<PAGE>
As filed with the Securities and Exchange Comission on July 8, 1999
Registration No.
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTEGRAL SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
________________
Maryland 52-167968
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
5000 Philadelphia Way, Suite A
Lanham, Maryland 20706-4417
(301) 731-4233
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
STEVEN R. CHAMBERLAIN
Chief Executive Officer
Integral Systems, Inc.
5000 Philadelphia Way, Suite A
Lanham, Maryland 20706-4417
(301) 731-4233
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
____________________
Copies to:
JOHN L. SULLIVAN, III, ESQ. GUY N. MOLINARI, ESQ.
ANDREA S. KAUFMAN, ESQ. Heller Ehrman White & McAuliffe
JAMES P. DVORAK, JR., ESQ. 711 Fifth Avenue
Venable, Baetjer and Howard, LLP New York, New York 10022
2010 Corporate Ridge, Suite 400 (212) 832-8300
McLean, VA 22102
(703) 760-1600
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
Proposed Proposed
Maximum Maximum
Title Of Shares Amount To Be Aggregate Price Aggregate Offering Amount Of
To Be Registered Registered (1) Per Unit (2) Price (2) Registration Fee
<S> <C> <C> <C> <C>
Common stock, par value $.01 per 1,183,268 shares $23.25 $27,510,981 $7,648
share
===============================================================================================================
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act, this registration statement
also covers an indeterminate number of additional shares as may be issued as
a result of adjustments by reason of any stock split, stock dividend or
similar transaction.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933. The above calculation is
based on the average of the high and low sales prices of the common stock on
the Nasdaq National Market on July 6, 1999.
The registrant hereby amends this registration statement on such date and
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, dated July 8, 1999
Preliminary Prospectus
Integral Systems, Inc.
1,183,268 shares
Common Stock
___________________________________
The selling stockholders identified in this prospectus may offer and sell from
time to time up to 1,183,268 shares of our common stock. We will not receive
any proceeds from the sale of shares of common stock by the selling
stockholders. The selling stockholders have acquired the shares of common stock
offered by this prospectus in a private placement. Registering these shares of
common stock will allow the selling stockholders to publicly sell or otherwise
distribute their shares of common stock.
The selling stockholders may offer these shares of common stock in one or more
transactions on the Nasdaq National Market at various times and prices, in
negotiated transactions or otherwise. The selling stockholders and brokers
through whom the sale of the shares of common stock are made may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933. In addition, any profits realized by the selling stockholders or brokers
on the sale of the shares of common stock may be deemed to be underwriting
commissions under the Securities Act of 1933. The price at which any of the
shares of common stock may be sold and the commissions paid in connection with
any sale may vary from transaction to transaction. We will pay all costs and
expenses in connection with the registration of the shares.
Our common stock currently trades on the Nasdaq National Market under the
symbol "ISYS." On July 6, 1999, the closing price of our common stock was
$23.50 per share.
The purchase of our common stock involves a high degree of risk. You should
carefully consider the risk factors beginning on page 4 of this prospectus
before purchasing any of our common stock from the selling stockholders.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is July , 1999.
<PAGE>
TABLE OF CONTENTS
PAGE NUMBER
INFORMATION ABOUT INTEGRAL SYSTEMS....................................... 3
RISK FACTORS............................................................. 4
FORWARD-LOOKING STATEMENTS............................................... 11
WHERE YOU CAN FIND MORE INFORMATION...................................... 12
USE OF PROCEEDS.......................................................... 13
SELLING STOCKHOLDERS..................................................... 14
DESCRIPTION OF CAPITAL STOCK............................................. 15
PLAN OF DISTRIBUTION..................................................... 16
EXPERTS.................................................................. 17
LEGAL MATTERS............................................................ 17
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES........................................... 17
We have informed the selling stockholders that the anti-manipulative
rules under the Securities Exchange Act of 1934, including Regulation M, may
apply to their sales in the market. We have furnished the selling stockholders
with a copy of these rules. We have also informed the selling stockholders that
they must deliver a copy of this prospectus with any sale of their shares.
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PROSPECTUS SUMMARY
This summary outlines and highlights information contained in this
prospectus and the information incorporated in this prospectus by reference.
You should read the entire prospectus carefully, including the "Risk Factors"
section and the financial statements and related notes which are incorporated by
reference.
INFORMATION ABOUT INTEGRAL SYSTEMS
Integral Systems, Inc. builds satellite ground systems -- hardware and
software to monitor and control space vehicles. Satellite operators use our
ground systems to monitor and control satellites from Earth to ensure the health
and safety of both satellite and payload, and to process and disseminate
satellite payload data. Satellite manufacturers use our ground systems during
the "integration and test" phase of satellite assembly in order to "talk" to
satellite subsystems as they are installed and tested. Both satellite
manufacturers and satellite operators use our ground systems to simulate
satellite missions on the ground in order to test mission scenarios and to train
personnel.
Since its founding in 1982, Integral Systems has provided ground systems for
over one hundred different satellite missions with applications as diverse as:
. global telecommunications;
. meteorology;
. Earth resource management;
. military surveillance; and
. pure science research.
We have an established domestic and international customer base that includes
government and commercial satellite operators, spacecraft and payload
manufacturers, and aerospace systems integrators.
We have developed innovative software products that reduce the cost
and minimize the development risk associated with traditional, custom-built
ground systems. We believe that we were the first to offer a comprehensive
package of commercial-off-the-shelf software products for satellite command and
control. We leverage our software products to provide ready-to-operate
satellite control facilities that can operate multiple satellites from any
manufacturer by integrating our products with other systems. These multi-
vehicle control systems offer significant cost savings for customers that have
traditionally purchased a separate custom control center for each of their
satellites.
Most of the our sales involve a combination of the following:
. commercial-off-the-shelf software;
. satellite data processing computer and communications hardware;
. engineering services to satisfy mission-specific
special requirements; and
. integration of our products with existing systems.
Our products include:
. EPOCH 2000 Satellite Command and Control System;
. OASYS Orbit Analysis System;
. ABE Archive Browser and Extractor; and
. LEO-T Low Earth Orbiter Terminal System.
EPOCH 2000, our flagship product, is the core of our commercial-off-the-shelf
ground system. EPOCH 2000 receives, formats, displays, and archives satellite
health and safety data transmitted by a satellite, which is a process sometimes
referred to as "telemetry." EPOCH 2000 also formats and transmits ground
instructions to a satellite, which is a process sometimes referred to as
"command and control." OASYS computes
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. high precision predictions, or an "ephemeris," of a satellite
orbit based on tracking data from EPOCH 2000;
. thruster firings required to adjust satellite orbit and attitude
to fulfill mission payload requirements, or "maneuvers;" and
. tracking station and orbital events necessary for mission scheduling.
ABE software analyzes long-term trends and trouble-shoots satellite health and
safety data from the EPOCH 2000 telemetry data archives. LEO-T is a fully
automated unmanned remote ground station which synthesizes the key components
and functions of EPOCH 2000, ABE, and OASYS. In addition, we provide services
to support requirements for specific missions for both government and commercial
customers. Most of our ground system contracts have a service component.
We have been profitable every year since incorporation and have
experienced recent growth, which reflects increased demand for our products and
services. For over 15 years, we have provided flexible, reliable, and
affordable ground systems. This has allowed us to stay ahead of our competition
and perform well in an industry traditionally dominated by much larger aerospace
firms. We believe that we have a unique combination of competitive advantages,
including the following:
. more experience with different types of satellites and operational
scenarios than any of our competitors;
. internationally recognized and proven commercial-off-the-shelf
products that were first to market and that continue to lead the
competition in the functions performed;
. ready-to-operate systems for customers requiring a comprehensive
range of products and services; and
. ability to deliver systems faster and at a lower cost than our
competition.
