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:
[ ] Preliminary Proxy Statement [ ]Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] 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.
[X]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 JUNE 30, 1998
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" or "ISI"), will be
held at Patuxent Greens Country Club, located at 14415 Greensview Drive,
Laurel, Maryland at 6:00 p.m. on Tuesday, June 30, 1998, for the following
purposes:
1. To elect six directors to serve for a term of one year, or, if Proposal
No. 3(a) is adopted by the stockholders, for the staggered terms specified in
the enclosed proxy statement, or until their successors are duly elected and
qualified;
2. To ratify the appointment of Rubino & McGeehin, Chartered as independent
accountants of the Company for the fiscal year ending September 30, 1998; and
3. To approve the following amendments to the Articles of Amendment and
Restatement of the Company's Articles of Incorporation (the "Articles of
Incorporation"):
(a) to provide for staggered terms for the members of the Board of
Directors, to provide that Directors be removed only for cause and then only by
the affirmative vote of the holders of at least 67% of the aggregate combined
voting power of all classes of capital stock entitled to vote in the election
of directors, and to require the approval of the holders of at least 67% of
all the shares of the Company entitled to vote thereon to amend the bylaws to
change the number of directors (the "Staggered Board Amendment");
(b) to provide for the authorization of 1,000,000 shares of series
preferred stock, par value $0.01, for which the Board of Directors shall have
the power to classify or reclassify such stock in one or more series (the "
Series Preferred Stock Amendment").
4. To approve an amendment to the Company's 1988 Stock Option Plan, as
amended and restated January 1, 1994 (the "Stock Option Plan"), to increase
the number of shares of the Company's common stock, par value $0.01 ("Common
Stock") available for issuance thereunder by 300,000 shares to a total of
900,000 shares and allow for a "cashless" exercise of stock options issued
after such amendment, among other changes.
5.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/
June 9, 1998 Thomas L. Gough
Lanham, Maryland President
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<PAGE>
INTEGRAL SYSTEMS, INC.
5000 Philadelphia Way
Suite A
Lanham, Maryland 20706-4417
Annual Meeting of Stockholders
June 30, 1998
PROXY STATEMENT
Information Concerning Solicitation and Voting
General
The enclosed proxy is solicited on behalf of Integral Systems, Inc. (the
"Company" or "ISI") for the annual meeting of stockholders (the "Annual
Meeting") to be held at 6:00 p.m. on Tuesday, June 30, 1998, 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 June 9, 1998
to all stockholders entitled to vote at the meeting.
Record Date; Outstanding Shares
Only stockholders of record at the close of business on June 9, 1998
(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 2,906,688 shares of Common Stock, $0.01
par value (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 person 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 forth in this Proxy
Statement. In the election of directors, 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 ratification of the independent auditors for the
Company for the current year (Proposal 2) and approval of the amendment
to the 1988 Stock Option Plan (Proposal 4) will require the affirmative
vote of a majority of the votes cast by the stockholders present in
person or by proxy and entitled to vote at the Annual Meeting. The
proposed amendments to the Company's Articles of Incorporation (Proposal
3) 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; 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), ratification of the selection of the Company's independent auditors
(Proposal 2) and approval of the amendment to the 1988 Stock Option Plan
(Proposal 4), abstentions and broker non-votes will not be treated as a
vote cast and will not effect the outcome of such votes. For purposes
of approving the amendments to the Articles of Incorporation (Proposal
3), 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 1999 annual meeting of
stockholders must be received by the Company no later than February 9,
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 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, which includes its Annual
Report on Form 10-KSB for the fiscal year ended September 30, 1997, was
previously provided to stockholders. A copy of the Company's Annual
Report is also available upon written request to the Company at 5000
Philadelphia Way, Suite A, Lanham, Maryland 20706-4417, Attn: Corporate
Secretary.
</PAGE>
<PAGE>
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. Officers are elected by the Board of Directors. Each
officer holds office until his successor is elected or appointed and
qualified or until his earlier resignation or removal.
Proposal 3(a) as contained in the Proxy Statement would amend the
Company's Articles of Amendment and Restatement to the Company's
Articles of Incorporation (the "Articles of Incorporation") to provide
for staggered three (3) year terms for the members of the Board of
Directors (the "Staggered Board Amendment"). If the Staggered Board
Amendment is approved by the stockholders, the Directors who are elected
shall fill the terms as designated below:
Class I Directors: Dominic A. Laiti, Robert P. Sadler
Class II Directors: Thomas L. Gough, R. Doss McComas
Class III Directors: Steven R. Chamberlain, Bonnie K. Wachtel
Class I Directors' terms would expire at the 1999 annual meeting of
stockholders; Class II Directors' terms would expire at the 2000 annual
meeting of stockholders; and Class III Directors' terms would expire at
the 2001 annual meeting of stockholders. In the event that the
Staggered Board Amendment is not approved, 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 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 42 Chief Executive Officer and
Chairman of the Board of Directors
Thomas L. Gough 49 President, Chief Operating Officer
and Director
Robert P. Sadler 47 Vice President, Quality Control,
Secretary, Treasurer and Director
Steven K. Kowal 44 Vice President, Engineering
Manufacturing
Steven A. Carchedi 46 Vice President of Commercial Systems
Donald F. Mack, Jr. 44 Vice President of Engineering
William I. Tittley 54 Vice President of Asia Pacific
Operations
</PAGE>
Directors and Executive Officers: Age* Position
Elaine M. Parfitt 34 Vice President and Chief Financial
Officer
Patrick R. Woods 43 Vice President of NOAA Programs
B. Clark Austin 44 Vice President, Marketing and Sales,
Commercial Systems
Bonnie K. Wachtel 42 Director
Dominic A. Laiti 66 Director
R. Doss McComas 43 Director
* As of March 31, 1998.
Steven R. Chamberlain, 42, a Company founder, has been Chairman of the
Board since June 1992, Chief Executive Officer since June 1992 and
President from May 1988 to June 1992, and a Director since 1982. He
served as Vice President from 1982 until he became President. 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 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.
Mr. Chamberlain is married to Kimberly A. Chamberlain who was the
Company's Vice President and Chief Financial Officer until her
resignation in February 1997.
Thomas L. Gough, 49, became a member of ISI's staff in January 1984. In
March 1996, he was elected to the Board of Directors of ISI, having
served as President and Chief Operating Officer since June 1992. For
three years before being named President, he served as Vice President
and Chief Financial Officer. Prior to joining ISI, 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, 47, a Company founder, has been a Director, Secretary
and Treasurer since 1982. In May 1988, he was appointed Vice President
of Administration; 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, 44, a Company founder, has been with ISI since 1982.
In May 1988, he was appointed Vice President of Engineering
Manufacturing. Mr. Kowal is the Chairman of the Board of Integral
Marketing, Inc., a wholly-owned subsidiary of ISI. From 1979 to 1982,
Mr. Kowal 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 is Vice
President of Commercial Systems. Before joining ISI 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.
</PAGE>
<PAGE>
Donald F. Mack, Jr., 44, joined the Company in 1986. In July 1989, he
was appointed Vice President of Engineering. From 1979 to 1986, Mr. Mack
was employed by General Electric Corporation's Space Systems Division as
Design Engineer and promoted 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, 54, joined the Company in 1992, performing as
Project Manager on the EPOCH 2000 sale to the Chinese Government. In
March 1995, Mr. Tittley was made 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 engaged in graduate studies in Astronomy from the University of
Maryland, and Engineering from the California Coast University.
Elaine M. Parfitt, 34, 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 is the Vice
President of NOAA Programs. 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 hold a B.S. in Public Administration and a M.P.A. in Public
Management from Indiana University.
B. Clark Austin, 44, joined the Company in 1998, and is Vice President,
Marketing and Sales, Commercial Systems. Before joining ISI, Mr. Austin
was a founder of TSI Telsys Corp., where as a corporate officer and held
positions as Director of Sales and Vice President, Sales and Marketing.
Mr. Austin holds an A.A. Degree in Aviation Administration from Mesa
College and has studied Business Administration at University of San
Diego.
Bonnie K. Wachtel, 42, 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, DC.
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 is a Certified Financial Analyst.
Dominic A. Laiti, 66, was elected Director of the Company in 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 dollars. 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.
</PAGE>
<PAGE>
R. Doss McComas, 43, joined the Board in July 1995. Since 1982, he has
held various positions with COMSAT RSI, a business unit of COMSAT,
supplying products and services to the wireless, satellite, air traffic
control and other specialized markets worldwide. These positions
included General Counsel, Vice President of Acquisitions, Strategic
Planning and International Marketing, as well as Group Vice President
responsible for the COMSAT's international operations. Currently, Mr.
McComas is Chairman and Chief Executive Officer of Plexsys
International, a COMSAT RSI equity investment. He holds a B.A. degree
from Virginia Polytechnic Institute, a 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 and written
representations from the reporting persons that no other reports were
required, the Company believes that during the fiscal years ended
September 30, 1997 and 1996 its executive officers, directors and
greater than ten percent stockholders filed on a timely basis all
reports due under Section 16(a) of the Exchange Act, with the following
exceptions: Steven Chamberlain, a director and executive officer of the
Company, inadvertently filed late a Form 4 for January 1997 reporting
one transaction and a Form 5 for fiscal 1996 reporting two transactions;
Thomas Gough, a director and executive officer of the Company,
inadvertently filed late a Form 5 for fiscal 1996 reporting one
transaction; Robert Sadler, a director and executive officer of the
Company, inadvertently filed late a Form 4 for June 1997 reporting two
transactions and a Form 5 for fiscal 1996 reporting one transaction;
Steven Kowal, an executive officer of the Company, inadvertently filed
late a Form 4 for June 1997 reporting one transaction and a Form 5 for
fiscal 1996 reporting one transaction; Steven Carchedi, an executive
officer of the Company, inadvertently filed late a Form 5 for fiscal
1996 reporting two transactions; Elaine Parfitt, an executive officer of
the Company, inadvertently filed late a Form 3; William Tittley, an
executive officer of the Company, failed to file a Form 5 for fiscal
1996 reporting one transaction; Donald Mack, an executive officer of the
Company, failed to file a Form 5 for fiscal 1996 reporting one
transaction.
