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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
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
-----------------------------
(CUSIP Number)
David J. Berger, Esq.
Andrew E. Shapiro, Manager Page Mailliard, Esq.
Lawndale Capital Management, LLC Wilson Sonsini Goodrich & Rosati
One Sansome Street, Suite 3900 650 Page Mill Road
San Francisco, CA 94104 Palo Alto, CA 94304
(415) 288-2330 (650) 493-9300
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
July 7, 1999
-----------------------------
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13(d)-1(g), check the following
box. [_]
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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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:
Purchaser Source of Funds Amount
- ----------------- ------------------------------ -------------
LCM Funds Under Management (1) $4,068,070
DAP Working Capital $3,438,846
DAI Working Capital $ 629,224
_________________
(1) Includes funds of DAP and DAI invested in Common Stock.
Item 4. Purpose of Transaction.
In a letter dated July 7, 1999, Mr. Andrew Shapiro, Manager of Lawndale
Capital Management ("LCM"), notified Mr. Sheldon Razin, President and Chief
Executive Officer of Quality Systems, Inc. ("QSII"), of LCM's intent to nominate
two candidates for QSII's Board of Directors and to make
(2 of 4)
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additional shareholder proposals at the time of the annual meeting expected to
be held in September 1999. A copy of this letter is attached hereto as Exhibit
A.
LCM does not have any present plan or proposal which would relate to or
result in any of the matters set forth in subparagraphs (a) through (j) of Item
4 of Schedule 13D except as set forth herein or in prior amendments to this
Schedule 13D or such as would occur upon completion of any of the actions
discussed above. LCM intends to review its investment in QSII on a continuing
basis and, depending on various factors including, without limitation, QSII's
financial position and LCM's investment strategy, the price levels of QSII
Common Stock and conditions in the securities markets and general economic and
industry conditions, LCM may in the future take such actions with respect to its
investment in QSII as it deems appropriate including, without limitation,
purchasing additional shares of Common Stock or selling some or all of its
shares of Common Stock or change its intention with respect to any and all
matters referred to in Item 4. To the extent not inconsistent with the
foregoing, LCM incorporates by reference the material in Item 4 of its
previously filed Schedule 13D and the amendments thereto.
Item 5. Interest in Securities of the Issuer.
The beneficial ownership of the Common Stock by the persons named in Item 2
of this Schedule is as follows at the date hereof:
<TABLE>
<CAPTION>
Aggregate Beneficially
Owned Voting Power Dispositive Power
------------------------------ ---------------------------- ----------------------------
Name Number Percent Sole Shared Sole Shared
- ------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
LCM 621,200 9.99 0 621,200 0 621,200
Shapiro 621,200 9.99 0 621,200 0 621,200
DAP 525,300 8.45 0 525,300 0 525,300
DAI 95,900 1.54 0 95,900 0 95,900
</TABLE>
The persons filing this statement effected no transactions in the Common
Stock since the filing of Amendment No. 10 to the Schedule 13D on April 14,
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. Letter dated July 7, 1999 from Andrew Shapiro to Sheldon Razin.
B. Resumes of Proposed Candidates
(3 of 4)
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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: July 8, 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
(4 of 4)
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Exhibit A
July 7, 1999
Mr. Sheldon Razin
Chairman
Quality Systems, Inc.
17822 E. 17th Street #210
Tustin, CA 92680
(by facsimile and Airborne Express)
Re: Quality Systems:
Dear Shelly:
Following up on our recent conversations, this is to inform you that Lawndale
Capital Management, LLC, General partner of Diamond A. Partners, L.P.,
beneficial owner of Quality Systems (QSII) stock, hereby notifies you of its
intention to nominate, at the next annual meeting of shareholders of QSII,
candidates for the board of directors of QSII. The first two candidates to be
nominated by Lawndale are Dale M. Hanson and Kelly J. McCrann.