We were incorporated in Maryland in 1982. In connection with our initial
public offering, our common stock began trading on the Nasdaq SmallCap Market on
May 22, 1990 under the symbol "ISYS." On September 10, 1998, our common stock
began trading on the Nasdaq National Market under the same symbol. Our
principal executive offices are located at 5000 Philadelphia Way, Suite A,
Lanham, Maryland 20706-4417, and our telephone number is (301) 731-4233.
RISK FACTORS
Before you invest in shares of our common stock, you should be aware that
there are various risks involved in an investment, including those described
below. We urge you to carefully consider these risk factors together with all of
the other information included in this prospectus and the information
incorporated in this prospectus by reference before you decide to invest in
shares of our common stock.
A significant portion of our revenue is derived from contracts or subcontracts
funded by the U.S. government.
The following table lists the approximate revenues, as a percentage of
Integral's total revenues, derived from contracts funded by the U.S. government
and by one particular agency of the U.S. government, the U.S. National Oceanic
and Atmospheric Administration, for fiscal years 1996, 1997, and 1998, and the
six months ended March 31, 1999.
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<TABLE>
<CAPTION>
Percentage of revenues derived
Percentage of revenues derived from contracts and subcontracts
from contracts and subcontracts funded by the U.S. National Oceanic
Time Period funded by the U.S. government and Atmospheric Administration
- --------------------------- ----------------------------------------- --------------------------------------------
<S> <C> <C>
Fiscal year 1996 59% 22%
Fiscal year 1997 67% 41%
Fiscal year 1998 65% 43%
Six months ended 76% 57%
March 31, 1999
</TABLE>
We expect that U.S. government contracts are likely to continue to
account for a significant portion of our revenues in the future. Accordingly,
our financial performance may be adversely affected by changing U.S. government
procurement practices and policies as well as declines in U.S. government
civilian and defense agency spending. The factors that could have a material
adverse effect on our ability to win new contracts with the U.S. government, or
retain existing contracts, include the following:
. budgetary constraints;
. changes in government funding levels, programs,
policies or requirements;
. technological developments;
. the adoption of new laws or regulations; and
. general economic conditions.
In addition, some of our contracts individually contribute a significant
percentage of our revenues. Two of our largest contracts generated
approximately 30% of our revenues for fiscal year 1998 and 18% of our revenues
for the six-month period ended March 31, 1999. This includes one contract that
generated approximately 22% of our revenues for fiscal year 1998 and 10% of our
revenues for the six-month period ended March 31, 1999. A relatively small
number of large U.S. government contracts are likely to continue to account for
a significant percentage of our revenues in the future. Termination of any of
these contracts or our inability to renew or replace these contracts when they
expire could have a material adverse effect on our business, financial
condition, or results of operations.
Our contracts and subcontracts that are funded by the U.S. government are
subject to termination without cause by the government.
All of our contracts and subcontracts that are funded by the U.S.
government are subject to termination for "convenience," meaning termination
without cause. Should a contract be so terminated without cause, we would be
reimbursed for allowable costs incurred through the date of termination and
would be paid a proportionate amount of the stipulated profits or fees
attributable to work actually performed. Termination of any of our large
government contracts could have a material adverse effect on our business,
financial condition, or results of operations.
Our contracts and subcontracts that are funded by the U.S. government are
subject to government regulations.
Government contracts require compliance with various contract provisions
and procurement regulations. The adoption of new or modified procurement
regulations could have a material adverse effect on our business, financial
condition, and results of operations or increase the costs of competing for or
performing government contracts. Any violation of these regulations could
result in the termination of the contracts, imposition of fines and/or exclusion
from government contracting and government-approved subcontracting for some
specific time period. Most government contracts are subject to modification or
termination in the event of changes in funding, and our contract costs and
revenues are subject to adjustment as a result of audits by the Defense Contract
Audit Agency and other government auditors. We reflect any adjustments required
by the audits in our financial statements. Although we have thus far not yet
been required to make any material audit adjustments, we cannot assure that
adjustments will not be required in the future. The award of government
contracts also is subject to protest by competitors, which can result in the re-
opening of the bidding process, unanticipated legal costs, or the award of a
contract to a competitor.
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Our contracts and subcontracts that are funded by the U.S. government are
subject to a competitive bidding process.
Government contracts generally are awarded to us through a formal
competitive process in which we may have many competitors. Upon expiration,
government contracts may be subject, once again, to the competitive process. We
cannot assure that we will be successful in winning contract awards or renewals
in the future. Our failure to renew or replace these contracts when they expire
could have a material adverse effect on our business, financial condition, or
results of operations.
Our contracts and subcontracts with federal government agencies are
subject to competition and awarded on the basis of technical merit, personnel
qualifications, experience, and price. Our business, financial condition and
results of operations could be materially affected by changes in procurement
policies, a reduction in funds available for the services that we provide, and
other risks generally associated with federal government contracts. New
government contract awards also are subject to protest by competitors at the
time of award that can result in the re-opening of the competition or evaluation
process or the award of a contract to a competitor. We consider bid protests to
be a customary element in the process of procuring government contracts.
Our contracts and subcontracts that are funded by the U.S. government are
subject to the budget and funding process of the U.S. government.
Many of the U.S. government programs in which we participate as a
contractor or subcontractor extend for several years but are funded only on an
annual basis. Accordingly, our contracts and subcontracts are subject to
termination, reduction, or modification in the event of changes in the
government's requirements or budgetary constraints. Additionally, when we
participate in a project as a subcontractor, we are subject to the risk that the
prime contractor may fail or be unable to perform the prime contract.
In addition to the right to terminate, government contracts are
conditioned upon the continuing availability of Congressional funding. Congress
usually allocates funds on a fiscal-year basis even though contract performance
may take several years. Consequently, at the outset of a major program, the
contract is usually incrementally funded, and additional funds are normally
committed to the contract by the procuring agency as funds are made available by
Congress for future fiscal years. In addition, contractors often experience
revenue uncertainties during the first quarter of the U.S. government's fiscal
year, which begins October 1, until differences between budget requests and
appropriations are resolved. To date, Congress has funded all years of the
multi-year major program contracts for which we have served as prime
contractor or subcontractor, although we cannot assure that this will be the
case in the future.
Our commercial contracts are subject to competition and strict performance
requirements.
Although a significant portion of our revenues are generated from the
sale of our services and products in commercial markets, we cannot assure that
we will continue to compete successfully in these markets. Many of our
commercial contracts are for a fixed price. This subjects us to substantial
risks relating to unexpected cost increases and other factors outside of our
control. We may fail to anticipate technical problems, estimate costs
accurately, or control costs during performance of a fixed-price contract. Any
of these failures may reduce our profit or cause a loss under our commercial
contracts. In addition, our revenues on fixed-price contracts are recognized on
a percentage-of-completion basis. This means that the company calculates a ratio
of costs incurred to costs expected to be incurred for each fixed-price job and
then multiplies that same ratio by the fixed-price contract value to determine
total revenue for each fixed-price job. As a result, contract price and cost
estimates on fixed-price contracts are reviewed periodically as the work
progresses, and adjustments are reflected in income in the period when the
estimates are revised. To the extent that these adjustments result in a loss,
reduction, or elimination of previously reported profits, we would recognize a
charge against current earnings, which could be material and have a material
adverse effect on our business, financial condition, or results of operations.
In connection with certain commercial contracts, we have been required to
obtain bonds, letters of credit, and similar guarantees. We cannot assure that
we will be successful in obtaining these types of guarantees or that the
guarantees available will be affordable in the future.
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We typically must agree to meet strict performance obligations and
project milestones, which we may not be able to satisfy. Under the terms of our
commercial contracts, our failure to meet these performance obligations and
milestones permits the other party to terminate the contract and, under certain
circumstances, recover liquidated damages or other penalties from us.
We may not be able to effectively manage any continued growth.
Our revenues have increased over the past five fiscal years at an average
annual rate of 30%. Continued growth could place a significant strain on our
limited personnel, management, financial controls, and other resources. Any
future expansion will require us to attract, retain, train, motivate, and manage
new employees successfully. We would also need to integrate new management and
employees into our overall operations, and continue to improve our operational,
financial, and management systems and controls and facilities. Our failure to
manage any expansion effectively could have a material adverse effect on our
business, financial condition, or results of operations.