Board of Directors and Committees
The Board of Directors met four times in the fiscal year ended September
30, 1997. Each of the directors attended at least 75% of all meetings
of the Board of Directors except for Robert P. Sadler. 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 a Compensation Committee on May 8, 1998. 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 1988 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 independent 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 and makes recommendations
regarding compensation levels for other officers of the Company.
</PAGE>
<PAGE>
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 1988
Stock Option Plan.
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 March 31, 1998,
by (i) each person known by the Company to beneficially own five percent
or more 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. The address of the stockholders
listed below as beneficially owning more than five percent of the Common
Stock is that of the Company's principal executive offices. The persons
named in the table have sole voting and investment power with respect to
all shares beneficially owned. Except as indicated, the addresses of
the persons named in the table are that of the Company.
Name and Addresses Amounts and Nature Outstanding
of Ownership Shares
Steven R. Chamberlain 196,645(1) 6.70%
Thomas L. Gough 85,550(2) 2.90%
Robert P. Sadler 122,959(3) 4.20%
Elaine M. Parfitt 7,200(4) *
Donald F. Mack, Jr. 22,300(5) *
Steven K. Kowal 110,038(6) 3.80%
Steven A. Carchedi 63,564(7) 2.15%
William I. Tittley 6,525(8) *
Patrick Woods 0 *
B. Clark Austin 0 *
Bonnie K. Wachtel 16,000(9) *
1101 Fourteenth Street, N.W.
Suite 800
Washington, D.C. 20005-5680
Dominic A. Laiti 9,000(10) *
12525 Knolls Brook Drive
Clifton, VA 22024
R. Doss McComas 9,000(11) *
999A Shenandoah Shores Road
Front Royal, VA 22630
</PAGE>
<PAGE>
Name and Addresses Amounts and Nature Outstanding
of Ownership Shares
All Directors and Executive
Officers as a group
(13 persons) 649,281 21.40%
*Less than one percent of the Common Stock outstanding.
(1) Includes outstanding options to purchase 33,525 shares of Common
Stock which are exercisable within 60 days.
(2) Includes outstanding options to purchase 5,000 shares of Common
Stock which are exercisable within 60 days.
(3) Includes 112,930 shares which Mr. Sadler holds with his wife. Also
includes outstanding options to purchase 939 shares of Common
Stock which are exercisable within 60 days.
(4) Includes outstanding options to purchase 750 shares of Common Stock
which are exercisable within 60 days.
(5) Includes outstanding options to purchase 2,250 shares of Common
Stock which are exercisable within 60 days.
(6) Includes outstanding options to purchase 7,500 shares of Common
Stock which are exercisable within 60 days.
(7) Includes outstanding options to purchase 50,064 shares of Common
Stock which are exercisable within 60 days.
(8) Includes outstanding options to purchase 5,625 shares of Common
Stock which are exercisable within 60 days.
(9) Includes outstanding options to purchase 3,000 shares of Common
Stock which are exercisable within 60 days.
(10) Includes outstanding options to purchase 9,000 shares of Common
Stock which are exercisable within 60 days.
(11) Includes outstanding options to purchase 9,000 shares of Common
Stock which are exercisable within 60 days.
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, 1995, 1996 and 1997 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").
</PAGE>
<PAGE>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards Payouts
Number of
Shares
Name and Principal Underlying
Position Year Salary Bonus Options All Other
Compensation(1)
Steven Chamberlain 1997 $117,088 $13,000 0 $11,639
Chief Executive Officer 1996 $114,179 $14,000 0 $11,486
1995 $108,577 $14,000 0 $10,502
Thomas L. Gough 1997 $106,242 $11,000 0 $10,508
President 1996 $101,581 $8,000 30,000 $10,061
1995 $98,048 $11,000 0 $9,318
Steven A. Carchedi 1997 $103,701 $11,000 0 $10,136
Vice President, 1996 $97,771 $12,000 30,000 $9,572
Commercial Systems 1995 $94,926 $12,000 6,000 $8,944
Steven K. Kowal 1997 $102,257 $10,000 0 $10,001
Vice President, 1996 $97,771 $9,000 12,000 $9,572
Engineering Manufacturing 1995 $94,926 $9,500 0 $8,944
William I. Tittley 1997 $101,966 $31,623(2) 0 $8,784
Vice President, 1996 $98,891 $26,456(2) 3,000 $10,684
Asia Pacific Operations 1995 $96,050 $7,000 15,000 $9,046
(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 at $472, $463 and $325 in 1997, 1996 and
1995, respectively.
(2) Includes Overseas Assignment Bonuses of $26,623 and $19,956 in
1997 and 1996, respectively.
Option Grants in Last Fiscal Year
No stock option grant was made to any Named Officer for the fiscal year
ended September 30, 1997.
Fiscal 1997 Stock Option Exercises and Year-End Option Values
No Named Officer exercised options during the fiscal year ended
September 30, 1997.
</PAGE>
<PAGE>
Aggregate Option Exercises and Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised "In-the-Money" Options
Options at September 30, 1997 at September 30, 1997(1)
Name Exercisable Unexercisable Exercisable Unexercisable
Steven R. Chamberlain 31,275 36,225 $109,947 $99,820
Steven A. Carchedi 44,814 21,186 $238,640 $69,265
Thomas L. Gough 6,000 24,000 $13,770 $55,080
Steven K. Kowal 6,000 6,000 $17,730 $17,730
William Tittley 5,250 5,250 $20,201 $20,201
(1) Value for "in-the-money" options represents the positive spread
between the exercise price of outstanding options and the fair market
value of $10.125 on September 30, 1997.
Employment Agreements
There are no employment agreements in effect with respect to any
directors or executive officers of the Company.
Compensation Pursuant to Plans
ISI's Board of Directors determines the annual bonuses and salary
awarded to Steven R. Chamberlain. Steven R. Chamberlain determines the
annual bonuses and salaries awarded to other executive officers on a
discretionary basis. Currently no formal plan exists for determining
bonus amounts.
Effective October 1, 1987, the Company established a 401(k) pension and
profit sharing plan under Section 401 of the Internal Revenue Code.
Under the 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 fiscal years
1997 and 1996, the Company contributed a total of 11% of eligible
employees' salaries to both plans.
Stock Option Plan
Effective May 25, 1988, ISI established a stock option plan, as amended
and restated in 1994 (the "Stock Option Plan"), 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 under
this plan. The maximum number of shares of Common Stock which may be
issued pursuant to the stock plan was increased from 150,000 to 600,000
during fiscal year 1994. Options to purchase a total of 19,512 shares
of Common Stock were issued and options to purchase 4,853 shares of
Common Stock were exercised during fiscal year 1997. Total shares
subject to options issued and outstanding as of March 31, 1998 are
487,575. Pursuant to the Stock Option Plan, options may be incentive
stock options within the meaning of Section 422 of the Code or
nonstatutory stock options, although incentive stock options may be
granted only to employees.
</PAGE>
<PAGE>
The Board of Directors is seeking stockholder approval of, and
recommends that the stockholders approve, an amendment to the Stock
Option Plan which would, among other changes increase the number of
shares subject to options under the Stock Option Plan from 600,000 to
900,000 shares. See Proposal 4.
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.
RATIFICATION OF THE APPOINTMENT OF RUBINO & McGEEHIN, CHARTERED
AS INDEPENDENT ACCOUNTANTS
(Proposal 2)
Management has selected Rubino & McGeehin, Chartered as the independent
accountants to audit the books, records and accounts of the Company for
the current fiscal year ending September 30, 1998. Rubino & McGeehin,
Chartered has audited the Company's financial statements since 1984.
A representative of Rubino & McGeehin, Chartered is expected to be
present at the Annual Meeting and will have the opportunity to make a
statement, and will be available to answer questions from stockholders.
The Board Of Directors Recommends A Vote "FOR" Ratification Of The
Appointment Of Rubino & McGeehin, Chartered As The Company's Independent
Accountants.
AMENDMENT OF ARTICLES OF INCORPORATION
(Proposal 3)
Each subsection of Proposal 3, including the Staggered Board Amendment and the
Series Preferred Stock Amendment, should be voted on as separate and distinct
amendments to the Articles of Incorporation. Stockholders may approve one
amendment while rejecting the other. As a result, one or more of the
amendments contained in Proposal 3 may be approved or disapproved. The
Form of Articles of Amendment and Restatement attached hereto as Exhibit A
reflect the content of the Company's Articles of Incorporation if both
subsections to Proposal 3 are approved by the stockholders. However, if
the stockholders do not approve any one or more of the proposed amendments,
the Articles of Amendment and Restatement will be restated to reflect only
those amendments that are approved by the stockholders and will be filed as
such with the State Department of Assessments and Taxation of Maryland.
STAGGERED BOARD AMENDMENT
(Proposal 3(a))
Staggered Board
The Board of Directors has determined that it would be advisable to amend
Article FIFTH of the Company's Articles of Incorporation to provide for
staggered elections of the board of directors (the "Staggered Board
Amendment"), such that each director would be elected to a three-year term
with roughly one-third of the directors elected each year.
