SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule
14a-12
Integral Systems, Inc.
----------------------
(Name of Registrant as Specified in Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
INTEGRAL SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 1999
TO THE STOCKHOLDERS OF INTEGRAL SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the
"Annual Meeting") of Integral Systems, Inc. (the "Company") will be held at
Patuxent Greens Country Club, located at 14415 Greensview Drive, Laurel,
Maryland at 6:00 p.m. on Tuesday, April 27, 1999, for the following purposes:
1. To elect six directors to serve for a term of one year or until their
successors are duly elected and qualified;
2. To approve an amendment to the Articles of Restatement of the Articles
of Incorporation of the Company (the "Articles of Incorporation") to
increase the number of shares of common stock of the Company, par
value $0.01 per share (the "Common Stock"), authorized in the Articles
of Incorporation to 40,000,000; and
3. To consider and transact such other business as may properly and
lawfully come before the Annual Meeting or any adjournment thereof.
All of the foregoing is more fully set forth in the Proxy Statement
accompanying this Notice.
All stockholders are cordially invited to attend the Annual Meeting in
person. IF YOU CANNOT ATTEND THE ANNUAL MEETING, PLEASE TAKE THE TIME TO
PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ENVELOPE WE HAVE
PROVIDED. If you attend the Annual Meeting and decide that you want to vote in
person, you may revoke your proxy.
By Order of the Board of Directors
/s/ Thomas L. Gough
--------------------
March __, 1999 Thomas L. Gough
Lanham, Maryland President
INTEGRAL SYSTEMS, INC.
5000 Philadelphia Way
Suite A
Lanham, Maryland 20706-4417
Annual Meeting of Stockholders
April 27, 1999
----------------------------------------------------
PROXY STATEMENT
----------------------------------------------------
Information Concerning Solicitation and Voting
General
The enclosed proxy is solicited on behalf of Integral Systems, Inc. (the
"Company") for the annual meeting of stockholders of the Company (the "Annual
Meeting") to be held at 6:00 p.m. on Tuesday, April 27, 1999, at Patuxent Greens
Country Club, located at 14415 Greensview Drive, Laurel, Maryland or any
adjournment or adjournments thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting.
These Proxy solicitation materials were mailed on or about March 30, 1999
to all stockholders entitled to vote at the meeting.
Record Date; Outstanding Shares
Only stockholders of record at the close of business on March 19, 1999 (the
"Record Date") are entitled to receive notice of and to vote at the Annual
Meeting. The outstanding voting securities of the Company as of the Record Date
consisted of _________ shares of common stock of the Company, par value $.01 per
share (the "Common Stock"). For information regarding holders of more than 5%
of the outstanding Common Stock, see "Security Ownership of Certain Beneficial
Owners and Management."
Revocability of Proxies
The enclosed Proxy is revocable at any time before its use by delivering to
the Company a written notice of revocation or a duly executed proxy bearing a
later date. If a stockholder who has executed and returned a proxy is present
at the Annual Meeting and wishes to vote in person, he or she may elect to do so
and thereby suspend the power of the proxy holders to vote his or her proxy.
Voting and Solicitation
Every stockholder of record on the Record Date is entitled, for each share
held, to one vote on each proposal or item that comes before the meeting. All
shares represented at the Annual Meeting by a proxy will be voted in accordance
with the choices specified on the proxy. If no direction is given, proxies will
be voted in accordance with the recommendations of the Board of Directors set
1
forth in this Proxy Statement. In the election of directors (Proposal 1), a
plurality of the votes cast at the Annual Meeting at which a quorum is present
is sufficient to elect a director. Thus, each stockholder will be entitled to
vote for six nominees and the six nominees with the greatest number of votes
will be elected. The proposed amendment to the Articles of Restatement of the
Articles of Incorporation of the Company (the "Articles of Incorporation")
(Proposal 2) must be approved by the affirmative vote of two-thirds of all votes
entitled to be cast on the matter.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone, telecopy or electronic mail.
Quorum; Abstentions; and Broker Non-Votes
The presence, in person or by proxy, of the holders of a majority of the
shares entitled to be voted generally at the Annual Meeting is necessary to
constitute a quorum at the Annual Meeting. An abstaining vote and a broker
"non-vote" (a broker non-vote occurs if a broker or other nominee does not have
discretionary authority and has not received instructions with respect to a
particular item) are counted as present and entitled to vote and are, therefore,
included for purposes of determining whether a quorum of shares exists. For
purposes of electing directors (Proposal 1), abstentions and broker non-votes
will not be treated as a vote cast and will not affect the outcome of such
votes. For purposes of approving the amendment to the Articles of Incorporation
(Proposal 2), abstentions and broker non-votes will have the same effect as a
negative vote.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 2000 annual meeting of stockholders must
be received by the Company no later than December 1, 1999 in order that they may
be included in the proxy statement and form of proxy relating to that meeting.
