<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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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
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<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 17, 1999
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 Friday, September 17, 1999, at 2:00 P.M. Pacific Time,
for the following purposes:
1. To elect seven (7) 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 public accountants of the Company for the fiscal year
ending March 31, 2000.
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 August 5,
1999, 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
August 23, 1999
<PAGE> 3
[logo]
Quality Systems, Inc.
17822 East 17th Street, Suite 210
Tustin, California 92780
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 17, 1999
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 Friday, September 17, 1999, at 2:00 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
August 24, 1999. 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. Such
further solicitations will be made by the Company's regular employees who
will not receive additional compensation for the solicitation. In addition,
the Company has retained the proxy soliciting firm of Kissel-Blake to
assist in the solicitation process. The Company has agreed to pay
Kissel-Blake a fee of $25,000 plus reimbursement of its expenses.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 6,214,916 shares of the Company's Common
Stock outstanding at the close of business on August 5, 1999, 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 seven nominees for director
receiving the highest number of affirmative votes will be elected; votes
withheld and votes against a nominee have no practical effect. In matters
other than election of directors, assuming that a quorum is present, the
affirmative votes of a majority of the shares represented and voting at a
meeting (which shares voting affirmatively also constitute at least a
majority of the required quorum) is required for approval; in such matters,
abstentions and broker non-votes are not counted. Each shareholder will be
<PAGE> 4
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 August 10, 1999 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 current
directors and nominees for director, (iii) each of the Named Executive
Officers (as hereinafter defined), and (iv) all current directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Percent of Common
Beneficially Stock Beneficially
Name of Beneficial Owner Owned (1) Owned(2)
- ----------------------------------- ---------------- -------------------
<S> <C> <C>
Janet Razin and Sheldon Razin(3) 1,520,220 24.46%
Ahmed Hussein(4) 1,147,400 18.46%
Lawndale Capital Management, LLC(5) 621,200 10.00%
Dimensional Fund Advisors Inc.(6) 326,800 5.26%
Patrick Cline 113,325 1.82%
John Bowers, M.D. 51,230 *
Greg Flynn 33,580(7) *
Donn Neufeld 30,550(7) *
William Bowers 11,200 *
Robert McGraw 9,825(7) *
Frank C. Meyer 8,200 *
Gordon Setran 6,000 *
Mohammed Tawfick El-Bardai - -
Dale M. Hanson - -
William E. Small - -
Emad A. Zikry - -
All directors and executive
officers as a group (11 persons,
including those named above) 1,798,880(7) 28.79%
</TABLE>
- ----------------
* Less than 1%.
<PAGE> 5
(1) 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 6,214,916 shares of Common
Stock outstanding as of August 10, 1999. Any securities not
outstanding but subject to options exercisable as of August 10, 1999
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. The address for Mr. and Mrs. Razin is c/o Quality
Systems, Inc., 17822 East 17th Street, Suite 210, Tustin, California
92780.
(4) The address for Mr. Hussein is 30 Rockefeller Center, Suite 1936, New
York, New York 10112.
(5) As reflected in the Schedule 13 D/A dated August 10, 1999. The
Schedule 13D/A concerns beneficial ownership interests of Lawndale
Capital Management, LLC ("Lawndale"), Diamond A Partners, L.P.
("DAP"), Diamond A Investors, L.P. ("DAI") and Andrew E. Shapiro
("Shapiro"). Lawndale is the investment adviser to and general partner
of DAP and DAI, which are investment limited partnerships. Shapiro is
the sole manager of Lawndale. The Schedule 13D/A states that Lawndale,
DAP, DAI and Shapiro have beneficial ownership of 621,200 shares,
525,300 shares, 95,900 shares and 621,200 shares, respectively. The
address for Lawndale, DAP, DAI and Shapiro is One Sansome Street,
Suite 3900, San Francisco, California 94104.