</PAGE>
<PAGE>
The Board of Directors has approved, subject to stockholder approval at the
Annual Meeting, the Staggered Board Amendment. The Company's directors are
presently elected annually to hold office until the next annual meeting of
stockholders and until their successors are elected and qualified. If the
Staggered Board Amendment is approved by the stockholders, directors will be
elected for three-year terms, with approximately one-third of such overall
directors elected each year; except that in order to implement the Staggered
Board Amendment at the Annual Meeting, Class I Directors will be elected for a
one-year term, Class II Directors will be elected for a two-year term and
Class III Directors will be elected for a full three-year term. Thereafter,
Class I Directors will be elected for a full three-year term commencing with
the 1999 annual meeting of stockholders and Class II Directors will be elected
for a full three-year term commencing with the 2000 annual meeting of
stockholders. Maryland law provides that a director elected by the Board of
Directors to fill a vacancy serves until the next annual meeting of
stockholders and until his successor is elected and qualifies. In the event
that the stockholders do not approve the Staggered Board Amendment, the
directors elected at the Annual Meeting will continue to serve until the next
annual meeting.
Because the directors will be directly affected by the proposed Staggered
Board Amendment, they may be deemed to have an interest in the outcome of such
proposal.
Possible Benefits Of the Staggered Board Amendment. The Board of Directors
believes that a staggered system of electing directors would provide important
benefits to the Company, including the following:
The staggered Board system helps assure continuity and stability of the
Company's business strategies and policies. Because at least two
stockholder meetings will generally be required to effect a change in
control of the Board, a majority of directors at any given time will
have prior experience as directors of the Company. This is particularly
important to a growth-oriented organization, such as the Company.
In the event of an unfriendly or unsolicited proposal to take-over or
restructure the Company, the staggered Board system would give the
Company time to negotiate with the sponsor, to consider alternative
proposals and to assure that stockholder value is maximized.
Possible Anti-Takeover Effect Of the Staggered Board Amendment. A staggered
Board of Directors may be deemed to have an anti-takeover effect because it
may create, under certain circumstances, an impediment which would frustrate
persons seeking to effect a takeover or otherwise gain control of the Company.
A possible acquiror may not proceed with a tender offer because it would be
unable to obtain control of the Company's Board of Directors for a period of
at least two years. Generally, approximately one-third of the sitting Board
of Directors would be up for election at any annual meeting of the
stockholders.
Removal of Directors for Cause
Maryland law provides generally that directors may be removed from office with
or without cause by the affirmative vote of a majority of all of the votes
entitled to be cast for the election of directors. Because the ability of a
simple majority the stockholders to remove any director from office without
cause could frustrate the purposes of the proposed Staggered Board Amendment,
upon approval of the Staggered Board Amendment, approval of such amendment
will cause the Articles of Incorporation to be amended to provide that a
Director may be removed from office prior to the expiration of his or her term
only for cause and then only by the affirmative vote of the holders of at
least 67% of the aggregate combined voting power of all classes of capital
stock entitled to vote in the election of directors, voting as one class, and
only at a special meeting of stockholders called for such purpose. Removal
for cause is defined, in the proposed amendment to the Articles of
Incorporation, as the willful and continuous failure of a director to perform
duties to the Company (other than any such failure resulting from temporary
incapacity due to physical or mental illness) or gross misconduct materially
and demonstrably injurious to the Company. This proposed amendment to the
Articles of Incorporation generally follows Maryland corporate law, which
provides that if the directors have been divided into classes, a director may
not be removed without cause, unless the charter of the corporation provides
otherwise.
</PAGE>
<PAGE>
Under certain circumstances, the effect of these changes may be to impede the
removal of a director or directors of the Company, thus precluding a person or
entity from immediately acquiring control of the Company's Board through the
removal of existing directors and the election of his or its nominees to fill
the newly-created vacancies. Despite these removal provisions, all incumbent
directors are subject to nomination and re-election by the stockholders at
the end of their term.
67% Stockholder Approval For Future Amendments To Bylaws To Change Number Of
Directors
The Company's Bylaws currently provide that amendment of such Bylaws requires
the affirmative vote of the stockholders holding a majority of the voting
stock at an annual or special meeting called for that purpose or an action of
the whole Board. Because this provision of the Bylaws could frustrate the
purposes of the proposed Staggered Board Amendment, approval of such amendment
will cause the Articles of Incorporation to be amended to provide that the
number of directors may only be changed if such change is approved by the
affirmative vote of (i) the holders of at least 67% of all the shares of the
Company then entitled to vote on such change or (ii) a majority of the
directors in office at the time of the vote.
The Company's Board Of Directors Unanimously Recommends Voting "For" The
Approval Of The Staggered Board Amendment.
</PAGE>
<PAGE>
SERIES PREFERRED STOCK AMENDMENT
(Proposal 3(b))
Under the existing Articles of Incorporation, no shares of Preferred
Stock are authorized, issued or outstanding. The Series Preferred Stock
Amendment (the "Series Preferred Stock Amendment") authorizes one
million (1,000,000) shares of preferred stock, par value $0.01, with an
aggregate par value of $10,000. If approved by the stockholders, the
Series Preferred Stock Amendment would authorize the Board of Directors
to issue Preferred Stock, from time to time, in one or more series, with
such designations, voting powers, preferences, and relative,
participating, optional, conversion or other special rights, and such
qualifications, limitations and restrictions, as the Board of Directors
may determine.
The Board of Directors believes the proposed authorization of Preferred
Stock is desirable to enhance the Company's flexibility in connection
with possible future actions, such as stock splits, stock dividends,
financings, corporate mergers, acquisitions of property or other
corporate purposes. Having such authorized shares available for
issuance in the future would allow shares of Preferred Stock to be
issued without the expense and delay of a special stockholder's meeting.
The shares of Preferred Stock would be available for issuance without
further action by the stockholders.
The authorized but unissued shares of Preferred Stock could be used to
impede a change in control of the Company. Under certain circumstances,
such shares could be used to create voting impediments or to deter
persons seeking to effect a takeover or otherwise gain control of the
Company. Such shares could be sold in public or private transactions to
purchasers who might side with the Board of Directors in opposing a
takeover bid which the Board of Directors determines not to be in the
best interests of the Company and its stockholders. In addition, the
Board of Directors could authorize holders of a series of Preferred
Stock to vote, either separately as a class or with the holders of
Common Stock, on any merger, sale or exchange of assets by the Company
or any other extraordinary corporate transaction.
The Series Preferred Stock Amendment could have the effect of
discouraging an attempt by another person or entity, through the
acquisition of a substantial number of shares of the Company's Common
Stock, to acquire control of the Company with a view to imposing a
merger, sale of all or any part of the Company's assets or a similar
transaction, since the issuance of new shares could be used to dilute
the stock ownership of such person or entity. Furthermore, certain
companies have issued, without stockholder action, preferred stock, or
warrants or other rights to acquire preferred stock, to the holders of
their common stock having terms designed to protect against the adverse
consequences to stockholders of certain takeovers, including partial
takeovers, and front-end loaded, two-step takeovers and freeze-outs and
control stockholder acquisitions. Such issuances could have a
detrimental effect on the rights of holders of common stock, including
loss of voting control. If the Series Preferred Stock Amendment is
adopted, the rights, preferences and privileges of holders of Common
Stock would be subject to, and could be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which
the Company might designate and issue in the future. Also, the Board of
Directors could issue the Preferred Stock with voting and/or conversion
rights and thereby dilute the voting power and equity of the holders of
Common Stock and adversely effect the market price of such stock. The
Company has no present plans to issue shares of Preferred Stock.
The Company's Board Of Directors Unanimously Recommends Voting "For" The
Approval Of The Series Preferred Stock Amendment.
</PAGE>
<PAGE>
The above summary descriptions of the proposed amendments to the
Company's Articles of Incorporation are not intended to be complete and
are qualified in their entirety by reference to the complete text of the
proposed Articles of Amendment and Restatement contained in Exhibit A
hereto.
PROPOSAL TO AMEND THE 1988 STOCK OPTION PLAN
(Proposal 4)
Amendments
The Board of Directors proposes that the Stock Option Plan be amended
and restated to (i) increase the number of shares of Common Stock
available for the grant of options under the Stock Option Plan from
600,000 to 900,000, and (ii) allow within the discretion of the
governing Stock Option Plan Committee (the "Committee") a "cashless"
exercise of stock options issued after the amendment and restatement by
payment of the exercise price through withholding of shares of a value
equal to the exercise price that would otherwise be issued upon option
exercise. The restated Stock Option Plan would also incorporate recent
amendments to: (i) allow arrangements with a broker to facilitate a
cashless exercise by raising the proceeds for option exercise via a sale
or loan with respect to the shares to be issued upon option exercise,
(ii) eliminate certain 6-month holding periods for shares issued upon
option exercise to certain directors and officers consistent with
changes to Rule 16b-3 of the Exchange Act and (iii) make certain other
changes of a technical nature. A description of the amendment and
restatement of the Stock Option Plan is set forth below and is qualified
by reference to the full text of the proposed amendment and restatement
which is set forth as Exhibit B to this Proxy Statement.
The Stock Option Plan was initially adopted on May 25, 1988. An
amendment and restatement of the Stock Option Plan was adopted by the
Board of Directors effective January 1, 1994 and approved by
stockholders on July 21, 1994. As of March 31, 1998, of the 600,000
shares authorized for issuance under the Stock Option Plan, 112,425
shares remained available for issuance upon the exercise price of stock
options thereunder.