Any such proposal should be addressed to the Company's Secretary, Robert P.
Sadler, and delivered to the Company's principal executive offices at 5000
Philadelphia Way, Suite A, Lanham, Maryland 20706-4417.
Annual Report
The Company's Annual Report to Stockholders on Form 10-KSB for the fiscal
year ended September 30, 1998, is being mailed to stockholders with these Proxy
solicitation materials. A copy of the Company's Annual Report, including the
financial statements and the financial statement schedules included therein, is
also available upon written request to the Company at 5000 Philadelphia Way,
Suite A, Lanham, Maryland 20706-4417, Attn: Robert P. Sadler, Corporate
Secretary.
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ELECTION OF DIRECTORS
(Proposal 1)
General
A Board of Directors consisting of six directors is to be elected at the
Annual Meeting. Unless otherwise instructed, the proxy holders will vote all of
the proxies received by them for the Company's six nominees. The six directors
nominated for election at the Annual Meeting are: Steven R. Chamberlain, Thomas
L. Gough, Dominic A. Laiti, R. Doss McComas, Robert P. Sadler and Bonnie K.
Wachtel (collectively, the "Nominees"). In the event that any of the Nominees
shall become unavailable, the proxy holders will vote in their discretion for a
substitute nominee. It is not expected that any Nominee will be unavailable.
The Bylaws of the Company provide that the number of members of the Board
of Directors shall consist of between three and seven directors. Each director
is elected for a one-year term at each annual meeting of the stockholders.
Directors serve until the next annual meeting of stockholders or until
successors have been duly elected and qualified. Officers are elected by the
Board of Directors. Each officer holds office until his or her successor is
elected or appointed and qualified or until his or her earlier resignation or
removal.
The terms of each of the elected directors will expire at the next annual
meeting of stockholders or when their successors are elected and qualified.
The Board of Directors Unanimously Recommends That Stockholders Vote "For"
Each Of The Nominees.
Set forth below is certain information regarding the directors (including
the Nominees) and executive officers.
Directors and Executive Officers: Age Position
Steven R. Chamberlain............... 43 Chairman of the Board, Chief Executive Officer and Director
Thomas L. Gough..................... 50 President, Chief Operating Officer and Director
Robert P. Sadler.................... 48 Vice President, Quality Control, Secretary, Treasurer and
Director
Steven K. Kowal..................... 45 Vice President, Commercial Products
Steven A. Carchedi.................. 46 Vice President, Commercial Programs
Donald F. Mack, Jr.................. 45 Vice President, Integration & Test Programs
William I. Tittley.................. 55 Vice President, Asia Pacific Operations
Elaine M. Parfitt................... 35 Vice President and Chief Financial Officer
Patrick R. Woods.................... 43 Vice President, Government Programs
Bonnie K. Wachtel................... 43 Outside Director
Dominic A. Laiti.................... 67 Outside Director
R. Doss McComas..................... 44 Outside Director
Steven R. Chamberlain, 43, a Company founder, has been Chairman of the Board
since June 1992, Chief Executive Officer since June 1992, and a Director since
1982. He served as Vice President from 1982 until May 1988, and he was President
from May 1988 until June 1992. From 1978 to 1982, Mr. Chamberlain was employed
by OAO Corporation ("OAO"), where he progressed from Systems Analyst to Manager
of the Offutt Air Force Base field support office. Mr. Chamberlain
3
holds a B.S. degree in Physics from Memphis State University and has done
graduate work in Physics and Mathematics at Memphis State and the University of
Maryland.
Thomas L. Gough, 50, became a member of the Company's staff in January 1984.
In March 1996, he was elected to the Board of Directors of the Company. He has
served as President and Chief Operating Officer of the Company since June 1992.
For three years before being named President, he served as Vice President and
Chief Financial Officer. Prior to joining the Company, he was employed by
Business and Technological Systems, Inc., serving initially as a Project Leader
and later as the Software Systems Division Manager. From 1972 to 1977, he was
employed by Computer Sciences Corporation, where he progressed from Programmer
Analyst to Section Manager. Mr. Gough earned a B.S. degree from the University
of Maryland, where he majored in Information Systems Management in the School of
Business and Public Administration.
