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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. 5)*
Quality Systems, Inc.
(Name of Issuer)
Common Stock
- ------------------------------------------------------------
(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
- ------------------------------------------------------------
February 2, 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 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
- ------------------------------------------------------------
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) / X /
(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 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 621,900
REPORTING -------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
621,900
- --------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
621,900
- --------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
- --------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.96
- --------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO and IA
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CUSIP No. 747582104 Page 3 of 13 pages
- ---------------------------------------------------------------------------
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) /X /
(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
United States
- --------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 621,900
REPORTING -------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
621,900
- --------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
621,900
- --------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
- --------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.96
- --------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
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CUSIP No. 747582104 Page 4 of 13 pages
- --------------------------------------------------------------------------
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) /X /
(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 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 526,000
REPORTING -------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
-------------------------------------------------
10 SHARED DISPOSITIVE POWER
526,000
- --------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
526,000
- --------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
- --------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.4
- --------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
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CUSIP No. 747582104 Page 5 of 13 pages
- --------------------------------------------------------------------------
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) /X /
(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 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY -------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 95,900
REPORTING -------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH -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)
1.5
- --------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
<PAGE>
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) $4,070,817.90
DAP Working Capital $3,441,618.00
DAI Working Capital $ 629,199.90
(1) Includes funds of DAP and DAI invested in Stock.
ITEM 4. PURPOSE OF TRANSACTION.
Subsequent to their filing of this Schedule 13D and its amendments, the
Reporting Persons ("Lawndale") have been in contact with management and
members of the Board of Directors of QSII and other QSII shareholders and
third parties, to discuss the strategies QSII plans to employ to maximize
shareholder value, including, but not limited to, changes in the
composition and functioning of QSII's Board of Directors ("Board").
Board has failed to do its job.
_______________________________
According to Lawndale's research, Lawndale believes that QSII went public
at a split-adjusted $8.50/share on December 1, 1982, and last traded at
approximately $4.25/share on February 1, 1999, a decline of 50% over a 16-
year period. Three of QSII's seven current directors have served on QSII's
Board for this entire period. Lawndale believes that no board should allow
such a long-term record of lost shareholder value to exist without taking
decisive and meaningful actions. Lawndale believes that the track record
of QSII stock (down over 80%) since its Chairman/CEO sold shares on March
5, 1996 (reducing his stake from a majority position to approximately 25%
of QSII), is the result of a non-independent, inactive and ineffective
Board.
Lawndale believes that responsibility for such poor stock performance is
directly related to inconsistent and mediocre operating performance and
asset mismanagement combined with the Board's failure to hold management
accountable for such ineffective leadership. Lawndale believes the Board
has failed to do its job largely as the result of dysfunctional Board
composition and the lack of or poor corporate governance practices.
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CUSIP No. 747582104 Page 8 of 13 pages
Shareholders have sent a message that the Board apparently failed to hear.
__________________________________________________________________________
On September 9th, 1998, Andrew Shapiro, President of Lawndale Capital
Management, LLC, attended QSII's Annual Meeting in person. As disclosed in
Amendment #4 of this Schedule 13D, Lawndale voted against a Board-proposed
option plan that two institutional proxy advisory services, Proxy Monitor
and Institutional Shareholder Services (ISS), also analyzed and recommended
a vote "against". As disclosed in QSII's 10-Q for the quarter ended
9/30/98, 42% of those voting voted against the option plan and over 25% of
those voting voted to "withhold" on the reelection of QSII's directors.
Following this Annual Meeting, Mr. Shapiro addressed the Board regarding
its lack of independence and failure to hold management accountable for
QSII's continual underperformance. The Board did not and has not
adequately responded to these concerns.
Lack of Board Independence.
____________________________
Lawndale believes that boards lacking independence are more likely to avoid
taking necessary actions to put a stop to bad managerial decision-making
and poor performance resulting therefrom. Lawndale believes that the
proper framework in determining the "independence" of a director in an
under-performing company such as QSII should follow at a minimum widely
regarded guidelines promulgated by either the Council of Institutional
Investors (CII) or the California Public Employee's Retirement System
(CALPERS) which Lawndale provided to QSII in July.
Lawndale, as QSII's second largest non-management shareholder, in April
1998 introduced a highly qualified and independent director for QSII's
consideration to fill a vacancy on QSII's Board. By the end of July (4
months later), QSII's Chairman informed Lawndale that QSII had been unable
to fully evaluate candidates in time for nomination and election by
shareholders at the upcoming September Annual Meeting but that the
candidate introduced by Lawndale was among several under consideration for
appointment to the Board. The Chairman represented to Lawndale that QSII's
Board intended to continue the evaluation process and to appoint new Board
members in a timely manner. Under the CII & CALPERS guidelines, it is
Lawndale's belief that 4 of the 6 nominees for election to QSII's Board at
the annual meeting and subsequently elected were not and are not
"independent".
Regardless of the independence or lack of independence of QSII's Board, a
company with QSII's very poor performance needs quick and decisive
leadership changes at the Board and management levels.