The Board of Directors believes that it is in the Company's interest
that stock options continue to comprise a meaningful part of
compensation for officers, directors, employees and consultants and that
the authorization of additional shares under the Stock Option Plan is
therefore desirable. Accordingly, the Board of Directors has voted,
subject to stockholders approval, to increase the number of shares of
the Company's Common Stock available for stock options under the Stock
Option Plan by an additional 300,000 shares. Further, allowing exercise
of stock options by withholding of shares equal in value to the exercise
price will be particularly valuable to option holders who may be
otherwise precluded by securities laws from selling the shares received
on exercise to raise sufficient cash proceeds to cover the exercise
price. Finally, allowing cashless exercises through assistance of
brokers and making other changes consistent with revised Rule 16b-3 will
increase the flexibility of Stock Option Plan participants in realizing
the value of their benefits received under the Stock Option Plan.
Description
In General. The Stock Option Plan is administered by a committee of
three members of the Company's Board of Directors who are non-employee,
outside directors (the "Committee"). The Plan authorizes the Committee
within its discretion to grant to any of the directors, officers, other
employees and consultants of the Company and its subsidiaries stock
options to purchase shares of the Company's Common Stock. Presently, 3
directors, 10 officers, 134 employees and 2 consultants are eligible to
receive stock options under the Stock Option Plan. The purpose of the
Stock Option Plan is to benefit the Company by giving directors,
officers, employees and consultants of the Company and its subsidiaries
a greater personal interest in the success of the enterprise. Stock
options which qualify as Incentive Stock Options under Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code"), as well as
Non-Qualified Stock Options (as defined under the Code) which do not
qualify for such treatment, may be granted by the Committee under the
Stock Option Plan.
</PAGE>
<PAGE>
Exercise Price. The exercise price per share under an Incentive Stock
Option must be at least the fair market value of a share of the
Company's Common Stock on the date the stock option is granted.
Additionally, the exercise price per share for any Incentive Stock
Option granted to any individual who owns stock representing more than
10% of the total combined voting power of all classes of stock of the
Company or any subsidiary, within the meaning of Section 424(f) of the
Code, taking into account the attribution rules of Section 424(d) of the
Code, must be at least 110% of the fair market value of the Company's
Common Stock on the date such Incentive Stock Option is granted.
However, Non-Qualified Stock Options may be granted at a price which is
less than the then-current market value of the Company's Common Stock.
The exercise price of each option grant is determined by averaging the
high and low price for the Company's Common Stock for the month in which
the employee commences employment with the Company.
Exercise of Options. An option shall vest and thereby become
exercisable at such times and in such installments as the Committee
shall provide in the terms of each individual option grant agreement.
The expiration date of an option is also determined by the Committee,
although no option shall have a term in excess of 10 years and Incentive
Stock Options granted to holders of more than 10% of the voting stock of
the Company may not have a term in excess of 5 years. Generally, unless
the Committee determines otherwise, (i) unvested options are forfeited
upon the termination of employment or other affiliation with the
Company, (ii) vested Incentive Stock Options are forfeited three months
thereafter except in the event of termination due to disability or death
in which case such options are forfeited 12 months thereafter, and (iii)
vested Non-Qualified Stock Options are forfeited or exercisable upon
termination as provided in the respective grant agreement.
Payment of Exercise Price. Shares purchased upon exercise of an option
must be paid for in full at the time of exercise in cash or, if the
Committee so permits, in whole or in part in shares of the Company's
Common Stock valued at their fair market value at the date of exercise.
Under the amendment and restatement of the Stock Option Plan, the
Committee may permit a so-called "cashless" exercise of stock options by
payment of the exercise price through withholding of shares of a value
equal to the exercise price that would otherwise be issued upon option
exercise. The Committee may also permit arrangements with a broker to
facilitate a cashless exercise by raising the proceeds for option
exercise via a sale or loan with respect to the shares to be issued upon
option exercise.
Limitations Regarding Option Grants. The aggregate number of shares of
the Company's Common Stock which may be made the subject of options
under the amendment and restatement of the Stock Option Plan shall not
exceed 900,000 shares, of which options with respect to 487,575 shares
have been granted as of March 31, 1998. Shares of stock subject to an
option which has been forfeited or canceled before exercise may again be
available for awards under the Stock Option Plan. The maximum number of
shares that may be granted in any fiscal year to any person may not
exceed 50,000. The aggregate fair market value of stock (determined at
the time of grant) for which an optionee may exercise Incentive Stock
Options for the first time during any calendar year may not exceed
$100,000. The Stock Option Plan provides that the Committee may make
equitable adjustments in the terms of options and the maximum number of
shares available under the Stock Option Plan in the event of certain
corporate events, such as reorganizations, mergers or recapitalizations.
The Committee may also issue options to employees of corporations
acquired by the Company in substitution of, and with provisions similar
to, options held in the acquired corporation.
</PAGE>
<PAGE>
Amendment and Termination. The Stock Option Plan may be amended by the
Board of Directors at any time, provided that, without the approval of
the holders of a majority of the Company's Common Stock, no amendment
may be made which (i) increases the maximum number of shares available
under the Stock Option Plan, (ii) changes the requirements for
eligibility to receive stock options under the Stock Option Plan, (iii)
extends the period for granting options or (iv) materially increases the
benefits accruing to participants under the Stock Option Plan. No
grants may be made under the Stock Option Plan after May 8, 2008, at
which date the Stock Option Plan will terminate absent action by the
Board of Directors and stockholders.
Recent Price of Common Stock. The closing price of the Company's Common
Stock on NASDAQ on May 21, 1998, was $29.50 per share.
Federal Income Tax Consequences
The following discussion is a general summary of the material U.S.
federal income tax consequences to U.S. participants in the Stock Option
Plan and is intended for general information only. The discussion is
based on the Code, regulations thereunder, and rulings and decisions now
in effect, all of which are subject to change. This summary does not
discuss all potential tax consequences and individual circumstances may
be such that exceptions to these rules apply. Also, tax consequences
may be subject to change. Therefore, Stock Option Plan participants are
advised to consult their own tax advisors with respect to their
individual tax treatment.
Non-Qualified Stock Options ("NQSOs"). For federal income tax purposes,
the recipient of NQSOs granted under the Stock Option Plan will not have
taxable income upon the grant of the option, nor will the Company then
be entitled to any deduction. Generally, upon exercise of NQSOs, the
optionee will realize ordinary income, in an amount equal to the excess,
if any, of the fair market value of the stock at the date of exercise
over the exercise price. The Company will generally be entitled to a
deduction in an amount equal to such difference provided it properly
reported the optionee's income on an informational return. An
optionee's basis for the stock for purposes of determining his gain or
loss on his subsequent disposition of the shares generally will be the
fair market value of the stock on the date of exercise of the NQSO.
Notwithstanding the above, an optionee who is an "insider" within the
meaning of the Exchange Act and subject to a claim for "short-swing"
profits under Section 16(b) of the Exchange Act will not generally be
subject to federal income tax as the result of the exercise on an NQSO
until such time as he or she is no longer subject to such a claim. Such
an insider may, however, elect under Code Section 83(b) to include in
his or her taxable income at the time of exercise the excess of the fair
market value of the Common Stock received over the exercise price.
Insiders should consult their own tax advisors on these matters.
Incentive Stock Options ("ISOs"). Generally there is no taxable income
to an optionee when an ISO is granted to him or when that option is
exercised. (However, the optionee's alternative minimum taxable income
will generally include an amount equal to the difference between the
option exercise price and the fair market value at the time of
exercise.) Gain realized by an optionee upon sale of stock issued on
exercise of an ISO is taxable at capital gains rates. No tax deduction
is available to the Company unless the optionee disposes of the shares
within two years after the date of grant of the option or within one
year of the date the shares were transferred to the optionee. In such
event, the excess of the fair market value of the shares on the date of
exercise over the option exercise price will be taxed at ordinary income
rates. The Company will be entitled to a deduction to the extent the
employee must recognize ordinary income. An ISO exercised more than
three months after an optionee's termination of employment, other than
by reason of death or disability, will be taxed as a NQSO, with the
optionee deemed to have received income upon such exercise taxable at
ordinary income rates. In that case, the Company will be entitled to a
tax deduction equal to the ordinary income, if any, realized by the
optionee.
</PAGE>
<PAGE>
Exercise with Previously Owned Shares. As a general rule, the delivery
of Company Common Stock to exercise an option granted under the Stock
Option Plan is treated as a nontaxable exchange to the extent that the
optionee receives an equal number of shares of Company Common Stock upon
exercise of the option. The tax basis of the shares received will be
the same as the optionee's tax basis for the tendered shares. The
excess of the value of any additional shares received over any money
paid upon exercise constitutes taxable income in the case of a NQSO, but
not in the case of an ISO. Any additional shares received upon the
exercise of a NQSO will have an aggregate basis equal to the amount
included in the optionee's income as a result of the exercise of the
option plus any money paid (i.e., generally their fair market value).
Any additional shares received upon the exercise of an ISO will have a
tax basis equal to the amount of the money paid, if any.
There is one exception to the above rules. If the Company Common Stock
used to effect the exchange was received pursuant to the exercise of an
ISO and the requisite holding period requirements have not been
satisfied (including circumstances where shares are withheld or
otherwise tendered pursuant to a cashless exercise of an ISO), the
tender of such shares would constitute a disqualifying disposition. In
that case, the exchange of such shares would be treated as a taxable
exchange, not a nontaxable exchange. The optionee would recognize
income upon the exchange of such shares as described in the Section
above.