(6) As reflected in the Schedule 13G dated February 11, 1999. The Schedule
13G states that Dimensional Fund Advisors Inc. ("Dimensional")
furnishes investment advice to four investment companies and serves as
investment manager to certain other investment vehicles (the four
investment companies and the investment vehicles are collectively
referred to as "Portfolios"). In its role as investment advisor and
investment manager, Dimensional possesses both voting and investment
power over the securities of the Company that are owned by Portfolios.
The Schedule 13G further states that all of the 326,800 shares of the
Company's Common Stock reported thereon are owned by the Portfolios
and Dimensional disclaims beneficial ownership of all such securities.
The Schedule 13G also sets forth that none of the Portfolios to the
knowledge of Dimensional owns individually more than 5% of the
Company's outstanding Common Stock. The address for Dimensional is
1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401.
(7) Includes shares of Common Stock subject to stock options which were
exercisable as of August 10, 1999 or exercisable within 60 days after
August 10, 1999, and are, respectively, as follows: Mr. Flynn, 7,550
shares; Mr. Neufeld, 7,550 shares; Mr. McGraw, 8,825 shares; and all
directors and officers as a group, 33,475 shares.
<PAGE> 6
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 seven directors. Certain information with
respect to the seven nominees who will be presented at the Annual Meeting
by the Board of Directors for election as directors is set forth below.
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 seven
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 will proxies
delivered by brokers voting without beneficial owner instruction and
exercising a non-vote on certain matters.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ELECTION OF EACH OF
THE NOMINEES NAMED BELOW.
Sheldon Razin (61) is the founder of the Company and has served as its
Chairman of the Board of Directors and Chief Executive Officer since the
Company's inception in 1974. 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 is a member
of the CEO Technology Advisory Board, Department of Information and
Computer Science, University of California, Irvine. Mr. Razin holds a B.S.
degree in Mathematics from the Massachusetts Institute of Technology. Mr.
Razin is the husband of Janet Razin.
Mohammed Tawfick El-Bardai (59) is, and has been since 1995, the Chief
Executive Officer of National Telecommunications Corp. Mr. El-Bardai
currently serves as a director of National Technology Group, Satellite
Equipment Manufacturing Corp, Eqyptian Space Communications Corp and
EqyNet.
<PAGE> 7
Dale M. Hanson (56) is, and has been since 1994, the Chief Executive
Officer of American Partners Capital Group, a private investment firm.
From 1987 to 1994, Mr. Hanson was the Chief Executive Officer of California
Public Employees' Retirement System.
Ahmed Hussein (58) is, and has been since 1997, the Chairman of the
Board of National Investment Company, Cairo, Egypt. Mr. Hussein founded
National Investment Company in 1996 and has served as a member of its Board
of Directors since its inception. Prior to such time, Mr. Hussein served
as Senior Vice President of Dean Witter from 1993 to 1996. Mr. Hussein is
a director of the following publicly held Egyptian companies: Nasr City
Co., Simo Paper Co. and Nobria Agriculture.
Frank C. Meyer (55) is, and has been since 1988, President of Glenwood
Holdings (previously, Glenwood Investment Corporation, which Mr. Meyer co-
founded in 1988), a firm which oversees several funds with total assets
under management in excess of $800 million and which acts as a venture
capital firm with prospective money managers who desire to start hedge
funds. Mr. Meyer also served as Chairman of Centurion Trust Company, a
trust company that provides custodial services to investors holding
portfolios of mutual funds. Mr. Meyer holds an MBA from the University of
Chicago.
William E. Small (57) is, and has been since 1996, an independent
management consultant providing merger and acquisition advice as well as
strategic planning to high technology, information and financial services
companies. Mr. Small was Executive Vice President of First Data Investor
Services Group from 1993 to 1996, a firm with $300 million in annual
revenues which provides services to the mutual fund industry. Previously,
Mr. Small served in a variety of senior management roles with companies
involved in computer systems consulting and banking and investment
activities, including President and Chief Executive Officer of Mellon
Financial Services Group. Mr. Small has a B.S. in Electrical Engineering
from the United States Naval Academy and an M.S. in Management from the
Sloan School at the Massachusetts Institute of Technology.
