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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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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(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 number,
or the Form or Schedule and the date of its filing.
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[QSI LOGO]
QUALITY SYSTEMS, INC.
17822 EAST 17TH STREET, SUITE 210
TUSTIN, CALIFORNIA 92780
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 14, 2000
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 Thursday, September 14, 2000, 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, 2001.
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 July 26, 2000,
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/ Paul Holt
Corporate Secretary
Tustin, California
August 10, 2000
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[QSI LOGO]
QUALITY SYSTEMS, INC.
17822 East 17th Street, Suite 210
Tustin, California 92780
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ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 14, 2000
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PROXY STATEMENT
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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 Thursday, September 14, 2000 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
10, 2000. 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.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 6,207,966 shares of the Company's Common
Stock outstanding at the close of business on July 26, 2000, 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 entitled to one vote, in person or by proxy, for each share
of
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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 July 26, 2000 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 PERCENT OF COMMON STOCK
NAME OF BENEFICIAL OWNER (1) STOCK BENEFICIALLY OWNED(2) BENEFICIALLY OWNED(3)
---------------------------- --------------------------- ------------------------
<S> <C> <C>
Janet Razin and Sheldon Razin 1,529,720 24.58%
Ahmed Hussein(4) 1,151,400 18.52%
Lawndale Capital Management, LLC (5) 621,200 10.00%
Dimensional Fund Advisors Inc.(6) 364,000 5.86%
Patrick Cline 118,325 1.90%
Greg Flynn 42,355 *
Donn Neufeld 39,325 *
Robert McGraw 12,325 *
Frank C. Meyer 29,200 *
Mohammed Tawfick El-Bardai 6,500 *
Dale M. Hanson 5,500 *
William E. Small 3,500 *
Emad A. Zikry 3,000 *
All directors and executive officers as a group 2,972,600 47.21%
(13 persons, including those named above) (7)
</TABLE>
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* Less than 1%.
(1) Unless otherwise indicated, the address is c/o Quality Systems, Inc.,
17822 East 17th Street, Suite 210, Tustin, California 92780.
(2) 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.
(3) Applicable percentage ownership is based on 6,207,966 shares of Common
Stock outstanding as of July 26, 2000. Any securities not outstanding
but subject to options exercisable as of July 26, 2000 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.
(4) The address for Mr. Hussein is 30 Rockefeller Center, Suite 1936, New
York, New York 10112.
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(5) As reflected in the Schedule 13 D/A filed August 10, 1999. The Schedule
13 D/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 13 D/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 filed February 3, 2000. 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 364,000 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 July 26, 2000 or exercisable within 60 days after July
26, 2000, and are, respectively, as follows: Mr. Razin, 9,500 shares;
Mr. Hussein, 4,000 shares; Mr. Cline, 5,000 shares; Mr. Meyer, 4,000
shares; Mr. Hanson, 3,000 shares ; Mr. Small, 3,500 shares ; Mr. Zikry,
3,000 shares ; Mr. Flynn, 16,325 shares; Mr. Neufeld, 16,325 shares; and
all directors and officers as a group, 83,700 shares.
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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.
Mohammed Tawfick El-Bardai (60) 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, Egyptian Space Communications Corp and EqyNet. Mr. El-Bardai
has been a director of Quality Systems, Inc. since 1999.
Dale M. Hanson (57) 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. Mr. Hanson has been a director of Quality Systems,
Inc. since 1999.
Ahmed Hussein (59) was elected Co-Chairman of the Board of Directors of
Quality Systems, Inc. in 1999. He was also elected Lead Director in 1999 in
accordance with the new corporate governance provisions adopted in July 1999.
Mr. Hussein 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. Mr. Hussein has been a director of Quality Systems, Inc. since
1999.
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Frank C. Meyer (56) 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. Mr. Meyer has been a director of
Quality Systems, Inc. since 1999.
Sheldon Razin (62) is the founder of the Company and has served as its
Chairman of the Board of Directors since the Company's inception in 1974. He
served as the Company's Chief Executive Officer from 1974 until April 2000. He
also had served until April 2000 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 board of the Jewish Federation of Orange
County and 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.
William E. Small (58) 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. Mr. Small has been a director of Quality Systems, Inc. since
1999.
Emad A. Zikry (50) 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. Mr. Zikry has been a director of Quality
Systems, Inc. since 1999.
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").
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.