Tax Withholding. The Company, to the extent permitted or required by
law, will have the right to deduct from any payment owed to a
participant (including salary or other compensation), any such federal,
state or local taxes required to be withheld with respect to the
exercise of an option or related delivery of shares under the Stock
Option Plan. Under the Stock Option Plan, if authorized by the
Committee, a participant may deliver shares of the Company's Common
Stock, including shares acquired upon exercise of an option, to pay
withholding taxes due on exercise of the option. The delivery of Common
Stock of the Company to pay withholding taxes generally will result in a
taxable gain to the participant to the extent that this value exceeds
the participant's basis in the stock. If the Common Stock delivered was
acquired pursuant to the exercise of an ISO and the requisite holding
period requirements have not been satisfied (including circumstances
where shares are withheld upon the exercise of an ISO to pay the
withholding taxes), a disqualifying disposition will result.
Section 162(m). Under Section 162(m) of the Code, income tax deductions
of publicly-traded companies may be limited to the extent total annual
compensation (including base salary, annual bonus, stock option
exercises and non-qualified benefits) paid to certain executive officers
exceeds $1 million in any one year. However, under Section 162(m), the
deduction limit does not apply to certain "qualified performance-based
compensation" established by an independent compensation committee which
is adequately disclosed to, and approved by, stockholders. In
particular, stock options will satisfy the performance-based exception
if the awards are made by a qualifying compensation committee under a
plan that has been approved by the company's stockholders, if the plan
states the maximum number of shares that can be granted to any
particular employee within a specified period and if the compensation is
based solely on an increase in the stock price after the grant date
(i.e. the option exercise price is equal to or greater than the fair
market value of the stock subject to the award on the grant date).
</PAGE>
<PAGE>
Accounting Treatment
Generally, the Company's reported earnings will not be affected by the
grant of options or the exercise of stock options, excepting the case
where the exercise price is less than the fair market value of the
Common Stock at the date of grant. Stock option grants, however, may
impact the calculation of diluted earnings per share, by virtue of being
deemed to have been exercised under certain circumstances.
Options Granted
The following table sets forth as of March 31, 1998, under the Stock
Option Plan, the number of options granted to (i) each Named Officer of
the Company; (ii) all current executive officers as a group; (iii) all
current directors who are not executive officers as a group; and (iv)
all employees, including all current officers who are not executive
officers, as a group. Grants under the Plan will be made at the
discretion of the Committee and, accordingly, future grants are not yet
determinable.
Name Number of Option Shares
Steven R. Chamberlain 67,500
Thomas L. Gough 30,000(1)
Steven A. Carchedi 66,000
Steven K. Kowal 12,000
William J. Tittley 18,600(2)
All current executive officers as a group
(10 persons) 220,200(3)
All non-employee directors as a group
(3 persons) 45,000
All employees, including current
officers who are not executive
officers, as a group
(115 persons) 206,763(4)
(1) Includes 1,000 options to purchase Common Stock which have previously
been exercised.
(2) Includes 8,100 options to purchase Common Stock which have previously
been exercised.
(3) Includes 22,450 options to purchase Common Stock which have
previously been exercised.
(4) Includes 101,816 options to purchase Common Stock which have
previously been exercised.
Securities Act Registration
The Company intends to register the additional shares of Common Stock
available for issuance under the Stock Option Plan pursuant to a
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission.
</PAGE>
<PAGE>
The above summary description of the proposed amendments to the
Company's Stock Option Plan are not intended to be complete and are
qualified in their entirety by reference to the complete text of the
Stock Option Plan contained in Exhibit B hereto.
The Company's Board Of Directors Unanimously Recommends Voting "For" The
Approval Of The Amendment of the 1988 Stock Option Plan.
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/
June 9, 1998 Thomas L. Gough
Lanham, Maryland President and Chief Operating Officer
</PAGE>
<PAGE>
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 June 30, 1998 (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. ELECTION OF DIRECTORS (PROPOSAL No. 1)
[ ] FOR all nominees listed below (except as [ ]WITHHOLD AUTHORITY for
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 PRINT
THAT NOMINEE'S NAME:
B. PROPOSAL BY THE COMPANY TO RATIFY THE APPOINTMENT OF RUBINO &
McGEEHIN, CHARTERED AS INDEPENDENT ACCOUNTANTS OF THE COMPANY FOR THE
FISCAL YEAR ENDING SEPTEMBER 30, 1998 (PROPOSAL NO. 2)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
C.PROPOSAL BY THE COMPANY TO APPROVE THE STAGGERED BOARD AMENDMENT TO
THE ARTICLES OF INCORPORATION OF THE COMPANY TO PROVIDE FOR STAGGERED
TERMS FOR THE MEMBERS OF THE BOARD OF DIRECTORS, TO PROVIDE THAT
DIRECTORS BE REMOVED ONLY FOR CAUSE AND THEN ONLY BY THE AFFIRMATIVE
VOTE OF THE HOLDERS OF AT LEAST 67% OF THE AGGREGATE COMBINED VOTING
POWER OF ALL CLASSES OF CAPITAL STOCK ENTITLED TO VOTE IN THE ELECTION
OF DIRECTORS, AND TO REQUIRE THE APPROVAL OF THE HOLDERS OF AT LEAST 67%
OF ALL THE SHARES OF THE COMPANY ENTITLED TO VOTE THEREON TO AMEND THE
BYLAWS TO CHANGE THE NUMBER OF DIRECTORS (PROPOSAL NO. 3(a))
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</PAGE>
<PAGE>
D. PROPOSAL BY THE COMPANY TO APPROVE THE SERIES PREFERRED STOCK
AMENDMENT TO THE ARTICLES OF INCORPORATION OF THE COMPANY TO AUTHORIZE
ONE MILLION SHARES OF SERIES PREFERRED STOCK, PAR VALUE $0.01, FOR WHICH
THE BOARD OF DIRECTORS SHALL HAVE THE POWER TO CLASSIFY OR RECLASSIFY
SUCH STOCK IN ONE OR MORE SERIES (PROPOSAL NO. 3(b))
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
E. PROPOSAL BY THE COMPANY TO AMEND AND RESTATE THE 1988 STOCK OPTION
PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK OF THE COMPANY
AVAILABLE FOR ISSUANCE THEREUNDER AND ALLOW FOR A "CASHLESS" EXERCISE OF
STOCK OPTIONS ISSUED AFTER SUCH AMENDMENT, AMONG OTHER CHANGES (PROPOSAL
NO. 4)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
F. 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.
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, NO. 2,
NO. 3(A), NO. 3(B) AND NO. 4 AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO
OTHER BUSINESS.
Please date and sign this proxy exactly as your name appears hereon.
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.
FORM OF ARTICLES OF AMENDMENT AND RESTATEMENT
OF INTEGRAL SYSTEMS, INC.
Integral Systems, Inc., a Maryland Corporation (herein after called the
"Corporation") hereby certifies to the State Department of Assessments
and Taxation of Maryland that:
1. The Corporation desires to amend and restate its Charter as
currently in effect. Therefore, the Charter of the Corporation is
hereby amended and restated by striking out in its entirety the existing
Charter and substituting in lieu thereof the following:
FIRST: The name of the corporation is INTEGRAL SYSTEMS, INC.
(hereinafter the "Corporation").
SECOND: The purposes for which the Corporation is formed are:
To carry on an engineering services and consulting business and to
engage in any transaction deemed necessary, convenient or incidental to
the foregoing purpose.
In aid of, or in connection with, the foregoing, or in the use,
management, improvement, or disposition of its property, the Corporation
shall have the power:
(a) To do all things lawful, necessary or incidental to the
accomplishment of the purposes set forth above; to exercise all lawful
powers possessed by Maryland corporations of similar character; to enter
into partnerships or joint ventures; and to engage in any business in
which a corporation organized under the laws of Maryland may engage,
except any business that is required to be specifically set forth in the
Articles of Incorporation.
(b) The objects, powers and purposes specified in any clause or
paragraph hereinbefore contained shall be construed as objects and
powers in furtherance and not in limitation of the general powers
conferred upon corporations by the laws of the State of Maryland; and it
is hereby expressly provided that the foregoing enumeration of specific
powers shall in no way limit or restrict any other power, object or
purpose of the Corporation or in any manner affect any general powers or
authority of the Corporation.
THIRD: The post office address of the principal office of the
Corporation in Maryland is 5000 Philadelphia Way, Suite A, Lanham,
Prince George's County, Maryland 20706. The name and post office
address of the resident agent of the Corporation in Maryland is Thomas
L. Gough at the same address.
FOURTH: The total number of shares of stock which the Corporation has
authority to issue is Eleven Million (11,000,000) shares, consisting of
Ten Million (10,000,000) shares of common stock, $0.01 par value per
share, and One Million (1,000,000) shares of series preferred stock, par
value $0.01 per share. The aggregate par value of all authorized shares
having a par value is One Hundred Ten Thousand Dollars ($110,000.00).
The Board of Directors shall have the power from time to time to
classify or reclassify, in one or more series, any unissued shares of
series preferred stock by setting or changing the number of shares
constituting such series and the designation, preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications and terms and
conditions of redemption of such shares and, in such event, the
Corporation shall file for record with the State Department of
Assessments and Taxation of Maryland articles supplementary in substance
and form as prescribed by the Maryland General Corporation Law ("MGCL").
FIFTH: BOARD OF DIRECTORS
Section 1. Number of Directors.
