Investors May Seek Quality Systems Sale

An investment group led by Lawndale Capital Management LLC may seek the sale of all or part of Quality Systems Inc. unless the health care information management company takes steps to improve its stock price, according to a report filed Tuesday with regulators.

The investors, who hold a 9.96% stake in Quality Systems, said they may seek such a sale if “the common stock continues to be undervalued” or if the corporate board fails to take actions to “restore and enhance” share prices. The threat, disclosed in a filing with the Securities and Exchange Commission, expands on statements made in previous regulatory filings.

The investors have criticized the Tustin-based company’s stock option plan, urged a stock buyback program and discussed with management the composition of its corporate board and the company’s acquisition strategy.

Quality Systems makes management software for medical and dental practices. Company shares rose 38 cents to $4.63 in recent trading, but the stock has declined more than 27% over the past year.

Quality Systems Chief Financial Officer Robert McGraw declined to comment, saying he hadn’t yet seen the filing.

The latest filing calls for adding an independent director representing nonmanagement shareholders or a person with industry experience.

The company also is being urged to appoint an independent chairman or independent lead director, and adopt a policy requiring board members to hold discussions at the end of every executive session without Quality Systems management present.

Lawndale may seek to participate in a potential sale “or seek to acquire control of” Quality Systems in a negotiated transaction or otherwise, the filing said.

The investor also said it may seek to run its own slate of nominees to the Quality Systems board.