Intense competition in the satellite ground system industry could harm our
financial performance.
We experience significant competition. We believe that we are one of four
companies in the United States which derive the major portion of their revenue
from the development of satellite ground systems. In addition to these
companies, approximately one dozen large aerospace/defense contractors have
developed satellite control systems either in-house as primary contractors or
through subcontractors. As a result, some of our competitors are also current or
potential customers. Our competitors include the following:
. Lockheed Martin Corporation;
. Hughes Space Company;
. Loral Space & Communications Ltd.;
. Orbital Sciences Corporation;
. AlliedSignal;
. Computer Sciences Corporation;
. Alcatel Espace;
. Matra Marconi Space; and
. Aerospatiale.
Many of our competitors are significantly larger and have greater financial
resources than us. Some of these competitors are divisions or subsidiaries of
large, diversified companies that have access to the financial resources of
their parent companies. We cannot assure that we will be able to compete
effectively with these companies or maintain them as customers while competing
with them on other projects. In addition, several smaller companies have
specialized capabilities in similar areas. Our products also face competition
from certain off-the-shelf products developed by the government for satellite
command and control. We cannot predict how our competitive position may be
affected by changing economic or competitive conditions, customer requirements,
or technological developments. We principally obtain contracts and subcontracts
through competitive procurements offered by the U.S. government or commercial
enterprises. We cannot assure that we will be able to compete successfully.
We are dependent on the satellite industry for most of our revenues.
Currently, most of our revenues are generated from products and services
related to satellite applications. Should the satellite industry take a
substantial downturn and the number of satellite deployed be materially reduced,
our new business opportunities would be limited significantly.
We may be exposed to product liability or related claims with respect to our
products.
Our products are mission-critical parts of sophisticated and extremely
expensive satellite systems. Should a satellite mission fail, or should the
system's service become unavailable, due to a failure or malfunction in the
ground system, we could be sued for product liability or related claims. Any
product liability or related claim could have a material adverse effect on our
business, financial condition, or results of operations. We have found
obtaining insurance to cover product liability claims to be impractical.
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Our products may become obsolete due to rapid technological change in the
satellite industry.
Any of our products could become obsolete at any time due to rapid
technological changes in the satellite industry. We may not be able to update
our products quickly enough to remain competitive. The rapid pace of
technological change in our industry exposes us to risk of loss due to the
development of superior technologies by our competitors. We are also dependent
upon technologies developed by third parties for integrating our ground systems
with a variety of satellite systems. As land-based telecommunications services
expand, demand for certain types of satellite-based services may be reduced.
New technology used by our competitors could render satellite-based services
less competitive by satisfying consumer demand in alternative ways or through
the use of telecommunications standards that are incompatible with our products.
In addition, our success depends on our ability to introduce innovative products
and services on a cost-effective and timely basis.
Our business is subject to risks associated with international transactions.
Operations in numerous countries outside the United States carry
substantial managerial, operational, legal, and political uncertainties. These
operations are subject to changes in government regulations and
telecommunications standards, tariffs or taxes, and other trade barriers. In
addition, our agreements relating to foreign operations may be enforceable only
in foreign jurisdictions so that it may be difficult for us to enforce our
rights. We do not currently have any contracts that are subject to currency
fluctuations in foreign markets. However, there can be no assurance that we
will not enter into these types of contracts in the future. As a result, the
limited availability of U.S. currency in certain local markets could prevent a
contracting party from making payments in U.S. dollars or exchange rate
fluctuations could adversely affect our revenues.
Various agencies and departments of the U.S. government regulate our
ability to pursue business opportunities outside the United States. Exports of
space-related products, services, and technical information require licenses
granted by the U.S. government. We do not currently have blanket authorization
for export of our products and services. We cannot assure that we will be able
to obtain blanket export authorization in the future. In addition, we cannot
assure that we will be able to obtain necessary licenses or approvals on a per-
transaction basis, and our inability to do so, or our failure to comply with the
terms of the authorization when granted, could have a material adverse effect on
our business, financial condition, or results of operations.
We depend upon attracting and retaining highly skilled professional staff.
Our success will depend in part upon our ability to attract, retain,
train, and motivate highly skilled employees, particularly in the area of
information technology. We face significant competition for employees with the
computer and technology skills required to perform our services and create our
products. In addition, we must often comply with provisions in government
contracts which require specified levels of education, work experience, and
security clearances for our employees. We cannot assure that we will be
successful in attracting a sufficient number of highly skilled and qualified
employees in the future. None of our employees are subject to non-competition
agreements, confidentiality agreements, or employment agreements. The loss of
our key technical personnel, or our inability in the future to attract key
employees or to relocate them as required by customers, could have a material
adverse effect on our business, financial condition, or results of operations.
We depend on the services of our key personnel.
Our success depends to a significant degree on our key management
personnel, especially the following:
. Steven R. Chamberlain, Chairman and Chief Executive Officer;
. Thomas L. Gough, President and Chief Operating Officer;
. Steven A. Carchedi, Executive Vice President,
Business Development; and
. Elaine M. Parfitt, Chief Financial Officer.
The loss of any one of these management personnel could have a material adverse
effect on our business, financial condition, or results of operations. We do
not have employment, non-competition, or confidentiality agreements with any of
these individuals. We do not maintain key man life insurance policies on any
members of management.
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We depend upon intellectual property rights and risk having our rights
infringed.
Much of our business is derived from work product, software programs,
methodologies, and other information that we have privately developed. We have
made a strategic decision after discussion with intellectual property counsel
not to seek patent protection for our software, hardware, and systems. Although
we seek to protect our intellectual property with common law trademarks and
copyrights, and software license and confidentiality agreements with third
parties, we cannot assure that these measures will prevent unauthorized
disclosure or use of our technical knowledge, practices, or procedures, or that
others may not independently develop similar knowledge, practices, or
procedures. To date, we have not registered any of our copyrights or
trademarks. In addition, the laws of some foreign countries do not protect our
intellectual property rights to the same extent as the laws of the United
States. Disclosure or loss of control over our privately developed information
could have a material adverse effect on our business, financial condition, or
results of operations. We may also be subject to litigation to defend against
infringement claims. Any litigation with respect to our intellectual property
rights would be costly and could divert management's attention, either of which
could have a material adverse effect on our business, financial condition, or
results of operations. Adverse determinations in litigation involving our
intellectual property could:
. result in the loss of those intellectual property rights;
. subject us to significant liabilities;
. require us to seek licenses from third parties; or
. prevent us from selling our services.
Any one of these consequences could have a material adverse effect on our
business, financial condition or results of operations.
Under some government contracts, we may develop software that in the
future we may decide to commercialize. In order to commercialize that software,
we might need to invest additional research and development funds to re-market
the software as a commercial product. If the product was developed using any
government funding, government regulations and contract provisions may prevent
us from selling the resulting product to any government agencies. If the primary
market for a potential product is government agencies, we may not be able to
recover invested funds through sale of the product. In addition, the government
may acquire certain rights to software programs we develop that are funded under
government contracts or subcontracts and may disclose information with respect
to those programs or products to third parties, including our competitors.
The estimated backlog under our government contracts is not necessarily
indicative of revenues that will actually be realized under the contracts.
Many of our government contracts are multi-year contracts and contracts
with option years, and portions of these contracts are carried forward from one
year to the next as part of our contract backlog. Backlog means the total value
of all contracts less the revenues earned on those same contracts. The
estimated backlog under a government contract is not necessarily indicative of
revenues that will actually be realized under that contract. Congress normally
appropriates funds for a given program on a fiscal-year basis, even though
actual contract performance may take many years. As a result, contracts
ordinarily are only partially funded at the time of award, and additional monies
are normally committed to the contract by the contracting agency as Congress
makes appropriations in subsequent fiscal years. There can be no assurance that
Congress will appropriate funds or that procuring agencies will commit funds to
our government contracts for their anticipated terms. In addition, most of our
government contracts have an initial term of one year plus a number of option
years. We cannot assure that the government will extend a contract through its
option years. Certain of our large contracts provide that we will not receive
payment until the services under those contracts are requested and performed.
