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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 7)*
Quality Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
March 17, 1999
-------------------------------------------------------
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13(d)-1(g), check the following
box.[_]
Note: Schedules filed in paper format shall include a signed original and final
copies of the schedule, including all exhibits. See Rule 13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
- --------------------------- ---------------------------
CUSIP No. 747582104 Page 2 of 13 Pages
- --------------------------- ---------------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Lawndale Capital Management, LLC
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS* AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES ---------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 621,200
EACH ---------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 0
WITH ----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
621,200
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
621,200
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.99%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO and IA
- --------------------------------------------------------------------------------
(2 of 13)
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SCHEDULE 13D
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CUSIP No. 747582104 Page 3 of 13 Pages
- --------------------------- ---------------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Andrew E. Shapiro
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS* AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES ----------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 621,200
EACH ----------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 0
WITH ----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
621,200
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
621,200
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.99%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
(3 of 13)
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SCHEDULE 13D
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CUSIP No. 747582104 Page 4 of 13 Pages
- --------------------------- ---------------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Diamond A Partners, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS* WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES ----------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 525,300
EACH ----------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 0
WITH ----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
525,300
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
525,300
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.45%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
(4 of 13)
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SCHEDULE 13D
- --------------------------- ---------------------------
CUSIP No. 747582104 Page 5 of 13 Pages
- --------------------------- ---------------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO. OF ABOVE PERSON
Diamond A Investors, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS* WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES ----------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 95,900
EACH ----------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 0
WITH ----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
95,900
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
95,900
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.54%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
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(5 of 13)
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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.
On March 17, 1999, Andrew E. Shapiro, president of LCM, sent a letter to
the Board of Directors of QSII (the "Board") discussing the Board's response to
a written acquisition proposal for QSII by Metropolitan Adjustment Bureau, Inc.
("MAB"). In his letter, Mr. Shapiro noted that on December 28, 1998, MAB
proposed to purchase all outstanding shares of QSII at a purchase price of
$47,000,000 (Forty-Seven Million Dollars), or approximately $7.50 per share.
The proposed price represented a premium of approximately 107% over QSII's
closing price on the date of the MAB proposal and an approximate 94%
(6 of 13)
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premium over the price on the date of the letter from Mr. Shapiro. A copy of
Mr. Shapiro's letter, which also attaches a copy of the MAB proposal, is
attached as Exhibit B to this Schedule 13D.
Based on a discussion with a representative of MAB, LCM believes that Mr.
Shelly Razin, QSII's chairman and chief executive officer, summarily rejected
the offer and that the Board did not study or formally discuss the offer nor
retain professional advisors to consider the offer. Further, despite the MAB
proposal being addressed to the entire Board, LCM believes that not all of the
directors were informed by Mr. Razin of the details of the proposal and that the
directors may not have all received copies of the letter containing the
proposal.
For the reasons set forth in Mr. Shapiro's letter to the Board, as well as
set forth in several prior amendments to this Schedule 13D, LCM believes that
the lack of independence of certain directors and the generally poor corporate
governance practices of the Board are negatively impacting shareholder value.
LCM has therefore requested in its letter to the Board that the Board meet with
representatives of LCM before April 1, 1999 to discuss the circumstances
surrounding the rejection of the MAB proposal and corporate governance issues
generally.
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:
Aggregate Beneficially
Owned Voting Power Dispositive Power
---------------------- ------------------ ------------------
Name Number Percent Sole Shared Sole Shared
- -------------- -------- --------- -------- -------- -------- --------
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
The persons filing this statement effected the following transactions in
the Common Stock on the dates indicated, and such transactions are the only
transactions in the Common Stock by the persons filing this statement since the
filing of Amendment No. 6 to the Schedule 13D on March 11, 1999.
Purchase or Number Price
Name Sale Date of Shares Per Share
- ----------------- --------------- -------------- ----------- -------------
DAP P 03/16/99 500 $3.688
All transactions were executed through the Nasdaq National Market System.
(7 of 13)
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The percentages of outstanding shares of Common Stock used in this Schedule
are calculated based upon the 6,213,666 shares of Common Stock stated by QSII to
be issued and outstanding at January 29, 1999, as reflected in QSII's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1998.
Item. 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
LCM is the general partner of DAP and DAI pursuant to limited partnership
agreements providing to LCM the authority, among other things, to invest the
funds of DAP and DAI in Common Stock, to vote and dispose of Common Stock and to
file this statement on behalf of DAP and DAI. Pursuant to such limited
partnership agreements, the general partner of DAP and DAI is entitled to
allocations based on assets under management and realized and unrealized gains.
Andrew Shapiro is the sole manager of LCM.
Item 7. Material to be Filed as Exhibits.
A. Agreement Regarding Joint Filing of Statement on Schedule 13D or 13G.
B. Letter dated March 17, 1999 from Andrew E. Shapiro, President of
Lawndale Capital Management, LLC, to the Board of Directors of
Quality Systems, Inc., attaching a proposal dated December 28, 1998
from Metropolitan Adjustment Bureau, Inc. to the Board of Directors
of Quality Systems, Inc.
