-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AjF32G3c279MwwS9ApfBnA0DdTRy6Feg8oU+VLCOI+Us1/M/xBxzPq95nT9mJ5Z0 Su7Yhq4IPo7fuP1+4zkzPA== 0000935836-98-000182.txt : 19980826 0000935836-98-000182.hdr.sgml : 19980826 ACCESSION NUMBER: 0000935836-98-000182 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19980825 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: QUALITY SYSTEMS INC CENTRAL INDEX KEY: 0000708818 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 952888568 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-33913 FILM NUMBER: 98697155 BUSINESS ADDRESS: STREET 1: 17822 E 17TH ST STE 210 CITY: TUSTIN STATE: CA ZIP: 92680 BUSINESS PHONE: 7147317171 MAIL ADDRESS: STREET 1: 178222 E 17TH STREET SUITE 210 CITY: TUSTIN STATE: CA ZIP: 92680 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LAWNDALE CAPITAL MANAGEMENT INC CENTRAL INDEX KEY: 0000929870 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: ONE SAMSOME ST STE 3900 CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4152882330 SC 13D/A 1 OMB APPROVAL OMB Number:3235-0145 Expires: August 31, 1999 Estimated average burden hours per form 14.90 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 4)* Quality Systems, Inc. (Name of Issuer) Common Stock - ------------------------------------------------------------ (Title of Class of Securities) 747582104 (CUSIP Number) Andrew E. Shapiro, Manager Christopher J. Rupright, Esq. Lawndale Capital Management, LLC Shartsis Friese & Ginsburg One Sansome Street, Suite 3900 One Maritime Plaza, 18th Floor San Francisco, CA 94104 San Francisco, CA 94111 (415) 288-2330 (415) 421-6500 - ------------------------------------------------------------ August 24, 1998 (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 which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box / /. Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) 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). Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. SEC 1746 (10-97) 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 - -------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES -0- BENEFICIALLY ------------------------------------------------- OWNED BY 8 SHARED VOTING POWER EACH 595,000 REPORTING ------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH -0- ------------------------------------------------- 10 SHARED DISPOSITIVE POWER 595,000 - -------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 595,000 - -------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / - -------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.5 - -------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* OO and IA 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 United States - -------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES -0- BENEFICIALLY ------------------------------------------------- OWNED BY 8 SHARED VOTING POWER EACH 595,000 REPORTING ------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH -0- ------------------------------------------------- 10 SHARED DISPOSITIVE POWER 595,000 - -------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 595,000 - -------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / - -------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.5 - -------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN 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 - -------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES -0- BENEFICIALLY ------------------------------------------------- OWNED BY 8 SHARED VOTING POWER EACH 504,600 REPORTING ------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH -0- ------------------------------------------------- 10 SHARED DISPOSITIVE POWER 504,600 - -------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 504,600 - -------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / - -------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.1 - -------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN 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 - -------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES -0- BENEFICIALLY ------------------------------------------------- OWNED BY 8 SHARED VOTING POWER EACH 90,400 REPORTING ------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH -0- ------------------------------------------------- 10 SHARED DISPOSITIVE POWER 90,400 - -------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 90,400 - -------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / - -------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.5 - -------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN CUSIP No. 747582104 Page 6 of 13 pages ITEM 1. SECURITY AND ISSUER. This statement relates to Common Stock (the "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 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. CUSIP No. 747582104 Page 7 of 13 pages ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. The source and amount of funds used in purchasing the Stock were as follows: Purchaser Source of Funds Amount LCM Funds Under Management(1) $3,965,149 DAP Working Capital $3,358,113 DAI Working Capital $ 607,036 (1) Includes funds of DAP and DAI invested in Stock. ITEM 4. PURPOSE OF TRANSACTION. Lawndale has reviewed QSII's proxy statement for QSII's September 9, 1998, annual meeting. In particular, Lawndale has carefully analyzed ITEM 2 relating to QSII's proposed 1998 Stock Option Plan. Despite its desire for greater ownership of QSII by QSII's employees, Lawndale concurs with the recommendation of two institutional proxy advisory services, Proxy Monitor and Institutional Shareholder Services (ISS), to vote "against" ITEM 2. The advisory firms' and our bases for opposing this particular stock plan include its potentially significant dilutive effect on shareholders as well as the very broad powers expressly granted to the Board to issue deeply discounted options, to immediately vest them and at any time to reprice them. (see exhibit B for QSII proxy analysis by Proxy Monitor available over First Call) Lawndale has been and may continue to be in contact