We cannot assure that cancellations or adjustments in the terms of these
contracts might not occur. In addition, our services under these contracts may
not be requested at the anticipated levels in the future.
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Performance of some of our government contracts may require security clearance.
Some of our contracts with government agencies require that some of our
employees and procedures meet security clearance requirements. If problems
develop meeting security clearance requirements, they could materially limit our
ability to perform these contracts.
Shares held by our current stockholders may adversely effect our stock price.
As of July 6, 1999, we had 7,136,379 shares of common stock outstanding.
After this offering, the following shares of our common stock will be freely
tradable without restriction or limitation under the Securities Act of 1933,
except for shares purchased by "affiliates," as that term is defined in Rule 144
under the Securities Act of 1933:
. the 1,183,268 shares of common stock to be sold in this offering;
. the 600,000 shares of common stock sold in our initial public
offering; and
. the 418,891 shares of common stock issued under our stock
option plan.
The remaining shares of our common stock may be sold in the public market,
subject in some cases to the volume and other limitations of Rule 144. We have
reserved 1,381,109 shares of common stock for issuance under our stock option
plan. We have issued options to purchase a total of 1,290,863 shares of common
stock under our stock option plan, of which 871,972 have yet to be exercised and
of which 401,006 are currently exercisable. Sales of substantial amounts of
common stock in the public markets, pursuant to Rule 144 or otherwise, or the
availability of shares of common stock for sale could adversely affect the
prevailing market prices for the common stock and impair our ability to raise
additional capital through the sale of equity securities in the future. In the
past, our common stock has traded at low volumes. The registration of the
shares pursuant to this prospectus will create substantial additional market
overhang. Future sale of the shares into the public market could have an
adverse affect on the prevailing market price of our common stock.
The market price of our common stock may be volatile.
The market price of securities of technology companies has historically
faced significant volatility. In addition, the stock market in recent years has
experienced significant price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of particular
companies. Many factors that have influenced trading prices will vary from
period to period, including:
. actual or anticipated operating results;
. growth rates;
. changes in estimates by analysts;
. market conditions in the industry;
. announcements by competitors;
. regulatory actions; and
. general economic conditions.
Any of these events would likely result in a material adverse effect on the
market price of our common stock. In addition, the public announcement of this
offering, which may be price dilutive with respect to the prevailing market
price, may have an adverse effect on the market price for the common stock.
Our quarterly operating results may vary significantly from quarter to quarter.
Our revenues and earnings may fluctuate from quarter to quarter based on
factors that include the following:
. the number, size, and scope of our projects;
. equipment purchases and other expenditures required for
our business;
. bid and proposal efforts undertaken;
. delays;
10
<PAGE>
. employee productivity;
. adequacy of provisions for losses;
. accuracy of estimates of resources required to complete
ongoing projects; and
. general economic conditions.
Demand for our products and services in each of the markets we serve can vary
significantly from quarter to quarter due to revisions in customer budgets or
schedules and other factors beyond our control. Due to all of the foregoing
factors, our results of operations may fall below the expectations of securities
analysts and investors in a particular period. In this event, the market price
of our common stock would likely be materially adversely affected.
We may encounter Year 2000 risks.
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. To distinguish 21st
century dates from 20th century dates, these date code fields must be able to
accept four-digit entries. We have evaluated our information technology
infrastructure for Year 2000 compliance. We do not expect that the cost to
modify our information technology infrastructure to be Year 2000 compliant will
be material to our business, financial condition, or results of operations. We
do not anticipate any material disruption in our operations as a result of any
failure of us to be in compliance. We cannot assure, however, that
unanticipated or undiscovered Year 2000 compliance problems would not have a
material adverse effect on our business, financial condition, or results of
operations. In addition, we have limited information concerning the compliance
status of our customers and suppliers. In the event that any of our significant
customers or suppliers do not successfully and timely achieve Year 2000
compliance, our financial condition or results of operations could be materially
adversely affected.
Warning regarding our use of forward-looking statements
Some of the information in this prospectus may contain forward-looking
statements. Such forward-looking statements can be identified by the use of
forward-looking terminology such as "may," "will," "believe," "expect,"
"anticipate," "estimate," "continue" or other similar words, and include
statements as to the intent, belief, or current expectations of Integral Systems
and our directors, officers, and management with respect to future operations,
performance or position of Integral Systems or which contain other "forward-
looking" information. These forward-looking statements are predictions and are
based on current information and expectation, and we assume no obligation to
update these statements. When considering the forward-looking statements in
this prospectus, you should keep in mind the risk factors and other cautionary
statements in this prospectus and in the documents incorporated in this
prospectus by reference. The risk factors noted in this prospectus and the
other factors noted throughout this prospectus and the documents that we
incorporate by reference, including certain known and unknown risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward-looking statement.
11
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 under the Securities Act of 1933, covering the shares
offered by this prospectus. This prospectus does not contain all of the
information set forth in the Registration Statement and exhibits.
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any materials we file at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Regional Offices of the SEC at 7 World Trade Center, Suite 1300, New
York, New York 10048, and at 500 W. Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information on the SEC's public reference rooms. Our SEC filings are also
available to the public from the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to our filed SEC documents. The information incorporated by
reference is part of this prospectus. Information we file with the SEC after we
file this document will update and supersede this information.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Section 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 until our offering is completed.
(a) Our Annual Report on Form 10-KSB for the year ended
September 30, 1998;
(b) Our Quarterly Report on Form 10-QSB for the quarter ended
December 31, 1998;
(c) Our Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1999;
(d) Our definitive Proxy Statement filed March 23, 1999; and
(e) The description of our common stock which is contained in our
Form 8-A filed May 25, 1990.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be modified or superseded for the
purposes of this prospectus to the extent that a statement contained in this
prospectus, or in any other subsequently filed document which also is, or is
deemed to be, incorporated by reference, modifies or supersedes that statement.
Any statement modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this prospectus.
You may request a copy of any of the filings incorporated herein by
reference, at no cost, by writing or telephoning Robert P. Sadler, Corporate
Secretary, at:
Integral Systems, Inc.
5000 Philadelphia Way, Suite A
Lanham, Maryland 20706-4417
Telephone: (301) 731-4233.
You should rely only on the information incorporated by reference or
provided in this prospectus and any prospectus supplement. We have authorized
no one to provide you with different information. The selling stockholders are
not authorized to make an offer of these securities in any state where the offer
is not permitted. You should not assume that the information in this prospectus
or any prospectus supplement is accurate as of any date other than the date on
the front of this prospectus or the applicable prospectus supplement.
12
<PAGE>
USE OF PROCEEDS
All of the net proceeds from the sale of the common stock covered by this
prospectus will go to the selling stockholders who offer and sell shares of the
common stock. We will not receive any proceeds from the sale of the common
stock offered by the selling stockholders pursuant to this prospectus.
13
<PAGE>
SELLING STOCKHOLDERS
In June 1999, we completed a private placement in which we sold an
aggregate of 1,183,268 shares of our common stock to the selling stockholders
identified in the table below. We are registering the shares of common stock
under registration rights granted to the selling stockholders in the private
placement. We have agreed to bear all of the costs and expenses for the
registration of the shares of common stock.
The following table sets forth (1) the name of each selling stockholder,
(2) the number of shares of outstanding common stock beneficially owned by each
selling stockholder as of the date of this prospectus, (3) the aggregate number
of shares of common stock that each selling stockholder may offer and sell for
its account under this prospectus and (4) to our knowledge and assuming that all
of the shares of common stock offered under this prospectus are sold, the
aggregate number of shares of common stock and the percentage of outstanding
shares of common stock to be beneficially owned by each selling stockholder upon
completion of the offering made under this prospectus. To our knowledge and
except as otherwise indicated in the footnotes to the table, none of the selling
stockholders has had within the past three years any position, office or other
material relationship with us or any of our predecessors or affiliates.
