UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934
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Preliminary Proxy
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Confidential, for Use of the
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Definitive Proxy
Statement
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Definitive Additional
Materials
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Soliciting Material Pursuant to
§240.14a-12
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Quality
Systems, Inc.
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
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August 22, 2008
Dear
Fellow Shareholder:
Our
September 4 annual meeting of shareholders is less than two weeks away and we
are writing to urge you to take critical action to protect the value of your
investment in Quality Systems. Please vote the enclosed WHITE proxy card FOR our
director nominees TODAY.
Continued
Financial Momentum
As we have
told you in prior letters, our management team, led by our new CEO Steven
Plochocki, and our incumbent director nominees have a proven history of
producing outstanding financial performance for you, Quality Systems’
shareholders.
This
performance is continuing: in our fiscal 2009 first quarter ended June 30, 2008,
we delivered a 31% increase in net revenues
– a record level – and a 38% increase in fully
diluted earnings per share, each over the comparable
period last year. Additionally, we are pleased to tell you that your Board of
Directors, which includes our incumbent director nominees, increased the quarterly cash
dividend on our stock by 20% to $0.30 per share, with an
anticipated distribution date of October 1, 2008 for shareholders of record as
of September 15,
2008.
We urge
you to support the leadership team that has helped lead your company’s
outstanding growth, and has a clear strategy to build upon it in the future.
Vote FOR all listed nominees:
Patrick Cline, Vincent Love, Russell Pflueger, Steven Plochocki,
Sheldon Razin, George Bristol, Philip Kaplan and Robert Smith on the enclosed WHITE proxy card.
Looming
Threat: Hussein’s Grab for Control
We have
told you in prior letters that Quality Systems is at a critical point in its
history. Ahmed Hussein, a dissident shareholder, is asking you to elect his
slate of six nominees to our Board of Directors. If he is successful, that group
of directors, led by Mr. Hussein, would effectively seize control of your
company. It is clear to us that this group does not have a plan to grow your
company. In fact, Mr. Hussein actually admitted as much in his most recent
letter to shareholders. That is why we believe very strongly that if Mr. Hussein
gains control of the Board, the positive momentum that we have worked so hard to
build would slow significantly and the value of your investment in Quality
Systems would be in serious
jeopardy.
He is also
asking you to approve a change to our corporate bylaws to alter the definition
of an independent director. This is nothing but a “power grab” on Mr. Hussein’s
part and an effort to exert undue influence on the company through different
means. The change in our corporate bylaws proposed by Mr. Hussein would minimize
the influence of Sheldon Razin, our independent Chairman, while increasing Mr.
Hussein’s own influence. We believe that this goal – rather than any principled
idea about corporate governance – is Mr. Hussein’s motivation for proposing the
amendment. Our long-term shareholders may remember what it was like the last
time Mr. Hussein possessed such undue power in the Boardroom – from 1999 to
2002, when he served as lead director and appointed himself chairman of all of
the Board’s committees, making it difficult for the Board’s independent
directors to exercise proper oversight over the company.
Ahmed
Hussein: History of Destroying Value
You may
recently have received Mr. Hussein’s proxy materials, including letters in which
he spins an elaborate tale of imagined grievances going back more than a decade.
The tone and substance of these letters provide some indication of what Mr.
Hussein is like as a director: argumentative, oblivious to the facts and without
a single concrete idea as to how to add value to your Company. For those who are
interested we have posted on our website at www.qsi2008proxy.com
fact sheets and supplemental materials pointing to some of the
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18111
Von Karman Avenue • Suite 600 • Irvine, California 92612
tel.
949.255.2600 • fax 949.255.2605 •
www.qsii.com
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Who
is Ahmed Hussein?
For all of
their bluster, Mr. Hussein’s proxy materials have remarkably little to say about
the man himself, his personal and business experience and his plan for the
company. When you learn a bit more about him, you can understand his reticence
on these subjects. A close examination of his record reveals an undistinguished
career and documented examples of value destruction and untrustworthy
behavior.
A
Churning Broker: Mr. Hussein has spent most of his career not as an
“investment banker,” as he claims, but as
a commissioned account representative: in other words, a broker. During the
1980s and into the 1990s he bounced from firm to firm, sometimes leaving
voluntarily, other times being fired. One incident is particularly illuminating:
a case in which he was fined
and sanctioned by the American Stock Exchange as a result of mishandling an account under his
control at Prudential Bache. Some details:
An elderly
couple opened a discretionary account with Prudential Bache over which Mr.
Hussein, the couple’s broker, exercised discretionary authority. Mr. Hussein was
given $2.4 million to manage and invest. Less than four years after the account
was opened, only $69,000 remained and the account was liquidated. During that
time, Mr. Hussein used his discretionary authority to make 1,224 purchases and
sales of securities, generating $1.9 million in commissions and more than $2
million in margin charges. Of those transactions, 200 were purchases and sales
of the same security in a
single day and 700 were purchases and sales of the same security within a
30-day period.
As a
result, Prudential Bache felt compelled to settle the lawsuit brought by the
elderly couple against it and Mr. Hussein for $2.5 million and Mr. Hussein was
fined and suspended for mishandling the account by the American Stock Exchange,
which charged him with:
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Abusing his
discretionary authority by effecting excessive transactions in violation
of Exchange rules;
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Engaging in conduct
inconsistent with just and equitable principles of trade, by
misrepresenting the status of the customer account and failing to follow
specific customer instructions to close the account in violation of
Exchange rules; and
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Willfully engaging
in a course of fraudulent conduct by excessively trading and churning the
customer's account, misrepresenting the status of the account to the
customer and providing the customer with materially false and misleading
information about the status of the account in violation of the federal
securities laws.
