<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 8)*
Quality Systems, Inc.
---------------------
(Name of Issuer)
Common Stock
------------
(Title of Class of Securities)
747582104
---------
(CUSIP Number)
David J. Berger, Esq.
Andrew E. Shapiro, Manager Page Mailliard, Esq.
Lawndale Capital Management, LLC Wilson Sonsini Goodrich & Rosati
One Sansome Street, Suite 3900 650 Page Mill Road
San Francisco, CA 94104 Palo Alto, CA 94304
(415) 288-2330 (650) 493-9300
-------------- --------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
March 24, 1999
--------------
(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 that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13(d)-1(g), check the following
box.
Note: Schedules filed in paper format shall include a signed original and final
copies of the schedule, including all exhibits. See Rule 13d-7 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).
<PAGE>
SCHEDULE 13D
CUSIP No. 747582104 Page 2 of 12 Pages
- ------------------- --------------------
<TABLE>
<S> <C> <C>
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Lawndale Capital Management, LLC
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)
(b)
- --------------------------------------------------------------------------------
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 SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 0
BY EACH REPORTING ----------------------------------------------------------
PERSON 8 SHARED VOTING POWER
WITH 621,200
---------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
621,200
----------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
621,200
- ---------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
- ---------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.99%
- ---------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO and IA
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 13D
CUSIP No. 747582104 Page 3 of 12 Pages
- ------------------- ---------------------
<TABLE>
<S> <C>
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Andrew E. Shapiro
- ---------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)
(b)
- ---------------------------------------------------------------------------------------
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
USA
- ---------------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 0
BY EACH REPORTING --------------------------------------------------------
PERSON 8 SHARED VOTING POWER
WITH 621,200
--------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
621,200
- ---------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
621,200
- ---------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
- ---------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.99%
- ---------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 13D
CUSIP No. 747582104 Page 4 of 12 Pages
- ------------------- -------------------
<S> <C> <C>
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Diamond A Partners, L.P.
- ---------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)
(b)
- ---------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- ---------------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 0
BY EACH REPORTING -------------------------------------------------------
PERSON 8 SHARED VOTING POWER
WITH 525,300
-------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------
10 SHARED DISPOSITIVE POWER
525,300
- ---------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
525,300
- ---------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
- ---------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.45%
- ---------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 13D
CUSIP No. 747582104 Page 5 of 12 Pages
- ------------------- -------------------
<TABLE>
<S> <C> <C>
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Diamond A Investors, L.P.
- ---------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)
(b)
- ---------------------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- ---------------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 0
BY EACH REPORTING -------------------------------------------------------
PERSON 8 SHARED VOTING POWER
WITH 95,900
-------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
-------------------------------------------------------
10 SHARED DISPOSITIVE POWER
95,900
- ---------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
95,900
- ---------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
- ---------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.54%
- ---------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Item 1. Security and Issuer.
This statement relates to Common 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 (and principal office) 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.
Item 3. Source and Amount of Funds or Other Consideration.
The source and amount of funds used in purchasing the Common Stock were as
follows:
<TABLE>
<CAPTION>
Purchaser Source of Funds Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C>
LCM Funds Under Management (1) $4,068,070
DAP Working Capital $3,438,846
DAI Working Capital $ 629,224
</TABLE>
(1) Includes funds of DAP and DAI invested in Common Stock.
Item 4. Purpose of Transaction.
On March 17, 1999, Andrew E. Shapiro, president of LCM, sent a letter to
the Board of Directors of QSII (the "Board") regarding the decision by QSII's
Chairman and CEO Sheldon Razin to immediately reject a written acquisition
proposal for QSII by Metropolitan Adjustment Bureau, Inc. ("MAB") without first
informing the Board of the proposal. In that letter, Mr. Shapiro expressed his
concern over the apparent failure of the Board to deliberate or even be informed
of the MAB proposal before it was rejected by Mr. Razin, despite the premium
reflected in MAB's $7.50 per share offer. Based on his concerns over the lack
of independence of certain directors and the generally poor corporate governance
practices of the Board, which he believes was further underscored by the Board's
response (or lack of
<PAGE>
response) to the MAB proposal, Mr. Shapiro requested a meeting with the entire
Board, with respective counsel present, to discuss the circumstances surrounding
the rejection of the MAB proposal and corporate governance issues generally. A
copy the March 17, 1999 letter from Mr. Shapiro, which also attaches the MAB
proposal, is attached as Exhibit B to Amendment No. 7 to the Schedule 13D filed
by LCM on March 19, 1999.
Mr. Shapiro and Mr. Razin subsequently had a telephone conversation on
March 23, 1999 during which Mr. Razin indicated that "the Board" had rejected
LCM's request for a meeting. Mr. Razin instead offered a "one-on-one" meeting
between Mr. Shapiro and Mr. Razin without the other directors or counsel
present.
In a letter to Mr. Razin dated March 24, 1999, Mr. Shapiro renewed his
request for a meeting with the full Board and reiterated his concerns as to the
Board's corporate governance practices. In calling again for a meeting with the
entire Board, Mr. Shapiro noted that Mr. Razin's offer of a "one-on-one" meeting
only reinforces LCM's concern that Mr. Razin takes actions and makes decisions
individually on issues that should be considered and deliberated by the Board as
a full, collective body, and is further indicative of the inadequate corporate
governance practices of the Board. A copy of the March 24, 1999 letter is
attached as Exhibit B to this Amendment No. 8 to the Schedule 13D.