(8 of 13)
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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: March 22, 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
(9 of 13)
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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
--------------------- ---------------------
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
(10 of 13)
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EXHIBIT B
[Letterhead of Lawndale Capital Management, LLC]
Andrew E. Shapiro
President
March 17, 1999
The Board of Directors
Quality Systems, Inc.
17822 E. 17th Street #210
Tustin, CA 92680
Dear Members of the Board of Quality Systems Inc.:
RE: QUALITY SYSTEMS
As you know, Lawndale Capital Management, LLC ("Lawndale") currently owns
approximately 9.99% of Quality Systems Inc.'s ("QSII") outstanding stock. As
you are further aware from Lawndale's filings on Schedule 13D, Lawndale believes
that a significant factor in the company's poor return to shareholders for at
least the last three years is the lack of independence of a majority of the
Company's Board of Directors. Recent events that have come to Lawndale's
attention further demonstrate the negative impact that the QSII board's poor
corporate governance practices are having on the interests of QSII's
shareholders.
Specifically, Lawndale understands that on December 28, 1998, Mr. Shelly Razin,
QSII's chairman and chief executive officer, received a written acquisition
proposal addressed to QSII's board of directors. This proposal, a copy of which
is attached hereto, sought an acquisition of QSII at a price of $47 million or
approximately $7.50 per share. This price, which represents a premium of 107%
over QSII's closing price on that date and a 94% premium over the Company's
current price, was an important offer worthy of consideration.
We understand, however, that Mr. Razin summarily rejected the offer himself,
claiming that he was not interested in selling "his" company. We further
understand that QSII's board did not study or formally discuss the offer, that
the board did not retain professional advisers to consider the offer and that
all of the directors may not even have been fully informed of the proposal,
despite the fact that it was addressed to the entire board. The absence of
these essential and necessary deliberations raises grave concerns in our mind
about whether the board is properly focused on, and acting in accordance with,
their fiduciary duties to QSII's public shareholders. Equally significant, Mr.
Razin's apparent willingness to reject a serious offer at a substantial premium
without any formal board deliberations raises again the issue of whether QSII's
board is sufficiently independent to perform its fiduciary obligations to QSII's
shareholders.
(11 of 13)
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We do not mean to state that we endorse this proposal, or that we believe a sale
of the company at this time is appropriate. Rather, our point is that the
board's apparent passivity or lack of awareness of this proposal is further
evidence of its poor corporate governance practices and the potential harm these
practices can cause QSII's shareholders. Specifically, in this instance it
appears that those practices resulted in the company's response to a credible
offer being (i) immediate rejection of the offer by the chief executive officer
without any analyses, (ii) no discussion at the board level concerning the
offer, (iii) no review of the offer by any independent expert adviser, and (iv)
not even full disclosure of the offer to all board members. We believe that
this type of process is fundamentally inconsistent with the board's due care
obligations to shareholders and with Mr. Razin's duties as an officer and a
director of the company.
Lawndale believes these facts raise very troubling issues for the independent
directors and the Company's shareholders. In an effort to resolve these issues,
and better understand the Board's position on the issues, we would like to meet
with the Board. The purpose of the meeting would be to discuss the board's
response to this offer and corporate governance issues more generally.
We are generally available for such a meeting, and would rearrange our schedule
to suit the needs of the directors. However, we believe that there is sorne
urgency to this situation, and would expect to have this meeting before April 1,
1999. We further would expect to have our counsel present at this meeting, and
would similarly expect the company's counsel to be present. We are prepared to
meet at the Company's offices, or any other mutually convenient location.
We look forward to your prompt response.
Sincerely,
Andrew E. Shapiro
President
(12 of 13)
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[Letterhead of Metropolitan Adjustment Bureau, Inc.]
December 28, 1998
THE BOARD OF DIRECTORS
QUALITY SYSTEMS INC.
17822 E. 17th Street, Suite 210
Tustin, CA 92680
Dear Members of the Board of Quality Systems Inc.:
Please allow this letter to serve as our request to pursue a friendly
acquisition of Quality Systems Inc. by a subsidiary of Metropolitan Adjustment
Bureau. Our firm desires to make an offer in the amount of $47,000,000.00
(Forty-Seven Million Dollars) for all outstanding shares of Quality Systems Inc.
Our offer would be subject to a review of the books and records of Quality
Systems Inc. by our accounting firm as well as subject to the procurement of
financing necessary to consummate such transaction. We believe that financing
of this proposed transaction can be secured in an expeditious manner. This
offer is made through January 6, 1999 at 3:00PM.
We believe that our offer is generous in light of the current market conditions
and represents a substantial premium to shareholders over current share prices.
We thus seek the approval of the board to enter into a definitive purchase
agreement at the earliest possible time.
Please contact the undersigned so that we may set up a convenient time to meet
with respective counsel. I look forward to your response and the opportunity to
work with all of you.
Sincerely,
JOHN P. KUTASI
President
hd/jpk
(13 of 13)