<TABLE>
<CAPTION>
Number of Number of Shares
Shares Beneficially
Name of Selling Number of Shares Beneficially Offered Owned
Security Holder Owned Prior to Offering Hereby After Offering
- --------------- ----------------------------- --------- ----------------
Number Percentage
------ ----------
<S> <C> <C> <C> <C>
Anvil Investment Associates, LP 55,556 55,556 0 --
Capital Research and Management 277,778 277,778 0 --
Company on behalf of SMALLCAP
World Fund, Inc.
Chartwell Capital Investors II, 555,556 555,556 0 --
L.P.
Riverside Growth Partners L.P. 15,000 15,000 0 --
Teleos Fund, L.P. 4,470 4,470 0 --
Teleos Strategies, Ltd 50,530 50,530 0 --
Vivian Arpad 5,000 5,000 0 --
Worthington Growth L.P. 74,760 74,760 0 --
Alpha Worthington Fund Ltd. 9,240 9,240 0 --
Allen & Company Incorporated(1) 2,100 2,100 0 --
Christian Broadcasting Network 600 600 0 --
Micro Cap Fund
Munder Micro Cap Find 17,300 17,300 0 --
Anthony Soave Micro Cap Fund 2,100 2,100 0 --
Pilgrim Baxter Hybrid Partners I, 55,556 55,556 0 --
L.P.
Robertson Stephens Emerging 25,500 25,500 0 --
Growth Partners L.P.
VAR & Co. 10,000 10,000 0 --
Allen Small Cap Partners L.P.(2) 22,222 22,222 0 --
</TABLE>
___________________
* Less than 1%
(1) Allen & Company Incorporated served as an underwriter in connection with
our public offering that was registered with the SEC in July 1998 on Form
S-1 and subsequently withdrawn in September 1998. In addition, Allen &
Company Incorporated received a placement agent commission in connection
with the private placement to the selling stockholders of the shares of
common stock offered under this prospectus.
(2) Allen Small Cap Partners L.P. is an affiliate of Allen & Company
Incorporated.
14
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of common
stock, par value $.01 per share. As of July 6, 1999, we had 7,136,379 shares of
common stock outstanding.
The holders of common stock are entitled to one vote for each share held
of record on all matters to be voted on by stockholders. The holders of common
stock do not have cumulative voting rights with respect to the election of
directors. In addition, the holders of common stock do not possess any of the
following:
. preemptive rights;
. redemption rights; or
. conversion rights.
The holders of common stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of legally available funds. The
outstanding shares of common stock, and the shares offered by the selling
stockholders in the offering, are fully paid and nonassessable.
We have reserved 1,381,109 shares of common stock for issuance under our
stock option plan. We have issued options to purchase a total of 1,290,863
shares of common stock under our stock option plan, of which 871,972 have yet to
be exercised and of which 401,006 are currently exercisable. See "Risk Factors
Shares held by our current stockholders may adversely effect our stock price."
Authorized but unissued shares of our common stock may be issued by
direction of our Board of Directors at such times, in such amounts, for such
consideration, and upon such terms as the Board of Directors may determine. The
issuance of additional shares of our common stock will not require the approval
of the stockholders, unless in any specific instances such approval is expressly
required by regulatory agencies or otherwise. The authorized but unissued
shares of common stock could have an anti-takeover effect, because additional
shares of common stock could be issued, within the limits imposed by applicable
law, in one or more transactions that could make a change in control or takeover
of us more difficult. We could issue additional shares to persons who might
side with the Board of Directors in opposing a takeover bid that the Board
determines is not in our best interests and the best interests of our
stockholders. This type of issuance could diminish the voting power of existing
stockholders who favor a change in control, and the ability to issue the shares
could discourage an attempt by another person or entity to acquire control of us
since the issuance of new shares of common stock could be used to dilute the
stock ownership of such person or entity. Upon the liquidation, dissolution or
winding up of our company, the holders of common stock are entitled to share
ratably in all of our assets which are legally available for distribution, after
payment of all debts and other obligations. In addition, the issuance of
additional shares of common stock would dilute the existing stockholders' equity
interest in Integral.
15
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders, or their pledgees, donees, distributees,
transferees or other successors, if any, may sell or distribute some or all of
the shares of common stock offered under this prospectus from time to time
through underwriters, dealers, brokers or other agents or directly to one or
more purchasers in one or more, or a combination, of the following types of
transactions:
. ordinary brokerage transactions and transactions in which
the broker solicits purchasers;
. transactions involving cross and block trades or otherwise
on the Nasdaq National Market;
. purchases by a broker, dealer or underwriter as principal
and resale by that person for its own account under this
prospectus;
. "at the market" or through market makers or into an existing
market for the common stock;
. sales to purchasers or sales effected through agents or in
other ways not including market makers or established
trading markets;
. transactions involving cross trades or otherwise on the
Nasdaq National Market;
. in privately negotiated transactions; or
. by any other legally available means.
The selling stockholders may sell their shares at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. Brokers,
dealers, agents or underwriters participating in these transactions as agent may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders and, if they act as agent for the purchaser of the
shares, from the purchaser. The discounts, concessions or commissions received
by a particular broker, dealer, agent or underwriter might be in excess of those
customary in the type of transaction involved. This prospectus also may be
used, with our consent, by donees of the selling stockholders, or by other
persons acquiring the shares of common stock and who wish to offer and sell the
shares under circumstances requiring or making desirable the use of the
prospectus. If required, we will file, during any period in which the offers or
sales are being made, one or more supplements to this prospectus to disclose the
names of donees of the selling stockholders and any other material information
with respect to the plan of distribution not previously disclosed.
The selling stockholders and any underwriters, brokers, dealers or agents
that participate in the distribution of common stock may be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts,
commissions or concessions received by any of these underwriters, brokers,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act. Neither we nor the selling stockholders can presently
estimate the amount of compensation that may be received by the underwriters,
brokers, dealers or agents. We do not know of any existing arrangements between
the selling stockholders and any underwriter, broker, dealer or other agent
relating to the sale or distribution of the shares of common stock.
Under applicable rules and regulations under the Securities Exchange Act
of 1934, any person engaged in a distribution of any of the shares of common
stock may not simultaneously engage in market activities with respect to the
common stock for a period of up to five business days prior to the commencement
of the distribution. The selling stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations enacted under the
Exchange Act, including Rule 10b-5 and Regulation M. These provisions may limit
the timing of purchases and sales of any of the shares of common stock by the
selling stockholders. All of the above may affect the marketability of the
common stock.
We will pay all of the costs and expenses for the registration of the
shares of common stock by the selling stockholders under this prospectus. In
addition, we have agreed to indemnify the selling stockholders, the directors
and officers of the selling stockholders, each underwriter of the shares of
common stock to be registered under this prospectus, and each person who
controls any Selling Security Holder or underwriter of the shares of common
stock to be registered under this prospectus against liabilities concerning
untrue statements or omissions that we make, or violations of the securities
laws that we commit, with respect to the registration of the shares of common
stock, including liabilities under the Securities Act. The selling stockholders
have agreed to indemnify us against liabilities concerning untrue statements or
omissions that they make, or violations of the securities laws that they commit,
with respect to the registration of the shares of common stock, including
liabilities under the Securities Act. See "Disclosure of Commission Position on
Indemnification for Securities Act Liabilities."
16
<PAGE>
If shares of the common stock are sold in an underwritten offering, those
shares may be acquired by the underwriters for their own account and may be
further resold from time to time in one or more transactions, including
negotiated transactions. These transactions may be made in the following
manner:
. at market prices prevailing at the time of sale;
. at prices related to the prevailing market prices;
. at negotiated prices; or
. at fixed prices.