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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.
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6. When a candidate acceptable to the Board has been identified and elected
to the position of President and Chief Operating Officer, Mr. Razin will
continue as Chairman and CEO with the understanding that after six
months, if the independent members of the Board deem the new candidate
to be ready to become Chief Executive Officer, Mr. Razin will step down
as Chief Executive Officer, although continuing as Chairman for a period
of two years or such longer period as the Board requests.
7. The parties believe that the corporate governance provisions referred to
in Item 1 above afford substantially complete protection to the
shareholders and accordingly Lawndale will withdraw all the proposals it
has put forward, including the proposal formerly to have been included
in the proxy statement and the proposals identified in the letter dated
July 15, 1999.
8. Mr. Razin and the Directors will recommend to the Board that the
shareholder rights plan be terminated immediately by redemption of the
Rights.
9. If any litigation should be initiated by any 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.
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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-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.
The parties agreed to a settlement of action and stipulated to a final
judgment and order which was entered by the court on May 15, 2000 at which time
the action was dismissed. The final judgment and order provided for a dismissal
of the action with prejudice, releases given to each of the defendants, and
payment of the nominal sum of $100,000 (paid by the Company's Directors and
officers Liability Insurance Company) in full settlement of plaintiff's motion
for attorney's fees. The settlement further expressly provided that it did not
constitute an admission of any liability of defendants, which defendants
continue to vigorously deny.
On April 22, 1997, a purported class action entitled JOHN P. CAVENY v.
QUALITY SYSTEMS, INC., ET AL. was filed in the Superior Court of the State of
California for the County of Orange, in which Mr. Caveny, on behalf of himself
and all others who purchased the Company's Common Stock between June 26, 1995
and July 3, 1996, alleges that the Company, and Sheldon Razin, Robert J. Beck,
Gregory S. Flynn, Abe C. LaLande, Donn Neufeld, Irma G. Carmona, John A. Bowers,
Graeme H. Frehner, and Gordon L. Setran (all of the foregoing individuals were
either officers, directors or both during the period from June 26, 1995 through
July 3, 1996), as well as other defendants not affiliated with the Company,
violated California Corporations Code Sections 25400 and 25500, California Civil
Code Sections 1709 and 1710, and California Business and Professions Code
Sections 17200 et. seq., by issuing positive statements about the Company that
allegedly were knowingly false, in part, in order to assist the Company and the
individual defendants in selling Common Stock at an inflated price in the
Company's March 5, 1996 public offering and at other points during the class
period. The complaint seeks compensatory and punitive damages in unspecified
amounts, disgorgement, declaratory and injunctive relief, and attorneys' fees.
On January 25, 1999, the court denied plaintiffs' motion to certify the
class representative and class legal counsel. Plaintiffs have appealed that
decision. On February 25, 2000, the Fourth District Court of Appeals affirmed
the order disqualifying the class legal counsel. On May 9, 2000, the Court of
Appeals issued its Remittur certifying its decision as final. Plaintiff will
seek new class counsel, however, the named defendants will again have the
opportunity to oppose class certification.
BOARD OF DIRECTORS MEETINGS AND RELATED MATTERS
During the fiscal year ended March 31, 2000, the Board of Directors held
seventeen meetings and there were two actions by unanimous written consent. No
director, except director Mohammed Tawfick El-Bardai, 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.
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The Board of Directors has an Audit Committee which during the fiscal
year ended March 31, 2000 consisted of Messrs. Ahmed Hussein, Dale Hanson, Frank
Meyer and Emad Zikry, 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, 2000, the Audit Committee held four meetings.
The Board of Directors has 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 Nominating Committee are Messrs. Hussein, Meyer, Small and
El-Bardai, and the Compensation Committee members are 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. During the fiscal year ended March 31, 2000, the
Nominating Committee and the Compensation Committee held one_and two meetings,
respectively.
The Board of Directors also has 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, if any. The Transaction Committee has four 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. Hussein, Hanson, Meyer and Small. During the fiscal year ended March 31,
2000, the Transaction Committee held no meetings.
Directors of the Company 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Sheldon and Janet Razin , who were officers and employees of the
Company, were also members of the Board of Directors during the fiscal year
ended March 31, 2000. Sheldon Razin was no longer Chief Executive Officer of the
Company as of April 3, 2000. Janet Razin was no longer an employee of the
company as of March 31, 2000. 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.
