Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
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Soliciting
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QUALITY
SYSTEMS, INC.
(Name
of Registrant as Specified In Its Charter)
AHMED
HUSSEIN
IBRAHIM
FAWZY
EDWIN
HOFFMAN
MURRAY
BRENNAN, M.D.
THOMAS
R. DIBENEDETTO
JOSEPH
D. STILWELL
(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
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2008
ANNUAL MEETING OF THE STOCKHOLDERS
OF
QUALITY
SYSTEMS, INC.
________________________
PROXY
STATEMENT
OF
AHMED
HUSSEIN
_______________________
To
Quality Systems, Inc. Stockholders:
This
proxy statement (the “Proxy Statement”) and the accompanying BLUE proxy card are
being furnished to stockholders of Quality Systems, Inc. (“Quality Systems” or
“QSI” or the “Company”) by Mr. Ahmed Hussein, in connection with the
solicitation of proxies by Mr. Hussein and the other participants named
herein (collectively, “we” or “us” or “Participants”) to be used at the 2008
Annual Meeting of Stockholders of Quality Systems, including any adjournments,
postponements, reschedulings or continuations thereof and any meeting which
may
be called in lieu thereof (the “2008 Annual Meeting”). The 2008 Annual Meeting
is scheduled to be held at the Center Club located at 650
Town
Center Drive in Costa Mesa, California 92626, on
Thursday, September 4, 2008, at 2:00 p.m., Pacific Time. This proxy statement
and the accompanying BLUE proxy card are first being furnished to stockholders
on or about August 13, 2008.
At
the
Annual Meeting, the Participants will seek to:
1.
Elect
to the Board of Directors of QSI (the “Board”) a slate of six nominees,
comprised of Ahmed
Hussein, Murray Brennan, M.D., Ibrahim Fawzy, Thomas R. DiBenedetto, Joseph
D.
Stilwell and Edwin Hoffman,
(each a
“Nominee” and, collectively, the “Nominees”) (“Proposal 1”); and
2.
Amend
the Company’s bylaws to conform the definition of independent director included
therein to the definition of independent outside director adopted by RiskMetrics
ISS Governance Services (“Proposal 3”).
The
Participants also support the ratification of the appointment of Grant Thornton
LLP as the Company’s independent registered public accounting firm for the
fiscal year ending March 31, 2009 (“Proposal 2”).
THE
NOMINEES ARE COMMITTED TO ACTING IN THE BEST INTEREST OF ALL STOCKHOLDERS.
WE
BELIEVE THAT YOUR VOICE IN THE FUTURE OF QSI CAN BEST BE EXPRESSED THROUGH
THE
ELECTION OF THE NOMINEES. ACCORDINGLY, YOU ARE URGED TO VOTE YOUR
BLUE PROXY CARD
FOR OUR
NOMINEES.
IF
YOUR
SHARES OF QUALITY SYSTEMS COMMON STOCK ARE HELD IN THE NAME OF A BROKERAGE
FIRM,
BANK, BANK NOMINEE OR OTHER INSTITUTION ON THE RECORD DATE, ONLY IT MAY VOTE
SUCH SHARES AND ONLY UPON RECEIPT OF YOUR SPECIFIC INSTRUCTIONS. ACCORDINGLY,
PLEASE CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND INSTRUCT THAT PERSON
TO EXECUTE THE
BLUE PROXY CARD
ON YOUR
BEHALF AS SOON AS POSSIBLE.
IMPORTANT
The
election of our Nominees requires the affirmative vote of a plurality of the
votes cast, assuming a quorum is present or otherwise represented at the 2008
Annual Meeting. That means that the director nominees with the most votes for
available board seats will be elected. The California Corporations Code provides
that, except under certain circumstances, stockholders of California
corporations such as Quality Systems have cumulative voting rights. Neither
the
Articles of Incorporation of Quality Systems nor the Quality Systems Bylaws
have
been amended to eliminate cumulative voting. Cumulative voting allows
stockholders to multiply the number of votes they are entitled to cast by the
number of directors for whom they are entitled to vote and cast the product
for
a single candidate or distribute the product among two or more candidates.
In
accordance with the applicable provisions of the California Corporations Code,
the Quality Systems Bylaws permit cumulative voting in the election of directors
by all stockholders if any stockholder provides notice to Quality Systems of
such stockholder’s intention to cumulate his or her votes. We notified Quality
Systems of such intention on July 1, 2008 and, accordingly, with respect to
the
election of directors at the 2008 Annual Meeting, we intend to cumulate our
votes when voting for our Nominees. We also intend to cumulate the votes of
all
proxies we hold in favor of our Nominees. See “REQUIRED VOTE.”
Cumulative
voting only applies to the election of directors. The vote required to approve
the other proposals to be voted upon at the 2008 Annual Meeting is described
elsewhere in this Proxy Statement. See “REQUIRED VOTE.”
YOU
ARE
URGED
NOT
TO SIGN
ANY PROXY CARD SENT TO YOU BY QSI. IF YOU HAVE ALREADY DONE SO, YOU MAY REVOKE
YOUR PROXY BEFORE IT IS VOTED (i) BY DELIVERING A LATER-DATED
BLUE PROXY CARD,
OR (ii)
BY VOTING IN PERSON AT THE ANNUAL MEETING, OR (iii) BY DELIVERING TO QSI
(ATTENTION: PAUL HOLT, SECRETARY) A WRITTEN NOTICE STATING THAT YOUR PROXY
IS
REVOKED. SEE “VOTING PROCEDURES” AND “PROXY PROCEDURES” BELOW.
If
you have any questions or need assistance in voting your proxy, please call
our
proxy solicitor:
The
Altman Group, Inc.
1200
Wall Street West
Lyndhurst,
NJ 07071
Stockholders
Call Toll-Free: (866) 856-4969
Banks
and Brokerage Firms Call Collect: (201) 806-7300
WHY
AM I
RUNNING AN ALTERNATE SLATE?
Sheldon
Razin is the Chairman of the Board, the Chairman of the Independent Directors
Committee and Chairman of the Nominating Committee. In my opinion, the Chairman
also controls the Nominating Process. I stated in Amendment No. 9 to my Schedule
13D filed May 28, 2008, my belief that the Chairman’s executive and controlling
actions are totally inconsistent with his claim of being an independent
director. I will not support the slate of directors nominated by the Company.
I
have
given notice of my intention to nominate a slate of six nominees, including
Murray Brennan, M.D., Thomas R. DiBenedetto, Joseph Stilwell, Messrs. Fawzy
and
Hoffman and myself, to run in opposition to management’s slate of eight
nominees. The individuals comprising my slate are, in my opinion, eminently
well qualified to help govern the Company and to guide and motivate
management to accelerate the Company’s growth. These
individuals have committed to act independently for the best interests of the
shareholders rather than for the benefit of any particular individual.
Our
Company has a strong competitive position in the healthcare information systems
business. It is uniquely well positioned to expand into areas of strong future
growth by means of internal development, as well as potential acquisitions.
I
believe that the lack of a truly independent board of directors is causing
the
Company to fail to realize its full potential. In
my
view, while a majority of the current directors follow the dictates of the
Chairman, the Company’s sales and earnings growth has slowed and its stock
performance has stagnated as detailed below.
In
my
fight letter of September 2005 I stated that “I am very troubled by events that
have taken place with respect to governance of the Company in the last three
years and particularly, since the election of [directors] in September 2004.
I
believe that if these events and other issues are not addressed immediately,
the
Company may likely suffer a substantial decline in its performance in the
future. It is for this reason that I am writing you and requesting that you
support me in electing the directors I have put forward on my election
slate.”
The
rate
of growth of the Company’s revenue and earnings has slowed materially since that
fight letter. In fiscal 2008, revenue grew year over year by 18.7% compared
to
the average year over year growth for the previous three years of 30.4%, while
income from operations grew 16.7 % in fiscal 2008 compared to the previous
three-year average year over year growth of 44.7%. QSI’s performance during
fiscal 2008, as well as during 2007, and 2006, has been driven mainly by an
increase in maintenance and upgrades to existing customers, rather than system
sales to new clients. System sales to new clients have remained flat for this
period. In fact, over the past three years new systems sales grew a total of
8.16%. The 8.16% increase is not annual growth, but represents growth in new
system sales by the Company over the entire three-year period.
The
price
of the Company’s common stock has declined approximately 29% from its high of
$45.44 in the quarter ended March 31, 2007 to the close on August 5, 2008 of
$32.15.
In
my
opinion, recurring issues related to the governance of the Company have led
to
the Company’s lackluster financial results, and seriously compromise the
shareholders’ interests. I decided to oppose the slate nominated by the Company
at Mr. Razin’s instance for the reasons discussed below.
HISTORICAL
EVENTS
QSI
became a public company in 1982. Sheldon Razin, founder, largest stockholder
and
current Chairman, served as CEO of the Company from its inception in 1974 until
2000 and as its Chairman from 1974 until now.
In
May
1999, I entered into a Memorandum of Understanding (MOU) with the Company as
a
condition to agreeing to join the Board. In connection therewith, QSI also
adopted Corporate Governance Provisions as a part of the Bylaws. I believe
the
Company has failed to honor the MOU and the Corporate Governance
Provisions.
I
believe
that the Company, under Mr. Razin’s direction, has improperly restructured the
independent board committees and violated the Corporate Governance Provisions
regarding the selection of a lead director. As stated in my definitive proxy
materials filed with the SEC on August 9, 2005:
“A
meeting of the independent Directors was held immediately prior to the
commencement of the full Board meeting on August 29, 2002, as was the customary
practice at that time. At the subsequent meeting of the full Board,
Mr. Razin, the only non-independent Director on the Board at the time,
chaired the meeting and invited outside counsel to the meeting. Ahmed Hussein
objected to the presence of outside counsel at this meeting on the basis that
it
was Dr. Hussein, as Lead Director, who was responsible for determining
whether outside counsel should be appointed and not Mr. Razin, as required
by paragraph 6 of the Corporate Governance Provisions then in effect, which
requires, among other things, that the Lead Director is responsible for
appointing consultants to the Board. Dr. Hussein withdrew from the Board meeting
in objection to the presence of outside counsel and his refusal to leave. After
Ahmed Hussein withdrew from the meeting, Mr. Razin and the three remaining
Directors, who were aligned with Mr. Razin, took action to (i) elect a new
Lead
Director of the Board (replacing Dr. Hussein) and (ii) alter the composition
of
the Board committees so that the committees were composed of three independent
Directors, rather than four as previously structured. Under this new scheme,
the
three independent Directors aligned with Mr. Razin made up the majority of
Directors on each committee, thus eliminating the purposeful balance of
Directors that had previously been approved by the Board.
“Ahmed
Hussein believes these actions, taken by the full Board and not by the
independent Directors, were within the purview of the independent Directors,
and
not the full Board, as required by paragraph 6 of the Corporate Governance
Provisions then in effect, which requires, among other things, that the Lead
Director be appointed by the independent Directors. Dr. Hussein believes that
not only was there no quorum present for a meeting of independent Directors,
but
it was the responsibility of the Lead Director (then Dr. Hussein) under
paragraph 6 of the Corporate Governance Provisions then in effect to provide
notice of such a meeting. Dr. Hussein also believes that such actions by Mr.