The names of the underwriters with respect to an offering of the shares of
common stock and the terms of the transactions, including any underwriting
discounts, concessions or commissions and other items constituting compensation
of the underwriters and broker-dealers, if any, will be set forth in a
supplement to this prospectus relating to the offering. Any public offering
price and any discounts, concessions or commissions allowed or reallowed or paid
to broker-dealers may be changed from time to time.
EXPERTS
The consolidated financial statements of Integral incorporated by
reference in this prospectus have been audited, except for interim financial
statements, by Rubino & McGeehin, Chartered, independent public accountants, as
indicated in their report with respect thereto, and incorporated herein by
reference in reliance upon the authority of Rubin & McGeehin, Chartered as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
and certain other matters will be passed upon for us by Venable, Baetjer and
Howard, LLP.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
The Maryland General Corporation Law permits a corporation to indemnify
any present or former director, officer, employee or agent of the corporation
against liabilities actually incurred by him or her in connection with any
proceeding to which he or she may be made a party by reason of his or her
service as a director, officer, employee or agent of the corporation.
Indemnification is not available if:
. the act or omission of the person seeking indemnification
was material to the matter giving rise to the proceeding
and was either committed in bad faith or the result of
active and deliver dishonesty;
. the person seeking indemnification actually received an
improper personal benefit in money, property or services; or
. the person seeking indemnification, in the case of any
criminal proceeding, reasonably believed that the act or
omission was not lawful.
If a proceeding is by or in the name of the corporation, indemnification is not
available if the director, officer, employee or agent is adjudged to be liable
to the corporation.
The Maryland General Corporation Law permits a corporation to pay or
reimburse reasonable expenses, including attorney's fees, incurred by a present
or former director, officer, employee or agent of a corporation made a party to
a proceeding by reason of his or her service as a director, officer employee or
agent of the corporation. In addition, the Maryland General Corporation Law
requires a corporation to indemnify a director or officer of the corporation
against reasonable expenses incurred by the director or officer in connection
with a proceeding to which he or she is made a party by reason of his or her
service to the corporation if he or she is successful in the proceeding.
17
<PAGE>
The selling stockholders have agreed to indemnify us against liabilities
concerning untrue statements or omissions that they make, or violations of the
securities laws that they commit, with respect to the registration of the shares
of common stock, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be given to directors, officers and controlling persons of the small
business issuer or others under the above provisions, or otherwise, the small
business issuer has been informed that in the opinion of the Commission,
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against liabilities
arising under the Securities Act, other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding, is
asserted by that director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether that indemnification by it
is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of that issue.
No person has been authorized to give any information or to make any
representation not contained in or incorporated by reference in this prospectus,
and, if given or made, the information or representation not contained in this
prospectus must not be relied on as having been authorized. This prospectus does
not constitute an offer to sell, or the solicitation of an offer to purchase,
any of the securities offered by this prospectus, in any jurisdiction to or from
any person to or from whom it is unlawful to make such offer or solicitation of
an offer, or proxy solicitation in such jurisdiction. Neither the delivery of
this prospectus nor the issuance or sale of any securities hereunder shall under
any circumstances create any implication that there has been no change in the
information disclosed in this prospectus to date or delivered and incorporated
by reference.
18
<PAGE>
Part II. Information Not Required in Prospectus
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth an estimate of the costs and expenses
expected to be incurred in connection with the distribution, all of which will
be paid by Integral:
Registration Fee -- Securities and Exchange Commission.............. $ 7,648
Listing Fee -- Nasdaq National Market............................... $ 17,500
Legal Fees and Expenses............................................. 50,000
Printing and Engraving Expenses..................................... 5,000
Miscellaneous....................................................... 5,000
--------
Total............................................................... $ 85,148
========
The Company will bear all of the above fees and expenses.
Except for the Securities and Exchange Commission Registration fee and
the Nasdaq National Market listing fee, the above fees and expenses are
estimates.
Item 15. Indemnification of Directors and Officers.
Section 2-418 of the Maryland General Corporation Law permits a
corporation to indemnify each of its present and former directors and officers,
among others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by him or her in connection with any proceeding to
which he or she may be made a party by reason of his or her service in that
capacity or some other capacities, unless it is established that:
. the act or omission of the director or officer was
material to the matter giving rise to such proceeding
and (i) was committed in bad faith or (ii) was the
result of active and deliberate dishonesty;
. the director or officer actually received an improper
personal benefit in money, property or services; or
. in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the
act or omission was unlawful.
However, if the proceeding was one by or in the right of the corporation,
indemnification may not be made in respect of any proceeding in which the
director or officer shall have been adjudged to be liable to the corporation.
In addition, Section 2-418(f) of the Maryland General Corporation Law
permits a corporation to pay or reimburse, in advance of the final disposition
of a proceeding, reasonable expenses, including attorney's fees, incurred by a
present or former director or officer made a party to the proceeding by reason
of his or her service in that capacity or some other capacities, provided that
the corporation shall have received:
. a written affirmation by the director or officer of
his or her good faith belief that he or she has met
the standard of conduct necessary for indemnification
by the corporation; and
. a written undertaking by or on behalf of the director
or officer to repay the amount paid or reimbursed by
the corporation if it shall ultimately be determined
that the standard of conduct was not met.
The Maryland General Corporation Law also provides that, unless limited by the
corporation's articles of incorporation, a director or officer of the
corporation who has been successful, on the merits or otherwise, shall be
indemnified against reasonable expenses incurred by the director or officer in
connection with any proceeding to which he or she is made a party by reason of
his or her service in that capacity or some other capacities. Maryland law
permits a corporation to indemnify and advance expenses to a present and former
officer, employee or agent of the corporation to the same extent as a director,
and to provide additional indemnification to such an officer, employee or agent
who is not also a director.
II-1
<PAGE>
Integral has provided for indemnification of directors, officers,
employees and agents in Article Ninth of its Articles of Incorporation and in
Section 1 of Article VI of the By-Laws. These provisions read as follows:
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.
Integral's Articles of Incorporation do not alter the requirement of the
Maryland General Corporation Law that a corporation indemnify a director or
officer who has been successful, on the merits or otherwise, against reasonable
expenses incurred by the director or officer in any proceeding to which he or
she is made a party by reason of his or her service in that capacity or certain
other capacities.
Under the Maryland General Corporation Law, a corporation is permitted to
expand or limit by provision in its articles of incorporation the liability of
its directors and officers to the corporation or to its stockholder for money
damages except to the extent that (i) it is proved that the director or officer
actually received an improper benefit or profit in money, property or services
for the amount of the benefit or profit in money, property or services actually
received, or (ii) a judgment or other final adjudication adverse to the director
or officer is entered in a proceeding based on a finding in the proceeding that
the director's or officer's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. Integral has not expanded or limited the liability of its
directors and officers for money damages in its Articles of Incorporation.
Under the Maryland General Corporation Law, a corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation against any liability asserted
against and incurred by that person in any of these capacities or certain other
capacities or arising out of that person's position, whether or not the
corporation would have the power to indemnify against liability under the
Maryland General Corporation Law. Integral has provided for the purchase of
insurance for its directors, officers, employees or agents in Section 2 of
Article VI of its By-Laws. This provision reads as follows:
Upon resolution passed by the Board of Directors, the Corporation may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or who, while a
director, officer, employee or agent of the Corporation is or was serving
at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or employee benefit plan against any
liability asserted against and incurred by such person in any such
capacity, or arising out of such person's position as such, whether or
not the Corporation would have the power to indemnify him against such
liability under the By-Laws.
The selling stockholders have agreed to indemnify Integral against
liabilities concerning untrue statements or omissions that they make, or
violations of the securities laws that they commit, with respect to the
registration of the shares of common stock, including liabilities under the
Securities Act.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be given to directors, officers and controlling persons of the small
business issuer or others under the above provisions, or otherwise, the small
business issuer has been informed that in the opinion of the Commission,
indemnification for liabilities under the Securities Act is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against liabilities under the
Securities Act, other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding, is asserted by a director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether that indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of the issue.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
4.1 Specimen Common Stock Certificate (Incorporated by reference to the
Registration Statement on Form S-1 (File No. 333-58453) filed by the
Company with the Commission on July 2, 1998).
