SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(AMENDMENT NO. 9)
Quality Systems, Inc.
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
747582104
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(CUSIP Number)
Paul W. Sweeney, Esq.
KIRKPATRICK & LOCKHART PRESTON GATES ELLIS LLP
10100 Santa Monica Boulevard
Seventh Floor
Los Angeles, CA 90067
(310) 552-5000
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(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
May 27, 2008
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box. [ ]
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
1. NAME OF REPORTING PERSONS Ahmed Hussein
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
3. SEC USE ONLY
4. SOURCE OF FUNDS PF
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
2(d) OR 2(e)
6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States and Egypt
7. SOLE VOTING POWER
4,651,600*
8. SHARED VOTING POWER
0
9. SOLE DISPOSITIVE POWER
4,651,600*
10. SHARED DISPOSITIVE POWER
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,651,600*
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.62% (based on 27,392,965 shares of Common Stock outstanding on December
19, 2007, according to the Company's Quarterly Report on Form 10-Q filed
with the SEC on February 7, 2008).
14. TYPE OF REPORTING PERSON
IN
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*Includes options to purchase 44,000 shares.
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INTRODUCTION
This Amendment No. 9 ("Amendment No. 9") amends Amendment No. 8 to the Schedule
13D filed with the Securities and Exchange Commission on July 30, 2007
("Amendment No. 8") by Ahmed Hussein (the "Reporting Person") relating to the
shares of common stock, par value $.01 per share (the "Common Stock"), of
Quality Systems, Inc., a California corporation (the "Company") in the following
respects:
ITEM 4. PURPOSE OF TRANSACTION
In Amendment No. 8, the Reporting Person disclosed his concerns about the
structure of the Board of Directors of the Company (the "Board") and the
corporate governance of the Company under the control of the Chairman. In 2006,
the Reporting Person indicated to the Company that he 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 the Reporting Person 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, the Reporting Person 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 his
pending litigation, which was then on appeal, with the Company concerning the
election of directors in connection with the 2005 annual meeting. Prior to
entering into the Settlement Agreement, the Reporting Person told the Company,
that the Reporting Person had the following expectations as a result of the
Settlement Agreement:
1) removal of the 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 was drafted by the Company's lawyers. The Reporting
Person entered into the Settlement Agreement in good faith. After the new Board
was elected pursuant to the Settlement Agreement, the Reporting Person believes
that the Chairman's interpretation of the Settlement Agreement was to allow
himself total control of the independent directors' committees and the ability
to keep present counsel and to engage other counsel of his choosing.
The Reporting Person's advisors informed the Company's lawyers that the
interpretation of the Settlement Agreement by the Chairman, supported by
management and the directors he had nominated to the Board, was unreasonable and
inconsistent with the Reporting Person's announced intentions when he entered
into the Settlement Agreement.
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The Reporting Person's advisors explained that, if accepted, the Chairman's
interpretation of the Settlement Agreement would have meant that the Reporting
Person would have given up his claims against the Chairman and other directors
involved in exchange for no material consideration. Obviously, that was not the
Reporting Person's intention. The Reporting Person's advisors further pointed
out that any ambiguity in the interpretation of the Settlement Agreement must be
resolved in the Reporting Person's favor, as a matter of law, since the
Company's lawyers were the ones who drafted the Settlement Agreement.
The Company described its understanding of the terms of the Settlement Agreement
in its Proxy Statement filed with the Securities and Exchange Commission on July
9, 2007. The Company's interpretation of the Settlement Agreement is
substantially different from the understanding of the Reporting Person when he
entered into the Settlement Agreement. The Reporting Person disputed (and
continues to dispute) the Company's interpretation. In order to resolve the
dispute, the Reporting Person offered to enter into binding arbitration with the
Company. The Company did not respond in any material fashion to the offer of
binding arbitration nor did it provide the Reporting Person with all of the
information he and other minority directors requested.