Razin and outside counsel, with the assistance of the three Directors aligned
with Mr. Razin, resulted in the consolidation of control of the Board and its
committees and effectively excluded the other three independent Directors,
including Dr. Hussein, from meaningful participation in the Company’s corporate
governance and committee actions. These actions resulted in a visible split
between two groups of independent Directors: three independent Directors aligned
with Mr. Razin who assumed control of the committees of the Board; and the
other
three independent Directors (including Dr. Hussein) who were effectively shut
out and did not recognize the actions taken by the other Directors on August
29,
2002.
“Similarly,
at the first meeting of the current Board on September 21, 2004,
Dr. Hussein witnessed Mr. Razin, while still being deemed by the Board to
be non-independent, was improperly permitted to choose an interim Lead Director
and to distribute the memberships of the independent Directors’ committees,
including the current Nominating Committee. Despite the fact that these
appointments were approved at that meeting by the Board, Dr. Hussein
contends that these decisions were within the purview of the independent
Directors and not Mr. Razin as embodied in paragraph 6 of the Corporate
Governance Provisions then in effect. Once again, Dr. Hussein was excluded
from participation on any committee, despite volunteering his services. Dr.
Hussein believes that these appointments violated paragraph 6 of the Corporate
Governance Provisions then in effect and made a mockery of the NASD Marketplace
Rules. In addition, at this meeting the Board amended the Corporate Governance
Provisions adopted in 1999 by a vote of 6 to 1 (with Dr. Hussein
dissenting), formally appointed outside counsel as corporate counsel and
instructed him to recommend changes to the Bylaws that would adhere to the
minimum requirements of the regulators, despite the fact that Dr. Hussein had
briefed the new Directors on the actions taken by the outgoing Board with
respect to the intended investigation by independent counsel.”
In
mid-2004, Mr. Razin took actions to consolidate his power. When the Nominating
Committee did not agree on a new slate, two of the independent directors on
the
Nominating Committee, aligned with Mr. Razin, acted as a de facto subcommittee
without any prior authorizing resolution of the Board or the four-person
Nominating Committee, in contravention to the bylaws crafted under the MOU,
and
over the subsequent objection of the two other members of the Nominating
Committee, interviewed and recommended the nomination of a new slate of
directors, handpicked by Mr. Razin. That slate was approved by the Board at
its
meeting on July 21, 2004, despite the fact that one-half of the independent
directors, had given written notice that they would not attend under protest.
These three directors were protesting the control by Mr. Razin of the
nominating process. Mr. Razin was deemed an insider by the Company at the time.
The 5 new nominees were elected at the 2004 Annual Meeting. Prior to the 2004
Annual Meeting, I had requested in writing from the de facto subcommittee the
names and contact information for the nominees to verify their independence,
but
I received no response.
BOARD
GOVERNANCE ISSUES
In
October 2004, the definition of “independent director” was revised in such a
manner as to (i) allow the current Board to deem former CEO Mr. Razin as
independent and (ii) decrease the required number of independent Directors
on the Board from at least three-quarters of the Board to a majority of the
Board. Prior to this change, the Company’s Bylaws had defined “independent
director” in a manner that excluded any individual previously employed by the
Company. The definition of “independent director” included in the Bylaws in
October 2004 was, and the definition in the current Bylaws is, substantially
similar to the definition contained in Nasdaq Marketplace Rule 4200(a)(15)
in
place at the respective dates of adoption.
In
Amendment No. 9 to my Schedule 13D filed May 28, 2008, I disclosed my concerns
about the structure of the Board and the corporate governance of the Company
under the control of the Chairman. In 2006, I had indicated to the Company
that
I intended to nominate three individuals (the “Hussein Nominees”) to stand for
election to the Company’s Board at its 2006 Annual Meeting of Shareholders and
to solicit proxies in support of their election. After being approached by
the
Company, the Company and I entered into a settlement agreement dated August
8,
2006 (the “Settlement Agreement”) whereby the Company agreed to nominate the
Hussein Nominees for election to the Board at the 2006 Annual Meeting of
Shareholders and the 2007 Annual Meeting of Shareholders (together, the “Annual
Meetings”). In exchange, I agreed in the Settlement Agreement, among other
things, to refrain from submitting any shareholder proposal or director
nominations at the Annual Meetings and to terminate my pending litigation,
which
was then on appeal, with the Company concerning the election of directors at
the
2005 annual meeting. Prior to entering into the Settlement Agreement, I told
the
Company that I had the following expectations as a result of the Settlement
Agreement:
1)
removal of Company’s present legal counsel;
2)
keeping accurate board and committee minutes, which could be achieved by taping,
stenographing, or the taking of the minutes by a third party acceptable to
both
sides;
3)
balancing the standing independent directors committees and making sure they
are
not controlled by the Chairman or management; and
4)
the
Chairman, under the Settlement Agreement, conducting himself in a way consistent
with the status of an independent director.
The
Settlement Agreement, which I entered into in good faith, was drafted by the
Company’s lawyers. Mr. Razin’s interpretation of the Settlement Agreement has
been to delegate to himself total control of the independent directors’
committees and to keep present counsel, who I believe is unduly influenced
by
Mr. Razin. This counsel has also represented the Chairman
personally.
The
Company’s interpretation of the Settlement Agreement is substantially different
from mine. In order to resolve the dispute, I offered to enter into binding
arbitration with the Company which the Company rejected.
My
May
2008 Schedule 13D also discussed my concerns about the corporate governance
of
the Company and the structure of the Board of Directors. A Special Committee
of
the Board continues to operate despite the Settlement Agreement. I believe
that
the Special Committee lacks transparency. It fails to report on its actions
to
the other members of the Board. I also believe that the Special Committee
operates in direct conflict with open governance and functions autonomously
without any supervision by the rest of the directors. I believe it is an example
of the need for a balanced Board and balanced committees as well as impartial
legal counsel.
Moreover,
the Schedule 13D discussed my belief that the Board minutes continue to be
inaccurate, incomplete, and misleading. These minutes are not acceptable to
me
and to the directors that I nominated to the Board. The Chairman, supported
by
management and the directors he nominated to the Board, has refused to allow
our
views to be included in the minutes.
The
agenda of the Board meetings and minutes are under the control of the Chairman.
While other directors may introduce matters for discussion by the Board by
submitting them to Mr. Razin in advance for inclusion on the agenda, Mr. Razin
has on many occasions raised important matters at meetings without notice or
an
agenda item, even when he has time to prepare resolutions in advance of the
meeting. The Chairman uses his controlling position to effectively silence
all
opposing opinions at Board meetings. He does so by, among other ways, not
allowing adequate time for questions, regularly declaring me out of order,
refusing to let me speak, refusing to answer my questions, and threatening
to
eject me from Board meetings and from the Board.
EXCESSIVE
COMPENSATION OF EXECUTIVES
My
2005
proxy materials included a description of several of the Board’s prior decisions
regarding executive compensation substantially similar to the following
discussion.
At
the
October 29, 2003 Board meeting, the full Board, including Mr. Razin, approved
the grant of an aggregate of 60,000 options to the Company’s executive officers
and determined how to split the options among the Company’s executives,
including David Razin, the Chairman’s son. (I
informed the Chairman during that Board meeting that it was inappropriate for
him to participate in the consideration of an option grant for his son, but
my
comments were rejected.) David
Razin was awarded 5,000 options of the total 15,000 options awarded by the
Board
to the executive management of the Company’s QSI division. The option award to
David Razin represents 20,000 options
today at an exercise price of $3.86/share adjusted for the stock splits.
The
Board
awarded the other 45,000 options to the executive management of NextGen. The
options were awarded at an exercise price of $15.46 per share at a time when
QSI’s stock was trading at approximately $44 per Share (unadjusted for the stock
splits).
On
June
10, 2004, the Board approved by a 4 to 3 vote a grant of 150,000 options
to
certain employees of the NextGen division despite a prior recommendation
to the
Board by a majority of the Compensation Committee to halt the grant of all
bonuses and equity options at QSI until independent counsel could be hired
to
investigate the process. This represents a grant of 600,000 options at an
equivalent price today of $11.68/share adjusted for the splits. Mr. Razin,
who was not considered an independent director at the time, cast the deciding
vote.
At
the
October 28, 2004 meeting, four new independent directors joined by Mr. Razin,
approved the award of 25,000 seven-year options, equivalent today to 100,000
options adjusted for the splits, to each new director as an incentive for
joining the Board after they had already joined the Board. Thereafter, in a
hastily called meeting on November 1st,
the
Board voted to reduce this award to 6,000 options (equivalent to 24,000 shares
today). These awards, in addition to the raise in cash director fees approved
by
the Board, substantially more than doubled what the directors were promised
when
they agreed to join the Board. The new directors received compensation which
was
more than tenfold compared to that received by the outgoing Board. The new
Board
at the same meeting adopted a resolution to repeal the definition of
independence in the Bylaws and to declare Mr. Razin independent by a vote of
6
to 1. Their determination was based on the opinion of one of the newly elected
directors, who was not a lawyer. As noted above, the definition of “independent
director” included in the Bylaws in October 2004 was, and the definition in the
current Bylaws is, substantially similar to the definition contained in Nasdaq
Marketplace Rule 4200(a)(15) in place at the respective dates of
adoption.
The
total
number of options granted to directors and executive management in fiscal 2005
was 443,725 (equivalent to 1,774,900 options post-split), representing
approximately 7% of the then outstanding shares. According to the Company’s Form
10-K for the fiscal year ended March 31, 2005, the value of these options are
$12.7 million, or approximately 80% of the Company’s net income for fiscal year
2005. By
comparison, the compensation consultant to the outgoing Board had recommended
that stock option awards have a value of should be 10% to 15% of earnings ($1.6
million to $2.4 million). I
believe
this is excessive and represents a violation of the directors’ fiduciary
responsibility to the shareholders.
In
fiscal
2007, the independent directors (with Mr. Razin casting the tie-breaking vote)
approved the award of significantly more options to management ten months into
the fiscal year without changing the previously established business goals
that
were to be met as a condition to the grants. I could see no business reason
to
significantly alter the number of options awarded to management, given that
the
performance of the Company failed to meet expectations.
RECENT
BOARD ACTIONS
I
believe
that the facts described in the Company’s preliminary proxy materials
demonstrate that Mr. Razin has continued to cause the Board and board committees
to do his bidding. Despite the 2006 Settlement Agreement between me and the
Company, which carefully structured the membership of the Board and its
committees to assure that membership would be balanced and that the independent
directors could truly act in an independent manner, the Chairman has invoked
the
provisions in the Settlement Agreement regarding deadlocks to override the
board
committees.
As
stated
on page 37 of the Company’s definitive proxy materials dated August 4, 2008, “On
June 23, 2008, our Nominating Committee met to review and recommend Board
candidates for our 2008 Annual Shareholders Meeting. The Nominating Committee
was unable to agree upon a slate of candidates, deadlocking 2-2 in its vote.