Mr. Hanson is, as you may know, one of the most experienced and knowledgeable
corporate governance activists in the world. Mr. Hanson was the CEO of the
California Public Employees Retirement System (CalPERS) from 1987 to 1994, and
since that time has been CEO of American Partners Capital Group, a private
investment firm. Mr. Hanson led the shareholder and corporate governance
efforts at numerous companies, including Texaco, Time Warner, Avon, Kodak, GM,
and Lockheed, and his demonstrated ability to develop good corporate governance
procedures in companies with a poor governance history makes him a perfect
candidate for QSII's board. In particular, we believe that Mr. Hanson can
provide the leadership to transform a board grossly deficient in the most basic
corporate governance knowledge and structures, such as QSII's board, into one
which is capable of performing its fiduciary duties to QSII's shareholders.
The second candidate to be nominated by Lawndale is Kelly J. McCrann. Since
1996, Mr. McCrann has been the President and CEO of Professional Dental
Associates, a dental practice management company, and from 1993 to 1996 was
President of the Lithotripsy division of Coram Healthcare Corporation, Mr.
McCrann's 15 plus years of proven operating and consulting expertise in both the
dental and medical industries would bring some sorely needed industry experience
to QSII's board. Indeed, with the exception of Mr. Donald Cook, we do not
believe any QSII outside director has sufficient recent industry experience to
provide adequate oversight or significant added value to QSII's board of
shareholders. (Copies of Mr. Hanson's and Mr. McCrann's resumes are attached.)
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Exhibit A
We hope that you will agree with us that Messrs. Hanson and McCrann provide
substantially greater corporate governance and industry experience than any of
the current outside directors (again with the possible exception of Donald Cook)
and support the election of these two outstanding individuals to QSII's board of
directors.
On a related issue, we have also now received your opposition statement to
Lawndale's proposed by-law resolution. I was disappointed to receive this, as I
had hoped that you would ultimately support the by-law resolution, especially in
light of your recent comments purporting to support better corporate governance
measures for QSII. More important than personal views, however, I hope that you
will agree to not waste any further corporate funds in opposing this by-law
resolution, and also disclose to QSII's stockholders the amount already spent
trying unsuccessfully to exclude the proposal from QSII's proxy statement.
On a related subject, you should also note that Lawndale expects to propose
additional resolutions for QSII's shareholders to vote on at the September
meeting. Although we have not finalized these proposals, among those under
consideration are proposals to (i) require that the compensation committee of
the QSII board of directors be composed entirely of independent directors (ii)
prohibit any change to the QSII by-laws concerning the indemnification of
directors without shareholder approval and (iii) to require that QSII compensate
its independent directors with QSII stock rather than cash. We are also
considering seeking shareholder approval for Lawndale's expenses in this effort,
and believe you should similarly seek shareholder approval for any of QSII's
expenses opposing our candidates and resolutions. Please note that Lawndale
reserves its right to nominate additional candidates for QSII's board and/or to
make additional proposals to be voted on by QSII's shareholders, expects to
cumulate its vote in support of its nominated candidates, and expects to vote
its shares in favor of its proposals.
Finally, I again ask that you reconsider your opposition to our proposals or
candidates. You have repeatedly stated that you do not believe we are far apart
on governance issues, and support good governance measures. I urge you to
demonstrate your commitment on these issues by recommending to the QSII board
that our by-law proposal be immediately adopted. I further urge you to consider
putting on QSII's slate of director candidates Messrs. Hanson and McCrann, as
well as reasonable candidates proposed by Ahmed Hussein. In this way, QSII can
have a stronger, more independent board, which represents all shareholders, and
also avoid a needless and costly proxy contest.
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Exhibit A
As always, I remain available to discuss all of these issues with the QSII board
of directors at any time.
Sincerely,
Andrew E. Shapiro
President
Enclosures-as stated
cc: Dr. John Bowers, Sr., Director
Mr. William Bowers, Director
Mr. Patrick Cline, Director
Mr. Don Cook, Director
Ms. Janet Razin, Director
Mr. Gordon Setran, Director
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Exhibit B
Dale M. Hanson
1203 Donahue Way
Roseville, CA 95661
United States of America
QUALIFICATIONS
Chief Executive Officer of a private investment firm. Chief Executive
Officer of the California Public Employees' Retirement System for
seven years (1987 - 1994). Strong knowledge of principles and
practices of corporate governance, public finance and markets, public
affairs, group insurance and investor relations.
