/98 8,900 $6.351
DAI P 07/29/98 1,600 $6.351
DAP P 07/30/98 800 $6.250
DAI P 07/30/98 200 $6.250
DAP P 07/31/98 2,900 $6.443
DAI P 07/31/98 400 $6.443
DAP P 08/04/98 11,700 $5.929
DAI P 08/05/98 1,500 $5.938
DAI S 08/05/98 100 $5.938
DAP P 08/06/98 400 $5.711
DAP P 08/06/98 3,000 $5.896
DAI P 08/06/98 1,200 $5.711
DAP P 08/07/98 2,000 $5.656
DAP P 08/10/98 4,100 $5.663
DAP S 08/10/98 1,000 $5.750
DAI P 08/10/98 900 $5.663
DAP P 08/11/98 5,900 $5.607
DAI P 08/11/98 1,100 $5.607
DAP P 08/12/98 2,100 $5.513
DAI P 08/12/98 400 $5.513
DAP P 08/13/98 3,000 $5.438
DAP P 08/13/98 1,300 $5.500
DAI P 08/13/98 700 $5.500
DAP P 08/14/98 5,100 $5.552
DAI P 08/14/98 900 $5.552
DAP P 08/17/98 1,200 $5.375
DAI P 08/17/98 300 $5.375
DAP P 08/24/98 6,500 $5.375
DAI P 08/24/98 1,000 $5.375
All transactions were executed through the Nasdaq National Market System.
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CUSIP No. 747582104 Page 10 of 13 pages
ITEM. 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
LCM is the general partner of DAP and DAI pursuant to limited partnership
agreements providing to LCM the authority, among other things, to invest
the funds of DAP and DAI in Stock, to vote and dispose of Stock and to
file this statement on behalf of DAP and DAI. Pursuant to such limited
partnership agreements, the general partner of DAP and DAI is entitled to
allocations based on assets under management and realized and unrealized
gains.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
A. Agreement Regarding Joint Filing of Statement on Schedule 13D or 13G.
SIGNATURES
After reasonable inquiry and to the best of my knowledge, I certify
that the information set forth in this statement is true, complete and
correct.
DATED: August 25, 1998.
DIAMOND A PARTNERS, L.P. DIAMOND A INVESTORS, L.P.
By: Lawndale Capital By: Lawndale Capital
Management, LLC Management, LLC
General Partner General Partner
By: /s/ Andrew E. Shapiro By: /s/ Andrew E. Shapiro
Andrew E. Shapiro Andrew E. Shapiro
Manager Manager
LAWNDALE CAPITAL MANAGEMENT, LLC
By: /s/ Andrew E. Shapiro /s/ Andrew E. Shapiro
Andrew E. Shapiro Andrew E. Shapiro
Manager
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CUSIP No. 747582104 Page 11 of 13 pages
EXHIBIT A
AGREEMENT REGARDING JOINT FILING
OF STATEMENT ON SCHEDULE 13D OR 13G
The undersigned agree to file jointly with the Securities and Exchange
Commission (the "SEC") any and all statements on Schedule 13D or Schedule
13G (and any amendments or supplements thereto) required under section
13(d) of the Securities Exchange Act of 1934, as amended, in connection
with purchases by the undersigned of Common Stock of Quality Systems, Inc.
For that purpose, the undersigned hereby constitute and appoint Lawndale
Capital Management, LLC, a California limited liability company, as their
true and lawful agent and attorney-in-fact, with full power and authority
for and on behalf of the undersigned to prepare or cause to be prepared,
sign, file with the SEC and furnish to any other person all certificates,
instruments, agreements and documents necessary to comply with section
13(d) and section 16(a) of the Securities Exchange Act of 1934, as
amended, in connection with said purchases, and to do and perform every
act necessary and proper to be done incident to the exercise of the
foregoing power, as fully as the undersigned might or could do if
personally present.
DATED: December 22, 1997.
DIAMOND A PARTNERS, L.P. DIAMOND A INVESTORS, L.P.
By: Lawndale Capital By: Lawndale Capital
Management, LLC Management, LLC
General Partner General Partner
By: /s/ Andrew E. Shapiro By: /s/ Andrew E. Shapiro
Andrew E. Shapiro Andrew E. Shapiro
Manager Manager
LAWNDALE CAPITAL MANAGEMENT, LLC
By: /s/ Andrew E. Shapiro /s/ Andrew E. Shapiro
Andrew E. Shapiro Andrew E. Shapiro
Manager
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CUSIP No. 747582104 Page 12 of 13 pages
EXHIBIT B
Proxy Monitor
Resolution #2: Approve 1998 Stock Option Plan reserving one million
shares for issue thereunder.
We recommend a NAY ballot on this board-backed resolution, a vote against
Management. Quality Systems seeks to reserve one million common shares
for issue under its 1998 Stock Option Plan, which represents a reduction
in relative voting power of 12.6% of fully-diluted shares. However, when
combined with those shares available and those shares granted but
unexercised under other company plans, shareholders' equity would be
diluted by an even costlier 21%.
Under the terms of the plan, the board may grant incentive stock options
and nonqualified stock options to officers, key employees, directors, and
company consultants. As prescribed by law, all incentive stock options
must be issued at no less than 100 percent of fair market value and must
carry a term of no more than ten years. However, the plan bestows broad
powers upon the administering committee to determined the most salient
provision of all nonqualified stock options, including the indefensible
and expensive grant of deeply discounted options. The board also has full
discretion to establish the vesting schedule for all awards. Although,
options typically vest ratably over four years. Still, in the event of a
change in control, all vesting restrictions would lapse and all
outstanding options would become immediately exercisable. Payment is
required in the form of cash or stock already owned, and the plan will
expire on December 31, 2007.
In our view, provisions ceding administering committees the authority to
grant options at bargain prices ranks among the least defensible features
of a stock option plan. This practice is particularly objectionable given
current market conditions. That is, in the midst of such an unprecedented
bull market and with such ridiculously low exercise prices, there wouldn't
seem to be a compelling need for management to work hard to boost stock
prices. Even stock options issued at 100% wouldn't require much on the
part of management to realize substantial option profits.
Also disturbing is the fact the plan expressly permits repricing or
replacing underwater stock options. Indeed, the company has a history of
such action. Implicitly, if not explicitly, stock options are intended to
recompense long-term accomplishments, making short-term adjustments wholly
inappropriate. Shareholders, who are acutely aware that stock prices move
up and down, have no comparable opportunities to recoup very real losses.
To afford this type of protection to plan participants is obscene.
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CUSIP No. 747582104 Page 13 of 13 pages
Clearly our analysts recognize the logical contribution stock options make
to aligning economic interests of the company with those of public
shareholders. Indeed, when used appropriately stock options can be a
vital link in the creation of shareholder value. Still, these benefits
must be weighed against the cost/dilutive effect of issuing such awards as
well as the responsibility of management. Given the considerable level of
dilution to which this new plan would contribute, and absent restrictions
on the company's ability to issue cut-rate awards, we cannot endorse this
proposal.
3693.11\1005633