The
matter was then referred to the full Board for resolution. Our full Board
met
the same day….” I believe the Nominating Committee should have met to evaluate
candidates for election as directors before they were considered by the full
Board. But to my knowledge, only Mr. Razin had interviewed the three new
candidates before they were approved for nomination by the Board, including
Philip Kaplan who had been introduced to Mr. Razin by his son David. Mr.
Kaplan
was elected as a director by the full Board (again bypassing the Nominating
Committee) on June 27, 2008, effective June 30, to fill the vacancy created
by
the resignation of Louis Silverman at the request of Mr. Razin. Pat Cline,
the
President of the Company’s NextGen Division, cast the deciding vote on Mr.
Kaplan’s election.
The
Company’s definitive proxy materials on p. 21 also state:
“On
June
23, 2008, our Independent Directors Compensation Committee and an executive
session of our Board, each comprised of all of our independent directors,
approved a compensation program for our named executive officers for the fiscal
year ending March 31, 2009. Typically, our Compensation Committee approves
of
the compensation program and recommends its adoption to our Board sitting in
an
executive session of solely independent directors.”
The
Company’s definitive proxy materials further state on p. 34:
“Our
Independent Directors Compensation Committee reviewed and discussed with
management the ’Compensation Discussion and Analysis’ contained in this proxy
statement. Based on that review and discussion, a majority of our Independent
Directors Compensation Committee recommended to our Board of directors that
the
’Compensation Discussion and Analysis’ be included in this proxy
statement.”
Messrs.
Fawzy and Hoffman and I have no recollection of the meeting of the Independent
Director Compensation committee or the distribution of the document as described
in the company’s definitive proxy statement. Mr. Fawzy, Mr. Hoffman, and I have
no recollection of an executive session of the Board called on June
23.
At
the
June 23 Board meeting, a motion to elect Philip Kaplan to fill the vacancy
created by Mr. Silverman’s resignation failed by a vote of 4-3-2. This
apparently was not an acceptable outcome because Mr. Razin called another Board
meeting for June 27 . At the June 27 meeting, the President of NextGen voted
to
approve Mr. Kaplan’s election rather than abstaining, and Mr. Kaplan was
elected by a 5-3 vote. Mr. Razin proceeded with a previously prepared resolution
by outside counsel without an agenda item to add Mr. Kaplan to all standing
independent committees of the Board. The resolution was summarily passed, with
the Board ignoring my assertion that this is a violation of my Settlement
Agreement of August 2006 that structured this Board and its committees, which
continues in effect until the election of a new board. Correspondence by my
lawyers in this regard was not responded to by the company.
On
July
15, 2008, Mr. Razin called another Board meeting. Without an agenda item he
introduced a resolution to drop one of his nominees and reduced the number
of
his candidates from 9 to 8. The resolution was summarily passed by a vote of
6
to 3.
At
a
Board meeting held on May 29, 2008, the Chairman and outside corporate counsel
introduced a resolution for bylaw changes. Mr. Fawzy and I objected that we
only
received these proposed bylaw changes a few hours before the Board meeting.
I
asked counsel to explain to the directors the implication of these changes
for
shareholders who want to contest the election of the Company’s slate of
nominees. I believe the answer I received was unsatisfactory. The resolution
passed by a vote of 6 in favor, one against, and one abstention.
Following
the Board meeting, Board counsel in a later correspondence stated that “these
bylaw changes were designed to clarify the language in the bylaws of the
corporation.” I believe this is inaccurate. The changes in the bylaws complicate
the process of starting a proxy contest by placing, among other matters, new
restrictions on stock ownership for those who wish to challenge the Company’s
slate.
In
considering my slate of nominees, you may also wish to review the copy of the
MOU attached to my Schedule 13D filed August 9, 1999, my Schedule 13D amendments
filed July 7, 2005 and May 28, 2008, my definitive proxy materials filed
September 6, 2005, and the Settlement Agreement between me and the Company
included as Exhibit 10.1 to the Company’s Form 8-K filed August 9, 2006. These
documents can be obtained as described under “Additional Information”
below.
CONCLUSION
Thus,
the
concerns I raised in 2004 and 2005 regarding the leadership of Mr. Razin
and the defects in Board governance continue to be pressing issues. As
illustrated by events occurring over the past several years, right up until
today, the question of Mr. Razin’s status as an independent director, the
composition and functioning of the Company’s board committees, and levels of
compensation approved for payment to executive management are in my view even
more pressing today, as illustrated by the following:
|
1.
|
I
believe that the Chairman uses compensation as a means of exerting
influence over the Board and management. The Chairman has been willing
to
award management 7% of the Company’s equity in one year and to increase
directors compensation by more than 10
fold.
|
|
2.
|
The
Chairman has hired counsel for the Company of his choice, ignoring
the
settlement agreement which I believe must be interpreted to require
Board
counsel to be acceptable to both
parties.
|
|
3.
|
The
Company has refused my requests to tape or stenograph the Board meetings
or to have the minutes taken by a third party acceptable to all directors.
|
|
4.
|
The
Chairman invokes the deadlock mechanism in a manner that I believe
is
designed to control the nominating and compensation
processes.
|
|
5.
|
The
Chairman has instigated changes in the membership of the Board and
the
committees as described above in violation of the MOU of 1999 and
the
Settlement Agreement of 2006 to ensure that the majority of the directors
are aligned with him.
|
I
am
keenly concerned about the Company’s slowed growth and unremarkable financial
results. I believe that this is mainly due to the inability to govern or oversee
management. The lack of strategy or business plan for the company and a detailed
budget based on that business plan is disturbing. Examination of the Board
minutes will demonstrate the validity of my concerns.
A
more
independent Board in 2000 including 2 of Mr. Razin’s nominees voted unanimously
to reprimand and to terminate the employment of Mr. Razin effective immediately
for trying to sell the company behind the directors’ back. I believe the present
Board in contrast is totally incapable of standing up to Mr. Razin. The record
will reflect that two of his nominees have never voted against resolutions
introduced by Mr. Razin. I believe with a truly independent Board, the directors
will be able to exercise the appropriate leadership to assist management in
improving Company performance. I am honored to be able to join with a
distinguished slate of individuals and grateful that they accept to serve as
directors of our company. I urge you to join me in giving them your
support.
PROPOSAL
NO. 1
ELECTION
OF DIRECTORS
At
the
Quality Systems 2008 Annual Meeting, nine directors will be elected. The Company
has nominated six individuals who are currently directors (not including Messrs.
Hussein, Fawzy and Hoffman) and two individuals who are not currently directors.
We are seeking your support at the 2008 Annual Meeting to elect a slate
consisting of our six Nominees, in opposition to Quality Systems’ director
nominees, each to serve until the 2009 Annual Meeting of Stockholders and until
his successors are duly elected and qualified or until his earlier death,
resignation or removal. The proxies that we are soliciting cannot be voted
for
more than six nominees. Since Messrs. Hussein, Fawzy and Hoffman are incumbent
members of the Quality Systems Board, if all six of our Nominees are elected,
a
maximum of three incumbent directors of Quality Systems will be
replaced.
There
can
be no assurance that any of the nominees of Quality Systems, if elected, would
serve with the Nominees, if any or all of them are elected. Quality System’s
definitive proxy materials indicate that (1) the nine nominees receiving the
highest number of votes cast at the Annual Meeting will be elected and (2)
QSI’s
proxies will be voted in such manner as to provide for the election of the
maximum number of management’s director nominees (except to the extent that
authority to vote for a particular nominee has been specifically withheld).
Therefore, we believe that all nine positions will be filled at the Annual
Meeting. If, however, any director positions remain vacant following the Annual
Meeting, we will seek to amend QSI’s Bylaws to reduce the number of positions on
the Board so as to eliminate any such vacancies.
Based
on
the definitions of independent director established by Nasdaq as well as
under
guidelines established in the Amended and Restated Bylaws of Quality Systems,
each of our Nominees qualify for consideration as an independent director.
In
addition, each of our Nominees would qualify for consideration as an independent
director if the new definition of independent director included in our Proposal
No. 2 were to be approved by the stockholders of Quality
Systems.
Mr.
Hussein is a party to the 2006 Proxy Contest Settlement Agreement.1 Except
for the 2006 Proxy Contest Settlement Agreement and as otherwise set forth
in
this Proxy Statement, there is no other arrangement or understanding between
any
Nominee and any other person pursuant to which he was or is to be selected
as a
Nominee or director.
Except
as
indicated in this Proxy Statement, (i) none of the Nominees has carried on
an
occupation or employment, during the past five years, with Quality Systems
or
any corporation or organization which is or was a parent, subsidiary or other
affiliate of Quality Systems, and (ii) other than Messrs. Hussein, Fawzy
and Hoffman, each of whom is currently a member of the Board of Directors of
Quality Systems, none of the Nominees has ever served on the board of directors
of Quality Systems.
No
family
relationships exist between any Nominee and any executive officer or director
of
Quality Systems.
Except
as
disclosed in this Proxy Statement, no Nominee is involved in any material
pending legal proceedings with respect to Quality Systems.
None
of
the Nominees will receive any compensation from any of the Participants for
their service as directors of Quality Systems. None of the Nominees is being
indemnified by any of the Participants for their service as Nominees. If
elected, the Nominees will be entitled to such compensation and indemnification
from Quality Systems as is provided to non-employee directors of Quality
Systems. Quality Systems’ policies and practices as to its compensation of
non-employee directors are described in the Quality Systems Proxy
Statement.
Except
as
disclosed in this Proxy Statement (including Annex I attached hereto), none
of
the Nominees or any of their respective affiliates or associates has any
substantial interest, direct or indirect, by security holdings or otherwise,
in
any matter to be acted upon at the 2008 Annual Meeting.
We
do not
expect that any of the Nominees will be unable to stand for election, but,
in
the event that any of such persons are unable to serve or for good cause will
not serve, we will introduce one or more substitute nominees. In addition,
we
reserve the right to nominate substitute persons if Quality Systems makes or
announces any changes to the Quality Systems Bylaws or takes or announces any
other action that has, or if consummated would have, the effect of disqualifying
any of the Nominees. We also reserve the right to nominate additional persons
if
Quality Systems increases the size of the Quality Systems Board above its
existing size of nine directors. Additional nominations made pursuant to the
foregoing would be without prejudice to our position that any attempt by the
Quality Systems Board to increase its size while our proxy solicitation is
pending would constitute an unlawful manipulation of Quality Systems’ corporate
machinery.
____________________
1
See Current Report on Form 8-K filed by
Quality Systems, Inc. with the SEC on August 9, 2006.
To
the
extent that we introduce substitute or additional nominees subsequent to
the
mailing of our definitive proxy statement and proxy card, but within a
reasonable period of time prior to the date of the 2008 Annual Meeting, we
intend to make available (i) a supplement to our definitive proxy statement
providing the information about the substitute or additional nominees required
by Schedule 14A, and (ii) an amended proxy card. Such supplement would be
filed
with the SEC under cover of Schedule 14A as definitive additional materials.
