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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D/A
(RULE 13D-101)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 14)*
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
Quality Systems, Inc.
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
747582104
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(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
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(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
August 6, 1999
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(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 five
copies of the schedule, including all exhibits. See Rule 13d-7 for other
parties to whom copies are to be sent.
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* 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)
(2 of 10)
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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 July 29, 1999, QSII adopted comprehensive corporate governance
principles, including a requirement that all board committees and three-quarters
of the whole board be independent directors. In addition, QSII nominated six new
independent candidates, including Dale Hanson, a candidate originally proposed
by Lawndale. As a result, QSII nominated a slate of entirely new outside
directors, a majority of whom were first recommended to QSII by Lawndale and
other shareholders. A copy of these guidelines is attached as an amendment to
QSII's Form 8-K, Exhibit 3.1, which can be found at http://www.sec.gov.
(3 of 10)
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In light of QSII's actions, which include the adoption of virtually all of
the corporate governance measures Lawndale has been advocating for the last
several months, Lawndale has decided to withdraw its proposals scheduled to be
voted on at QSII's annual meeting on September 17, 1999. A copy of the
Memorandum of Understanding between Lawndale and QSII is attached as Exhibit B.
A copy of Lawndale's press release is attached as Exhibit C.
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 8.455 0 525,300 0 525,300
DAI 95,900 1.544 0 95,900 0 95,900
</TABLE>
DAP and DAI each have record ownership of 100 shares since the filing of
Amendment No. 12 to the Schedule 13D on July 8, 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 May 28, 1999, as reflected in QSII's Annual Report
on Form 10-K for the fiscal year ended March 31, 1999.
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
B. Memorandum of Understanding dated August 4, 1999
C. Lawndale press release dated August 9, 1999
(4 of 10)
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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: August 10, 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
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Andrew E. Shapiro Andrew E. Shapiro
Manager Manager
LAWNDALE CAPITAL MANAGEMENT, LLC
By: /s/ Andrew E. Shapiro /s/ Andrew E. Shapiro
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Andrew E. Shapiro Andrew E. Shapiro
Manager
(5 of 10)
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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
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Andrew E. Shapiro Andrew E. Shapiro
Manager Manager
LAWNDALE CAPITAL MANAGEMENT, LLC
By: /s/ Andrew E. Shapiro /s/ Andrew E. Shapiro
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Andrew E. Shapiro Andrew E. Shapiro
Manager
(6 of 10)
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EXHIBIT B
MEMORANDUM OF UNDERSTANDING
August 4, 1999
Ahmed Hussein and Lawndale Capital Management, LLC ("Lawndale") are
substantial shareholders of Quality Systems, Inc. (the "Company").
Sheldon Razin, Dr. John Bowers, Gordon Setran and William Bowers (the
"Directors") are four of the six Directors of the Company, the other two being
Patrick Cline, President of operating division of the Company, and Janet Razin,
Sheldon Razin's wife. The Directors constitute all the members of the
Nominating Committee and the Transaction Committee of the Company's Board.
Mr. Hussein, Lawndale and the Directors believe that a proxy contest for
control of the Company will produce an inconclusive result and will lead to
continued infighting among shareholder groups and directors and will be
destructive of shareholder values. The parties agree that shareholder groups
should reconcile their differences by compromise and agreement and accordingly
have reached the following understandings.
1. The Board has adopted an amendment of the By-Laws containing
corporate governance provisions in the form attached as Exhibit A to
this memorandum.
2. The Directors, acting as the Nominating Committee, will nominate and
recommend to the full Board the following candidates for election at
the Annual Meeting.
Sheldon Razin
Ahmed Hussein
Mohammed Tawfick El-Bardai
Emad A. Zikry
Dale M. Hanson
Frank Myer
William Small
Mr. Hussein and Lawndale will support these candidates.
3. Following the annual meeting, Mr. Hussein and Mr. Razin will each
recommend to the Board that the Transaction Committee be composed of
Ahmed Hussein, Dale M. Hanson, Frank Myer, and William Small, that
the Nominating Committee be composed of Ahmed Hussein, Frank Myer,
William Small and Mohammed Tawfick El-Bardai and that the
Compensation Committee be composed of Ahmed Hussein, Emad A. Zikry,
Frank Myer, and William Small.
4. A lead Director will be chosen by the Board from among the
independent directors. Mr. Razin will recommend to the Board (a) that
Mr. Hussein be elected Co-Chairman of the Board, with power to
preside at Board meetings in the absence of the Chairman but without
executive powers, and (b) that Mr. Hussein be chosen to serve as Lead
Director.
5. The Company will immediately commence a search for a new President
and Chief Operating Officer.