The Reporting Person remains concerned about the corporate governance of the
Company and the structure of the Board of Directors. One of the Reporting
Person's concerns is the Company's legal counsel. The lawyer that the Reporting
Person intended to be removed as the Company's counsel under the Settlement
Agreement was not removed. Instead, he continued to work for the Company and
assumed the various responsibilities of corporate counsel, Board counsel, and
general counsel. The lawyer also acted as corporate secretary. To the Reporting
Person's knowledge, even though he assumed these various roles, the lawyer has
no written contract with the Company that defines his relationship to the
Company or spells out his duties and responsibilities. The lawyer has also
represented the Chairman and other Board members and was involved in the
formation of a Special Committee that continues to operate after the Settlement
Agreement, and the Reporting Person believes that that seems designed to prevent
the Reporting Person from raising any corporate governance issues. The Special
Committee lacks transparency and fails to divulge its minutes to the other
members of the Board. The Reporting Person believes that the Special Committee
operates in direct conflict with open governance and functions autonomously
without any supervision by the rest of the Board of the Directors. It is an
example of the need for a balanced Board and balanced committees as well as
impartial legal counsel.
Despite the Reporting Person's efforts, The Reporting Person believes that the
Board minutes continue to be inaccurate, incomplete, and misleading. These
minutes are not acceptable to the Reporting Person and to the directors that the
Reporting Person has nominated to the Board. A call to tape or stenograph the
meeting minutes was rejected by the Board. The Chairman, supported by management
and the directors he nominated to the Board, refused to allow the minority
shareholders an expression of their views to be added to the minutes in writing.
The Chairman and his directors have also refused to allow the Reporting Person's
lawyer to attend certain meetings of the Board.
It is the Reporting Person's opinion that even if taken at face value, the
minutes of the Board meetings amply demonstrate:
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1) The Board's inability to govern the Company or oversee management,
given the control by the Chairman over the independent directors.
Change in management favored by almost all the independent directors,
and that was even promised by the Chairman, was not implemented. The
Chairman said that it was not the right time to do so, but gave no
rationale for his change of mind and no time table.
2) The inability of the Board to address the status of the Chairman's
independence, independently of the Chairman. The Reporting Person and
the directors who were nominated by him realize the Chairman's actions
are totally inconsistent with the Chairman's claim of the status of an
independent director. They called for an independent evaluation of the
status of the Chairman. The Board has refused, and continues to
refuse, to address the issue in any material way.
3) The Chairman on numerous occasions acted in a controlling, executive
fashion without the Board's knowledge. The Chairman's actions are
totally inconsistent with his claim of independence. Management and
the directors nominated to the Board by the Chairman acted zealously
to cover up for the Chairman's actions.
4) Correspondence by the Reporting Person and others raising the issue of
the Chairman's independence and his executive actions was attacked on
a personal level by one of the directors nominated by the Chairman.
This particular director attacked other directors' competence,
integrity, and motives in raising governance issues.
This particular director alleged that the Reporting Person violated
certain laws when the Reporting Person chaired the Audit Committee of
the Company.
The Reporting Person explained to the directors that they legally
could not allow such an unfounded accusation and that they had to
investigate this director's claims in order to safeguard the Company
and to satisfy disclosure requirements if there are grounds for such
unfounded accusation. The Chairman and those directors he nominated to
the Board voted against requiring this director to disclose the
alleged basis of his unfounded accusation. Instead of receiving
reasonable answers, the Reporting Person received some threats from
this director and from the Special Committee discussed above.
5) The agenda of the Board meetings and minutes are controlled. The Board
meetings are conducted by the Chairman to allow no viable dissent. 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 the
Reporting Person to be out of order, refusing to let him speak,
refusing to answer his questions, and threatening to eject him from
Board meetings and from the Board. The lawyers for the Reporting
Person received hostile correspondence from the lawyer representing
the Special Committee.
6) The Company failed to develop a coherent strategy and business plan
approved by the Board. The Reporting Person fails to understand the
business justification or underlying concepts for the budget approved
by the Board.
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7) Failure to meet performance targets is not addressed in a material way
by the Board. Instead, the Board is willing to increase equity
compensation for management, as described below.
8) The Board fails to discuss why the Company headquarters, its legal
representation and its board and committee meetings are held in Orange
County, California, when in excess of 90% of the business is on the
East Coast.
In fiscal year 2007, the independent directors voted 4-3, in favor of awarding
management significantly more options ten months into the fiscal year without
changing the previously set business goals to be met by management. The
Chairman, who the Reporting Person as well as other directors believe should
clearly not be considered independent, cast the deciding vote.
The Reporting Person believes that:
1) Disclosure to the shareholders of this change in management's compensation
was unsatisfactory because it was lacking in clarity. The Reporting Person 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
projections.