Biographical
Information of the Nominees
Each
of
our Nominees has consented to serve as a director of Quality Systems and
to be
named in this Proxy Statement as a nominee. Please see Annex I for additional
information about the Nominees, including, if applicable, their beneficial
ownership, purchases and sales of Shares.
Name,
Age and Business Address
|
Principal
Occupation or Employment
During
the Past Five Years; Public Company
Directorships
|
Ahmed
Hussein (age
67)
Business
Address:
c/o
National Investment Co.
630
Fifth Avenue, Suite 2258
New
York, New York 10111-0100
|
Mr.
Hussein, is, and has been since 1999, a director of Quality Systems,
and
has been a stockholder of Quality Systems since 1982.
Mr.
Hussein is the Chairman of the Board of Directors 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 and as Chairman since 1999. Mr. Hussein served as a
Senior
Vice President of Dean Witter from 1993 to 1996 and, earlier, served
as an
investment banker with various firms, including L.F. Rothschild,
Prudential Bache Securities, Oppenheimer & Co., Smith Barney and
Shearson Lehman Hutton. Mr. Hussein is a director of the Six of
October University, and the Chairman of the Board of Directors of
Nobria
Agriculture, a publicly held company.
Mr.
Hussein holds a Bachelors degree in Electrical Engineering from Cairo
University, a Masters of Science degree from the American University
of
Cairo, a Postgraduate degree in Statistics from Cairo University,
a
Masters of Science degree in Mathematics from the Polytechnic Institute
of
New York, and a Doctorate degree in Electrical Engineering from the
Polytechnic Institute of New York.
Over
the years, Mr. Hussein has made numerous contributions to professional
journals and is the recipient of numerous awards of recognition,
including
a Fulbright fellowship and a gold medal from Cairo
University.
|
Name,
Age and Business Address
|
Principal
Occupation or Employment
During
the Past Five Years; Public Company
Directorships
|
Murray
Brennan, M.D.
(Age 68)
Business
Address:
1275
York Avenue
New
York, New York 10065
|
Dr.
Brennan is Emeritus Chairman of the Memorial Sloan-Kettering Cancer
Center’s Department of Surgery and previously served as Chairman from 1985
to 2007.
Dr.
Brennan has lectured and been a visiting professor throughout the
world
and has authored more than 800 scientific papers. He has served as
director of the American Board of Surgery, Chairman of the American
College of Surgeons Commission on Cancer, President of the Society
of
Surgical Oncology, President of the American Surgical Association,
the
oldest and most prestigious surgical association in the United States,
and
Vice President of the American College of Surgeons. Mr. Brennan is
currently a member of the National Academy of Sciences. He is the
recipient of numerous honors and medals for his leadership of surgery
and
oncology worldwide.
Dr.
Brennan currently serves on the Board of Directors of Ziopharm Oncology,
Inc., a publicly-held biopharmaceutical company engaged in the development
and commercialization of a diverse, portfolio of cancer drugs to
address
unmet medical needs. Dr. Brennan also serves on the Board of Directors
of
the de Beaumont Foundation.
|
|
Ibrahim
Fawzy (Age
68)
Business
Address:
c/o
Fawzy Consultancy
28
Adly Street
Cairo,
Egypt
|
Mr.
Fawzy is, and has been since 2005, a director of Quality
Systems.
Mr.
Fawzy is an emeritus professor of Mechanical Engineering at Cairo
University in Egypt. He is also the President of Fawzy Consultancy,
which
he founded in 1999 and which does work in the fields of industry
and
investment in Egypt and the Arab world. Throughout his academic career,
Mr. Fawzy has taught many courses in Mechanical Engineering at Cairo
University as well as teaching for two years at the University of
London.
|
Name,
Age and Business Address
|
Principal
Occupation or Employment
During
the Past Five Years; Public Company
Directorships
|
|
Between
1979 and 1983 he served as Cultural Attaché at the Egyptian Embassy in
London. His research papers have been published in leading specialized
periodicals including the Proceedings and Philosophical Transactions
of
the Royal Society in London. Mr. Fawzy also served as the Cabinet
Minister
of Industry and Mineral Wealth in the Egyptian Government from 1993-1996.
In this post, he had the top responsibility for all projects and
plans of
the Egyptian Government in industry and Mineral Wealth. From 1996-1999
he
was appointed as the Chairman and CEO of the General Authority for
Investment and Free Zones where he oversaw all private sector companies
in
Egypt including Egyptian and foreign companies.
Mr.
Fawzy received his Bachelors degree in Mechanical Engineering in
1962 from
Cairo University and his PhD in 1968 from University College London
in
England.
At
present, in addition to serving as a director of Quality Systems,
Mr.
Fawzy is a director of Olympic Group for Financial Investments, Egyptians
Abroad Investment and Development Co. and Egyptians Abroad for Portfolio
Management, all publicly-held companies based in Egypt. Mr. Fawzy
also
serves as the Chairman of Egyptians Co. for Housing, Development
&
Reconstruction, a publicly-held company based in Egypt.
|
|
Thomas
R. DiBenedetto (age 58)
Business
Address
151
Tremont Street, No. 101
Boston,
Massachusetts 02111
|
Mr.
DiBenedetto is the president, founder of principal stockholder of
Boston
International Group, Inc., an investment management firm, since 1983;
president, founder and principal stockholder of Junction Investors
Ltd.,
an investment management firm, since 1992.
Mr.
DiBenedetto serves on the Board of Directors of Alexander’s Inc., a New
York based Real Estate Investment Trust and several private companies.
He
is also a limited partner of the Boston Red Sox Baseball Club. He
was
formerly a director of NWH, Inc. whose principal subsidiary, Electronic
Network Systems, Inc. is a medical claims processing company. NWH
was sold
to Ingenix in 2006. Mr. DiBenedetto was also a director of Voice
Signal
Technologies, Inc., a voice recognition business which was sold to
Nuance
Communications, Inc. in 2007. Mr. DiBenedetto also serves as Chairman
of
Jefferson Waterman International, a Washington D.C. based business
intelligence and government relations firm; a director of ProSecure,
a
Middle-East based security firm; and two Moscow based entities: Infotecs
International, an internet security firm; and Athena Holdings, LLC,
a real
estate and mining company.
|
Name,
Age and Business Address
|
Principal
Occupation or Employment
During
the Past Five Years; Public Company
Directorships
|
|
Mr.
DiBenedetto is a member of the Board of Trustees of: Trinity College
in
Hartford Connecticut, Boston Biomedical Research Institute, Canterbury
School in Ft. Myers, Florida, Kents Hill School in Kents Hill, Maine,
the
Nahant Preservation Trust in Nahant Massachusetts and the Ted Williams
Museum in Florida. In addition, he is an incorporator of the Perkins
School for the Blind, Massachusetts General Hospital, and The Joslin
Diabetes Center. He has also served on the Leadership Council at
the John
F. Kennedy School of Government’s Center for Business and Government at
Harvard University.
Mr.
DiBenedetto was previously employed by Morgan, Stanley & Co., Salomon
Brothers Inc. and Allen & Company, all investment banking firms
located in New York City.
Mr.
DiBenedetto holds a Bachelor’s degree in Economics, with honors, from
Trinity College and an M.B.A. from the University of Pennsylvania’s
Wharton School of Business. He has also served as a research fellow
at the
Massachusetts Institute of Technology.
|
Joseph
D. Stilwell (age
47)
Business
Address:
26
Broadway, 23rd
Floor
New
York, New York 10004
|
Mr.
Stilwell is a private investment manager, and since 1993, has overseen
the
Stilwell Group of Funds, a series of private limited partnerships
organized to invest in securities.
Mr.
Stilwell is on the board of directors of American Physicians Capital,
Inc., a publicly-held provider of medical professional liability
insurance, and serves as chairman of the compensation committee and
member
of the executive, investment, and mergers and acquisition committees
of
such company.
Mr.
Stilwell received a Bachelor of Science degree in Economics from
The
Wharton School of the University of
Pennsylvania.
|
Name,
Age and Business Address
|
Principal
Occupation or Employment
During
the Past Five Years; Public Company
Directorships
|
Edwin
Hoffman (age
70)
Business
Address:
614
Isham Circle
Brielle,
New Jersey 08730
|
Mr.
Hoffman is, and has been since 2006,
a director of Quality Systems.
Mr.
Hoffman is currently a self-employed engineering consultant. In 1972,
he
co-founded Osborne-Hoffman, Inc., a security industry company where
he was
President and Chief Executive Officer until its acquisition in 2002
by the
General Electric Company. Osborne-Hoffman’s principal products are central
station receivers for monitoring alarm systems. Osborne-Hoffman is
now a
General Electric brand. From 2002 to 2007, Mr. Hoffman was President
of
O-H Inc., an engineering consulting firm and consultant to General
Electric. Prior to joining Osborne-Hoffman, Mr. Hoffman held engineering
positions at Bell Laboratories and Litton Industries and a financial
position at the Hanover Bank.
Mr.
Hoffman holds a Bachelors of Science Degree in Electrical Engineering
from
City College, New York, a Masters of Science Degree in Electrical
Engineering and a Doctorate Degree in Electrical Engineering from
the
Polytechnic Institute of Brooklyn. He is the author of 10 technical
papers
and is the named inventor on two patents filed with the U.S. Patent
and
Trademark Office.
|
Statement
of Support
We
believe that we have nominated a slate of highly successful, qualified and
experienced nominees who will bring to the Quality Systems Board a firm
commitment to, and a very high respect for, corporate governance and a broad
range of backgrounds, experiences, perspectives and ideas for reinvigorating
systems sales, growing worldwide revenues, halting the rapid growth in corporate
overhead, aligning executive compensation with the creation and growth of
stockholder value, positioning Quality Systems for long-term growth,
profitability, market leadership and increasing returns for investors.
WE
STRONGLY URGE YOU TO VOTE “FOR” THE ELECTION OF OUR NOMINEES BY MARKING,
SIGNING, DATING AND RETURNING TODAY THE ENCLOSED BLUE PROXY CARD IN THE POSTAGE
PAID ENVELOPE PROVIDED TO YOU WITH THIS PROXY STATEMENT.
IF
YOU HAVE SIGNED THE BLUE PROXY CARD AND NO MARKING IS MADE, YOU WILL BE DEEMED
TO HAVE DIRECTED THE PROXY HOLDER TO VOTE ALL SHARES REPRESENTED BY THE BLUE
PROXY CARD “FOR” THE ELECTION OF OUR NOMINEES. IN ADDITION, THE BLUE PROXY CARD
CONFERS DISCRETIONARY AUTHORITY ON THE PROXY HOLDER TO CUMULATE VOTES FOR ANY
OR
ALL OF OUR NOMINEES FOR WHICH AUTHORITY TO VOTE HAS NOT BEEN WITHHELD.
PROPOSAL
NO. 2
RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We
support the ratification of the appointment of Grant Thornton LLP to serve
as
the Company’s independent registered public accounting firm for the fiscal year
ending March 31, 2009.