with management, members of the Board of Directors and other shareholders of QSII to discuss the strategies QSII plans to employ to maximize shareholder value, including, but not limited to, the proposed 1998 Stock Option Plan, changes in the composition of QSII's Board of Directors, the integration of QSII's separate businesses and QSII's announced, but not executed, Stock buyback plan. Lawndale incorporates by reference the additional disclosure provided in Amendment No. 3 to its Schedule 13D. CUSIP No. 747582104 Page 8 of 13 pages ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. The beneficial ownership of the Stock of the persons named in Item 2 of this statement is as follows at the date hereof: Aggregate Beneficially Owned Voting Power Dispositive Power Name Number Percent Sole Shared Sole Shared LCM 595,000 9.5 -0- 595,000 -0- 595,000 Shapiro 595,000 9.5 -0- 595,000 -0- 595,000 DAP 504,600 8.1 -0- 504,600 -0- 504,600 DAI 90,400 1.5 -0- 90,400 -0- 90,400 CUSIP No. 747582104 Page 9 of 13 pages The persons filing this statement effected the following transactions in the Stock on the dates indicated, and such transactions are the only transactions in the Stock by the persons filing this statement since July 29, 1998. Purchase Number Price Name or Sale Date of Shares Per Share DAP P 07/29/98 8,900 $6.351 DAI P 07/29/98 1,600 $6.351 DAP P 07/30/98 800 $6.250 DAI P 07/30/98 200 $6.250 DAP P 07/31/98 2,900 $6.443 DAI P 07/31/98 400 $6.443 DAP P 08/04/98 11,700 $5.929 DAI P 08/05/98 1,500 $5.938 DAI S 08/05/98 100 $5.938 DAP P 08/06/98 400 $5.711 DAP P 08/06/98 3,000 $5.896 DAI P 08/06/98 1,200 $5.711 DAP P 08/07/98 2,000 $5.656 DAP P 08/10/98 4,100 $5.663 DAP S 08/10/98 1,000 $5.750 DAI P 08/10/98 900 $5.663 DAP P 08/11/98 5,900 $5.607 DAI P 08/11/98 1,100 $5.607 DAP P 08/12/98 2,100 $5.513 DAI P 08/12/98 400 $5.513 DAP P 08/13/98 3,000 $5.438 DAP P 08/13/98 1,300 $5.500 DAI P 08/13/98 700 $5.500 DAP P 08/14/98 5,100 $5.552 DAI P 08/14/98 900 $5.552 DAP P 08/17/98 1,200 $5.375 DAI P 08/17/98 300 $5.375 DAP P 08/24/98 6,500 $5.375 DAI P 08/24/98 1,000 $5.375 All transactions were executed through the Nasdaq National Market System. CUSIP No. 747582104 Page 10 of 13 pages 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 Stock, to vote and dispose of 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. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. A. Agreement Regarding Joint Filing of Statement on Schedule 13D or 13G. SIGNATURES After reasonable inquiry and to the best of my knowledge, I certify that the information set forth in this statement is true, complete and correct. DATED: August 25, 1998. 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 CUSIP No. 747582104 Page 11 of 13 pages 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 CUSIP No. 747582104 Page 12 of 13 pages EXHIBIT B Proxy Monitor Resolution #2: Approve 1998 Stock Option Plan reserving one million shares for issue thereunder. We recommend a NAY ballot on this board-backed resolution, a vote against Management. Quality Systems seeks to reserve one million common shares for issue under its 1998 Stock Option Plan, which represents a reduction in relative voting power of 12.6% of fully-diluted shares. However, when combined with those shares available and those shares granted but unexercised under other company plans, shareholders' equity would be diluted by an even costlier 21%. Under the terms of the plan, the board may grant incentive stock options and nonqualified stock options to officers, key employees, directors, and company consultants. As prescribed by law, all incentive stock options must be issued at no less than 100 percent of fair market value and must carry a term of no more than ten years. However, the plan bestows broad powers upon the administering committee to determined the most salient provision of all nonqualified stock options, including the indefensible and expensive grant of deeply discounted options. The board also has full discretion to establish the vesting schedule for all awards. Although, options typically vest ratably over four years. Still, in the event of a change in control, all vesting restrictions would lapse and all outstanding options would become immediately exercisable. Payment is required in the form of cash or stock already owned, and the plan will expire on December 31, 2007. In our view, provisions ceding administering committees the authority to grant options at bargain prices ranks among the least defensible features of a stock option plan. This practice is particularly objectionable given current market conditions. That is, in the midst of such an unprecedented bull market and with such ridiculously low exercise prices, there wouldn't seem to be a compelling need for management to work hard to boost stock prices. Even stock options issued at 100% wouldn't require much on the part of management to realize substantial option profits. Also disturbing is the fact the plan expressly permits repricing or replacing underwater stock options. Indeed, the company has a history of such action. Implicitly, if not explicitly, stock options are intended to recompense long-term accomplishments, making short-term adjustments wholly inappropriate. Shareholders, who are acutely aware that stock prices move up and down, have no comparable opportunities to recoup very real losses. To afford this type of protection to plan participants is obscene. CUSIP No. 747582104 Page 13 of 13 pages Clearly our analysts recognize the logical contribution stock options make to aligning economic interests of the company with those of public shareholders. Indeed, when used appropriately stock options can be a vital link in the creation of shareholder value. Still, these benefits must be weighed against the cost/dilutive effect of issuing such awards as well as the responsibility of management. Given the considerable level of dilution to which this new plan would contribute, and absent restrictions on the company's ability to issue cut-rate awards, we cannot endorse this proposal. 3693.11\1005633 -----END PRIVACY-ENHANCED MESSAGE-----