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Settlement Establishing Conditions
Proposed by Shareholder (QSII 1999)
The 1999 disputes between shareholders and management of
Quality Systems, Inc., were resolved by a settlement agreement which included
governance conditions similar to those of the sample
shareholder proposal, as summarized in a July 30, 1999 press release, a copy
of which was included as "Exhibit 99.1" to an
SEC Form 8K filed August 5, 1999:
| Quality Systems, Inc. (NASDAQ: QSII) announced today that
the Board has acted to address shareholder suggestions to reorganize its
Board and adopt added corporate governance policies. The Board (1) adopted
comprehensive corporate governance principles requiring all Board
committees and three-quarters of the whole Board to be independent
directors; (2) nominated six new independent candidates, including three
candidates proposed by dissident shareholders to serve on the Company's
seven-person Board; (3) amended the Company's "poison pill" rights plan to
allow termination of the plan by shareholder vote and to exempt from the
plan any offer treating all shareholders equally and remaining open for 60
days or more. |
More specific details of the settlement are presented in the
Memorandum of Understanding copied below, included as "Exhibit B" in an
August 10, 1999 SEC Form 13D/A filing for Quality Systems, Inc..
EXHIBIT B
MEMORANDUM OF UNDERSTANDING
August 4, 1999
Ahmed Hussein and Lawndale Capital Management, LLC
("Lawndale") are
substantial shareholders of Quality Systems, Inc. (the "Company").
Sheldon Razin, Dr. John Bowers, Gordon Setran and
William Bowers (the
"Directors") are four of the six Directors of the Company, the other two
being
Patrick Cline, President of operating division of the Company, and Janet
Razin,
Sheldon Razin's wife. The Directors constitute all the members of the
Nominating Committee and the Transaction Committee of the Company's Board.
Mr. Hussein, Lawndale and the Directors believe that a
proxy contest for
control of the Company will produce an inconclusive result and will lead to
continued infighting among shareholder groups and directors and will be
destructive of shareholder values. The parties agree that shareholder
groups
should reconcile their differences by compromise and agreement and
accordingly
have reached the following understandings.
1. The Board has adopted an amendment
of the By-Laws containing
corporate
governance provisions in the form attached as Exhibit A to
this memorandum.
2. The Directors, acting as the
Nominating Committee, will nominate and
recommend to the
full Board the following candidates for election at
the Annual Meeting.
Sheldon Razin
Ahmed Hussein
Mohammed Tawfick El-Bardai
Emad A. Zikry
Dale M. Hanson
Frank Myer
William Small
Mr. Hussein and
Lawndale will support these candidates.
3. Following the annual meeting, Mr.
Hussein and Mr. Razin will each
recommend to the
Board that the Transaction Committee be composed of
Ahmed Hussein, Dale
M. Hanson, Frank Myer, and William Small, that
the Nominating
Committee be composed of Ahmed Hussein, Frank Myer,
William Small and
Mohammed Tawfick El-Bardai and that the
Compensation
Committee be composed of Ahmed Hussein, Emad A. Zikry,
Frank Myer, and
William Small.
4. A lead Director will be chosen by
the Board from among the
independent
directors. Mr. Razin will recommend to the Board (a) that
Mr. Hussein be
elected Co-Chairman of the Board, with power to
preside at Board
meetings in the absence of the Chairman but without
executive powers,
and (b) that Mr. Hussein be chosen to serve as Lead
Director.
5. The Company will immediately
commence a search for a new President
and Chief Operating
Officer.
(7 of 10)
<PAGE>
6. When a candidate acceptable
to the Board has been identified and
elected to
the position of President and Chief Operating Officer,
Mr. Razin
will continue as Chairman and CEO with the understanding
that after
six months, if the independent members of the Board deem
the new
candidate to be ready to become Chief Executive Officer, Mr.
Razin will
step down as Chief Executive Officer, although continuing
as Chairman
for a period of two years or such longer period as the
Board
requests.
7. The parties believe that the
corporate governance provisions
referred to
in Item 1 above afford substantially complete protection
to the
shareholders and accordingly Lawndale will withdraw all the
proposals it
has put forward, including the proposal formerly to
have been
included in the proxy statement and the proposals
identified in
the letter dated July 15, 1999.
8. Mr. Razin and the Directors
will recommend to the Board that the
shareholder
rights plan be terminated immediately by redemption of
the Rights.
9. If any litigation should be
initiated by any persons based on the
understandings set forth in this memorandum or the implementation of
such
understandings, the parties will use their best efforts to
cause the
Company to indemnify the parties to this memorandum and
the persons
designated herein as nominees for election to this Board
of Directors,
against any damages, costs, expenses and reasonable
attorneys'
fees incurred in the defense of any such claims or
litigation.
10. Any press releases or publicly
filed documents referring to the
understandings set forth herein will avoid negative characterization
of any party
or the policies previously followed by any party.
11. The foregoing understandings will
be implemented promptly as
follows:
a.
The Board has adopted the corporate governance provisions
b.
Adoption of the corporate governance provisions has been
publicly announced
c.
Nominating Committee nominates the "slate"
d.
Board approves "slate" and authorizes inclusion in the Company's
proxy statement for the annual meeting
e.
Board adopts resolutions for redemption of the Rights under the
rights plan
f.
Public announcement by the Company of selection of Board's
candidates, stating that the slate includes candidates proposed
by Ahmed Hussein and Lawndale Capital, starting that search for
President/COO has been commenced, stating that rights plan is
being terminated, and stating that an accord has been reached
between the Company's board and the Hussein and Lawndale groups
g.
Separate, concurrent public announcement by Ahmed Hussein that
he supports the slate
(8 of 10)
<PAGE>
h. Mr.
Hussein, Mr. Razin and Lawndale file appropriate 13D
amendments
Approved: /s/ Sheldon Razin
/s/ Andrew E. Shapiro
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Sheldon Razin
Andrew E. Shapiro, Manager
8/5/99
Lawndale Capital Management, LLC
8/6/99
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