PROPOSAL
NO. 3
AMEND
BYLAWS TO CHANGE
DEFINITION
OF INDEPENDENT DIRECTOR
The
Corporate Governance Bylaws attached to the Quality Systems Bylaws state that
an
“independent director” means a person other than an officer or employee of
Quality Systems or its subsidiaries or any other individual having a
relationship, which, in the opinion of the Board, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. The Corporate Governance Bylaws currently provide that, with respect
to persons who are former employees of Quality Systems, including without
limitation, any former executive officers, such persons would only be precluded
from being independent on the basis of such former employment if it occurred
during the past three years
We
are
proposing that stockholders approve an amendment to the Quality Systems Bylaws
to substantially conform the definition of independent director to the
definition of independent outside director adopted by RiskMetrics ISS Governance
Services (the “ISS Independent Director Definition”). The full text of the
proposed amendment is substantially in the form set forth in Annex II to this
Proxy Statement. Under the ISS Independent Director Definition, an independent
director would mean that the director has no material connection to Quality
Systems other than a board seat, and would exclude former CEOs of the Company.
Statement
of Support
The
current definition of independent director contained in the Quality Systems
Bylaws has been revised a number of times since the Quality Systems Board
adopted the QSI Corporate Governance Reforms in 1999 in the wake of its
unsuccessful challenge to exclude a stockholder proposal from its third largest
stockholder, Lawndale Capital, calling for an increased role for independent
directors on the Quality Systems Board. On July 29, 1999, to avoid a proxy
contest from Lawndale Capital and Mr. Hussein, Quality Systems amended its
Bylaws to adopt the QSI Corporate Governance Reforms which included, among
other
things, a definition of independent director that precluded any person who
had
ever been an employee of Quality Systems from being deemed an independent
director.2
Quality
Systems also amended its Bylaws to require that at least 75% of the Quality
Systems Board of Director be deemed independent in accordance with the
aforementioned definition of independent director.
______________________
2 See Current Report on
Form 8-K of Quality Systems, Inc. filed with the SEC on August 5,
1999.
On
October 1, 2004, the Quality Systems Board, however, repealed the definition
of
independent director that had been adopted in July 1999 as part of the QSI
Corporate Governance Reforms and, in its place, adopted a new definition that
eliminated the lifetime prohibition that precluded former employees of Quality
Systems from being deemed independent. As currently in effect, the Quality
Systems Bylaws only preclude former employees of Quality Systems from being
deemed independent during the three years subsequent to their termination of
employment with Quality Systems. In addition, the Quality Systems Board replaced
the requirement that 75% of the members of the QSI Board had to be independent
with the requirement that only a simple majority had to be
independent.
On
May
31, 2007, the Quality Systems Board revised the definition of independent
director. Previously, the Quality Systems Bylaws provided that a director would
not be considered independent if he or a family member accepted any payments
from Quality Systems or any parent or subsidiary of Quality Systems in excess
of
$60,000 during the current or any of the past three fiscal years other than
compensation paid to a family member who is a non-executive employee of Quality
Systems or a parent or subsidiary of Quality Systems.3 As a
result of the amendment to the Quality Systems Bylaws, the threshold was changed
from in excess of $60,000 to in excess of $100,000, thus, once again, lowering
the threshold for individuals to qualify as independent directors. Although
this
relaxation of the dollar threshold from $60,000 to $100,000 did follow a similar
change to the applicable minimum standards required by Nasdaq Marketplace Rule
4200(a)(15), the Board was not provided advance notice of the proposed
modification in order to consider whether changing to this minimum standard
was
advisable. In addition, the May 2007 amendments made it possible to deem Mr.
Razin an independent director, because those amendments changed a provision
that
had prevented all “officers” from being considered independent to now provide
that executive officers would not be independent. Mr. Razin, as Chairman,
is considered an officer under the bylaws, and under the independence standards
prior to the amendments he was not eligible to be considered independent.
Although the change mirrored the minimum requirements of Nasdaq Marketplace
Rule
4200(a)(15), neither the details of the change nor the consequences were shared
with the Board. The Board was simply told that changes would be made to conform
with Nasdaq rule changes.
___________________
3
The Quality Systems 2007 Annual Meeting Proxy Statement on Schedule 14A reported
that during fiscal 2007, Quality Systems employed two relatives of members
of
the Quality Systems Board. According to such proxy statement, David Razin served
as Quality Systems’ Vice President for EDI Services, is the son of Sheldon
Razin, and earned approximately $177,000 in salary and bonus during fiscal
year
2007. David Razin was deemed to satisfy the definition of “executive officer”
until sometime in 2001 when he was, without explanation, no longer listed as
an
“executive officer” in the SEC filings of Quality Systems. The 2007 Annual
Meeting Proxy Statement further reported that Kim Cline serves as Vice President
of Client Services at Quality Systems’ NextGen Healthcare Information System
subsidiary, is the sister of Patrick Cline, the President of NextGen Healthcare
Information System Division, and earned approximately $179,600 in salary and
bonus during fiscal year 2007. While Sheldon Razin has been deemed by the
Quality Systems Board to meet the Company’s definition of independent
director, Patrick B. Cline, as a current Executive Officer of Quality Systems,
has not been deemed to be an independent director.
The
definition of “independent director” included in the Bylaws in October 2004 was,
and the definition in the current Bylaws is, substantially similar to the
definition contained in Nasdaq Marketplace Rule 4200(a)(15) in place at the
respective dates of adoption.
Although
the Quality Systems Board had previously indicated in filings with the SEC
that
Sheldon Razin, the current Chairman of the Board of Quality Systems, did not
qualify as an independent director,4 since
repealing the 1999 definition of independent director in October 2004 and
replacing it with a definition that has only a three year lookback for former
employees of Quality Systems, the Quality Systems Board has repeatedly
determined that Mr. Razin is an independent director.
The
ISS
Independent Director Definition that we are proposing is intended to
substantially conform to the definition of independent outside director adopted
by RiskMetrics ISS Governance Services.
We
believe that the primary purpose of the Quality Systems Board is to protect
stockholders’ interests by providing independent oversight of management and the
Chief Executive Officer. We believe that by enhancing the independence of the
Quality Systems Board, and by allowing for a greater role for its independent
members, the effect will be to enhance investor confidence in Quality Systems
and the decisions made by its Board and strengthen the integrity of the Quality
Systems Board.
If
this
Proposal to amend the Quality Systems Bylaws to adopt the ISS Independent
Director Definition is approved by the stockholders of Quality Systems at the
2008 Annual Meeting, the effect would be that Sheldon Razin, the current
Chairman of the Board and former President and Chief Executive Officer of
Quality Systems from 1974 to 2000, as well as the largest stockholder in Quality
Systems, would no longer qualify as an independent director. While the QSI
Corporate Governance Reforms require the Quality Systems Board’s Audit,
Compensation, Nominating and Transaction Committees to be composed exclusively
of independent members, they also provide that such provisions, insofar as
they
establish eligibility to serve as a committee member, shall not have the effect
of removing any committee member from any committee but shall be given effect
at
the next selection of committee members. Accordingly, if this Proposal No.
3 is
approved, it would prevent Sheldon Razin from being reappointed to the
membership of any of these committees of the Quality Systems Board. In addition,
the QSI Corporate Governance Reforms require the appointment of a non-executive
Lead Director at any time that the Chairman of the Board is not an independent
director. The Quality Systems Bylaws provide that the Corporate Governance
Bylaws may be amended or repealed by the stockholders of Quality Systems. See
“REQUIRED VOTE.”
We
recommend a vote “FOR” Proposal 3.
___________________
4 See
Page 3
of the Annual Meeting Proxy Statement of Quality Systems, Inc. filed with the
SEC on July 29, 2004 in connection with Quality Systems’ 2004 Annual Meeting of
Stockholders.
OTHER
PROPOSALS
Except
as
discussed herein, we are not aware of any other proposals to be brought before
the 2008 Annual Meeting. Should other proposals be brought before the 2008
Annual Meeting, it is intended that the persons named on the enclosed BLUE
proxy
card will vote that proxy on such matters in accordance with their judgment.
We
will not use such discretionary authority to vote the proxies for matters of
which we are aware a reasonable time before the 2008 Annual
Meeting.
QUORUM
A
majority of the outstanding Shares, represented in person or by proxy, will
constitute a quorum for the transaction of business at the 2008 Annual Meeting.
Abstentions and broker non-votes will be included for purposes of determining
whether a quorum exists. Broker non-votes occur when brokers do not receive
voting instructions from their customers on non-routine matters and consequently
have no discretion to vote on those matters. If your Shares are held in the
name
of a brokerage firm, bank nominee or other institution, you should contact
the
person responsible for your account and give instructions for a proxy card
to be
issued so that your Shares will be represented at the 2008 Annual Meeting.
Pursuant
to Rule 452 of the New York Stock Exchange, a broker member is permitted to
vote
on certain routine, uncontested matters without specific instructions from
the
beneficial owner so long as the broker has transmitted proxy material to the
beneficial owner at least fifteen (15) days prior to the annual meeting of
stockholders. It is Mr. Hussein’s view that, to the extent that he distributes
material to the brokers for forwarding on to beneficial owners, the election
of
directors will become a contested item and therefore the brokers will not issue
a “routine” vote on behalf of the beneficial owners that have not instructed the
brokers as to how they wish to vote on the election of directors. It is Mr.
Hussein’s belief that Proposal 3 will also be treated as a contested item. If
you are a beneficial owner and wish to vote on these matters, you should provide
your broker with specific instructions to vote.
REQUIRED
VOTE
According
to the Quality Systems Bylaws, directors are elected (Proposal No. 1 described
above) by a plurality of the votes cast, either in person or by proxy, at the
2008 Annual Meeting. As nine positions are to be filled at the 2008 Annual
Meeting, the nine nominees for director who receive the highest number of
affirmative votes will be elected, and abstentions and broker non-votes will
have no effect on the election of directors. The proxy holder named herein
will
vote all proxies received by him in accordance with the instructions set forth
in such proxies.
Each
stockholder will be entitled to one vote, in person or by proxy, for each Share
of Quality Systems Common Stock held of record on the Record Date, except that
all stockholders have cumulative voting rights in the event any stockholder
gives notice prior to the voting of an intention to cumulate his, her or its
votes in the election of Directors. We have given notice to Quality Systems
of
our intention to cumulate our votes in the election of Directors. As a result,
stockholders entitled to vote at the Annual Meeting may cumulate their votes
in
the election of Directors. Cumulative voting means that a stockholder 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 stockholder
would otherwise be entitled to vote, or to distribute such votes on the same
principle among as many properly nominated candidates (up to the number of
persons to be elected) as the stockholder may wish.
Because
we have given notice of our intention to cumulate votes, the proxy holder may
vote the proxies solicited hereby in such manner as to provide for the election
of the maximum number of the Nominees (for whom authority is not otherwise
specifically withheld), including, without limitation, determining the
prioritization of such Nominees to whom such votes may be allocated. Although
we
will endeavor to elect all six Nominees, if it is necessary for us to prioritize
among the Nominees and allocate votes, we intend to allocate our votes in the
following order of priority: first, to Mr. Hussein; second, to Murray Brennan,
M.D.; third, to Ibrahim Fawzy; fourth, to Thomas R. DiBenedetto; fifth, to
Joseph D. Stilwell; and sixth, to Edwin Hoffman.