LCM does not have any present plan or proposal which would relate to or
result in any of the matters set forth in subparagraphs (a) through (j) of Item
4 of Schedule 13D except as set forth herein or in prior amendments to this
Schedule 13D or such as would occur upon completion of any of the actions
discussed above. LCM intends to review its investment in QSII on a continuing
basis and, depending on various factors including, without limitation, QSII's
financial position and LCM's investment strategy, the price levels of QSII
Common Stock and conditions in the securities markets and general economic and
industry conditions, LCM may in the future take such actions with respect to its
investment in QSII as it deems appropriate including, without limitation,
purchasing additional shares of Common Stock or selling some or all of its
shares of Common Stock or change its intention with respect to any and all
matters referred to in Item 4. To the extent not inconsistent with the
foregoing, LCM incorporates by reference the material in Item 4 of its
previously filed Schedule 13D and the amendments thereto.
Item 5. Interest in Securities of the Issuer.
The beneficial ownership of the Common Stock by the persons named in Item 2
of this Schedule is as follows at the date hereof:
<TABLE>
<CAPTION>
Aggregate Beneficially
Owned Voting Power Dispositive Power
Name Number Percent Sole Shared Sole Shared
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LCM 621,200 9.99 0 621,200 0 621,200
Shapiro 621,200 9.99 0 621,200 0 621,200
DAP 525,300 8.45 0 525,300 0 525,300
DAI 95,900 1.54 0 95,900 0 95,900
</TABLE>
The persons filing this statement effected no transactions in the Common
Stock since the filing of Amendment No. 7 to the Schedule 13D on March 19, 1999.
The percentages of outstanding shares of Common Stock used in this
Schedule are calculated based upon the 6,213,666 shares of Common Stock stated
by QSII to be issued and outstanding at January 29, 1999, as reflected in QSII's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1998.
<PAGE>
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 Common Stock, to vote and dispose of Common 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.
Andrew Shapiro is the sole manager of LCM.
Item 7. Material to be Filed as Exhibits.
A. Agreement Regarding Joint Filing of Statement on Schedule 13D or 13G.
B. Letter dated March 24, 1999 from Andrew E. Shapiro, President of Lawndale
Capital Management, LLC, to Sheldon Razin, Chairman of the Board of
Directors of Quality Systems, Inc.
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: March 29, 1999.
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
<PAGE>
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
<PAGE>
EXHIBIT B
[Letterhead of Lawndale Capital Management, LLC]
Andrew E. Shapiro
President
March 24, 1999
Mr. Sheldon Razin
Chairman
Quality Systems, Inc.
17822 E. 17th Street #210
Tustin, CA 92680
(by facsimile)
RE: QUALITY SYSTEMS
Dear Shelly:
I write to follow up on our conversation yesterday.
You indicated in our conversation that, in response to Lawndale's request to the
QSII Board for a meeting with all of the directors and counsel, "the Board" had
rejected Lawndale's request. Instead, "the Board acting through you" offered a
one-on-one meeting with you alone, with no other director or counsel present.
While I appreciate this offer, unfortunately the offer is unacceptable and in
fact illustrates one of Lawndale's primary concerns: that you personally take
upon yourself the authority delegated by shareholders and the law to the board
of directors.
As you know, and as indicated in Lawndale's Schedule 13d and subsequent
amendments, Lawndale believes a major factor in the company's poor shareholder
performance is the lack of adequate corporate governance and board procedures.
In particular, it is Lawndale's view that the board of directors generally are
not obtaining sufficiently independent advice, and have not been adequately
informed concerning significant corporate events.
Lawndale's concerns, and the lack of adequate governance procedures, was again
demonstrated by your reaction to the recent $7.50 per share merger proposal.
according to press reports, you rejected this proposal immediately, and only
afterwards told some--but not all--directors about the offer. You took this
action individually, despite the fact that the offer was addressed to the entire
board. Further, it is our understanding that the board never formally met to
discuss or consider the offer, nor did it receive any expert advice concerning
either the bona fides of the bidder or the value of QSII.
These facts lead us to believe that one of the major problems with the company's
corporate governance procedures is that you personally make decisions that are
in the proper province of the board as a whole, deliberating body. This is not
meant with any disrespect to you personally, but rather is symptomatic of the
larger issues facing the board. We believe that QSII'S directors in this
situation cannot satisfy their individual legal and fiduciary obligations unless
they become more directly and actively involved in QSII'S affairs, including but
not limited to meeting with shareholders to discuss shareholder concerns.
Therefore, a meeting
<PAGE>
with you without the other directors present does not satisfy Lawndale's
concerns or, we believe, the directors' legal obligations.
It is for a similar reason that we think counsel for us and the board should be
present at this meeting. We believe it is essential for a properly functioning
board to have direct access to both expert advisers and the company's large
shareholders. This is the best way for the directors to understand the concerns
of the company's shareholders, as well as the directors' legal obligations.
Again, direct access to expert advisers and shareholders also ensures that
directors are able to act in an informed manner and satisfy its due care
obligations.
Accordingly, Lawndale renews its request to each and all of the directors for a
meeting with Lawndale, with counsel for the directors and Lawndale present.
Such meetings between directors and stockholders have become common-place today,
and we believe this type of meeting would be beneficial for everyone concerned.
We remain available at your convenience to attend such a meeting, but would like
to have this meeting by April 1, 1999.
Thank you in advance for your prompt response.
Sincerely,
Andrew E. Shapiro
President
cc: Dr. John Bowers, Sr., Director
Mr. William Bowers, Director
Mr. Patrick Cline, Director
Mr. Don Cook, Director
Ms. Janet Razin, Director
Mr. Gordon Setran, Director
