Quality Systems, Inc.
QSII - Proxy Statement

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By jimgillies
August 1, 2005

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Good Morning Fools,

Wandering through the SEC website, I noticed that QSII has filed their preliminary proxy statement.
In the interests of sounding my own horn, as I predicted a couple of months ago, QSII is proposing its shareholders approve a new stock option plan. Then again, as this damages common shareholders, I'm not exactly happy about guessing correctly.

Apparently, the egregious grants last year, where they exhausted their old plans in a fairly rapid-fire method aren't enough, as the company is proposing a further 1.2 MM options be made available (9.3% of existing share count).

We'll have to watch how, and to who, these options are granted and vest, but I have to be blunt - further option grants to an already option-heavy management team, do not enamor me of management. For a stock I consider fully-to-over valued, I do not like management diverting value-per-share from my pocket to theirs.

Of course, what would be entertaining would be for Razin and Hussein to take opposite sides of the proxy fight. After all, in Hussein's 13-D letter of a few weeks ago, he bemoaned that Razin's hand-picked Board of Directors has been fast and loose with options, diluting existing shareholders (and since last year, he had 18.1% of the firm, and this year, he owns 17.6% - all due to option exercise, he knows firsthand about dilution more than the rest of us small fry). So we should expect him to vote against it right? I may try to contact him to suss out his feelings on this matter.

Then again, another little tidbit for consideration. The proxy statement seems to be continuing the little war between Hussein and the rest of QSII's BOD. The tattletale passage:


  Under Section 16(a) of the  Securities  Exchange Act of 1934, as amended, the  directors and officers of the Company and any person who owns more than ten percent of the  Company's  Common  Stock are  required to report  their  initial ownership  of the  Company's  Common  Stock and any  subsequent  changes in that ownership  to  the  Securities  and  Exchange  Commission ("SEC") and Nasdaq. Officers, directors, and greater than 10% shareholders are required by SEC regulations to furnish the Company with copies of all forms they file in accordance with Section 16(a).

Based solely on its review of the copies of such forms received by it, or written  representations  from  certain  reporting  persons that no Forms 5 were required for those persons,  the Company   believes that,  during the fiscal year ended March 31,  2005,  all of its  officers,  directors  and  greater  than 10% shareholders  complied with all filing  requirements  applicable to such persons with the  exception of Ahmed  Hussein who failed to file timely a Form 4 related to a grant of 7,000 options  received on February 11, 2005. Mr. Hussein's Form 4 concerning such grant was subsequently filed with the SEC on July 29, 2005.

What was it that mom used to say about playing well with others?

Or, for that matter, my wife, who has a very public profile job, and has diplomatic skills the UN would envy, says always leave an opponent a way out, or a way to save face. I cannot imagine that including this little spat between Hussein and QSII in public documents is going to foster anything but enmity going forward.

Regardless, I will be opposing this new stock option plan motion on my proxy, and would encourage other QSII shareholders to do the same.

Thanks for reading.


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