-9-
<PAGE> 12
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain compensation information for the
three fiscal years ended March 31, 2000, 1999 and 1998, 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 2000 fiscal year whose aggregate
total annual salary and bonus for such year exceeded $100,000 (the "Named
Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------ ALL OTHER
SECURITIES COMPENSATION
UNDERLYING ------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS/SARS #) ($)(1)
--------------------------- ---- ---------- --------- --------------- ------
<S> <C> <C> <C> <C> <C>
Sheldon Razin 2000 275,000 -- 32,000 3,625
Chief Executive Officer and President 1999 241,667 -- -- 3,240
1998 225,000 -- -- 3,073
Patrick Cline 2000 236,421 -- 20,000 2,206
Executive Vice President 1999 185,898 -- -- 1,832
1998 197,703 -- -- 1,977
Greg Flynn 2000 180,000 22,500 20,000 2,176
Executive Vice President Corporate Sales 1999 160,000 22,500 -- 1,751
& Marketing 1988 146,693 -- 5,100(2) 1,651
Robert McGraw 2000 150,000 18,750 10,000 1,839
Vice President Chief Financial Officer 1999 125,000 18,750 -- 151
1998 125,000 18,750 7,650(2) 151
Donn Neufeld 2000 164,064 -- 20,000 1,791
Vice President Software & Operations 1999 142,000 -- -- 1,551
1998 132,502 -- 5,100(2) 1,551
</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, 2000 such amounts
were, respectively, as follows: Mr. Razin, $2,801 and $823; Mr. Cline,
$2,206 and none; Mr. Flynn, $2,025 and $151; Mr. McGraw, $1,688 and
$151; and Mr. Neufeld, $1,641 and $151.
(2) 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 $7.01 per
share: Mr. Flynn exchanged options representing 20,000 shares for new
options representing 5,100 shares; Mr. McGraw exchanged options
representing 30,000 shares for new options representing 7,650 shares;
and, Mr. Neufeld exchanged options representing 20,000 shares for new
options representing 5,100 shares.
-10-
<PAGE> 13
OPTION /SAR INFORMATION
The following table provides information with respect to option grants
in fiscal year 2000 to the named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
FOR OPTION TERM
($)
-----------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR (%) ($/SHARE) DATE 5% 10%
---- ------------------------------------------------------------------------ -- ---
<S> <C> <C> <C> <C> <C> <C>
Sheldon Razin 30,000 13.62 7.125 7/6/04 59,055 130,497
Sheldon Razin 2,000 .91 7.00 9/17/04 3,868 8,547
Patrick Cline 20,000 9.08 6.25 6/8/04 34,535 76,314
Greg Flynn 20,000 9.08 6.25 6/8/04 34,535 76,314
Robert McGraw 10,000 4.54 6.25 6/8/04 17,268 38,151
Donn Neufeld 20,000 9.08 6.25 6/8/04 34,535 76,314
</TABLE>
The following table provides information on option exercises in
fiscal 2000 by the Named Executive Officers and unexercised options held by them
at the close of such fiscal year. No Named Executive Officer exercised any stock
appreciation rights during fiscal 2000 or held any stock appreciation rights at
the end of such fiscal year nor did any of the Named Executive Officers hold any
unexercised, in-the-money stock options or stock appreciation rights at the end
of such fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT MARCH 31, 2000(#)
SHARES ----------------------------------------
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Sheldon Razin -- -- 2,000 30,000
Patrick Cline -- -- -- 20,000
Greg Flynn -- -- 10,050 25,050
Robert McGraw -- -- 11,325 16,325
Donn Neufeld -- -- 10,050 25,050
</TABLE>
-11-
<PAGE> 14
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company does not have any employment contracts in effect with the
Chief Executive Officer or any of the other Named Executive Officers.
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.
2. The evaluating manager gives the employee ongoing feedback on
performance.
-12-
<PAGE> 15
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 results affect 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 sets 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 with vesting periods
ranging up to four years (The majority of which vest in equal annual
installments over a four-year period).
BOARD OF DIRECTORS COMPENSATION COMMITTEE
Ahmed Hussein Frank Meyer
William Small Emad Zikry
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as 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).
-13-
<PAGE> 16
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, 2000, its officers, directors and greater than 10% shareholders
complied with all filing requirements applicable to such persons.