2) The growth of the Company has suffered from abuse of governance. The
Reporting Person and the directors that he nominated to the Board, felt concern
about the legality of changing the number of options awarded to management ten
months into the year.
The Reporting Person believes that the Chairman has recently solicited a major
transaction for the Company, and involved at least one member of management. The
Chairman's actions appear to have spanned three or four months without informing
the Board or the Transaction Committee. There was no prior discussion by the
Transaction Committee or the Board about the possibility of such a transaction.
The directors did not question the Chairman's apparent unilateral actions and
hastily responded by forming a Special Committee composed of the Chairman, the
CEO of the Company, the President of the NextGen Healthcare Information Systems
division, and another director, to handle the transaction. The Reporting Person
considers the formation of this committee to handle this particular transaction
to be a clear violation of the Bylaws of the Company.
The new Special Committee employed lawyers and other professionals. The Special
Committee did not give progress reports when asked. The Reporting Person
understands now that the potential transaction has been aborted. The Reporting
Person is still trying to evaluate the possible damage this event may have
caused.
The Company's lawyers consistently denied information requested by the Reporting
Person or his lawyers, which the Reporting Person feels is necessary to fulfill
his fiduciary responsibilities and to protect his interests and the interest of
shareholders, other than the Chairman.
In another recent transaction, the Board authorized the President of NextGen to
act as the Transaction Committee of the Board over strong objection by the
Reporting Person, as the chair of the Transaction Committee. The President of
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NextGen proceeded to conclude a transaction that was hastily rubber stamped by
the Transaction Committee and the Board.
The Reporting Person, as well as the directors who were nominated to the Board
by the Reporting Person, believes that the transaction was conducted by
management and improperly supervised by the Chairman. While the Chairman, the
CEO of the Company, and the President of NextGen had ample opportunity to
conduct their due diligence, other members of the Board, including the Reporting
Person as the Chairman of the Transaction Committee, were denied the ability to
fulfill their fiduciary function.
The transaction was ultimately consummated at an extremely large multiple of the
unaudited 2007 EBITDA. Company management justified the transaction based on
unusually high expectations for performance in 2008 but nevertheless paid over
90% of the maximum possible price up front. Ancillary costs for employee
retention contracts plus incentive options will be incurred in addition to the
sale price.
The final vote by the Board was 5-3 with management, the Chairman, and two of
his nominees voting for the transaction that was not overseen in any material
way by the independent directors. The transaction did not have the approval of
the majority of the independent directors of the Company at the board meeting,
where the transaction was approved.
The Reporting Person believes that the Chairman's executive and controlling
actions are totally inconsistent with his claim of being an independent
director.
The Chairman is the chair of the Nominating Committee. The Chairman will be
controlling the nominating process. The Reporting Person does not plan to
support the slate of directors nominated by the Company.
The Reporting Person holds the Common Stock for investment. The Reporting Person
does not have any present plan or proposal that would relate to or result in any
of the matters set forth in subparagraphs (a) - (j) of Item 4 of Schedule 13D,
except as set forth herein. The Reporting Person intends to review his
investment in the Company on a continuing basis. Depending on various factors
including, without limitation, the Company's financial performance and his
investment strategy, the price levels of the Common Stock, conditions in the
securities markets and general economic and industry conditions, future
developments at the Company, his views of the manner in which the Company is
governed in the future, and he may in the future take such actions with respect
to his investment in the Company as he deems appropriate including, without
limitation:
o continuing to hold his shares for investment;
o purchasing additional shares of Common Stock;
o selling some or all of his shares;
o commencing legal proceedings against certain directors of the Company;
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o continuing to call on the present independent directors of the Company to
investigate the Chairman's independence, independently of the Chairman;
o continuing to call on the Company's directors to tape or stenograph the Board
meetings or to assign the job of corporate secretary to a neutral third party
acceptable to all directors;
o pursuing discussions with other shareholders and third parties regarding
alternatives for corporate governance involving the Company or to maximize
shareholder value therein;
o seeking to change the composition of and/or seek further representation on
the Board and solicit proxies or written consents from other shareholders of the
Company; or
o changing his intention with respect to any and all matters referred to in
this Item 4.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: May 27, 2008.
/s/ Ahmed Hussein
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Ahmed Hussein