Approval
of Proposal 2, ratification of the appointment of Grant Thornton LLP as the
Company’s independent registered public accounting firm for the fiscal year
ending March 31, 2009, will be considered approved if the vote constitutes
both:
(i) the affirmative vote of a majority of the Shares present in person or
represented by proxy and voting on the proposal and (ii) the affirmative vote
of
a majority of the quorum as referenced above. For purposes of this proposal,
abstentions and broker non-votes will not affect the outcome under clause (i),
which recognizes only actual votes for or against the proposal. Abstentions
and
broker non-votes may affect the outcome under clause (ii) because abstentions
and broker non-votes are counted for purposes of determining the quorum and
have
the effect of a vote against the proposal.
Approval
of Proposal 3 requires a vote that satisfies two criteria: (i) the affirmative
vote of a majority of the Shares present or represented by proxy and voting
on
the proposal and (ii) the affirmative vote of a majority of the quorum as
referenced above. For purposes of this proposal, abstentions and broker
non-votes will not affect the outcome under clause (i), which recognizes only
actual votes for or against the proposal. Abstentions and broker non-votes
may
affect the outcome under clause (ii) because abstentions and broker non-votes
are counted for purposes of determining the quorum and have the effect of a
vote
against the proposal.
We
intend
to deliver a proxy statement and form of proxy to holders of at least the
percentage of the Shares required to approve each of the
Proposals.
RECORD
DATE AND VOTING PROCEDURES
According
to the Quality Systems Proxy Statement, as of July 18, 2008, Quality Systems
had
27,765,027 Shares entitled to be voted at the 2008 Annual Meeting. Each Share
is
entitled to one vote on each matter submitted to a vote of stockholders. Only
stockholders of record at the close of business on July 18, 2008 will be
entitled to vote at the 2008 Annual Meeting. If your Shares are registered
directly in your name with Quality Systems’ transfer agent, U.S. Stock Transfer
Corp., you are considered with respect to those Shares the stockholder of
record, and these proxy materials are being sent directly to you. As the
stockholder of record, you have the right to submit your voting proxy directly
to Quality Systems using the enclosed BLUE proxy card or to vote in person
at
the 2008 Annual Meeting.
If
your
Shares are held in a stock brokerage account or by a bank or other nominee,
you
are considered the beneficial owner of Shares held in ‘‘street name.’’ These
proxy materials are being forwarded to you by your broker who is considered,
with respect to those Shares, the stockholder of record. As the beneficial
owner, you have the right to direct your broker to vote your Shares, and your
broker or nominee has enclosed a voting instruction card for you to use. If
your
Shares are held by a broker or nominee, please return your voting card as early
as possible to ensure that your Shares will be voted in accordance with your
instructions. You are also invited to attend the 2008 Annual Meeting; however,
since you are not the stockholder of record, you may not vote these Shares
in
person at the meeting unless you comply with the procedure described
below.
If
your
Shares are held in the name of a custodian and you want to vote in person at
the
2008 Annual Meeting, you may specially request a document called a “legal proxy”
from the custodian and bring it to the 2008 Annual Meeting.
Stockholders
of record may appoint proxies to vote their Shares by signing, dating and
mailing the BLUE proxy card in the envelope provided. Whether or not you are
able to attend the 2008 Annual Meeting, we strongly urge you to complete the
accompanying BLUE proxy card and return it in the enclosed self-addressed,
prepaid envelope. All valid proxies received prior to the meeting will be voted.
If you specify a choice with respect to any item by marking the appropriate
box
on the BLUE proxy card, the Shares will be voted in accordance with that
specification.
If
you
have signed the BLUE proxy card and no marking is made, you will be deemed
to
have given a direction to vote all of your Shares (i) “FOR” the election of
all of our Nominees; (ii) “FOR” ratification of the appointment of Grant
Thornton LLP as QSI’s independent registered public accounting firm, and
(iii) “FOR” our proposal to amend the Bylaws to substantially conform the
definition of independent director contained therein to the definition of
independent outside director adopted by RiskMetrics ISS Governance
Services.
You
are
being asked to elect our Nominees and to approve the other Proposals described
herein. The enclosed BLUE proxy card may only be voted for our Nominees and
does
not confer voting power with respect to any of the nominees of Quality Systems.
Accordingly, the BLUE proxy card will not provide you with the opportunity
to
vote for any of the Quality Systems nominees. You can only vote for the Quality
Systems nominees by signing and returning a proxy card provided by Quality
Systems. Stockholders should refer to the Quality Systems proxy statement for
the names, backgrounds, qualifications and other information concerning the
nominees of Quality Systems. We intend to vote all of our Shares
(i) “FOR”
the
election of our Nominees; (ii) “FOR”
ratification of the selection of QSI’s independent registered public accounting
firm; and (iii) “FOR”
our
proposal to amend the Bylaws to substantially conform the definition of
independent director contained therein to the definition of independent outside
director adopted by RiskMetrics ISS Governance Services. None of the proposals
is conditioned on stockholder approval of any other matter to be voted on at
the
2008 Annual Meeting.
REVOCATION
OF PROXIES
Any
stockholder of record may revoke or change his or her proxy instructions at
any
time prior to the vote at the 2008 Annual Meeting by:
|
·
|
submitting
a properly executed, subsequently dated BLUE proxy card that will
revoke
all prior proxy cards, including any WHITE proxy cards solicited
on behalf
of the board of directors of Quality
Systems;
|
|
·
|
attending
the 2008 Annual Meeting and withdrawing his or her proxy by voting
in
person (although attendance at the 2008 Annual Meeting will not in
and of
itself constitute revocation of a proxy);
or
|
|
·
|
delivering
a written notice of revocation either to us c/o The Altman Group,
Inc.,
1200 Wall Street West, Lyndhurst, New Jersey 07071, or the Corporate
Secretary of Quality Systems at 18111 Von Karman Avenue, Suite 600,
Irvine, CA 92612, or any other address provided by Quality
Systems.
|
Please
note that if your shares are held in “street name” by a bank, broker or nominee,
you must follow the instructions provided by such bank, broker or nominee to
vote or revoke your earlier vote.
Although
a revocation is effective if delivered to Quality Systems, we ask that you
also
mail to us either the original or copies of all revocations to us c/o The Altman
Group, Inc., 1200 Wall Street West, Lyndhurst, New Jersey 07071 so that we
will
be aware of all revocations and can more accurately determine if and when the
requisite proxies for the election of our Nominees as directors and with respect
to the other Proposals set forth herein have been received. Additionally, the
Altman Group may use this information to contact stockholders who have revoked
their proxies in order to solicit later dated proxies for the election of the
Nominees and approval of our Proposal No. 3 described herein.
Only
stockholders of record as of the close of business on the Record Date will
be
entitled to vote. If you were a stockholder of record on the Record Date, you
will retain your voting rights at the 2008 Annual Meeting even if you sell
such
Shares after the Record Date. Accordingly, it is important that you vote the
Shares held by you on the Record Date, or grant a proxy to vote such Shares
on
the BLUE proxy card, even if you sell such Shares after the Record Date.
WE
STRONGLY URGE YOU TO MARK, SIGN, DATE, AND RETURN TODAY THE ENCLOSED BLUE PROXY
CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED TO VOTE (i) “FOR” THE ELECTION OF OUR
NOMINEES; (ii) “FOR” THE RATIFICATION OF THE SELECTION OF QSI’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM; AND (iii) “FOR” OUR PROPOSAL TO AMEND THE
BYLAWS TO SUBSTANTIALLY CONFORM THE DEFINITION OF INDEPENDENT DIRECTOR CONTAINED
THEREIN TO THE DEFINITION OF INDEPENDENT OUTSIDE DIRECTOR ADOPTED BY RISKMETRICS
ISS GOVERNANCE SERVICES.
RIGHTS
OF APPRAISAL OR DISSENTERS’ RIGHTS
Stockholders
of Quality Systems do not have appraisal or dissenters’ rights with respect to
any matter to be acted upon at the 2008 Annual Meeting.
COST
AND METHOD OF SOLICITATION
Mr.
Hussein has retained The Altman Group for solicitation and advisory services
in
connection with this proxy solicitation. It is anticipated that the Altman
Group
will employ approximately twenty-five (25) persons to solicit Quality Systems
stockholders for the 2008 Annual Meeting. Mr. Hussein has agreed to pay to
the
Altman Group a fee not expected to exceed $22,500 and to reimburse the Altman
Group for its reasonable out-of-pocket expenses including any costs associated
with the telephone solicitation to Quality Systems’ stockholders. Mr. Hussein
has also agreed to indemnify and hold the Altman Group and all its employees
harmless against certain liabilities and expenses, including certain liabilities
arising under the federal securities laws, incurred as a result of providing
solicitation and advisory services in connection with this proxy solicitation.
The Altman Group does not believe that any of its directors, officer, employees,
affiliates or controlling persons, if any, is a “participant” in this proxy
solicitation or that Schedule 14A requires the disclosure of certain information
concerning the Altman Group.
It
is
anticipated that some or all of our Nominees will participate in the
solicitation of proxies from the Quality Systems stockholders for use at the
2008 Annual Meeting in support of their election to the Quality Systems Board
and with respect to our other Proposal set forth in this Proxy Statement. None
of our Nominees will receive additional compensation if they assist in the
solicitation of proxies. Proxies may be solicited in person, by mail, courier
services, Internet, advertising, telephone, facsimile and by electronic mail.
Proxies will be solicited from individuals, brokers, banks, bank nominees and
other institutional holders. We will request banks, brokerage houses and other
custodians, nominees and fiduciaries to forward all solicitation materials
to
the beneficial owners of the Shares they hold of record. Mr. Hussein will
reimburse these record holders for their reasonable out-of-pocket expenses
in so
doing.
Mr.
Hussein is initially bearing the expense of this proxy solicitation. Although
no
precise estimate can be made at the present time, costs related to this
solicitation of proxies, including expenditures for attorneys, accountants,
public relations or financial advisors, proxy solicitors, advertising, printing,
transportation, postage and related expenses incidental to this solicitation,
are currently anticipated to be, in the absence of litigation, approximately
$250,000. Mr. Hussein estimates that, through the date hereof, his expenses
in connection with, or in furtherance of, this solicitation are approximately
$120,000. To the extent legally permissible, Mr. Hussein intends to seek
reimbursement of such expenses from Quality Systems if any of the Nominees
is
elected. Mr. Hussein will only accept reimbursement if such reimbursement is
approved by the Quality Systems Board. Mr. Hussein does not intend to submit
the
question of such reimbursement to a vote of the Quality Systems
stockholders.
OTHER
NOMINEE AND PARTICIPANT INFORMATION
Each
of
our Nominees is a “participant” in this proxy solicitation as such term is
defined under Regulation 14A of the Exchange Act. The names and business
addresses of, and the present principal occupation or employment and the name,
principal business and address of any corporation or other organization in
which
employment is carried out by, each of our Nominees is set forth above under
“PROPOSAL NO. 1 - ELECTION OF DIRECTORS - Biographical Information of the
Nominees.”
