Quality Systems Yields to Pressure of Shareholders

Averting what promised to be an ugly and public battle over the control and future of the company, Tustin-based Quality Systems Inc. on Friday said that it has agreed to a board composed largely of directors selected by dissident shareholders.

The company, which develops medical information systems, also said it will hire a new president, paving the way to replace current President and Chief Executive Sheldon Razin. The new president also will be chief operating officer.

Razin, who is also the company’s chairman, had engaged in a bitter feud the last two years with minority shareholders over the management and performance of the company he started in 1974.

While sales have increased every year since 1994, profits have faltered. The company’s stock also has languished, trading as low as $3.63 in March, after topping $30 in 1996. The company’s shares on Friday rose 43 cents, or 6.4%, to close at $7.13.

Friday’s announcement lifted a cloud of uncertainty that had discouraged new investors, analysts said.

“They’ve cleared the path for investors to come in and take a look,” said Justin Vaicek, an analyst with Cruttenden Roth Inc. “This generally is a positive, but it doesn’t solve all of their problems.”

The company has had difficulty digesting the acquisitions of MicroMed Healthcare Information Systems Inc. in 1997 and Clinitec International Inc. in 1996, Vaicek said.

The company said Friday that at September’s annual meeting, it will nominate a seven-member board that includes three representatives endorsed by investor Ahmed Hussein, who owns 18.5% of the company, and one selected by Lawndale Capital, a 9.9% shareholder.

The remaining three members, including Razin, are being nominated by the current board. Razin is the company’s largest shareholder, owning one-quarter of the company.

Sources close to the company said Razin had been interviewing candidates for president for at least two months. After the new president is on the job for six months, the board could elevate that person to chief executive, with Razin continuing as chairman.

“We believe the new leadership evidenced by the change in the board and management will help develop Quality Systems’ full potential,” said Andrew Shapiro, the manager of Lawndale Capital.

Razin did not return phone calls, and other company officials could not elaborate on the announcements.