Emad A. Zikry (49) is, and has been since 1994, President and Chief
Executive Officer of ARM Capital Advisors, LLC. Prior to such time, Mr.
Zikry was President and Chief Executive Officer of Kleinwort Benson
Investment Management Americas, Inc. since 1993. Mr. Zikry is a director of
the Pacific Institute and the Park Avenue Bank.
MEMORANDUM OF UNDERSTANDING RELATING TO DIRECTOR NOMINEES
On August 6, 1999, the Board of Directors announced that it had
reached an understanding with two of the Company's shareholders, Ahmed
Hussein and Lawndale Capital Management, LLC, with respect to the
composition of the Board of Directors and certain other corporate
governance matters. The terms of this understanding were memorialized in a
memorandum of understanding, which is set forth below:
Ahmed Hussein and Lawndale Capital Management, LLC ("Lawndale")are
substantial shareholders of Quality Systems, Inc. (the "Company").
<PAGE> 8
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 an 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 Bylaws containing
corporate governance provisions in the form attached as Exhibit A
to this memorandum. [Note: These corporate governance provisions
are reprinted at the end of this Proxy Statement.]
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 Meyer
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 Meyer, and William Small,
that the Nominating Committee be composed of Ahmed Hussein, Frank
Meyer, William Small, and Mohammed Tawfick El-Bardai and that the
Compensation Committee be composed of Ahmed Hussein, Emad A.
Zikry, Frank Meyer, 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.
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.
<PAGE> 9
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 person 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 the
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, stating 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.
h. Mr. Hussein, Mr. Razin and Lawndale file appropriate 13D
amendments.
LEGAL PROCEEDINGS
On March 23, 1999, a purported class action and derivative complaint
entitled IRVING ROSENZWEIG v. SHELDON RAZIN, ET AL. was filed in the
Superior Court of the State of California for the County of Orange, in
which Mr. Rosenzweig, on behalf of himself and all non-director
shareholders, and derivatively on behalf of the Company, alleges that
Sheldon Razin, John Bowers, William Bowers, Patrick Cline, Janet Razin and
Gordon Setran (all of the foregoing individuals are directors of the
Company) breached their fiduciary duties by allegedly entrenching
themselves in their positions of control, failing to ensure that third-
<PAGE> 10
party offers involving the Company were fully and fairly considered, and/or
failing to conduct a reasonable inquiry to assure the maximization of
shareholder value. The complaint seeks declaratory and injunctive relief,
an accounting of monetary damages allegedly suffered by plaintiff and the
purported class, and attorneys' fees. The named directors deny all
allegations of wrongdoing made against them in this suit, consider the
allegations groundless and without merit, and intend to vigorously defend
against the action.
BOARD OF DIRECTORS MEETINGS AND RELATED MATTERS
During the fiscal year ended March 31, 1999, the Board of Directors
held eight meetings and there were no actions by unanimous written consent.
No director, except former directors George Bristol and Donald A. Cook,
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 which during the fiscal
year ended March 31, 1999 consisted of Messrs. Setran and 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
public accountants 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 public accountants' performance
and makes recommendations to the Board of Directors as to whether the
independent public accounting 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, 1999, the Audit Committee
held four meetings.
In May 1999, the Board of Directors established a Nominating Committee
and a Compensation Committee. The Nominating Committee is responsible for
identifying, recommending and nominating candidates to the Board of
Directors. The Compensation Committee is responsible for (i) developing
policies and practices regarding the compensation of the officers of the
Company which are consistent with, and linked to, the Company's strategic
business objectives, and (ii) establishing the compensation of the
officers. Notwithstanding the foregoing, a member of the Compensation
Committee shall be recused from involvement in a matter to be acted upon by
the Compensation Committee with regard to the compensation of such member
or a relative of such member. Each of the Nominating Committee and
Compensation Committee consists of four members, all of whom are current
members of the Company's Board of Directors and at least three of whom on
each committee shall be independent directors. As of the date of this Proxy
Statement, the members of the two committees are identical, consisting of
Messrs. William Bowers, Razin and Setran and Dr. John Bowers. Pursuant to
the understanding reached with Lawndale and Mr. Hussein, following the
Annual Meeting, Mr. Hussein and Mr. Razin will each recommend to the Board
of Directors that the Nominating Committee be composed of Messrs. Hussein,
Meyer, Small and El-Bardai, and that the Compensation Committee be composed
of Messrs. Hussein, Zikry, Meyer and Small. The Nominating Committee has
not yet determined the procedures for consideration of shareholder
suggestions of possible nominees to fill future vacancies on the Board.