We
reserve the right to retain one or more financial advisors and additional proxy
solicitors, who also may be considered participants in a solicitation under
Regulation 14A of the Exchange Act.
Except
as
set forth in this Proxy Statement:
|
(i) |
during
the past ten (10) years, no participant in this solicitation has
been
convicted in a criminal proceeding (excluding traffic violations
or
similar misdemeanors);
|
|
(ii)
|
no
participant in this solicitation directly or indirectly beneficially
owns
any securities of Quality Systems;
|
|
(iii)
|
no
participant in this solicitation owns any securities of Quality Systems
which are owned of record but not beneficially;
|
|
(iv)
|
no
participant in this solicitation has purchased or sold any securities
of
Quality Systems during the past two years;
|
|
(v)
|
no
part of the purchase price or market value of the securities of Quality
Systems purchased or sold within the past two years by any participant
in
this solicitation is represented by funds borrowed or otherwise obtained
for the purpose of acquiring or holding such securities;
|
|
(vi)
|
no
participant in this solicitation is, or within the past year was,
a party
to any contract, arrangements or understandings with any person with
respect to any securities of Quality Systems, including, but not
limited
to, joint ventures, loan or option arrangements, puts or calls, guarantees
against loss or guarantees of profit, division of losses or profits,
or
the giving or withholding of proxies;
|
|
(vii)
|
no
associate of any participant in this solicitation owns beneficially,
directly or indirectly, any securities of Quality Systems;
|
|
(viii)
|
no
participant in this solicitation owns beneficially, directly or
indirectly, any securities of any parent or subsidiary of Quality
Systems;
|
|
(ix)
|
no
participant in this solicitation or any of his associates had a direct
or
indirect material interest in any transaction, or series of similar
transactions, since the beginning of Quality Systems’ last fiscal year, or
had a direct or indirect material interest in any currently proposed
transaction, or series of similar transactions, to which Quality
Systems
or any of its subsidiaries was or is to be a party, in which the
amount
involved exceeds $120,000;
|
|
(x)
|
no
participant in this solicitation or any of his/its associates has
any
arrangement or understanding with any person with respect to any
future
employment by Quality Systems or its affiliates, or with respect
to any
future transactions to which Quality Systems or any of its affiliates
will
or may be a party; and
|
|
(xi)
|
no
person, including the participants in this solicitation, who is a
party to
an arrangement or understanding pursuant to which the Nominees are
proposed to be elected, has a substantial interest, direct or indirect,
by
security holdings or otherwise in any matter to be acted on at the
2008
Annual Meeting.
|
CERTAIN
INFORMATION REGARDING QUALITY SYSTEMS
Quality
Systems is a California corporation with its principal executive offices located
at 18111 Von Karman Avenue, Suite 600, Irvine, CA 92612. Quality Systems is
subject to the informational requirements of the Exchange Act, and in accordance
therewith is required to file reports, proxy statements and other information
with the SEC. Reports, registration statements, proxy statements and other
information filed by Quality Systems with the SEC can be inspected and copied
at
the public reference facilities maintained by the SEC at 100 F Street, N.E.,
Washington, DC 20549. Documents filed electronically by Quality Systems are
also
available at the SEC’s Web site (http://www.sec.gov).
ADDITIONAL
INFORMATION
This
proxy statement omits certain disclosure required by applicable law that we
expect will be included in the Quality Systems Proxy Statement. This disclosure
includes, among other things, the securities of Quality Systems held by Quality
Systems’ directors, nominees, management and five percent (5%) stockholders,
biographical information on Quality Systems’ nominees for director and current
executive officers, information concerning executive and director compensation,
and certain other information regarding the 2008 Annual Meeting. Stockholders
should refer to the Quality Systems Proxy Statement in order to review this
disclosure. We also expect the Quality Systems Proxy Statement to include
information relating to the deadline for submitting stockholder proposals for
inclusion in the proxy statement for Quality Systems’ 2009 Annual Meeting and
the date after which submission of notice of stockholder proposals is considered
untimely. Accordingly, reference is made to the Quality Systems Proxy Statement
for such information. Except as otherwise noted in this Proxy Statement, the
information concerning Quality Systems that is included herein has been taken
from or is based upon documents and records on file with the SEC and other
publicly available information. Accordingly, we do not take any responsibility
for the accuracy or completeness of statements and other information contained
in the Quality Systems Proxy Statement or other public documents filed by
parties other than us.
WE
HAVE
NOT SOUGHT OR OBTAINED ANY CONSENTS FROM ANY THIRD PARTY TO USE ANY STATEMENTS
OR INFORMATION INDICATED HEREIN AS HAVING BEEN OBTAINED OR DERIVED FROM
STATEMENTS MADE OR PUBLISHED BY THIRD PARTIES. ANY SUCH STATEMENTS OR
INFORMATION SHOULD NOT BE VIEWED AS INDICATING THE SUPPORT OF SUCH THIRD PARTY
FOR THE VIEWS EXPRESSED HEREIN.
Mr.
Hussein, Mr. Fawzy and Mr. Hoffman have filed with the SEC a statement on
Schedule 13D, which contains information in addition to that furnished herein.
The Schedule 13D, including amendments thereto, may be inspected at, and copies
may be obtained from, the public reference facilities maintained at the SEC
at
100 F Street, N.E., Washington, DC 20549. Copies of such material can be
obtained upon written request addressed to the SEC, Public Reference Section,
100 F Street, N.E., Washington, DC 20549, at prescribed rates. You may obtain
information on the operation of the SEC’s Public Reference Room by calling the
SEC at (800) SEC-0330. The SEC also maintains a web site on the Internet
(http://www.sec.gov) where reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC may be
obtained free of charge.
YOUR
VOTE IS IMPORTANT, NO MATTER HOW FEW SHARES THAT YOU OWN. WE STRONGLY URGE
YOU
TO MARK, SIGN, DATE, AND RETURN THE ENCLOSED BLUE PROXY CARD TODAY TO VOTE
(i)
“FOR” THE ELECTION OF OUR NOMINEES; (ii) “FOR” RATIFICATION OF THE APPOINTMENT
OF QSI’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM; AND (iii) “FOR” OUR
PROPOSAL TO AMEND THE BYLAWS TO SUBSTANTIALLY CONFORM THE DEFINITION OF
INDEPENDENT DIRECTOR CONTAINED THEREIN TO THE DEFINITION OF INDEPENDENT OUTSIDE
DIRECTOR ADOPTED BY RISKMETRICS ISS GOVERNANCE SERVICES.
Dated: August
13, 2008
IMPORTANT
Please
review this document and the enclosed materials carefully. YOUR VOTE IS VERY
IMPORTANT, no matter how many or how few Shares you own.
1.
|
If
your Shares are registered in your own name, please mark, sign, date
and
return the enclosed BLUE proxy card to our Proxy Solicitor, The Altman
Group, Inc., in the postage-paid envelope provided
today.
|
|
|
2.
|
If
you have previously signed and returned a WHITE proxy card to Quality
Systems, you have the right to change your vote by returning a BLUE
proxy
card to vote FOR the election of our Nominees and FOR the other proposals
described in this Proxy Statement. You may revoke any WHITE proxy
card
already sent to Quality Systems by marking, signing, dating and returning
the enclosed BLUE proxy card in the postage-paid envelope provided.
Any
proxy may be revoked at any time prior to its being voted at the
2008
Annual Meeting by delivering a written notice of revocation or a
later
dated proxy for the 2008 Annual Meeting to The Altman Group, Inc.,
or by
voting in person at the 2008 Annual Meeting. ONLY YOUR LATEST DATED
PROXY
FOR THE 2008 ANNUAL MEETING WILL BE COUNTED AT THE 2008 ANNUAL
MEETING.
|
|
|
3.
|
If
your Shares are held in the name of a brokerage firm, bank nominee
or
other institution, only
it can sign a BLUE proxy card with respect to your
Shares
and only after receiving your specific instructions. Accordingly,
please
vote your shares according to the enclosed voting instruction form
or
contact the person responsible for your account and instruct that
person
to execute the BLUE proxy card representing your Shares. We urge
you to
confirm in writing your instructions to us in care of The Altman
Group,
Inc. at the address provided below so that they will be aware of
your
instructions and can take steps to ensure that your instructions
are
followed.
|
|
|
4.
|
After
signing the enclosed BLUE proxy card, do not sign or return the WHITE
proxy card, even as a sign of protest.
|
If
you have any questions, require assistance in executing your BLUE proxy
card,
or
need additional copies of these proxy materials, please contact
The
Altman Group, Inc., as follows:
The
Altman Group, Inc.
1200
Wall Street West
Lyndhurst,
New Jersey 07071
Stockholders
Call Toll-Free: (866) 856-4969
Banks
and Brokerage Firms Call Collect: (201) 806-7300
ANNEX
I
SECURITY
OWNERSHIP OF PARTICIPANTS
Nominee
|
|
Title
of Class
|
|
Number
of Shares Beneficially Owned
|
|
Percent
of Class(1)
|
Ahmed
Hussein
|
|
Common
Stock
|
|
4,654,100
|
(2) |
|
16.8
|
% |
|
|
|
|
|
|
|
|
Ibrahim
Fawzy
|
|
Common
Stock
|
|
26,500
|
(3) |
|
Less
than 1
|
% |
|
|
|
|
|
|
|
|
Edwin
Hoffman
|
|
Common
Stock
|
|
2,500
|
(4) |
|
Less
than 1
|
% |
|
|
|
|
|
|
|
|
Murray
Brennan, M.D.
|
|
Common
Stock
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Thomas
R. DiBenedetto
|
|
Common
Stock
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Joseph
D. Stilwell
|
|
Common
Stock
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
4,683,100
|
|
|
16.8
|
% |
(1)
|
These
percentages have been calculated based on the 27,765,027 Shares issued
and
outstanding on July 18, 2008, the record date for the 2008 Annual
Meeting.
|
(2)
|
Includes
unexercised options held by Mr. Hussein to purchase 46,500 shares
of
Quality Systems Common Stock.
|
(3)
|
Represents
unexercised options held by Mr. Fawzy to purchase 26,500 shares of
Quality
Systems Common Stock.
|
(4)
|
Represents
unexercised options held by Mr. Hoffman to purchase 2,500 shares
of
Quality Systems Common Stock.
|
BENEFICIAL
OWNERSHIP
The
Participants are deemed to beneficially own (as such term is defined in Rule
13d-3 under the Exchange Act), in the aggregate, 4,683,100 Shares, representing
approximately 16.8% of the issued and outstanding Shares, based upon the number
of Shares issued and outstanding on July 18, 2008, the record date for the
2008 Annual Meeting.
Mr.
Hussein is the beneficial owner of 4,654,100 Shares, including 46,500 shares
represented by unexercised stock options. The Shares held by Mr. Hussein were
acquired with personal funds through various accounts, some of which have margin
capabilities. Among other things, Mr. Hussein may use these accounts to buy
and
sell securities, some on temporary margin. Since other securities, investments
and funds used for expenses are held in these accounts, it is not possible
to
determine the amounts, if any, of margin used with respect to the purchase
of
these Shares. Mr. Hussein has the sole power to vote and dispose of all Shares
beneficially owned by him.
