Quality Systems Shareholder Seeks Change

The third-largest shareholder of Tustin-based Quality Systems Inc. will seek to install a majority of independent directors on the company’s board in an effort to bring about substantial changes, according to regulatory documents filed Thursday.

San Francisco-based Lawndale Capital Management LLC, which controls nearly 10% of the company’s stock, has long been critical of Quality Systems, which develops and markets proprietary health care information systems for medical and dental group practices.

“We believe the company and its assets are grossly undervalued by the marketplace,” said Andrew Shapiro, manager of Lawndale Capital.

“Our filings and its exhibits illustrate particular circumstances that have occurred at this company at the hands of management that has been held unaccountable by a sleeping board of directors that has turned off Wall Street to the company’s market valuation,” he said.

Lawndale, which has owned shares in the company intermittently since 1994, may also call for a special meeting of shareholders to consider changes in the board’s composition as well as new rules on electing members and on how they communicate with each other.

Company officials did not return calls for comment.

Founder and Chief Executive Sheldon Razin is chairman of the seven-member board; his wife, Janet, is a vice president and secretary. Together they own nearly a quarter of the company.

Another board member is affiliated with a Quality Systems customer. One director has been on the board since the corporation went public in 1982.

The company’s stock has fallen more than 50% since then, Lawndale said in its filing.

At the annual meeting in September, more than 25% of shareholders voted to “withhold” on the reelection of the company’s board, an unusually high figure in what is generally a routine matter.

The filing is the latest effort by Lawndale to force changes. Last month, the investment firm said it may seek the sale of all or part of the company unless management takes steps to improve the stock price. That filing also called for Quality Systems to add an independent director to the board.

Previously, Lawndale urged the company to launch a stock buyback program.

The company’s stock rose 13% Thursday to $4.25.