WORK HISTORY
Chief Executive Officer
American Partners, Capital Group, Inc. 1994-present
Plan, organize, direct and control the activities of a small, private
equity investment firm. Work with general partners, assist in
developing and marketing private equity investment products to
institutional investors. Have worked with both U.S. and foreign
entities in this speciality area. Organization also managed a
corporate governance consulting practice for four years. Clients
included several S&P 500 corporations.
Chief Executive Officer
California Public Employee's Retirement System 1987-1994
Appointed by a 13-member board of trustees, served seven years as the
CEO of the largest public employee pension system in the world.
CalPERS is widely recognized as an innovative and financially
responsible public pension plan serving over one million active and
retired public employees. Responsible for both the investment and
benefit staff, which included retirement and group insurance benefits.
Chief Operating Officer
Wisconsin Retirement System 1981-1987
Appointed by the Chief Executive Officer, served six years as the
number two person in an organization providing retirement, health,
life, disability and deferred compensation programs for public
employees. Responsible for the day-to-day operation of the
organization. Frequent interaction with several appointed boards.
Other positions with the State of Wisconsin 1967-1981
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Exhibit B
Served as the Chief Wage and Salary Administrator for the State of
Wisconsin and was part of the management negotiation team. Director
of Group Insurance for Wisconsin for five years. Administrator of
Retirement Division for two years and then appointed COO.
EDUCATION
Degree: University of Wisconsin-Whitewater, 1967, BBA
Elected as a distinguished alumnus, 1993, and inducted in to the
School of Business Hall of Fame, 1993.
PREVIOUS BOARD POSITIONS AND APPOINTMENTS
ICN Pharmaceuticals -- Board Member 1995-1998. Company listed on the NYSE.
Served one three-year term. Chose not to stand for re-election.
Tech Coast Capital Partners-member of the board of directors of this new venture
capital firm located in southern California.
California State University, Sacramento. Member of the Trust Foundation, 1994-
present. Serve on the Investment Committee and the Real Estate Advisory
Committee. Appointed by the President of CSUB-Sacramento.
National Association of State Retirement Administrators. 1987-1994. Associate
member 1994-present.
University of California, Davis, Medical School, Board of Visitors. 1994-
present.
REFERENCES
Richard H. Koppes, Of Counsel, Jones Day, Reavis and Pogue,
Sacramento, CA 916.568.2885
James E. Burton, CHIEF Executive Officer, California Public Employees
Retirement System, Sacramento, CA 918.328.3829
Thomas C. Stickel, University Ventures Network, San Diego, CA
619.428.4449
Charles Manatt, Manatt, Phelps, Phillips & Kanto, Washington, DC.
202.463.4300, Los Angeles, CA 310.312.4000
David Watt, General Counsel, ICN Pharmaceuticals, Costa Mesa, CA
714.568.3104
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Exhibit B
Dale M. Hanson
Recognition Highlights
----------------------
Inducted into the University of Wisconsin-Whitewater's College of Business and
Economic Hall of Fame in 1993.
Honored by the University of Wisconsin-Whitewater's Alumni Association in 1993.
Selected as one of the seven top Americans who has worked toward empowering 50+
Americans by New Choices for Retirement Living magazine in their first annual
"Our Hero" awards in the Business category.
Leader in Corporate Governance while at California Public Employees Retirement
System-involved with shareholder effort in companies such as Texaco, Time
Warner, Avon, Kodak, GM, Lockheed and many others.
Held offices in many national organizations and participated in:
CEO Roundtable
Directorship
Council of Institutional Investors
Featured in articles in:
California Business "Mr. Big"
Institutional Investor
Fortune Magazine "The 25 most fascinating business people for 1988.
"Bang for the Buck."