SECURITIES
OF QUALITY SYSTEMS PURCHASED
OR
SOLD BY THE PARTICIPANTS IN THE LAST TWO YEARS
None
of
the Participants have engaged in any purchases or sales of securities of
Quality
Systems within the last two years.
ANNEX
II
PROPOSED
AMENDMENTS
TO
THE AMENDED AND RESTATED BYLAWS
OF
QUALITY SYSTEMS, INC.
PROPOSAL
NO. 2 - Proposed Amendment to the Corporate Governance Provisions attached
as
Exhibit A to the Amended and Restated Bylaws of Quality Systems,
Inc.
RESOLVED,
that
the Corporate Governance Provisions that form a part of the Bylaws be, and
hereby are, amended, to provide that an independent director means that the
director has no material connection to Quality Systems other than a board seat.
For purposes of this definition, “material” is defined as a standard of
relationship (financial, personal or otherwise) that a reasonable person might
conclude could potentially influence one’s objectivity in the boardroom in a
manner that would have a meaningful impact on an individual’s ability to satisfy
requisite fiduciary standards on behalf of stockholders. For the avoidance
of
doubt, the following persons shall not be considered independent:
|
a.
|
Former
CEO of Quality Systems (including any former CEO of Quality Systems
prior
to Quality Systems’ initial public offering
(IPO));
|
|
b.
|
Former
CEO of an acquired company within the past five
years;
|
|
c.
|
Former
interim CEO if the service was longer than 18 months. If the service
was
between 12 and 18 months an assessment of the interim CEO’s employment
agreement will be made;
|
|
d.
|
Former
executive of Quality Systems, an affiliate or an acquired firm within
the
past five years;
|
|
e.
|
Executive
of a former parent or predecessor firm at the time Quality Systems
was
sold or split off from the parent/predecessor within the past five
years;
|
|
f.
|
Executive,
former executive, general or limited partner of a joint venture or
partnership with Quality Systems;
|
|
g.
|
Relative
of a current Section 16 officer of Quality Systems or its
affiliates;
|
|
h.
|
Relative
of a current employee of Quality Systems or its affiliates where
additional factors raise concern (which may include, but are not
limited
to, the following: a director related to numerous employees; Quality
Systems or its affiliates employ relatives of numerous board members;
or
employee is a non-Section 16 officer in a key strategic role);
|
|
i.
|
Relative
of a former Section 16 officer of Quality Systems or its affiliates
within
the last five years;
|
|
j.
|
Currently
provides (or a relative provides) professional services to Quality
Systems, to an affiliate of Quality Systems or an individual officer
of
Quality Systems or one of its affiliates in excess of $10,000 per
year;
|
|
k.
|
Employed
by (or a relative is employed by) a significant customer or supplier
of
Quality Systems if Quality Systems makes or receives annual payments
exceeding the greater of $200,000 or 5 percent of the recipient’s gross
revenues. (The recipient is the party receiving the financial proceeds
from the transaction);
|
|
l.
|
Has
(or a relative has) any transactional relationship with Quality Systems
or
its affiliates (excluding investments in Quality Systems through
a private
placement) if Quality Systems makes or receives annual payments exceeding
the greater of $200,000 or 5 percent of the recipient’s gross revenues.
(The recipient is the party receiving the financial proceeds from
the
transaction);
|
|
m.
|
Any
material financial tie or other related party transactional relationship
to Quality Systems;
|
|
n.
|
Party
to a voting agreement to vote in line with management on proposals
being
brought to stockholder vote;
|
|
o.
|
Has
(or a relative has) an interlocking relationship as defined by the
SEC
involving members of the board of directors or its Compensation Committee;
|
|
p.
|
Founder
of Quality Systems but not currently an employee;
and
|
|
q.
|
Is
(or a relative is) a trustee, director or employee of a charitable
or
non-profit organization that receives grants or endowments from Quality
Systems or its affiliates.
|
For
purposes of the foregoing definition of “independent
director,” relatives include spouses, parents, children, step-parents,
step-children, siblings, in-laws, and any person (other than a tenant or
employee) sharing the household of any director, nominee for director, executive
officer, or significant stockholder of Quality Systems.
QUALITY
SYSTEMS, INC.
2008
ANNUAL MEETING OF STOCKHOLDERS
THIS
PROXY IS SOLICITED BY AHMED HUSSEIN
PROXY
The
undersigned appoints and constitutes Ahmed Hussein, as attorney, agent and
proxy, with full power of substitution, to represent the undersigned and vote
all Shares of common stock of Quality Systems, Inc. (“Quality Systems” or the
“Company”) which the undersigned would be entitled to vote if personally present
at the 2008 Annual Meeting of Stockholders of Quality Systems scheduled to
be
held at the Center Club located at 650 Town Center Drive in Costa Mesa,
California 92626, on Thursday, September 4, 2008, at 2:00 p.m., Pacific Time,
and including at any adjournments, postponements, reschedulings or continuations
thereof and at any meeting called in lieu thereof (the “Annual Meeting”), upon
the matters set forth in the Proxy Statement of Ahmed Hussein and upon such
other matters as may properly come before the meeting.
The
undersigned hereby revokes any other proxy or proxies heretofore given to vote
or act with respect to the shares of common stock of Quality Systems held by
the
undersigned, and hereby ratifies and confirms all action the herein named
attorneys and proxies, their substitutes, or any of them may lawfully take
by
virtue hereof. This Proxy will be valid until the earlier of one year from
the
date indicated on the reverse side and the completion of the Annual
Meeting.
THIS
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY
THE UNDERSIGNED STOCKHOLDER. WHERE NO DIRECTION IS GIVEN, THE SHARES WILL BE
VOTED “FOR” THE ELECTION OF THE NOMINEES OF AHMED HUSSEIN NAMED IN PROPOSAL 1
AND “FOR” PROPOSALS 2 AND 3.
IF
ANY OF THE NOMINEES NAMED IN PROPOSAL 1 DECLINES OR IS UNABLE TO SERVE AS A
DIRECTOR, THE PROXY HOLDER SHALL HAVE THE AUTHORITY TO VOTE FOR ANY OTHER PERSON
WHO MAY BE DESIGNATED BY AHMED HUSSEIN AS A SUBSTITUTE.
IN
ADDITION, THIS PROXY CONFERS DISCRETIONARY AUTHORITY TO CUMULATE VOTES FOR
ANY
OR ALL OF MR. HUSSEIN’S NOMINEES FOR ELECTION AS DIRECTORS FOR WHICH AUTHORITY
TO VOTE HAS NOT BEEN WITHHELD. AS DESCRIBED IN THE PROXY STATEMENT, THE PROXY
HOLDER INTENDS TO VOTE THE PROXIES SOLICITED HEREBY IN SUCH A MANNER AS TO
PROVIDE FOR THE ELECTION OF THE MAXIMUM NUMBER OF THE NOMINEES INCLUDING,
WITHOUT LIMITATION, DETERMINING THE PRIORITIZATION OF SUCH NOMINEES.
Although
there are nine positions to be voted on at the Annual Meeting, this proxy cannot
be used to vote for more than six nominees. There is no assurance that any
of
the nominees of Quality Systems will serve as Directors if any of the Nominees
are elected to the Board. If you vote using this proxy, you will not be able
to
vote for any of the Quality Systems nominees for director.
IMPORTANT:
PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY!
CONTINUED
AND TO BE SIGNED ON REVERSE SIDE
x |
Please
mark vote as in this example
|
This
proxy, when properly executed, will be voted in the manner directed herein
by
the undersigned stockholder.
MR.
HUSSEIN RECOMMENDS A VOTE “FOR” THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL
1 BELOW.
Proposal
1
- To
elect Ahmed Hussein, Murray Brennan, M.D., Ibrahim Fawzy, Thomas R. DiBenedetto,
Joseph D. Stilwell and Edwin Hoffman, to serve as directors of Quality Systems
until the 2009 Annual Meeting of Stockholders and until their successors are
elected and qualified.
FOR
ALL
NOMINEES
|
WITHHOLD
AUTHORITY
TO
VOTE
FOR ALL
NOMINEES
|
FOR
ALL
EXCEPT
NOMINEE(S)
WRITTEN
BELOW
|
|
|
|
o
|
o
|
o
|
INSTRUCTION:
Unless
otherwise instructed, if cumulative voting is invoked, Mr. Hussein intends
to
use the discretionary authority granted by this proxy to cumulate all votes
granted by this proxy and to vote FOR Mr. Hussein, Dr. Brennan, Mr. Fawzy,
Mr. DiBenedetto, Mr. Stilwell and Mr. Hoffman. If necessary,
Mr. Hussein will prioritize among Nominees and allocate his votes as
follows: first, to Mr. Hussein; second, to Dr. Brennan; third, to Mr. Fawzy;
fourth, to Mr. DiBenedetto; fifth, to Mr. Stilwell; and sixth, to Mr. Hoffman.
NOTE:
If you
do not wish your shares voted “For” a particular Nominee, mark the “FOR ALL
EXCEPT” box and write the name(s) of the nominee(s) you do not support on the
line below. Your shares will be voted for the Nominee(s), unless otherwise
instructed below.
Write
in
below the names of any Nominees for whom authority to vote is
withheld:
Proposal
2
-
Ratification of the appointment of Grant Thornton LLP as QSI’s independent
public accountants for the fiscal year ending March 31,
2009.
|
o FOR
|
o AGAINST
|
o ABSTAIN
|
MR.
HUSSEIN RECOMMENDS A VOTE “FOR” PROPOSAL 3 BELOW, THE APPROVAL OF THE
AMENDMENT TO THE CORPORATE GOVERNANCE PROVISIONS OF THE QUALITY SYSTEMS
BYLAWS TO REPLACE THE DEFINITION OF INDEPENDENT DIRECTOR CONTAINED
THEREIN.
|
|
|
|
|
|
Proposal
3
-
To amend the Corporate Governance Provisions that are attached to
the
Quality Systems Bylaws as Exhibit A and made a part thereof to
substantially conform the definition of independent director contained
therein to the definition of independent outside director adopted
by
RiskMetrics ISS Governance
Services.
|
In
his discretion, the proxy holder is authorized to vote upon all matters incident
to the conduct of the Annual Meeting and upon such other business as may
properly come before the meeting, or any adjournments or postponements thereof,
as provided in the proxy statement provided herewith. The proxy holder may
exercise discretionary authority only as to matters unknown to Ahmed Hussein
a
reasonable time before soliciting this proxy.
|
|
(Signature)
|
|
|
|
(Signature,
if held jointly)
|
|
|
|
(Title)
|
|
NOTE:
This proxy should be signed as the name appears hereon. If Shares are held
jointly, each joint owner should sign. If signing as attorney, executor,
administrator, trustee, guardian, or in some other representative capacity,
or
as an officer of a corporation, please indicate full title and the capacity
in
which signing.
PLEASE
COMPLETE, DATE AND RETURN THIS PROXY IN THE ENCLOSED
ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.