Robert P. Sadler, 48, a Company founder, has been a Director, Secretary and
Treasurer since 1982. In May 1988, he was appointed Vice President of
Administration, and in June 1992, he was appointed Vice President, Quality
Control. From 1976 to 1982, Mr. Sadler was employed by OAO, where he progressed
from Computer Analyst to Project Manager. Mr. Sadler obtained a B.S. in
Mathematics and a B.S. in Computer Sciences from Pennsylvania State University
and a M.S. in Management of Information Systems Technology from George
Washington University.
Steven K. Kowal, 45, a Company founder, has been with the Company since
1982. In May 1988, Mr. Kowal was appointed Vice President of Engineering
Manufacturing, and in May 1998, he was appointed Vice President, Commercial
Products. Mr. Kowal is the Chairman of the Board of Integral Marketing, Inc., a
wholly-owned subsidiary of the Company. From 1979 to 1982, he was employed by
OAO, where he was a Manager of Hardware Development on several of OAO's major
systems. Mr. Kowal holds a B.S. degree in Electrical Engineering from the
University of Delaware.
Steven A. Carchedi, 46, joined the Company in 1991 and has been Vice
President of Commercial Programs since 1994. Before joining the Company as a
full-time employee in 1991, Mr. Carchedi worked with the Company for two years
as an independent business development consultant. Previously, he worked for
Computational Engineering, Inc., where he held positions as a Mathematician,
Program Manager, Corporate Director and Vice President of Business Development.
Mr. Carchedi holds a B.S. degree in Mathematics from Wake Forest University and
a M.A. degree in Mathematics from the University of Maryland.
Donald F. Mack, Jr., 45, joined the Company in 1986 and has been Vice
President, Integration and Test Programs since May 1998. In July 1989, he was
appointed Vice President of Engineering. He is currently developing new business
areas for the Company. From 1979 to 1986, Mr. Mack was employed by General
Electric Corporation's Space Systems Division, where he progressed from Design
Engineer to Senior Project Supervisor for systems development. Mr. Mack holds a
B.S. degree in Electrical Engineering from Northeastern University and a M.S.
degree in Electrical Engineering from Johns Hopkins University.
William I. Tittley, 55, joined the Company in 1992, performing as Project
Manager on the first EPOCH 2000 sale to the Chinese Government. In March 1995,
Mr. Tittley was appointed Vice President, Asia Pacific Operations, to oversee
the Company's operations and business development in that region. Formerly, Mr.
Tittley was with OAO (from 1977 through 1992), where he performed duties as
Director of Space Systems Programs in charge of the technical and financial
direction of aerospace programs. Mr. Tittley holds a B.S. equivalent in
Aerospace Vehicle Design from the Academy of Aeronautics (State University of
New York), and has pursued graduate studies in Astronomy at the University of
Maryland and in Engineering at the California Coast University.
4
Elaine M. Parfitt, 35, joined the Company in 1983. She served as Staff
Accountant/Personnel Administrator until January 1995, when she was promoted to
Controller/Director of Accounting. In March 1997, Ms. Parfitt was appointed Vice
President and Chief Financial Officer. She holds a B.S. degree in Accounting
from the University of Maryland.
Patrick R. Woods, 43, joined the Company in 1995 and has been Vice
President, Government Programs, since May 1998 and has been Vice President, NOAA
Programs, since 1996. From 1994 to 1995, he worked for Space Systems/Loral
(SS/L), and from 1985 to 1994, he worked for the Lockheed Martin Corporation
(formerly Loral Aerospace). Mr. Woods served as the Director of Mission
Operations for both SS/L and the AeroSys Division of Loral Aerospace. While at
Loral Aerospace, Mr. Woods received the NASA Public Service Group Achievement
Award from NASA Administrator Admiral Richard Truly for his management of the
Hubble Space Telescope control center development and launch support. Mr. Woods
holds a B.S. in Public Administration and a M.P.A. in Public Management from
Indiana University.
Bonnie K. Wachtel, 43, has served as an outside director since May 1988.
Since 1984, she has been Vice President, General Counsel and a Director of
Wachtel & Co., Inc., an investment-banking firm in Washington, D.C. Ms. Wachtel
serves as a Director of several corporations, including VSE Corporation and
Information Analysis, Inc. She holds a B.A. and M.B.A. from the University of
Chicago and a J.D. from the University of Virginia, and she is a Certified
Financial Analyst.
Dominic A. Laiti, 67, has served as an outside director of the Company since
July 1995. Mr. Laiti is presently employed as an independent consultant and was
President and Director of Globalink, Inc. from January 1990 to December 1994. He
has over 26 years of experience in starting, building, and managing high-
technology private and public companies with annual revenues from $2 million to
over $120 million. Mr. Laiti was President of Hadron, Inc. from 1979 to 1989,
Vice President of Xonics, Inc. from 1972 to 1979, and Vice President of KMS
Industries from 1968 to 1972. He is a former Director of United Press
International, Saturn Chemicals Company, Hadron, Inc., Telecommunications
Industries, Inc., MAXXAM Technology, Inc. and Jupiter Technology, Inc.