Business Week
CFO
"Who's Who in Sacramento Business," Sacramento Business Journal
Financial World "Captain California"
USA Today
Today's Supervisor
Titles associated with Dale in the press:
"Low Key Architect," San Diego Union 8/2/92
"Pension;'s Pugilist" 1990, LA Times
"Self-Appointed Scourge of Corporate America," FW 10/1/91
"Mild Mannered but Tough," "The Reluctant Activist, The Sacramento Bee
Newspaper 7/8/91
"The Elephant that Roared," U.S. News & World Reports, 10/7/91
"Extroverted and sometimes confrontational," BusinessWeek, 10/3/94
"Management's Public Enemy Number One," Forbes
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Exhibit B
Published articles in:
Global Finance Forum, 1990 "Too Much at Stake."
Directorship
Organized the first ever Honoree Dinner at CalPERS, 5/19/92. Honored chief
executives from TRW, Texaco, Avon, Lockheed, Dayton Hudson Capital, and Ira
Millstein, Esq.
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Exhibit B
KELLY J. MCCRANN
600 Worcestor Road, Suite 204
Natick, MA 01760
EXECUTIVE PROFILE
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Extensive experience in healthcare provision and financing. Deep
understanding of health care industry trends and competitive
market forces. Experienced in P&L, management, team formation and
development, strategic market assessment, venture development and
M&A transactions. Excellent analytical skills and demonstrated
business judgment.
EXPERIENCE
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1996 - Present PROFESSIONAL DENTAL ASSOCIATES, INC., Natick, MA.
President, Chief Executive Officer and Director
Responsible for all strategic and operating aspects of this
private dental practice management company. With $21 million in
equity funding and $11 million senior credit facility, have grown
business to $60 million in annual revenues with 150+ dentists.
PDA is strongly operating cash flow positive and became P&L
positive during 1998
1993 - 1996 CORAM HEALTHCARE CORPORATION, Denver, CO.
Executive Vice President and President - Lithotripsy Division
Full P&L responsibility for the largest provider of lithotripsy
services in the U.S. Division included 15 business units,
operating 31 lithotripters in 20 states serving 180 sites. For
FY 1996, the Lithotripsy Division generated revenue of $53.5M
with pre-tax income over $32M.
1990 - 1993 HMSS, INC. Houston, TX.
Leading national provider of home infusion service with nearly
$100 million in revenue from 22 full-service branches. HMSS was
a wholly-owned subsidiary of Secomerica, Inc.
Vice President/General Manger - Ambulatory Infusion Centers
Directed all strategic, financial and operating aspects of
developing ambulatory infusion centers within HMSS. The AIC's
produced approximately $13M in annualized revenues.
1988 - 1990 AMERICAN MEDICAL INTERNATIONAL, Beverly Hills, CA
Vice President - Strategic Planning
Developed long range corporate strategy and market-specific
strategies for each of AMI's 100 domestic hospitals. Responsible
for AMI's domestic asset divestiture program generating
approximately $450 million in cash proceeds in 12 months.
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Exhibit B
1983 - 1988 McKINSEY & COMPANY, Los Angeles, CA
Senior Engagement Manager
Focused exclusively on the health care sector, with numerous
projects for acute care providers and managed care payors.
1980 - 1983 PEAT, MARWICK, MITCHELL, Los Angeles, CA
Senior Engagement Manager
Managed strategic, financial and marketing consulting projects in
the travel, transportation, durable equipment and consumer
products industries.
EDUCATION
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1980 HARVARD BUSINESS SCHOOL, Boston, MA
Masters of Business Administration, Emphasis in Finance and
Marketing
1977 UNIVERSITY OF CALIFORNIA, Los Angeles, CA
B.A. Political Science and Economics
Magna Cum Laude
1978 CORO FOUNDATION FELLOWSHIP, San Francisco, CA
Fellow in this exclusive program dedicated to developing
leadership in the private and public sectors.
PERSONAL
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1974 Member, NCAA National Championship Baseball Team
Married, two children (ages 8 and 2)
February 1999
