EXHIBIT 1
MEMORANDUM OF UNDERSTANDING
August 4, 1999
▇▇▇▇▇ ▇▇▇▇▇▇▇ and Lawndale Capital Management, LLC
("Lawndale")are substantial shareholders of Quality Systems, Inc. (the
"Company").
▇▇▇▇▇▇▇ ▇▇▇▇▇, Dr. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇▇▇▇ (the "Directors") are four of the six Directors of the Company,
the other two being ▇▇▇▇▇▇▇ ▇▇▇▇▇, President of an operating division
of the Company, and ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇'▇ wife. The Directors
constitute all the members of the Nominating Committee and the
Transaction Committee of the Company's Board.
▇▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ 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:
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ El-▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ will support these candidates.
3. Following the annual meeting, ▇▇. ▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ will
each recommend to the Board that the Transaction Committee be
composed of ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, and
▇▇▇▇▇▇▇ ▇▇▇▇▇, that the Nominating Committee be composed of
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
El-▇▇▇▇▇▇ and that the Compensation Committee be composed of
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, and ▇▇▇▇▇▇▇ ▇▇▇▇▇.
4. A lead Director will be chosen by the Board from among the
independent directors. ▇▇. ▇▇▇▇▇ will recommend to the Board
(a) that ▇▇. ▇▇▇▇▇▇▇ 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
▇▇. ▇▇▇▇▇▇▇ be chosen to serve as Lead Director.
5. The Company will immediately commence a search for a new
President and Chief Operating Officer.
6. When a candidate acceptable to the Board has been identified
and elected to the position of President and Chief
Operating Officer, ▇▇. ▇▇▇▇▇ 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, ▇▇. ▇▇▇▇▇ 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 ▇▇▇▇▇▇▇▇ 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. ▇▇. ▇▇▇▇▇ 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 person 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 the 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 ▇▇▇▇▇ ▇▇▇▇▇▇▇ and
Lawndale Capital, stating 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 ▇▇▇▇▇▇▇ and Lawndale groups
g. Separate, concurrent public announcement by ▇▇▇▇▇
▇▇▇▇▇▇▇ that he supports the slate
h. ▇▇. ▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇ and Lawndale file
appropriate 13D amendments