R. Doss McComas, 44, joined the Board as an outside director in July 1995.
He is President of Integrated Wireless Systems, Inc., a manufacturer and
integrator of cellular and wireless local loop systems. Previously, he held
positions with COMSAT RSI, including Chairman of its divisions, Equity
Investments and Plexsys International, Vice President of Acquisitions, Strategic
Planning and International Marketing, as well as General Counsel. He holds a
B.A. degree from Virginia Polytechnic Institute, an M.B.A. from Mt. Saint
Mary's, and a J.D. from Gonzaga University.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than 10% of the Company's Common Stock, to file reports of ownership
and changes in ownership of the Company's Common Stock with the Securities and
Exchange Commission and Nasdaq. Based solely on a review of the copies of such
reports submitted to the Company during and with respect to the Company's most
recent fiscal year and written representations from the reporting persons that
no other reports were required, the Company believes that during the most recent
fiscal year and prior fiscal years (except as previously disclosed in prior
proxy statements) its executive officers, directors and greater
5
than ten percent stockholders filed on a timely basis all reports due under
Section 16(a) of the Exchange Act.
Board of Directors and Committees
The Board of Directors met four (4) times in the fiscal year ended September
30, 1998. Each of the directors attended at least 75% of all meetings of the
Board of Directors. The Company has an Audit Committee, a Stock Option
Committee and a Compensation Committee. The Audit Committee and the Stock
Option Committee held their meetings concurrently with the meetings of the Board
of Directors. The Board of Directors formed the Compensation Committee on May
8, 1998, which committee thereafter met concurrently with the meetings of the
Board of Directors. The Company does not have a nominating committee.
The Audit Committee, Compensation Committee and Stock Option Committee are
comprised of Dominic A. Laiti, R. Doss McComas and Bonnie Wachtel, each a non-
employee director. Prior to May 8, 1998, the Stock Option Committee was
comprised of Bonnie K. Wachtel and Thomas L. Gough.
The Stock Option Committee administers the Company's 1988 Stock Option
Plan, as amended and restated effective May 8, 1998 (the "Stock Option Plan").
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plan and results of the audit engagement, reviews the independence of the
Company's public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls. The
Compensation Committee determines the salary and bonus for the Chief Executive
Officer, and makes recommendations regarding compensation levels for other
officers of the Company.
Director Compensation
Directors who are employees of the Company do not receive any compensation
for their service as directors. The Company pays each director who is not an
employee of the Company $5,000 per year for their services. Directors are
granted stock options pursuant to the Stock Option Plan. Bonnie K. Wachtel was
granted options to purchase 30,000 shares of Common Stock under the Stock Option
Plan in fiscal 1998 at an exercise price of $4.88 per share, to vest ratably
over a five (5) year period.
5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of January 31, 1999, by (i) each
person known by the Company to beneficially own more than five percent of the
outstanding shares of Common Stock, (ii) each Nominee, director and executive
officer of the Company and (iii) all executive officers and directors as a
group. Except as indicated, the persons named in the table have sole voting and
investment power with respect to all shares beneficially owned. Except as
indicated, the address of each of the persons named in the table is that of the
Company's principal executive offices.
Name and Address of Beneficial Owner Amount and Nature of Percent of
- ------------------------------------ Beneficial Owner of Class
-------------------- -----------
Executive Officers, Directors, and Nominees
Steven R. Chamberlain 433,718 (1) 7.2%
Thomas L. Gough 175,600 (2) 3.0%
Robert P. Sadler 258,818 (3) 4.4%
Elaine M. Parfitt 14,400 (4) *
Donald F. Mack, Jr 46,100 (5) *
Steven K. Kowal 224,076 (6) 3.8%
Steven A. Carchedi 125,628 (7) 2.1%
William I. Tittley 8,800 (8) *
Patrick Woods -- *
Bonnie K. Wachtel 38,400 (9) *
1101 Fourteenth Street, N.W.
Suite 800
Washington, D.C. 20036
Dominic A. Laiti 24,000(10) *
12525 Knoll Brook Drive
Clifton, Va. 22024
R. Doss McComas 24,000(11) *
409 Biggs Drive
Front Royal, Va. 22630
All Directors and Executive Officers as a group
(12 persons). 1,373,540 22.3%
* Less than one percent of the Common Stock outstanding.