The Corporation shall have six (6) directors, which number may be
increased or decreased pursuant to the Bylaws, but the number of
directors shall not be less than the lesser of three (3) or the number
of stockholders, and such number of directors so fixed in such Bylaws
may be changed only by receiving the affirmative vote of (i) the holders
of at least 67% of all the shares of the corporation then entitled to
vote on such change, or (ii) a majority of the directors in office at
the time of vote. When the number of directors is changed, any increase
or decrease in the number of directorships shall be apportioned among
the classes so as to make all classes as nearly equal in number as
possible. The directors shall be divided into three classes
(denominated as Class I, Class II and Class III), as nearly equal in
number as reasonably possible, with the term of office of the Class I
directors to expire at the 1999 annual meeting of stockholders, the term
of office of the Class II directors to expire at the 2000 annual meeting
of stockholders and the term of office of the Class III directors to
expire at the 2001 annual meeting of stockholders. At each annual
meeting of stockholders following such initial classification and
election, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, provided
that the stockholders electing new or replacement directors may from
time to time specify a term of less than three years in order to
maintain the number of directors in each class as nearly equal as
possible.
Section 2. Initial Directors.
The following individuals shall serve as the initial directors, in the
classes specified below.
Class I directors - Dominic A. Laiti, Robert P. Sadler
Class II directors - Thomas L. Gough, R. Doss McComas
Class III directors - Steven R. Chamberlain, Bonnie L. Wachtel
Section 3. Removal of Directors.
Any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and then only by the affirmative
vote of the holders of at least 67% of the aggregate combined voting
power of all classes of capital stock entitled to vote in the election
of directors, voting as one class, and only at a special meeting of
stockholders called for such purpose. For purposes of this Section,
"cause" shall mean the willful and continuous failure of a director to
perform duties to the Corporation (other than any such failure resulting
from temporary incapacity due to physical or mental illness) or gross
misconduct materially and demonstrably injurious to the Corporation.
SIXTH: Provisions for regulation of the internal affairs of the
Corporation are: None.
SEVENTH: The Corporation shall exist perpetually.
EIGHTH: No holder of any shares of stock of the Corporation, and no
holder of any other security issued by Corporation, whether now or
hereafter authorized, shall have any pre-emptive rights.
NINTH: The Corporation shall indemnify as determined by the Board of
Directors any person who is serving or has served as a director or
officer or employee or agent of this Corporation to the extent permitted
by Maryland Law, who has been made, or is threatened to be made, a party
to an action, suit, or proceeding, whether civil, criminal,
administrative, investigative, or otherwise (including an action, suit
or proceeding by or in the right of the corporation), by reason of the
fact that the person is or was a director or officer or employee or
agent of the corporation, or a fiduciary within the meaning of the
Employee Retirement Income Security Act of 1974 with respect to an
employee benefit plan of the corporation, or serves or served at the
request of the corporation as a director, or as an officer, or as a
fiduciary of an employee benefit plan, of another corporation,
partnership, joint venture, trust or other enterprise, or as an
employee, or as an agent, except in relation to matters as to which such
person is adjudged in such action, suit or proceedings or otherwise
determined to be liable for negligence or misconduct in the performance
of duty.
In addition, the Corporation as determined by the Board of Directors
shall pay for or reimburse any expenses incurred by such persons who are
parties to such proceedings, in advance of the final disposition of such
proceedings, to the extent permitted by the Maryland Law.
2: The amendment and restatement of the charter of the Corporation
herein made was recommended and advised by the Board of Directors of the
Corporation at a meeting held on May 8, 1998 and was approved by the
stockholders of the Corporation at the Annual Meeting of Stockholders
consent dated June 30, 1998.
3: The provisions set forth in the above articles of amendment and
restatement are all of the provisions of the Corporation's Charter
currently in effect as hereby amended.
4: The current address of the principal office of the Corporation is
5000 Philadelphia Way, Suite A, Lanham, Prince George's County, Maryland
20706 and the Corporation's current resident agent is Thomas L. Gough,
whose address is 5000 Philadelphia Way, Suite A, Lanham, Prince George's
County, Maryland 20706.
5: The Corporation currently has Six (6) directors; the directors
currently in office are Steven R. Chamberlain, Robert P. Sadler, Thomas
L. Gough, Bonnie K. Wachtel, Dominic A. Laiti and R. Doss McComas.
6: The total number of shares of stock which the Corporation was
authorized to issue before adoption of the foregoing amendment and
restatement was one class of Ten Million (10,000,000) shares of common
stock with par value of $0.01 per share. The aggregate par value of all
shares of the Corporation's stock is One Hundred Thousand ($100,000.00).
In accordance with this amendment and restatement, the Corporation has
the authority to issue up to Eleven Million (11,000,000) shares,
consisting of Ten Million (10,000,000) shares of common stock, $0.01 par
value, per share, and One Million (1,000,000) shares of series preferred
stock, par value $0.01 per share. The aggregate par value of all
authorized shares having a par value after this amendment and
restatement is One Hundred Ten Thousand Dollars ($110,000.00). The
Board of Directors shall have the power to classify or reclassify any
unissued shares of stock.
IN WITNESS WHEREOF, Integral Systems, Inc. has caused these Articles to
be signed in its name and on its behalf by its President, Thomas L.
Gough, and attested by its Secretary, Robert P. Sadler, on the 1st day
of July, 1998.
THE UNDERSIGNED, President acknowledges these Articles of Amendment and
Restatement to be the corporate act of the Corporation and states that,
to the best of his knowledge, information and belief, the matters and
facts set forth herein with respect to the authorization and approval
hereof are true in all material respects and that this statement is made
under the penalties of perjury.
ATTEST: INTEGRAL SYSTEMS, INC.
____________/s/_________________ By:_________/s/______________(SEAL)
Robert P. Sadler, Secretary Thomas L. Gough,
President
EXHIBIT B
INTEGRAL SYSTEMS, INC.
1988 STOCK OPTION PLAN
As Amended and Restated
Effective as of May 8, 1998
ARTICLE I
PURPOSE OF PLAN
1.1 PURPOSE OF PLAN. The purpose of the Stock Option Plan is to serve
as a performance incentive and to encourage the ownership of Common
Stock by officers, directors, other employees and non-employee
consultants of the Company so that the person to whom the option is
granted may acquire a proprietary interest in the success of the
Company, and to encourage such person to remain in the employ of the
Company. This Plan shall consist of grants of incentive stock options,
which are intended to qualify under section 422 of the Internal Revenue
Code of 1986, as amended, and of options which are intended not to so
qualify.
ARTICLE II
DEFINITIONS
2.1 AWARD means Options granted hereunder.
2.2 BOARD means the Board of Directors of Integral Systems, Inc.
2.3 CODE means the Internal Revenue Code of 1986, as amended.
Reference in this Plan to any section of the Code shall be deemed to
include any amendments or successor provisions to such section and any
regulations promulgated thereunder.
2.4 COMMITTEE means, as designated by the Board, either the full Board
of Directors or a committee of the Board which shall consist solely of
two or more members of the Board who are "Non-Employee Directors" within
the meaning of Rule 16b-3
<PAGE>
under the Securities Exchange Act of 1934, as amended, and "Outside
Directors" within the meaning of Code Section 162(m).
2.5 COMPANY means Integral Systems, Inc. or any successors as described
in Article XI and any subsidiary of the Company of which the Company
owns, directly or indirectly, greater than fifty percent (50%) of its
voting capital stock.
2.6 DATE OF DISABILITY means the date on which a Participant is
classified Disabled.
2.7 DISABILITY or DISABLED means the classification of a Participant as
"Disabled" pursuant to a long-term disability plan of the Company, if
any, or successor to such plan (or, if there is no such plan, as
determined by the Committee), provided that Participant meets the
requirements of section 22(e)(3) of the Code.
2.8 EFFECTIVE DATE means May 8, 1998.
2.9 ELIGIBLE EMPLOYEE means any person employed by the Company who
satisfies all of the requirements of Article VI.
2.10 ELIGIBLE NON-EMPLOYEE means any person performing bona fide
services for the Company in a capacity other than as an employee, such
as a non-employee director or consultant.
2.11 FAIR MARKET VALUE means the fair market value of the Stock, as
determined by the Committee; provided; however, that (i) if the Stock is
admitted to trading on a national securities exchange on the date the
Option is granted, Fair Market Value shall not be less than the last
sale price reported for the Stock on such exchange on such date or, if
no sales are reported on the date the Option is granted, on the date
next preceding such date on which a sale was reported, or (ii) if the
Stock is not admitted to trading on a national securities exchange on
the date the Option is granted but the Stock is admitted to quotation on
the National Association of Securities Dealers Automated Quotation
system on the date the Option is granted, Fair Market Value shall not be
less than the average of the highest bid and lowest asked prices of the
stock on such system on such date.
<PAGE>
2.12 INCENTIVE STOCK OPTION means an Option which is an "incentive
stock option" within the meaning of section 422 of the Code and which is
granted under Article VII.
2.13 INSIDER means an "officer" or "director" of the Company within the
meaning of Section 16 of the Securities Exchange Act of 1934, as
amended.
2.14 NON-QUALIFIED STOCK OPTION means an Option which is not an
Incentive Stock Option and which is granted under Article VII.
2.15 OPTION means either a Non-Qualified Stock Option or an Incentive
Stock Option granted under Article VII.
2.16 PARTICIPANT means an Eligible Employee or Eligible Non-Employee
who has been granted an Award under this Plan.
2.17 PLAN means the Integral Systems, Inc. 1988 Stock Option Plan, as
amended and restated as set forth herein.
2.18 RETIREMENT means the normal retirement by an employee from the
Company under a pension or retirement plan maintained by the Company.