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CUSIP No. 747582104 Page 9 of 13 pages
Lawndale believes that QSII's Common Stock at current market prices is
undervalued. Lawndale intends to actively monitor efforts by the Board to
increase stockholder value. If Lawndale believes that the Common Stock
continues to be undervalued and/or the Board fails to timely take apparent
and necessary decisive actions to restore and enhance shareholder value at
QSII as listed below (see, "Necessary Actions"), Lawndale may propose a
transaction whereby all or a portion of QSII be sold, and in connection
therewith Lawndale may seek to participate in such transaction or seek to
acquire control of QSII in a negotiated transaction or otherwise.
Lawndale may also seek in the future to have non-management shareholder
representatives appointed to the Board, by agreement with QSII or
otherwise, including by running its own slate of nominees at an annual or
special meeting of QSII. Lawndale may in the future propose such other
matters or support other shareholder's proposals for consideration and
approval by QSII's shareholders or the Board.
Necessary Actions.
__________________
1) Changing the composition of the Board such that a substantial majority
of its members are independent through:
1a) adding independent person(s) with operating depth and experience in
QSII's industry(ies) and/or
1b) adding representative(s) of non-management shareholders.
2) Adopting a formal policy requiring the appointment of either an
independent Chairman or independent Lead Director. That Director shall be
selected by the Board from among the independent Directors. His/her role
would be to coordinate with the other independent Directors, chair
Executive Sessions of the independent Directors and act as a liaison
between them and the Chairman/CEO.
3) Adopting a formal policy for each Board meeting, whereby at the end of
each meeting the Board meets in Executive Session, without members of
management present, to discuss such matters as they think appropriate,
including management performance.
Lawndale does not have any present plan or proposal which would relate to
or result in any of the matters set forth in subparagraphs (a) - (j) of
Item 4 of Schedule 13D except as set forth herein or such as would occur
upon completion of any of the actions discussed above. Lawndale intends to
review its investment in QSII on a continuing basis and, depending on
various factors, including, without limitation, QSII's financial position
and Lawndale's investment strategy, the price levels of QSII Common Stock
and conditions in the securities markets and general economic and industry
conditions. Lawndale 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 to change its intention with
respect to any and all matters referred to in Item 4. To the extent not
inconsistent with the foregoing, Lawndale incorporates by reference the
material in Item 4 of its previously filed Schedule 13D and the amendments
thereto.
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CUSIP No. 747582104 Page 10 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 621,900 9.96 -0- 621,900 -0- 621,900
Shapiro 621,900 9.96 -0- 621,900 -0- 621,900
DAP 526,000 8.4 -0- 526,000 -0- 526,000
DAI 95,900 1.5 -0- 95,900 -0- 95,900
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
December 1, 1998.
Purchase Number Price
Name or Sale Date of Shares Per Share
DAP P 12/01/98 1,000 $4.375
DAP P 12/04/98 1,000 $4.438
DAP P 12/10/98 1,000 $4.375
DAP P 12/11/98 1,000 $4.125
DAP P 12/14/98 200 $4.188
DAP P 12/21/98 1,000 $3.875
DAP P 12/22/98 500 $4.000
DAP P 12/23/98 500 $3.938
DAP S 12/23/98 500 $4.063
DAP P 12/28/98 500 $3.125
DAP P 12/29/98 500 $3.813
DAP S 12/29/98 500 $3.875
DAP P 12/30/98 500 $3.938
DAP S 12/30/98 1,300 $4.033
DAI S 12/30/98 1,200 $4.033
(Table continued on page 10)
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CUSIP No. 747582104 Page 11 of 13 pages
(Table continued from page 9)
DAP S 12/31/98 100 $4.188
DAI P 12/31/98 500 $4.125
DAI P 01/04/99 1,400 $4.125
DAP S 01/05/99 500 $4.188
DAP S 01/05/99 1,000 $4.250
DAI P 01/05/99 500 $4.125
DAI P 01/05/99 100 $4.188
DAP P 01/06/99 500 $4.063
DAP S 01/06/99 500 $4.125
DAP S 01/06/99 100 $4.188
DAI P 01/06/99 500 $4.163
DAP P 01/07/99 1,000 $4.125
DAP S 01/07/99 2,500 $4.250
DAI P 01/07/99 200 $4.031
DAP P 01/08/99 500 $4.250
DAP S 01/08/99 800 $4.375
DAI S 01/08/99 200 $4.375
DAP P 01/12/99 1,000 $4.156
DAP P 01/15/99 200 $4.406
DAP P 01/20/99 1,200 $4.287
DAP P 01/20/99 300 $4.313
DAP S 01/20/99 300 $4.438
DAP P 01/21/99 200 $4.500
DAP S 01/21/99 2,000 $4.469
DAI S 01/21/99 500 $4.469
DAP P 01/22/99 100 $4.375
DAP P 01/25/99 700 $4.222
DAI P 01/25/99 200 $4.222
DAP P 01/26/99 500 $4.250
DAP P 01/27/99 800 $4.375
DAP S 01/27/99 2,000 $4.462
DAI P 01/27/99 200 $4.375
DAI S 01/27/99 300 $4.462
All transactions were executed through the Nasdaq National Market System.
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CUSIP No. 747582104 Page 12 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: February 2, 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>
CUSIP No. 747582104 Page 13 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
CJR\3693\011\1027550.01