<PAGE> 11
In July 1999, the Board of Directors established a Transaction
Committee. The Transaction Committee is responsible for (i) reviewing all
related party transactions, (ii) considering and making recommendations to
the Company's Board of Directors with respect to all proposals involving
(a) a change in control of the Company or (b) the purchase or sale of
assets constituting more than 10% of the Company's total assets, and (iii)
reviewing all transactions that trigger the Company's Shareholders Rights
Plan. The Transaction Committee has three members, all of whom are current
members of the Company's Board of Directors and all of whom must be
independent directors. The current members of the committee are Messrs.
William Bowers and Setran and Dr. John Bowers. Pursuant to the
understanding reached with Lawndale and Mr. Hussein, following the Annual
Meeting, Mr. Hussein and Mr. Razin will each recommend to the Board of
Directors that the Transaction Committee be composed of Messrs. Hussein,
Hanson, Meyer and Small.
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.
RESIGNATION OF DIRECTOR
On July 13, 1999, Donald A. Cook resigned as a Director of the Company
and delivered a letter describing his disagreements with the Company's
Directors and management as to certain policies and practices. He
subsequently requested that the matter be disclosed. In summary, Mr. Cook
says he disagrees with the Board's treatment of a purported "offer" to buy
the Company; with the selection of counsel to represent the Directors in a
derivative lawsuit; with adoption of an amendment of the Bylaws; with
rejection of Lawndale Capital's proposals; and with a purported "mandate"
that the Directors refrain from speaking with shareholders. A full
description of Mr. Cook's disagreements is set forth in his letter which is
filed as Exhibit 17.1 to the Company's Current Report on Form 8-K filed
July 20, 1999.
Management's Comments on Mr. Cook's Letter (see the Company's Current
Report on Form 8-K filed July 20, 1999):
On July 15, 1999, two days after delivery of Mr. Cook's resignation
letter and one day after his request that it be disclosed, Mr. Cook became
a nominee for election as a Director of the Company as one of the persons
proposed by Lawndale Capital Management, LLC. Accordingly, Mr. Cook's
letter appeared to be part of Lawndale's campaign to solicit proxies in
opposition to the Company's management.
Management believes that the descriptions provided by Mr. Cook in his
letter and in subsequent public statements to the press are incorrect,
incomplete and misleading. While management does not intend to respond to
every allegation contained in Mr. Cook's letter, it will address some of
the more important matters.
First, the Company believes that the proposal made to the Company in
December 1998, which Mr. Cook incorrectly characterizes as an "offer," was
wholly inadequate and lacking in substance, and that the directors acted
<PAGE> 12
properly and consistently with their fiduciary duties in deciding to reject
the proposal. Second, with regard to the pending derivative lawsuit, the
Company does not believe that counsel representing the directors has any
conflict of interest that precludes it from representing the directors in
the proceeding.
Mr. Cook also takes exception to the recent Bylaw amendment which was
approved by the board, requiring that the Company indemnify its directors
and officers to the fullest extent permitted by California law and the
Company's Articles of Incorporation and Bylaws. A copy of the Bylaw
amendment is filed as Exhibit 3.1 to the Company's Current Report on Form
8-K filed July 20, 1999.