2.19 RETIREMENT DATE is the employee's date of Retirement from the
Company.
2.20 STOCK means Common Stock of Integral Systems, Inc., par value $.01
per share.
2.21 STOCK OPTION AGREEMENT means an agreement with respect to Options,
as described in Article VIII.
2.22 TERMINATION means resignation or discharge from employment with
the Company, except in the event of death, Disability or Retirement.
2.23 VESTED OPTION means, at any date, an Option which a Participant is
then entitled to exercise pursuant to the terms of the Plan and an
applicable Stock Option Agreement.
<PAGE>
ARTICLE III
EFFECTIVE DATE AND DURATION
3.1 EFFECTIVE DATE. Subject to the approval by a majority of the
holders of Stock voted, in person or by proxy, at the 1998 Annual
Meeting of Stockholders of the Company, this Plan shall be effective as
of the Effective Date.
3.2 PERIOD FOR GRANTS OF AWARDS. Awards may be made as provided herein
for a period of ten (10) years after the Effective Date.
3.3 TERMINATION. This Plan may be terminated as provided in Article
XII, but shall continue in effect until all matters relating to the
payment of the Awards and the administration of the Plan have been
settled.
ARTICLE IV
ADMINISTRATION
4.1 ADMINISTRATION. Except where this Plan expressly reserves
administrative or other powers to the Company or the Board, this Plan
shall be administered by the Committee. All questions or interpretation
and application of this Plan, or of the terms and conditions pursuant to
which Awards are granted, exercised or forfeited under the provisions
hereof, shall be subject to the determination of the Committee. Such
determination shall be final and binding upon all parties affected
thereby.
It is contemplated that Awards granted hereunder will be recommended by
the management of the Company or the Board to the Committee, and that
the Committee will determine whether to accept such recommendations.
ARTICLE V
GRANT OF AWARDS AND LIMITATION OF
NUMBER OF SHARES OF STOCK AWARDED
5.1 GRANTS OF AWARDS; NUMBER OF SHARES. The Committee may, from time
to time, grant Awards of Options to one or more
<PAGE>
Eligible Employees or Eligible Non-Employees in its discretion;
provided, however, that:
(i) subject to any adjustment pursuant to Article X or Article XI, the
aggregate number of shares of Stock subject to Awards under this Plan
may not exceed Nine Hundred Thousand (900,000) shares of Stock;
(ii) to the extent that an Award lapses or the rights of the
Participant to whom it was granted terminate, or to the extent that the
Award is canceled by mutual agreement of the Committee and the
Participant (which cancellation opportunities may be offered by the
Committee to Participants from time to time), any shares of Stock
subject to such Award shall again be available for the grant of an Award
hereunder;
(iii) shares of Stock ceasing to be subject to an Award because of the
exercise of an Option shall no longer be available for the grant of an
Award hereunder; and
(iv) Eligible Non-Employees shall not be entitled to receive Awards of
Incentive Stock Options.
In determining the size of Awards, the Committee may take into account
recommendations by the Board or the Company's management, a
Participant's responsibility level, performance, potential, and cash
compensation level, the Fair Market value of the Stock at the time of
Awards and such other considerations as it deems appropriate.
The maximum number of shares of Stock subject to Options that may be
granted during any one calendar year to any one individual shall be
limited to 50,000. To the extent required by Code Section 162(m), and
so long as Section 162(m) of the Code is applicable to persons eligible
to participate in the Plan, shares of Stock subject to the foregoing
limit with respect to which the related Option is terminated,
surrendered or canceled shall not again be available for grant to the
respective grantee under this limit.
<PAGE>
ARTICLE VI
ELIGIBILITY
6.1 ELIGIBLE INDIVIDUALS. All Eligible Employees and Eligible Non-
Employees shall be eligible to receive Awards hereunder. Subject to the
provisions of this Plan, the Committee shall from time to time select
from such Eligible Employees and Eligible Non-Employees those to whom
Awards shall be granted and determined the size of the Awards. A
Participant may hold more than one Option at any one time. No person
shall have any right to be granted an Award under this Plan, as all
Awards granted hereunder are granted in the sole and absolute discretion
of the Committee, as provided herein.
ARTICLE VII
OPTIONS
7.1 GRANTS OF OPTIONS. Awards shall be granted to Participants in the
form of Options to purchase Stock.
7.2 TYPE OF OPTIONS. The Committee may choose to grant a Participant
who is an Eligible Employee either Incentive Stock Options or Non-
Qualified Stock Options or both, subject to the limitations contained
herein. The Committee shall grant to a Participant who is an Eligible
Non-Employee only Non-Qualified Stock Options, subject to the
limitations contained herein.
7.3 INCENTIVE STOCK OPTION DOLLAR LIMITATIONS. If the Committee grants
Incentive Stock Options, the aggregate Fair Market Value (determined as
of the date the Option is granted) of any such Options plus any
incentive stock options granted under any other plans of the Company
which shall be first exercisable by any one Participant during any one
calendar year shall not exceed $100,000, or such other dollar limitation
as may be provided in the Code.
<PAGE>
ARTICLE VIII
TERMS AND CONDITIONS OF STOCK OPTION AGREEMENTS
8.1 STOCK OPTION AGREEMENTS. Awards shall be evidenced by Stock Option
Agreements in such form as the Committee shall, from time to time,
approve. Such Stock Option Agreements, which need not be identical,
shall comply with and be subject to the following terms and conditions:
(a) Medium of Payment. Upon exercise of the Option, the Option price
shall be payable either (i) in United States dollars, in cash, or by
certified check, bank draft or money order payable to the order of the
Company, or (ii) in the discretion of the Committee, through the
delivery of shares of Stock (including, for Options granted after the
date of this amendment and restatement, Stock that would otherwise be
issued upon exercise of the Option), with the Fair Market Value equal to
the total Option price, or (iii) by a combination of the methods
described in (i) and (ii).
In addition to the above, with respect to Options granted after the date
of this amendment and restatement, the Committee, subject to such
limitations as it may determine, may authorize payment of the exercise
price, in whole or in part, by delivery of a properly executed exercise
notice, together with irrevocable instructions to: (i) a brokerage firm
designated by the Company to deliver promptly to the Company the
aggregate amount of sale or loan proceeds to pay the exercise price and
any withholding tax obligations that may arise in connection with the
exercise, and (ii) the Company to deliver the certificates for such
purchased shares directly to such brokerage firm.
(b) Number of Shares. The Stock Option Agreement shall state the total
number of shares to which it pertains.
(c) Option Price. With respect to Non-Qualified Stock Options, the
option price shall be an amount determined by the Committee, which
amount may be less than, equal to or greater than the Fair Market Value
of such Shares on the date of the granting of the Option. With respect
to Incentive Stock Options, the option price shall be not less than the
Fair Market Value of such shares on the date of the granting
<PAGE>
of the Option (or one hundred ten percent (110%) of such amount if the
Option is granted to an individual owning stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock
of Integral Systems, Inc. or any subsidiary, within the meaning of Code
Section 424(f), taking into account the attribution rules of Code
Section 424(d)).
(d) Term of Options. Each Non-Qualified Option and Incentive Stock
Option granted under this Plan shall expire not more than ten (10) years
from the date the Option is granted, except that each Incentive Stock
Option granted under the Plan to an individual owning stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of Integral Systems, Inc. or any subsidiary, within the
meaning of Code Section 424(f), taking into account the attribution
rules of Code Section 424(d), shall expire not more than five (5) years
from the date the Option is granted.
(e) Date of Exercise. Subject to subsection (d) of this Section, an
Option which becomes a Vested Option may be exercised in whole or in
part at any time thereafter. Options which are awarded hereunder shall
become exercisable as Vested Options, as follows:
(i) The aggregate number of shares of Stock subject to any Award shall
be divided into three installments (equally or unequally at the
discretion of the Committee), as specified in the Agreement. The first
installment shall become Vested Options one year from the date of such
Award, the second installment shall become Vested Options two years from
the date of such Award and the third installment shall become Vested
Options three years from the date of such Award. Any other vesting
schedule may be substituted for the above, as specified in the
Agreement, at the Committee's discretion.
(ii) Except as otherwise provided hereunder, the Committee may in its
discretion accelerate the time at which an Option granted hereunder may
be exercised.
(f) Forfeiture or Exercise of Option. If a Participant ceases
employment with the Company, all Options held by him
<PAGE>
or her which are not Vested Options shall terminate. If a Participant
terminates his or her employment or other service relationship with the
Company prior to the exercise of the Participant's Non-Qualified Stock
Options, such Options shall be forfeited (or exercisable after
termination only as provided in the applicable Stock Option Agreement).
If a Participant terminates employment with the Company prior to
exercise of the Participant's Vested Options which are Incentive Stock
Options, such Vested Options shall be forfeited, or be exercised, as
follows:
(i) Termination and Retirement. In the event of a Participant's
Termination or Retirement, the Participant's Vested Options shall be
forfeited within three (3) months of the Participant's Termination or
Retirement.
(ii) Disability. Upon the Disability of a Participant, the
Participant's Vested Options shall be exercisable within twelve (12)
months (or such shorter period as the Code or the terms of the
particular Stock Option Agreement may require) of the Participant's Date
of Disability.
(iii) Death. If the Participant dies while in the employment of the
Company or within the period of time after Termination or Retirement
during which the Participant would have been entitled to exercise his or
her Vested Option rights, the Participant's estate, personal
representative or beneficiary (as applicable) shall have the right to
exercise such Vested Options, within one (1) year from the date of the
Participant's death (or such shorter period as the Code or the terms of
the particular Stock Option Agreement may require).