(1) Includes outstanding options to purchase 83,478 shares of Common Stock which
are exercisable within 60 days.
(2) Includes outstanding options to purchase 16,000 shares of Common Stock which
are exercisable within 60 days.
(3) Includes outstanding options to purchase 1,878 shares of Common Stock which
are exercisable within 60 days. Includes 228,760 shares Mr. Sadler holds
with his wife and 3,900 shares held as trustee for his children.
(4) Includes outstanding options to purchase 1,500 shares of Common Stock which
are exercisable within 60 days.
(5) Includes outstanding options to purchase 6,000 shares of Common Stock which
are exercisable within 60 days.
(6) Includes outstanding options to purchase 15,000 shares of Common Stock which
are exercisable within 60 days.
(7) Includes outstanding options to purchase 59,628 shares of Common Stock which
are exercisable within 60 days.
(8) Includes outstanding options to purchase 7,000 shares of Common Stock which
are exercisable within 60 days.
(9) Includes outstanding options to purchase 12,000 shares of Common Stock which
are exercisable within 60 days.
(10) Includes outstanding options to purchase 24,000 shares of Common Stock
which are exercisable within 60 days.
(11) Includes outstanding options to purchase 24,000 shares of Common Stock
which are exercisable within 60 days.
7
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents certain information concerning compensation
earned for services rendered in all capacities to the Company for the fiscal
years ended September 30, 1996, 1997 and 1998 by the Chief Executive Officer and
each of the other four most highly compensated executive officers of the Company
whose salaries and bonuses exceeded $100,000 (the "Named Officers").
Summary Compensation Table
Annual Compensation Long-Term Compensation
=========================== =========================================
Awards Payouts
---------------- -----------------------
Number of
Shares
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation/(1)/
- -------------------------------- --------- ------------- ------------ ---------------- -----------------------
Chief Executive Officer
Steven R. Chamberlain 1998 $140,120 $30,000 0 $13,847
1997 $117,088 $13,000 0 $11,639
1996 $114,179 $14,000 90,000 $11,486
Chief Operating Officer and
President
Thomas L. Gough 1998 $125,251 $20,000 0 $12,357
1997 $106,242 $11,000 0 $10,508
1996 $101,581 $ 8,000 60,000 $10,061
Vice President, Commercial
Programs
Steven A. Carchedi 1998 $122,432 $20,000 0 $11,092
1997 $103,701 $11,000 0 $10,136
1996 $ 97,771 $12,000 60,000 $ 9,572
Vice President, Commercial
Products
Steven K. Kowal 1998 $119,672 $12,000 0 $11,711
1997 $102,257 $10,000 0 $10,001
1996 $ 97,771 $ 9,000 24,000 $ 9,572
Vice President, Government
Programs
Patrick R. Woods (2) 1998 $117,284 $15,000 0 $12,382
1997 $104,857 $ 8,000 0 $ 9,674
1996 $ 68,950 $ 5,000 0 $ 4,824
_________________
(1) All Other Compensation represents employer pension contributions. It does
not include the value of insurance premiums paid by or on behalf of the
Company with respect to term life insurance for the benefit of each
identified individual in the approximate amounts of $479, $472 and $463 in
fiscal 1998, 1997 and 1996, respectively.
(2) Partial Year at the Company in 1996.
8
Option Grants in Last Fiscal Year
There were no stock options or stock appreciation rights granted to any
Named Officer during the fiscal year ended September 30, 1998.
Fiscal Year 1998 Stock Option Exercises and Year-End Option Values
Patrick R. Woods exercised an option to purchase 1,200 shares of the
Company's Common Stock during the fiscal year ended September 30, 1998. No
other Named Officer exercised options during the fiscal year ended September 30,
1998.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
- ---------------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options at Sept. 30, "In-the-Money" Options at Sept.
Acquired on Value 1998 30, 1998 (1)
Exercise Realized --------------------------------------------------------------------
Name (#) (#) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
Steven R. 0 0 83,478 51,522 $1,012,236 $606,774
Chamberlain
- ---------------------------------------------------------------------------------------------------------------------------
Thomas L. Gough 0 0 22,000 36,000 $ 254,870 $417,060
- ---------------------------------------------------------------------------------------------------------------------------
Steven A. Carchedi 0 0 104,628 27,372 $1,361,691 $324,189
- ---------------------------------------------------------------------------------------------------------------------------
Steven K. Kowal 0 0 15,000 9,000 $ 178,800 $107,280
- ---------------------------------------------------------------------------------------------------------------------------
Patrick R. Woods 1,200 (2) $11,075 0 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------
(1) Value for "In the Money" options represents the difference between the
exercise prices of outstanding options and the fair market value of the
Company's Common Stock of $15.50 per share at September 30, 1998.