It appears that Mr. Cook fails to understand the purpose and effect of
the Bylaw amendment of which he complains. The amendment simply says that
the Company shall (rather than "may") indemnify directors, officers and
employees, subject to the processes and safeguards already contained in
the Bylaws and in California law, and that this protection cannot be
retroactively terminated. The Bylaw amendment confers no benefit
whatsoever on any of the Directors except Mr. Cook himself and Mr. Patrick
Cline. The five other Directors are parties to indemnity agreements
entered into and fully disclosed some years ago, which provide them with
protection at least as complete as the amended Bylaws. The Company
believes, however, that non-director officers and employees of the Company
might be reassured by the amendment.
Finally, the Company believes that Mr. Cook's resignation and his
opposition to many of the Board's recent actions relate at least in part
to the Company's rejection of Mr. Cook's request to pay him a $48,000
consulting fee (plus out-of-pocket expenses) after he joined the Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee during its fiscal
year ended March 31, 1999 and the related functions carried out by such a
committee were performed by the entire Board of Directors. Sheldon Razin,
Janet Razin and Patrick Cline, who are officers and employees of the
Company, were also members of the Board of Directors during the fiscal year
ended March 31, 1999. 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.
<PAGE> 13
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain compensation information for
the three fiscal years ended March 31, 1999, 1998 and 1997, 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 1999 fiscal year
whose aggregate total annual salary and bonus for such year exceeded
$100,000 (the "Named Executive Officers").
Summary Compensation Table
Long-Term
Compensation
-------------
Annual Compensation Awards
--------------------- -------------
Securities
Underlying All
Name and Options/ Other
Principal SARs Compensation
Position Year Salary($) Bonus($) (#) ($)(1)
- ----------------- ---- --------- -------- ----------- ------------
[S] [C] [C] [C] [C] [C]
Sheldon Razin 1999 241,667 -- -- 3,240
Chief Executive 1998 225,000 -- -- 3,073
Officer and 1997 225,000 -- -- 3,073
President
Patrick Cline(2) 1999 185,898 -- -- 1,832
Executive 1998 197,703 -- -- 1,977
Vice President 1997 145,576 -- -- 1,456
Greg Flynn 1999 160,000 22,500 -- 1,751
Executive Vice 1998 146,693 -- 5,100(3) 1,651
President 1997 130,000 38,333 30,000(3) 1,834
Corporate Sales
& Marketing
Robert McGraw 1999 125,000 18,750 -- 151
Vice President 1998 125,000 18,750 7,650(3) 151
Chief Financial 1997 125,000 18,750 40,000(3) 151
Officer
Donn Neufeld 1999 142,000 -- -- 1,551
Vice President 1998 132,502 -- 5,100(3) 1,551
Software & 1997 119,583 -- 30,000(3) 1,347
Operations
[/TABLE]
(1) This column reflects amounts attributable to Company contributions
to the Company's Deferred Compensation Plan (in the case of Mr. Cline,
Clinitec International Inc.'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, 1999 such
amounts were, respectively, as follows: Mr. Razin, $2,417 and $823; Mr.
Cline, $1,832 and none; Mr. Flynn, $1,600 and $151; Mr. McGraw, none
and $151; and Mr. Neufeld, $1,400 and $151.
(2) Mr. Cline's employment with the Company commenced in May 1996.
<PAGE> 14
(3) Certain options granted to the following individuals on June 12, 1996
with an exercise price of $27.50 per share were exchanged for new
options granted on August 11, 1997 with an exercise price of $7.01
per share: Mr. Flynn exchanged options representing 20,000 shares for
new options representing 5,100 shares; Mr. McGraw exchanged options
representing 30,000 shares for new options representing 7,650 shares;
and, Mr. Neufeld exchanged options representing 20,000 shares for new
options representing 5,100 shares.
Option /SAR Information
The Company did not grant stock options or stock appreciation rights
to any of the Named Executive Officers during fiscal 1999.