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The SIMO
Debacle: Here
is another example of Mr. Hussein’s value-destroying history, one that he conveniently
leaves off his biographical information. In April 1998, Mr. Hussein became
chairman of SIMO, a successful Egyptian paper manufacturer. Mr. Hussein
controlled 55% of SIMO and was a director of the company at the time. According
to a report provided by the CARANA Corporation to the United States Agency for
International Development:
“During the ensuing months [of Mr.
Hussein’s tenure], corporate governance and industrial relations problems
engulfed the company…The
company’s financial position deteriorated to the extent that its employees were
not being paid their basic monthly wage during certain periods of 1998, leading
to a tense atmosphere between the employees and the company’s major shareholder
[Mr. Hussein]…The tense atmosphere and the deteriorating financial position of
the company reached a climax at the end of 1998 at a time when the company’s
internal problems could not be resolved between its major shareholders, senior
management and the employees.”
Ultimately,
Egyptian authorities took action that suspended SIMO’s Board of Directors
and removed Mr. Hussein
from his position as chairman.
Act NOW to
Protect Your Investment
We believe
very strongly that these examples clearly show that Mr. Hussein destroys value when he
is in control.
Now, Mr. Hussein is asking you to hand control of Quality Systems to him and his
hand-picked nominees, saying it is
not important that he have a strategy to grow your investment, only that he
“oversee” the company’s management. Enclosed you will find a letter detailing
exactly how the company’s top 10 executives feel about that idea. In addition to
“harassing management,” our top executives note that Mr. Hussein’s disruptive
behavior has been destructive to shareholder value and made it difficult to
execute on the company’s strategic plan. Only you can prevent this
from happening again.
Our
corporate by-laws provide for cumulative voting, which will allow Mr. Hussein to
remain on our Board. While we accept that he is entitled to a Board seat,
continued minority representation is much different than giving Mr. Hussein and his nominees control
of your company.
We strongly urge you to do
the following on the WHITE proxy card TODAY:
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Proposal 1: Vote
FOR all listed
nominees: Patrick Cline, Vincent Love, Russell Pflueger, Steven Plochocki,
Sheldon Razin, George Bristol, Philip Kaplan and Robert
Smith.
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Proposal 2: Vote
FOR the
ratification of the appointment of Grant Thornton LLP as independent
public accountants.
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Proposal 3: Vote
AGAINST Mr.
Hussein’s proposal to amend our
bylaws.
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We also
urge you to discard any proxy card that you receive from Mr.
Hussein.
QUALITY
SYSTEMS IS YOUR
COMPANY AND THE FUTURE
OF
THIS SUCCESSFUL ENTERPRISE IS IN YOUR
HANDS
If
you have any questions or need assistance in voting your WHITE proxy card we
encourage you to call our proxy advisers, MacKenzie Partners, Inc., Toll-Free at
(800) 322-2885 or (212) 929-5500 or by email at
qualitysystems@mackenziepartners.com
Thank you
for your support. We look forward to continuing to communicate with you in the
coming weeks.
Sincerely,
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Patrick
Cline
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Philip
Kaplan
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Vincent
Love
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Russell
Pflueger
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Steven
Plochocki
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Sheldon
Razin
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This
letter is to be distributed to shareholders on or about August 22,
2008.
SAFE
HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS:
Statements
made in this letter, the proxy statements filed with the Securities and Exchange
Commission (“Commission”), communications to shareholders, press releases and
oral statements made by our representatives that are not historical in nature,
or that state our or management’s intentions, hopes, beliefs, expectations or
predictions of the future, may constitute “forward-looking statements” within
the meaning of Section 21E of the Securities and Exchange Act of 1934, as
amended. Forward-looking statements can often be identified by the use of
forward-looking terminology, such as “could,” “should,” “will,” “will be,” “will
lead,” “will assist,” “intended,” “continue,” “believe,” “may,” “expect,”
“hope,” “anticipate,” “goal,” “forecast,” “plan,” or “estimate” or variations
thereof or similar expressions. Forward-looking statements are not guarantees of
future performance.
Forward-looking
statements involve risks, uncertainties and assumptions. It is important to note
that any such performance and actual results, financial condition or business,
could differ materially from those expressed in such forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, the risk factors discussed under “Risk Factors” in our Annual Report
on Form 10-K for fiscal year ended March 31, 2008, as well as factors discussed
elsewhere in this and other reports and documents we file with the Commission.
Other unforeseen factors not identified herein could also have such an effect.
We undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
in future operating results, financial condition or business over time unless
required by law. Interested persons are urged to review the risks described
under “Risk Factors” and in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our Annual Report on Form 10-K for
fiscal year ended March 31, 2008, as well as in our other public disclosures and
filings with the Commission.
On August
4, 2008, Quality Systems filed its definitive proxy statement and began the
process of mailing its definitive proxy statement, together with a WHITE proxy card. Shareholders
are strongly advised to read Quality System’s proxy statement as it contains
important information. Shareholders may obtain an additional copy of Quality
System’s definitive proxy statement and any other documents filed by Quality
Systems with the Commission for free at the Internet website maintained by the
Commission at www.sec.gov.
Copies of Quality Systems proxy materials may be requested by contacting
our proxy solicitor, MacKenzie Partners, Inc. at (800) 322-2885
toll-free or by email at qualitysystems@mackenziepartners.com. Detailed information
regarding the names, affiliations and interests of individuals who are
participants in the solicitation of proxies of Quality System's shareholders is
available in Quality System's definitive proxy statement filed with the
Commission on August 4, 2008.