(2) Reflects the 2-for-1 stock split effective as of June 25, 1998.
Employment Agreements
There are no employment agreements in effect with respect to any directors or
executive officers of the Company.
Compensation Pursuant to Plans
The Compensation Committee determines the annual bonuses and salary awarded to
Steven R. Chamberlain. The Compensation Committee also makes recommendations
regarding compensation levels for other officers of the Company to Steven R.
Chamberlain, who determines the annual bonuses and salaries awarded to such
officers on a discretionary basis. Currently, no formal plan exists for
determining bonus amounts. Prior to the formation of the Compensation
Committee, the functions currently performed by such committee were performed by
the Board of Directors as a whole.
Effective October 1, 1987, the Company established a 401(k) pension and profit
sharing plan under Section 401 of the Internal Revenue Code. Under such pension
and profit sharing plan, the Company contributes annually an amount equal to 5%
of an eligible employee's salary and may make additional contributions of up to
7.5% of an eligible employee's salary. The employee may contribute up to an
additional 10% as salary deferral. In each of fiscal years 1998 and 1997, the
Company contributed a total of 11% of eligible employees' salaries to both
plans.
9
Stock Option Plan
Effective May 25, 1988, the Company established the Stock Option Plan, as
amended and restated in 1994 and 1998, to create additional incentives for the
Company's employees, consultants and directors to promote the financial success
of the Company. The Stock Option Committee has the authority to select full-
time employees, directors or consultants to receive awards of options for the
purchase of stock of the Company under this plan. The maximum number of shares
of Common Stock which may be issued pursuant to the Stock Option Plan was
increased from 1,200,000 to 1,800,000 during fiscal year 1998. Options to
purchase a total of 98,308 shares of Common Stock were granted and options to
purchase 115,080 shares of Common Stock were exercised during fiscal year 1998.
The total number of shares of Common Stock subject to options issued and
outstanding as of December 31, 1998 were 949,122. Pursuant to the Stock Option
Plan, options may be incentive stock options within the meaning of Section 422
of the Internal Revenue Code or nonstatutory stock options, although incentive
stock options may be granted only to employees.
Termination of Employment and Change of Control Termination
The Company has no compensatory plan or arrangement with respect to any
individual named in the Summary Compensation Table which results or will result
from the resignation, retirement or any other termination of such individual's
employment with the Company or its subsidiaries or from a change in control of
the Company or a change in the individual's responsibilities following a change
in control.
AMENDMENT OF ARTICLES OF INCORPORATION
(Proposal 2)
The Board of Directors is requesting stockholder approval of an amendment to
Article Four of the Company's Articles of Incorporation to increase the number
of shares of Common Stock authorized for issuance by the Company from 10,000,000
to 40,000,000 shares (the "Charter Amendment"). As of the Record Date,
___________ shares of the Company's Common Stock were issued and outstanding.
The Board of Directors has determined that it is advisable and in the best
interests of the Company to have additional shares of Common Stock available for
issuance. The Board of Directors believes that the proposed increase in the
number of shares of Common Stock authorized for issuance is desirable because
such an increase will enhance the Company's flexibility in connection with
possible future actions by the Company, such as stock splits, stock dividends,
financings, acquisitions or actions for other corporate purposes. The Board of
Directors has approved the adoption of the Charter Amendment, subject to
stockholder approval at the Annual Meeting.
If the Charter Amendment is adopted, the additional shares of Common Stock
authorized for issuance as a result of such amendment may be issued by direction
of the Board of Directors at such times, in such amounts, for such
consideration, and upon such terms as the Board of Directors may determine,
without further approval of the stockholders, unless in any specific instances
such approval is expressly required by regulatory agencies or otherwise.
Approval of the Charter Amendment by the stockholders could have an anti-
takeover effect, because additional shares of Common Stock could be issued
(within the limits imposed by applicable law) in one or more transactions that
could make a change in control or takeover of the Company more difficult. While
it may be deemed to have potential anti-takeover effects, the proposed Charter
Amendment is not prompted by any specific effort or takeover threat currently
perceived by management, and management does not presently
10
intend to propose other anti-takeover measures. Additional shares could be
issued by the Company to persons who might side with the Board of Directors in
opposing a takeover bid that the Board determines is not in the best interests
of the Company and its stockholders. Such an issuance could diminish the voting
power of existing stockholders who favor a change in control, and the ability to
issue the shares could discourage an attempt by another person or entity to
acquire control of the Company since the issuance of new shares of Common Stock
could be used to dilute the stock ownership of such person or entity. The Board
of Directors believes that the Charter Amendment would enable the Board of
Directors to use its discretion to protect stockholder value.