The following table provides information on option exercises in fiscal
1999 by the Named Executive Officers and unexercised options held by them
at the close of such fiscal year. No Named Executive Officer exercised any
stock appreciation rights during fiscal 1999 or held any stock appreciation
rights at the end of such fiscal year nor did any of the Named Executive
Officers hold any unexercised, in-the-money stock options or stock
appreciation rights at the end of such fiscal year.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options at March 31, 1999(#)
Shares Acquired Value ---------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable
- ------------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Sheldon Razin -- -- -- --
Patrick Cline -- -- -- --
Greg Flynn -- -- 6,275 8,825
Robert McGraw -- -- 6,912 10,738
Donn Neufeld 23,000 58,938 6,275 8,825
</TABLE>
Employment Contracts and Change in Control Arrangements
In connection with the May 1996 purchase of Clinitec International,
Inc. ("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 expiring on May 16, 1999. Mr. Cline receives a base
annual salary of $153,000 over the agreement term with additional annual
salary based upon Clinitec's 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 the
remaining contract term from April 1, 1999 through May 16, 1999 is $38,000.
Other than the above described arrangements with Mr. Cline, the
Company does not have any employment contracts in effect with the Chief
Executive Officer or any of the other Named Executive Officers.
<PAGE> 15
The Board of Directors, as the administrator of the Company's 1989
Stock Option Plan and 1998 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 each such plan are not to be assumed by
the successor corporation or substituted with options to purchase shares of
such corporation.
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
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 highly
qualified 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 the Board of Directors
(in the case of the Chief Executive Officer) and by the Chief
Executive Officer (in the case of all other executive officers) 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 quantitatively and
qualitatively 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 and
to achieve a balance of the compensation paid to a particular
individual with 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
Chief Executive Officer or other evaluating manager
sets objectives and key goals.
<PAGE> 16
2. The evaluating manager gives the employee ongoing
feedback on performance.
3. At the end of the performance cycle, the manager
objectively and subjectively evaluates the
accomplishment 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:
Salary. The Company set base salary for employees other than the
Chief Executive Officer by reviewing the base salary for competitive
positions in the market. Mr. Razin's base salary was determined by the
Board of Directors based on this comparison and on the Board's
subjective assessment of his overall performance. Effective December
1, 1998, the Board approved a salary increase for Mr. Razin of $50,000
per year. Because of Mr. Razin's ownership of a substantial portion
of the Company's outstanding Common Stock, the Board has historically
not offered regular salary increases or incentives to Mr. Razin, 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
generally are granted with an exercise price equal to the fair market
value of the underlying Common Stock on the date of grant and vest in
equal annual installments over a four-year period.
BOARD OF DIRECTORS
Sheldon Razin, Chairman Patrick Cline
John Bowers, M.D. Janet Razin
William Bowers Gordon Setran
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as
<PAGE> 17
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 ("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, 1999, its officers, directors and greater than
10% shareholders complied with all filing requirements applicable to such
persons with the exception of the following report. Mr. David Razin, the
Company's Vice President Business Development, inadvertently filed his Form
4 thirty-one days late in connection with his exercise of certain stock
options.
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, 1999 assuming
$100 was invested on April 1, 1994 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, 1994, 1995, 1996, 1997, 1998 and 1999,
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>
03/31/94 03/31/95 03/31/96 03/31/97 03/31/98 03/31/99
-------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Quality Systems,
Inc. 100 54 367 121 124 63
The Nasdaq Stock
Market 100 111 151 168 254 342
The Nasdaq
Computer & Data
Processing
Services Stocks 100 135 191 209 365 594]
</TABLE>
(1) Information regarding the price of the last trade of the Company's
Common Stock on March 31, 1994 was not readily available, and thus, the
closing bid price on that date which was published by The Nasdaq Stock
Market was utilized. The last trade price of the Company's Common
Stock on each of March 31, 1995, 1996, 1997, 1998 and 1999 was
published by The Nasdaq Stock Market and, accordingly for the periods
ended March 31, 1995, 1996, 1997, 1998 and 1999, 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> 18
CERTAIN TRANSACTIONS
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, for $10.5
million. The purchase price consisted of an initial cash payment of $4.8
million paid upon the May 1997 closing of the transaction with an
additional payment of $5.7 million paid on June 29, 1998. The additional
payment consisted of $3.8 million in cash and 245,454 shares of the
Company's Common Stock valued at $1.8 million, or $7.48 per share. The
shares of Common Stock could not be sold or otherwise transferred in any
manner until June 1999. 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. Mr. Puckett resigned as an officer and
employee of the Company effective May 15, 1999.