4.2 Form of Subscription Agreement.
4.3 Articles of Restatement of the Company.
4.4 By-Laws of the Company (Incorporated by reference to the Company's Annual
Report on Form 10-KSB filed by the Company with the Commission on December
29, 1998).
5.1 Opinion of Venable, Baetjer and Howard, LLP.*
23.1 Consent of Rubino & McGeehin, Chartered.
23.2 Consent of Venable, Baetjer and Howard, LLP (included in its opinion
filed as Exhibit 5.1).*
24.1 Power of Attorney (included as part of the signature pages of
this registration statement).
___________________
* To be filed by amendment.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any additional or changed material information on
the plan of distribution;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
in a post-effective amendment is incorporated by reference from periodic reports
filed by the registrant under the Exchange Act.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To file a post-effective amendment and to remove from registration any
of the securities being registered which remain unsold at the end of the
offering.
(e) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Under the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Lanham, Maryland, on the 7th day of July, 1999.
INTEGRAL SYSTEMS, INC.
By: /s/ Steven R. Chamberlain
------------------------------------
Steven R. Chamberlain
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Steven R. Chamberlain and Thomas L. Gough, either of whom may act, as their true
and lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ Steven R. Chamberlain
___________________________ Chief Executive July 7, 1999
Steven R. Chamberlain Officer and Chairman (Principal
Executive Officer)
/s/ Elaine M. Parfitt
___________________________ Vice President and July 7, 1999
Elaine M. Parfitt Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Thomas L. Gough
___________________________ Director, President July 7, 1999
Thomas L. Gough and Chief Operating Officer
___________________________ Director, Vice President July , 1999
Robert P. Sadler Quality Control, Secretary
and Treasurer
/s/ Bonnie K. Wachtel
___________________________ Director July 7, 1999
Bonnie K. Wachtel
/s/ Dominic A. Laiti
___________________________ Director July 7, 1999
Dominic A. Laiti
/s/ R. Doss McComas
___________________________ Director July 7, 1999
R. Doss McComas
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Description
4.1 Specimen Common Stock Certificate (Incorporated by reference to
the Registration Statement on Form S-1 (File No. 333-58453) filed
by the Company with the Commission on July 2, 1998).
4.2 Form of Subscription Agreement.
4.3 Articles of Restatement of the Company.
4.4 By-Laws of the Company (Incorporated by reference to the Company's
Annual Report on Form 10-KSB filed by the Company with the
Commission on December 29, 1998).
5.1 Opinion of Venable, Baetjer and Howard, LLP.*
23.1 Consent of Rubino & McGeehin, Chartered.
23.2 Consent of Venable, Baetjer and Howard, LLP (included in its
opinion filed as Exhibit 5.1).*
24.1 Power of Attorney (included as part of the signature pages of
this registration statement).
___________________
* To be filed by amendment.
II-6
<PAGE>
Exhibit 4.2
FORM OF SUBSCRIPTION AGREEMENT
June 3, 1999
Integral Systems, Inc.
5000 Philadelphia Way, Suite A
Lanham, MD 20706
Ladies/Gentlemen:
1. Subscription, Purchase and Closing; Purchase Price Adjustment.
-------------------------------------------------------------
1.1 The undersigned ("Subscriber"), intending to be legally bound, hereby
subscribes for and agrees to purchase the number of shares (the "Shares") of the
Common Stock, par value $.01 per share (the "Common Stock"), of Integral
Systems, Inc., a Maryland corporation (the "Company"), indicated on the
signature page hereto, at a price of $18.00 per share (the "Purchase Price") and
upon the terms and conditions set forth in this subscription agreement (this
"Agreement").
1.2 The Shares subscribed for hereby shall not be deemed owned by
Subscriber, nor shall Subscriber be deemed a holder of securities of the Company
until this subscription has been accepted by the Company and the Purchase Price
for the Shares subscribed for has been paid. Subscriber understands and agrees
that the Company reserves the right to reject this subscription for the Shares
in whole or in part, in its sole discretion, at any time through the Closing
Date (as that term is defined in Section 1.5). This subscription is subject to
allotment. If subscription for the Shares is oversubscribed, the Company will
determine which subscriptions shall be accepted, in whole or in part.
1.3 In the event of rejection of this subscription, or in the event the
sale of the Shares is not consummated for any reason (in which event this
Agreement shall be deemed to be rejected), this Agreement shall have no force or
effect.
1.4 Subscriber hereby agrees to deliver the Purchase Price required to
purchase the number of Shares subscribed for hereunder, as that amount may be
reduced pursuant to Section 1.2 hereof, on the Closing Date set by the Company
pursuant to Section 1.5 hereof.
1.5 The closing of the transactions contemplated herein (the "Closing")
shall take place at such time as the Company and Allen & Company Incorporated,
as placement agent (the "Placement Agent"), shall determine. The Placement Agent
shall establish and inform Subscriber of the closing date for such subscription
(the "Closing Date") and the date upon which the Purchase Price shall be
delivered to the Company.
<PAGE>
1.6 Payment of the full Purchase Price for the Shares to be purchased
shall be made on the Closing Date by wire transfer of immediately available
funds or at such other time and by such other means as the Company shall
approve. The Company or the Placement Agent will notify Subscriber as to payment
instructions. Upon the Closing Date, certificates representing the Shares
purchased by Subscriber will be delivered by the Company to Subscriber.
2. Representations, Warranties and Agreements of Subscriber. Subscriber
--------------------------------------------------------
hereby represents and warrants to the Company, and hereby covenants and agrees
with the Company, as follows:
(a) Subscriber has full power and authority to enter into this Agreement
and to perform its obligations hereunder. All requisite action on the part
of Subscriber necessary for the authorization, execution, delivery and
performance of Subscriber's obligations under this Agreement and for the
purchase of the Shares has been taken, and this Agreement, when executed by
a duly authorized officer of Subscriber, will be a valid and binding
agreement of Subscriber, enforceable in accordance with its terms, except
as such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization or other similar laws and legal and equitable principles
limiting or affecting the rights of creditors generally and/or (ii) general
principles of equity, regardless of whether considered in a proceeding in
equity or at law, and except as rights to indemnification hereunder may be
limited by Federal or state securities laws.
(b) Subscriber has carefully read this Agreement and, to the extent
Subscriber believes necessary, has discussed with Subscriber's counsel and
other professional advisor(s) the representations, warranties, covenants
and agreements which Subscriber makes by signing it, and any applicable
limitations upon Subscriber's transfer of the Shares issuable thereunder.
Subscriber acknowledges that Subscriber has not relied upon the legal
counsel or accountants for the Company regarding the transactions
contemplated by this Agreement, and Subscriber has been advised to engage
separate legal counsel and accountants to represent Subscriber's individual
interest and advise Subscriber regarding the structure of, and risks
associated with, such transactions.
(c) Subscriber understands that as a publicly traded company, the
Company files with the Securities and Exchange Commission (the "SEC")
various reports, including quarterly and annual financial statements,
annual reports to shareholders, and proxy statements, and that all of such
reports, statements and information are available to the public, including
Subscriber, from the SEC and directly from the Company. Subscriber
acknowledges that the Company has delivered to Subscriber within a
reasonable time prior to the execution of this Subscription Agreement a
copy of the following: (i) the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1998; (ii) the Company's Quarterly
Reports on Form 10-QSB for the fiscal quarters ended December 31, 1998 and
March 31, 1999; (iii) the
2
<PAGE>
Company's definitive proxy statement dated March 23, 1999 and an amendment
thereto dated April 12, 1999 relating to its 1999 Annual Meeting of
Stockholders; (iv) the Company's press releases since September 30, 1998;
(v) certain Risk Factors relating to the transactions contemplated
hereunder and (vi) such other documents as Subscriber (and Subscriber's
attorney, accountant and/or other advisors) deemed pertinent in order for
Subscriber to make an informed investment decision (the documents
identified in clauses (i) through (v) herein are collectively referred to
herein as the "Documents"). The Documents contain "forward-looking
statements" about business strategies, market potential, future financial
performance and other matters. These forward-looking statements are
predictions. No assurances can be given that the future results indicated,
whether expressed or implied, will be achieved. Consequently, the inclusion
of forward-looking statements in the Documents should not be regarded as a
representation by the Company or any other person that these estimates will
be realized, and actual results may vary materially.