(iv) Other Restrictions/Forfeiture Events. The Committee shall have
complete discretion to prescribe any other events of forfeiture and/or
conditions of exercisability of Options, as specified in the applicable
Agreement.
(g) Agreement as to Sale of Securities. If, at the time of the
exercise of any Option, in the opinion of counsel for the Company, it
is necessary or desirable, in order to comply with any applicable laws
or regulations relating to
<PAGE>
the sale of securities, that the Participant exercising the Option shall
agree to purchase the shares that are subject to the Option for
investment only and not with any present intention to resell the same
and that the Participant will dispose of such shares only in compliance
with such laws and regulations, the Participant will, upon the request
of the Company, execute and deliver to the Company an agreement to such
effect.
(h) Required Amendments. Each Award shall be subject to any provision
necessary to assure compliance with federal and state securities laws.
(i) Limitation of Participant Rights. A Participant shall not be
deemed to be the holder of, or to have any of the rights of a holder
with respect to, any shares of Stock subject to an Option unless and
until the Option shall have been exercised pursuant to the terms
thereof, the Company shall have issued and delivered the shares to the
Participant, and the Participant's name shall have been entered as a
stockholder of record on the books of Integral Systems, Inc.
Thereafter, the Participant shall have full voting, dividend and other
ownership rights with respect to such shares of stock.
ARTICLE IX
GRANTS IN SUBSTITUTION FOR OPTIONS
GRANTED BY OTHER CORPORATION
9.1 SUBSTITUTE AWARDS. Awards may be granted under this Plan from
time to time in substitution for similar awards held by employees of
corporations who become or are about to become employees of the Company
as the result of a merger or consolidation of the employing corporation
with the Company, or the acquisition by the Company of the assets of the
employing corporation, or the acquisition by the Company of fifty
percent (50%) or more of the stock of the employing corporation causing
it to become a subsidiary of the Company. Subject to the procurement of
the approval of the stockholders of the Company as may be required for
the Plan to satisfy the requirements of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, the terms and conditions of the
substitute Awards so granted may vary from
<PAGE>
the terms and conditions set forth in this Plan to such extent as the
Committee at the time of the grant may deem appropriate to confirm, in
whole or in part, to the provisions of the options in substitution for
which they are granted.
ARTICLE X
CHANGES IN CAPITAL STRUCTURE
10.1 CAPITAL STRUCTURE CHANGES:
(a) In the event of any change in the number of issued shares of Stock
resulting from a subdivision or consolidation of shares or other capital
adjustment, or the payment of a stock dividend or other increase or
decrease of such shares, then appropriate adjustments shall be made by
the Committee with respect to outstanding Awards and the aggregate
number of shares of Stock which may be awarded pursuant to this Plan.
Additions to Awards issued as a result of any such change shall bear the
same restrictions and carry the same terms as the Awards to which they
relate.
(b) In the event of a change in the Stock which is limited to a change
in the designation thereof to "capital stock" or other similar
designation, or in par value to no par value, without increase or
decrease in the number of issued shares, the shares resulting from any
such change shall be deemed to be Stock within the meaning of this Plan.
ARTICLE XI
COMPANY SUCCESSORS
11.1 IN GENERAL
(a) If the Company shall be the surviving or resulting corporation in
any merger, sale of assets or sale of stock, consolidation or corporate
reorganization (including a reorganization in which the holders of Stock
receive securities of another corporation), any Award granted hereunder
shall pertain to and apply to the securities to which a holder of Stock
would have been entitled. The Committee shall make such appropriate
determinations and
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adjustments as it deems necessary so as to substantially preserve the
rights and benefits, both as to number of shares and otherwise, of
Participants under this Plan.
(b) If the Company shall not be the surviving corporation in any
merger, sale of assets or sale of stock consolidation or corporate
reorganization (including a reorganization in which the holders of Stock
receive securities of another corporation) involving the Company, the
successor corporation shall issue substitute options so as to preserve
substantially the rights and benefits of the Participants under this
Plan.
ARTICLE XII
AMENDMENT OR TERMINATION OF PLAN
12.1 AMENDMENTS AND TERMINATION. The Plan shall terminate on the tenth
(10) anniversary of the Effective Date of the Plan. The Board may at
any time and from time to time otherwise alter, amend, suspend or
terminate this Plan in whole or in part; provided, however, that (i) no
such action may be taken without stockholder approval which materially
increases the benefits accruing to Participants hereunder, materially
increases the number of securities which may be issued pursuant to this
Plan (except as provided in Sections 10.1 and 11.1), materially extends
the period for granting Awards hereunder, or materially modifies the
requirements as to eligibility for participation hereunder; and (ii) no
such action may be taken, without the consent of the Participant to whom
any Award shall have been granted, which adversely affects the rights of
such Participant concerning such Award, except as such termination or
amendment of this Plan is required by statute, or rules and regulations
promulgated thereunder, or as otherwise permitted hereunder.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 NON-TRANSFERABILITY. Except by the laws of descent and
distribution, no benefit provided hereunder shall be subject to
alienation, assignment or transfer by a Participant (or by any person
entitled to such benefit pursuant to the terms of
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this Plan), nor shall it be subject to attachment or other legal process
of whatever nature, and any attempted alienation, assignment, attachment
or transfer shall be void and of no effect whatsoever and, upon any such
attempt, the benefit shall terminate and be of no force or effect.
During a Participant's lifetime, Options granted to the Participant
shall be exercisable only by the Participant. Shares of Stock shall be
delivered only into the hands of the Participant entitled to receive the
same or into the hands of the Participants authorized legal
representative.
13.2 NO EMPLOYMENT RIGHT. Neither this Plan nor any action taken
hereunder shall be construed as giving any right to any individual to be
retained as an officer, employee, director or independent contractor of
the Company.
13.3 TAX WITHHOLDING. The Company shall have the right to deduct from
all Awards paid any federal, state, local or employment taxes which it
deems are required by law to be withheld with respect to such payments.
The Participant receiving Stock pursuant to the exercise of an Option
may be required to pay to the Company an amount required to be withheld
with respect to such Stock. At the request of a Participant, or as
required by law, such sums as may be required for the payment of any
estimated or accrued income tax liability may be withheld and paid over
the governmental entity entitled to receive the same.
13.4 FRACTIONAL SHARES. Any fractional shares concerning Awards shall
be eliminated at the time of payment or payout by rounding down for
fractions of less than one-half (1/2) and rounding up for fractions of
equal to or greater than one-half (1/2). No cash settlements shall be
made with respect to fractional shares eliminated by rounding.
13.5 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
to make payment of Awards in Stock or otherwise shall be subject to all
applicable laws, rules and regulations, and to such approvals by any
government agencies as may be deemed necessary or appropriate by the
Committee. If Stock awarded hereunder may in certain circumstances be
exempt from registration under the Securities Act of 1933, the Company
may restrict its transfer in such manner as it deems advisable to ensure
such exempt status. The Plan is intended
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to comply with Rule 16b-3 under the Securities Exchange Act of 1934, as
amended. Any provision inconsistent with such Rule shall be inoperative
and shall not affect the validity of the Plan. The Plan shall be
subject to any provision necessary to assure compliance with federal and
state securities laws.
13.6 INDEMNIFICATION. Each person who is or at any time serves as a
member of the Board or the Committee shall be indemnified and held
harmless by Integral Systems, Inc. against and from (i) any loss, cost,
liability or expense that may be imposed upon or reasonably incurred by
such person in connection with or resulting from any claim, action, suit
or proceeding to which such person may be a party or in which such
person may be involved by reason of any action or failure to act under
this Plan; and (ii) any and all amounts paid by such person in
satisfaction of judgment in any such action, suit or proceeding relating
to this Plan. Each person covered by this indemnification shall give
Integral Systems, Inc. an opportunity, at its own expense, to handle and
defend the same before such person undertakes to handle and defend the
same on such person's own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the charter
or by-laws of Integral Systems, Inc. as a matter of law, or otherwise,
or any power that Integral Systems, Inc. may have to indemnify such
person or hold such person harmless.
13.7 RELIANCE ON REPORTS. Each member of the Board or the Committee
shall be fully justified in relying or acting in good faith upon any
report made by the independent public accountants of the Company, and
upon any other information furnished in connection with this Plan. In
no event shall any person who is or shall have been a member of the
Board or the Committee be liable for any determination made or other
action taken or any omission to act in reliance upon any such report or
information, or for any action taken, including the furnishing of
information, or failure to act, if in good faith.
13.8 GOVERNING LAW. All matters relating to this Plan or to Awards
granted hereunder shall be governed by the laws of the State of
Maryland, without regard to the principles of
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conflict of laws thereof, except to the extent preempted by the laws of
the United States.
13.9 RELATIONSHIP TO OTHER BENEFITS. No payment under this Plan shall
be taken into account in determining any benefits under any pension,
retirement, profit sharing or group insurance plan of the Company.
13.10 EXPENSES. The expenses of implementing and administering this
Plan shall be borne by the Company.
13.11 TITLES AND HEADINGS. The titles and headings of the Articles and
Sections in this Plan are for convenience of reference only, and in the
event of any conflict, the text of this Plan, rather than such titles or
headings, shall control.
13.12 USE OF PROCEEDS. Proceeds from the sale of Stock pursuant to
Options granted under the plan shall constitute general funds of the
Company.
13.13 NON-EXCLUSIVITY OF PLAN. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the stockholders of the Company
for approval shall be construed as creating any limitations on the power
of the Board to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan, and such arrangements may be either
applicable generally or only in specific cases.