(7 of 10)
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6. When a candidate acceptable to the Board has been identified and
elected to the position of President and Chief Operating Officer,
Mr. Razin will continue as Chairman and CEO with the understanding
that after six months, if the independent members of the Board deem
the new candidate to be ready to become Chief Executive Officer, Mr.
Razin will step down as Chief Executive Officer, although continuing
as Chairman for a period of two years or such longer period as the
Board requests.
7. The parties believe that the corporate governance provisions
referred to in Item 1 above afford substantially complete protection
to the shareholders and accordingly Lawndale will withdraw all the
proposals it has put forward, including the proposal formerly to
have been included in the proxy statement and the proposals
identified in the letter dated July 15, 1999.
8. Mr. Razin and the Directors will recommend to the Board that the
shareholder rights plan be terminated immediately by redemption of
the Rights.
9. If any litigation should be initiated by any persons based on the
understandings set forth in this memorandum or the implementation of
such understandings, the parties will use their best efforts to
cause the Company to indemnify the parties to this memorandum and
the persons designated herein as nominees for election to this Board
of Directors, against any damages, costs, expenses and reasonable
attorneys' fees incurred in the defense of any such claims or
litigation.
10. Any press releases or publicly filed documents referring to the
understandings set forth herein will avoid negative characterization
of any party or the policies previously followed by any party.
11. The foregoing understandings will be implemented promptly as
follows:
a. The Board has adopted the corporate governance provisions
b. Adoption of the corporate governance provisions has been
publicly announced
c. Nominating Committee nominates the "slate"
d. Board approves "slate" and authorizes inclusion in the Company's
proxy statement for the annual meeting
e. Board adopts resolutions for redemption of the Rights under the
rights plan
f. Public announcement by the Company of selection of Board's
candidates, stating that the slate includes candidates proposed
by Ahmed Hussein and Lawndale Capital, starting that search for
President/COO has been commenced, stating that rights plan is
being terminated, and stating that an accord has been reached
between the Company's board and the Hussein and Lawndale groups
g. Separate, concurrent public announcement by Ahmed Hussein that
he supports the slate
(8 of 10)
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h. Mr. Hussein, Mr. Razin and Lawndale file appropriate 13D
amendments
Approved: /s/ Sheldon Razin /s/ Andrew E. Shapiro
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Sheldon Razin Andrew E. Shapiro, Manager
8/5/99 Lawndale Capital Management, LLC
8/6/99
(9 of 10)
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EXHIBIT C
AUGUST 9, 1999
FOR IMMEDIATE RELEASE:
Contact:
Andrew Shapiro
President
Lawndale Capital Management, LLC
(415) 288-2330
LAWNDALE SUPPORTS ACTIONS BY QSII BOARD; ANNOUNCES WITHDRAWAL OF SHAREHOLDER
PROPOSALS
SAN FRANCISCO, CA.: Lawndale Capital Management LLC announced today that as a
result of the recent actions of Quality Systems, Inc. (NASDAQ: QSII) to adopt
virtually all of the corporate governance measures Lawndale had been proposing,
as well as to nominate six new directors, a majority of whom were proposed by
QSII shareholders including Lawndale, that Lawndale was withdrawing its
proposals which were scheduled to be voted on at QSII's annual meeting in
September.
"We are delighted that QSII's board of directors has taken such dramatic action
to improve its corporate governance procedures and to nominate an entirely new
slate of outside directors", said Andrew Shapiro, Lawndale's President. "The
actions taken by Quality Systems directly address the concerns we have
previously raised, and respond to those concerns in a very positive manner. In
light of these actions, we believe it is no longer necessary to seek direct
action by Quality Systems shareholders on these issues, and are withdrawing our
proposals," Mr. Shapiro commented.
Mr. Shapiro also praised the new nominees for the Quality Systems board of
directors. "We are very pleased that the QSII board's nominating committee has
chosen to endorse a slate of entirely new outside directors, a majority of whom
were first recommended to the company by Ahmed Hussein and Lawndale. We believe
these outside directors bring a wealth of knowledge and expertise to the QSII
board. We are particularly pleased that the Board has nominated Dale Hanson as
a director. Dale's expertise in corporate governance matters assures all
shareholders that QSII's board will successfully implement its new corporate
governance measures," said Shapiro.
Mr. Shapiro also praised Sheldon Razin, QSII's chairman, for his role in this
process. "These measures could not have been adopted without the support of
Sheldon Razin, and we look forward to working with Mr. Razin in his capacity as
chairman of the company, and also helping the board select a new president to
run the company," said Mr. Shapiro.
(10 of 10)