In addition, the issuance of additional shares of Common Stock would dilute
the existing stockholders' equity interest in the Company. Stockholders of the
Company have no preemptive rights to purchase additional shares. The Board of
Directors would carefully consider the potential benefits and detriments should
it contemplate any dilutive issuance of stock.
The affirmative vote of two-thirds of the shares of Common Stock entitled to
vote on this proposal at the Annual Meeting is required for approval of the
Charter Amendment.
The Board of Directors Unanimously Recommends Voting "FOR" An Amendment To The
Articles Of Incorporation To Increase The Number Of Shares Of Common Stock
Authorized To 40,000,000.
OTHER MATTERS
There is no reason to believe that any other business will be presented at the
Annual Meeting; however, if any other business should properly and lawfully come
before the Annual Meeting, the proxies will vote in accordance with their best
judgment in such matters pursuant to discretionary authority granted in the
proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Thomas L. Gough
--------------------
March __, 1999 Thomas L. Gough
Lanham, Maryland President and Chief Operating Officer
PROXY CARD
INTEGRAL SYSTEMS, INC.
5000 Philadelphia Way
Suite A
Lanham, Maryland 20706-4417
The undersigned hereby appoints Elaine Parfitt and Albert Alderete, or
either of them, as proxies with full powers of substitution, to vote all shares
of the Common Stock of Integral Systems, Inc. (the "Company") which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held on April 27, 1999 (the "Annual Meeting") and at any
adjournment thereof, upon the items described in the Proxy Statement. The
undersigned acknowledges receipt of notice of the meeting and the Proxy
Statement.
A. PROPOSAL BY THE COMPANY FOR THE ELECTION OF DIRECTORS (PROPOSAL NO. 1)
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY for
(except as marked to the contrary below) all nominees listed below
Nominees: Steven R. Chamberlain, Thomas L. Gough, Dominic A. Laiti, R.
Doss McComas, Robert P. Sadler and Bonnie K. Wachtel.
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
PRINT THAT NOMINEE(S)'S NAME:
B. PROPOSAL BY THE COMPANY TO AMEND THE ARTICLES OF RESTATEMENT OF THE ARTICLES
OF INCORPORATION OF THE COMPANY TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK AUTHORIZED TO 40,000,000 SHARES (PROPOSAL NO. 2)
FOR AGAINST ABSTAIN
[_] [_] [_]
C. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
FOR AGAINST ABSTAIN
[_] [_] [_]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE. YOU MAY ALSO RETURN A COPY OF THIS PROXY CARD TO THE COMPANY BY
FACSIMILE, BUT YOU MUST ALSO RETURN THE EXECUTED PROXY CARD IN THE ENCLOSED
ENVELOPE. THE COMPANY'S FACSIMILE NUMBER IS 301-731-9606.
This Proxy, when properly executed, will be voted as directed herein. If no
instructions are given, the shares represented by this proxy will be voted
"FOR" all of the nominees and proposals set forth in proposals No. 1 and No. 2
and in the discretion of the proxy holders as to other Business.
Please date and sign this proxy exactly as your name appears hereon.
______________________________ ______________________________
Number of Shares Print Name
______________________________ ______________________________
Date Signature of Owner
Additional Signature of Joint Owner (if any)
If stock is jointly held, each joint owner
should sign. When signing as attorney-in-
fact, executor, administrator, trustee,
guardian, corporate officer or partner,
please give full title.
March 5, 1999
To our Stockholders:
By any measure, 1998 was the best year in the 16 year history of Integral
Systems. I'd like to take a few moments to review our accomplishments last
year, and to discuss where the company is headed in 1999.
1998 Highlights
- ---------------
Fiscal 1998 was a year of dramatic growth. Revenues were up 40%, from $20.1
million in fiscal 1997 to $28 million in 1998. Net income rose even faster, up
200% from $630,000, or $0.11 per share, in 1997 to $1.9 million, or $0.33 per
share, in 1998. The bottom line is growing faster than the top line because we
are improving our margins on every component of revenue, including license
sales, services, and equipment pass-throughs.
The balance sheet is equally healthy: Our long-term debt is less than $1
million and shareholders' equity increased 38%, from $6.6 million in 1997 to
$9.1 million in 1998. Likewise, our sales and marketing effort really paid off
last year, as contract backlog jumped 65%, from $26 million at the end of 1997
to nearly $43 million at the end of 1998. This is the largest backlog in
corporate history.