David Razin, who is Vice President Business Development of the
Company, is the son of Sheldon and Janet Razin. The Company paid David
Razin $127,000 in salary during the fiscal year ended March 31, 1999. The
Company did not grant any stock options or stock appreciation rights to
David Razin during fiscal 1999.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
(Proposal No. 2)
The Board of Directors of the Company appointed the firm of Deloitte &
Touche LLP as its independent public accountants for the fiscal year ended
March 31, 1999. The Board of Directors of the Company has also appointed
Deloitte & Touche LLP to serve again as the Company's independent public
accountants for the fiscal year ending March 31, 2000, 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 public accountants, the selection of another
independent public accounting 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, 1999 and 1998 accompanies this Proxy
Statement but such report is not incorporated herein and is not deemed to
be a part of this proxy solicitation material.
<PAGE> 19
PROPOSALS OF SHAREHOLDERS
Pursuant to Rule 14a-8 of the Securities and Exchange Commission,
proposals by shareholders which are intended for inclusion in the Company's
proxy statement and proxy and to be presented at the Company's next Annual
Meeting must be received by the Company by April 26, 2000, 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 Securities and Exchange Commission governing shareholder proposals. For
all other proposals by shareholders (including nominees for director) to be
timely, a Shareholders' Notice must be delivered to, or mailed and received
at, the principal executive offices of the Company not less than sixty days
nor more than one hundred twenty days prior to the scheduled Annual
Meeting, regardless of any postponements, deferrals or adjournments of that
meeting to a later date; provided, however, that if less than seventy days
notice or a prior public disclosure of the date of the scheduled Annual
Meeting is given or made, notice by the shareholder, to be timely, must be
so delivered or received not later than the close of business on the tenth
day following the earlier of the day on which such notice of the date of
the scheduled Annual Meeting was mailed or the day on which such public
disclosure was made. The Shareholder Notice must also comply with certain
other requirements set forth in the Company's Bylaws, a copy of which may
be obtained by written request delivered to the Company's Secretary.
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
August 23, 1999
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, 1999, (WITHOUT
EXHIBITS) AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BY WRITING
TO: INVESTOR RELATIONS, QUALITY SYSTEMS, INC., 17822 EAST 17TH STREET,
SUITE 210, TUSTIN, CALIFORNIA 92780 OR CALL (714) 731-7171.
<PAGE> 20
QUALITY SYSTEMS, INC.
Corporate Governance Provisions
1. At least three-quarters of the members of the board of directors (the
"Board") shall be independent. For purposes of any action of the
Board, at least one-half of the directors present and eligible to
vote must be independent.
An independent director means a person who:
(a) has never been an employee of the Company or any of its
subsidiaries.
(b) provides no services to the Company or to the Chief Executive
Officer or senior management of the Company as an adviser,
consultant or otherwise.
(c) is not employed by an entity which provides services to the
Company or to the Chief Executive Officer or senior management
of the Company as an adviser, consultant or otherwise.
(d) is not affiliated with a significant customer or supplier of the
Company ("significant" means more than 1% of annual sales).
(e) has not had, during the past two years, any interest in any
significant transaction, or any business or financial
relationship, with the Company or an affiliate of the Company
(other than service as a director) for which the Company has
been required to make disclosure under Regulation S-K of the
Securities and Exchange Commission.
(f) is not a relative of an executive officer or director of the
Company.
(g) receives no compensation from the Company other than director's
fees.
(h) does not personally receive and is not an employee, director, or
trustee of a foundation, university, or other institution that
receives grants or endowments from the Company that are material
to the Company or to either the recipient and/or the foundation,
university or institution.
(i) is not employed by an entity of which (i) an executive officer
of the Company serves as a director or trustee, or (ii) a
director of the Company serves in a senior executive capacity.