FIVE-YEAR PERFORMANCE COMPARISON
The following graph compares the cumulative total returns of the
Company's Common Stock(1), the Total Return Index for The Nasdaq Stock Market,
and the Nasdaq Computer & Data Processing Services Stock Index over the
five-year period ended March 31, 2000 assuming $100 was invested on April 1,
1995 with all dividends, if any, reinvested.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
QUALITY SYSTEMS, INC. 100.00 704.00 232.00 238.00 120.00 488.00
NASDAQ STOCK MARKET (U.S.) 100.00 135.79 150.95 228.99 309.19 574.68
NASDAQ COMPUTER & DATA PROCESSING 100.00 141.63 154.98 270.96 441.53 797.02
</TABLE>
(1) The last trade price of the Company's Common Stock on each of March 31,
1996, 1997, 1998, 1999 AND 2000 was published by The Nasdaq Stock Market
and, accordingly for the periods ended March 31, 1996, 1997, 1998, 1999
and 2000, 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.
-14-
<PAGE> 17
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 Razin. The Company paid David Razin $155,000 in salary
during the fiscal year ended March 31, 2000. The Company granted 20,000 stock
options with an exercise price of $6.25 per share expiring on June 8, 2004 to
David Razin during fiscal 2000.
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, 2000. 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, 2001, 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, 2000 and 1999 accompanies this Proxy Statement
but such report is not incorporated herein and is not deemed to be a part of
this proxy solicitation material.
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 12, 2001, 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
-15-
<PAGE> 18
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/ Paul Holt
Corporate Secretary
Tustin, California
August 10, 2000
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, 2000, (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.
-16-
<PAGE> 19
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 corporate
performance
-17-
<PAGE> 20
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.
-18-
<PAGE> 21
QUALITY SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Pat Cline and Paul Holt, and each of them,
individually, as attorneys and proxies, with full power of substitution, to vote
all shares of Common Stock of any class of Quality Systems, Inc. ("QSI") held of
record by the undersigned as of July 26, 2000, at the Annual Meeting of
Shareholders of QSI to be held at The Center Club, 650 Town Center Drive, Costa
Mesa, California, on September 14, 2000 at 2:00 p.m. local time, and at all
adjournments thereof, (the "Annual Meeting") upon the following matters, which
are described in QSI's Proxy Statement for the Annual Meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 22
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Please mark your votes as in this example.
3. In accordance with the discretion of
FOR all nominees WITHHOLD the proxy holder, to act upon all
listed at right AUTHORITY matters incident to the conduct of the
(except as marked to to vote for all meeting and upon other matters that
the contrary below) nominees listed at right properly come before the meeting.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1. ELECTION OF NOMINEES: Mohammed- THIS PROXY WHEN PROPERLY EXECUTED WILL
DIRECTORS: [ ] [ ] BE VOTED IN THE MANNER DIRECTED HEREIN
Tawfick El-Bardai BY THE UNDERSIGNED SHAREHOLDER. IF
ANY NOMINEE NAMED ABOVE DECLINES OR IS
Dale M. Hanson UNABLE TO SERVE AS A DIRECTOR, THE
(INSTRUCTIONS: To withhold authority to vote for any PERSONS NAMED AS PROXIES SHALL HAVE FULL
individual nominee, write the nominee's Ahmed Hussein DISCRETION TO VOTE FOR ANY
name on the lines immediately below) OTHER PERSON WHO MAY BE NOMINATED.
Frank C. Meyer
THE SHARES REPRESENTED BY THIS PROXY
-------------------------------------------------------- Sheldon Razin WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER ON THE REVERSE SIDE OF THIS
-------------------------------------------------------- William E. Small PROXY. WHERE NO DIRECTION IS GIVEN, SUCH
SHARES WILL BE VOTED "FOR" THE ELECTION
-------------------------------------------------------- Emad A. Zikry 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.
-------------------------------------------------------- PLEASE DATE, SIGN, MAIL AND RETURN THIS
PROXY IN THE ENCLOSED ENVELOPE.
2. For ratification of Deloitte & Touche LLP as QSI's
independent public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
SIGNATURE(S) DATE
--------------------------------------------------------------------------- ---------------------------------
</TABLE>
NOTE: Please sign exactly as your name appears herein. If the stock is
registered in the name of two or more persons, each should sign.
Executors, administrators, trustees, guardians, attorneys and corporate
officers should add their titles.