Shareholder value continues to be at the top of our agenda. Our stock price was
up 185% for the 1998 calendar year, which compares quite favorably with the
Russell 2000 (-3%), the NASDAQ composite index (40%), and the Dow Jones
Industrial Average (16%). Our financial growth and our stock performance have
generated interest in the company from institutional investors and from the
media, including an article in a mid-November Investor's Business Daily that
showcased our COTS (commercial-off-the-shelf) solutions and financial
performance. The following month, the cover story of the Washington Post's
Monday business section focused on technology stocks in the greater Washington
area, with Integral Systems and America Online cited as the only two area
technology companies to be ranked in the top 10 for the strongest returns over
five-, three-, two-, and one-year periods. In the same month, The Red Chip
Review and Fechtor, Detwiler & Co. both instituted coverage of our stock with
"buy" recommendations, so the investment community has greater visibility into
our stock than ever before.
1999 Outlook
- ------------
Our goals for 1999 are simple:
. Keep expanding our market share in the satellite command and control segment
. Leverage our core technology into other related markets
. Continue the trend of strong revenue growth with even stronger earnings
growth
The EPOCH software product line continues to be the cornerstone of our long-
range plans. In fact, it is no exaggeration to say that all of our sales these
days are tied to EPOCH either directly or indirectly. Therefore, we will be
developing a new version of the product line for Windows NT this year. This
will help maintain our technical advantage over the competition, and let us
continue to ship software if Windows replaces UNIX as the operating system of
choice for command and control applications.
The EPOCH technology can be applied to several space market sectors in addition
to command and control. On October 1, 1998, we formed a new P&L (profit & loss)
center at Integral Systems--the I&T (Integration and Test) Division. This
division will focus on selling EPOCH software and EPOCH-based systems to
satellite and payload manufacturers for use during the pre-launch assembly and
test phase. The I&T division hit the ground running and has already received
contracts amounting to several million dollars. We have every reason to expect
that this will be a significant and lucrative new market for our
products. The bottom line is that we are planning for growth across the board
in all three business units: Commercial, Government, and I&T.
I'd like to close with a request that you give special consideration to one of
the items in the enclosed proxy--namely, increasing the number of authorized
shares from 10 million to 40 million. Please note that this has no effect on
the numbers of shares actually issued, merely the number authorized. This
change has the unanimous endorsement of the Board of Directors and is essential
to our long-range plans. First and foremost, it gives us an opportunity to
acquire other companies on a stock-for-stock basis (i.e., no cash) should such
acquisition opportunities arise. There are potential acquisitions out there
which could make it easier for us to sell our software in new markets. Second,
it gives us room to split the stock again should we ever need to. And if we
stay on our growth projections, we may need to sooner rather than later--which
would be a nice problem to have.
Best wishes for 1999,
/s/
Steven R. Chamberlain
Chairman and Chief Executive Officer
INTEGRAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 1998 and 1997
Twelve Months Ended Three Months Ended
September September
1998 1997 1998 1997
----------------- --------------- ---------------- ------------------
(unaudited) (unaudited)
Revenue $28,035,506 $20,058,984 $7,717,533 $5,883,407
Total Cost of Revenue 20,676,602 16,019,803 5,680,525 4,716,324
----------------- --------------- ---------------- ------------------
Gross Margin 7,358,904 4,039,181 2,037,008 1,167,083
----------------- --------------- ---------------- ------------------
Operating Expenses
General and Administrative 3,047,042 2,303,294 1,024,498 646,010
Product Amortization 660,000 660,000 165,000 165,000
Offering Expenses 378,110 0 339,759 0
----------------- --------------- ---------------- ------------------
Total Operating Expenses 4,085,152 2,963,294 1,529,257 811,010
----------------- --------------- ---------------- ------------------
Income from Operations 3,273,752 1,075,887 507,751 356,073
----------------- --------------- ---------------- ------------------
Other Income (Expense) (166,925) (63,715) (1,228) (18,575)
----------------- --------------- ---------------- ------------------
Income Before Income Taxes 3,106,827 1,012,172 506,523 337,498
----------------- --------------- ---------------- ------------------
Income Taxes 1,197,801 383,343 193,555 138,268
----------------- --------------- ---------------- ------------------
Net Income $ 1,909,026 $ 628,829 $ 312,968 $ 199,230
================= =============== ================ ==================
Weighted Average Number of
Common Shares Outstanding
During Period (post split) 5,793,433 5,718,060 5,834,184 5,713,596
================= =============== ================ ==================
Earnings Per Share $0.33 $0.11 $0.05 $0.03
================= =============== ================ ==================
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