2. There shall be an Audit Committee of the Board, composed entirely of
independent directors, which shall oversee the Company's financial
reporting process and internal controls, review compliance with laws
and accounting standards, recommend the appointment of public
accountants, and provide a direct channel of communication to the
Board for public accountants, internal auditors and finance officers.
3. There shall be a Nominating Committee of the Board, composed entirely
of independent directors, which shall be responsible for the
evaluation and nomination of Board members.
4. There shall be a Compensation Committee of the Board, composed
entirely of independent directors, which shall be responsible for
(i) ensuring that senior management will be accountable to the Board
through the effective application of compensation policies, and (ii)
monitoring the effectiveness of both senior management and the Board
(including committees thereof). The Compensation Committee shall
establish compensation policies applicable to the Company's executive
officers. A fair summary of such policies and the relationship of
<PAGE> 21
corporate performance to executive compensation, including the
factors and criteria upon which the Chief Executive Officer's
compensation was based, shall be disclosed to shareholders in the
Company's proxy statement for the annual meeting.
5. There shall be a Transaction Committee of the Board, composed
entirely of independent directors, which shall be responsible for
reviewing all related-party transactions involving the Company, and
considering and making recommendations to the full Board with respect
to all proposals involving (i) a change in control, or (ii) the
purchase or sale of assets constituting more than 10% of the
Company's total assets. Additionally, the Transaction Committee
shall be responsible for reviewing all transactions or proposed
transactions that trigger the Company's Shareholder Rights Plan, if
any.
6. If at any time the Chairman of the Board shall be an executive
officer of the Company, or for any other reason shall not be an
independent director, a non-executive Lead Director shall be selected
by the independent directors. The Lead Director shall be one of the
independent directors, shall be a member of the Audit Committee and
of the Executive Committee, if there is such a committee, and shall be
responsible for coordinating the activities of the independent
directors. He shall assist the Board in assuring compliance with
these corporate governance procedures and policies, and shall
coordinate, develop the agenda for, and moderate executive sessions
of the Board's independent directors. Such executive sessions shall
be held immediately following each regular meeting of the Board, and
may be held at other times as designated by the Lead Director. The
Lead Director shall approve, in consultation with the other
Independent Directors, the retention of consultants who report
directly to the Board. If at any time the Chairman of the Board is
one of the independent directors, then he or she shall perform the
duties of the Lead Director.
7. The foregoing provisions are adopted as part of the Bylaws of the
Company and cannot be amended or repealed without either (a) approval
by the shareholders of the Company, or (b) approval by a two-thirds
majority of all the authorized number of directors of the Company
including two-thirds of the independent directors, and cannot be
amended or repealed prior to the 1999 Annual Meeting of the Company.
Any inconsistent provisions of the Bylaws are hereby modified to be
consistent with these provisions. The foregoing provisions, insofar
as they establish eligibility to serve as a director or as a
committee member, shall not have the effect of removing any director
or committee member from office but shall be given effect at the next
election of directors and the next selection of committee members, as
the case may be, in calendar year 1999 and thereafter. The foregoing
provisions shall not be construed to limit or restrict the effective
exercise of statutory cumulative voting rights by any shareholder,
but the Nominating Committee shall not nominate candidates for
election to the Board except as may be consistent with such
provisions, and no corporate funds may be expended for the
solicitation of proxies which are inconsistent with the foregoing
provisions.
<PAGE> 22
PROXY
- -----
QUALITY SYSTEMS, INC.
1999 ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 17, 1999
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 the Quality Systems, Inc. Annual Meeting
of Shareholders to be held at The Center Club, 650 Town Center Drive, Costa
Mesa, California, on Friday, September 17, 1999, at 2:00 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, Mohammed Tawfick El-Bardai, Dale M. Hanson,
Ahmed Hussein, Frank C. Meyer, William E. Small and Emad A. Zikry
(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 Public Accountants.
/ / 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> 23
(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: , 1999
--------------------
----------------------------------------
(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.