Subscriber further acknowledges that Subscriber is entering into this
Agreement solely on the basis of information contained in the Documents and
not on the basis of any information, representations or agreements made by
any other person, and that no representations or warranties of any nature
have been made to Subscriber with respect to the ultimate economic
consequences or tax consequences of Subscriber's investment in the Company.
Subscriber acknowledges that any forecasted financial data, if any, which
may have been given to Subscriber is for illustration purposes only and no
assurance is given that actual results will correspond with the results
contemplated in any such data.
(d) Subscriber acknowledges that Subscriber has had the opportunity to
ask questions of, and receive answers from, or obtain additional
information from, the executive officers of the Company concerning the
financial and other affairs of the Company, and, to the extent deemed
necessary, Subscriber has asked such questions and received satisfactory
answers and desires to invest in the Company. In evaluating the suitability
of an investment in the Company, the Subscriber has not relied upon any
representations or other information (whether oral or written) other than
as set forth in this Agreement or as contained in any documents delivered
or answers given in writing by the Company to questions furnished to the
Company. Subscriber has been advised and acknowledges that no federal or
state agency has made any finding or determination as to the fairness or
merits of an investment in the Company and that no such agency has made any
recommendation or endorsement whatsoever with respect to such an
investment.
(e) Subscriber is an "accredited investor" as that term is defined in
Rule 501 of Regulation D promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"). For this purpose, Subscriber understands that an
"accredited investor" includes:
(i) any individual who: (A) has a net worth (with spouse) in
excess of $1 million; or (B) has had an individual income in excess of
$200,000 (or joint income with spouse in excess of $300,000) in each
of the two most recent
3
<PAGE>
years and who reasonably expects the same income level for the current
year; or (C) who is an executive officer or director of the Company;
(ii) any entity in which all of the equity owners or
partners are "accredited investors"; or
(iii) any corporation or partnership with total assets in
excess of $5,000,000 that was not formed for the specific purpose of
purchasing the securities subscribed hereunder.
(f) Subscriber considers himself/herself/itself to be a sophisticated
investor in companies similarly situated to the Company, and Subscriber has
substantial knowledge and experience in financial and business matters
(including knowledge of finance, securities and investments, generally, and
experience and skill in investments based on actual participation) such
that Subscriber is capable of evaluating the merits and risks of the
prospective investment in the Company.
(g) Subscriber's current address and, if Subscriber is an entity,
Subscriber's state of incorporation or organization, are as set forth on
the signature page hereof. If Subscriber is an entity which does not meet
the classification set forth under Section 2(e)(iii) above, each of
Subscriber's equity owners and/or partners has the same state of residence
as the Subscriber's state of organization and none of Subscriber's equity
owners and/or partners has any present intention of moving from such state
of residency.
(h) Subscriber has been advised and acknowledges that the issuance of
the Shares will not be registered under the Securities Act, in reliance
upon the exemption(s) from registration promulgated thereunder, and,
therefore, are "restricted securities." Subscriber also acknowledges that
the issuance of the Shares will not be registered under the securities laws
of any state. Consequently, Subscriber agrees that the Shares cannot be
resold unless they are registered under the Securities Act and applicable
state securities laws, or unless an exemption from such registration
requirements is available. Subscriber has been advised and acknowledges
that the Company is under no obligation to take any action necessary in
order to make available any exemption for the transfer of the Shares
without registration.
(i) Subscriber is purchasing the Shares solely for Subscriber's own
account and not as nominee for, representative of, or otherwise on behalf
of, any other person. Subscriber is purchasing the Shares with the
intention of holding the Shares for investment, with no present intention
of participating directly or indirectly in a subsequent public distribution
of the Shares unless registered under the Securities Act and applicable
state securities laws, or unless an exemption from such registration
requirements is available. Subscriber shall not make any sale, transfer or
other disposition of the Shares in violation of state or federal law.
4
<PAGE>
(j) Subscriber has been advised that there is no assurance than an
active market for the Shares will continue in the future. Subscriber is
aware that Subscriber's investment in the Company is speculative and
involves a high degree of risk of loss arising from, among other things,
substantial market, operational, competitive and other risks, and, having
made Subscriber's own evaluation of the risks associated with this
investment, Subscriber is aware and Subscriber has been advised that
Subscriber must bear the economic risks of a purchase of the Shares
indefinitely.
(k) Subscriber acknowledges that the Shares were not offered to
Subscriber by means of any form of general or public solicitation or
general advertising, or publicly disseminated advertisements or sales
literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which
Subscriber was invited by any of the foregoing means of communication.
(l) Subscriber understands and agrees that the Company, and all current
and future stockholders of the Company, are relying on the agreements and
representations contained herein.
(m) In connection with the purchase of the Shares by Subscriber,
Subscriber has not and will not pay, and has no knowledge of the payment
of, any commission or other direct or indirect remuneration to any person
or entity for soliciting or otherwise coordinating the purchase of the
Shares, except for fees paid to the Placement Agent.
(n) Subscriber has been advised and agrees that there will be placed on
any certificates representing the Shares, or any substitution(s) thereof, a
legend stating in substance the following (and including any restrictions
or conditions that may be required by any applicable state law), and
Subscriber has been advised and further agrees that the Company will refuse
to permit the transfer of the Shares out of Subscriber's name in the
absence of compliance with the terms of such legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under any state
securities laws and may not be sold, pledged, transferred, assigned or
otherwise disposed of except in accordance with such Act and the rules
and regulations thereunder and in accordance with applicable state
securities laws. The Company will transfer such shares only upon
receipt of evidence satisfactory to the Company, which may include an
opinion of counsel, that the registration provisions of such Act have
been compiled with or that such registration is not required and that
such transfer will not violate any applicable state securities laws."
5
<PAGE>
(o) Subscriber is aware that the Company may offer and sell additional
shares of Common Stock in the future, thereby diluting Subscriber's
percentage equity ownership of the Company.
3. Representations of the Company. As used in this Section 4, the
------------------------------
following capitalized terms shall have the meanings set forth below:
"Contract" means any agreement, indenture, lease, sublease, license,
sublicense, promissory note, evidence of indebtedness, insurance policy,
annuity, mortgage, restriction, commitment, obligation or other contract,
agreement or instrument (whether written or oral).
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time.
"Material Adverse Change" or "Material Adverse Effect" means, with respect
to any Person, any change or effect that is materially adverse to the financial
condition, business, prospects or results of operations of such Person.
"Person(s)" means any individual, sole proprietorship, partnership, joint
venture, trust, limited liability company, incorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
Subscriber is subscribing for the Shares based upon the following
representations and warranties of the Company, which the Company hereby confirms
by accepting this subscription:
(a) Organization. The Company is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Maryland and
has the corporate power to own and/or lease its properties and to conduct
its business in the places where such properties are now owned, leased or
operated or such business is presently conducted. The Company is duly
qualified and licensed as a foreign corporation in additional jurisdictions
in which it owns or leases real property or in which its operations or
activities would otherwise require such qualification, except where such
failure to qualify would not have a Material Adverse Effect on the Company.
(b) Authorization. The execution, delivery and performance of this
-------------
Agreement by the Company has been duly and validly authorized and approved
by its Board of Directors, and this Agreement, when executed by a duly
authorized officer of this Company, will be a valid and binding agreement
of the Company, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, reorganization
or other similar laws and legal and equitable principles limiting or
affecting the rights of creditors generally and/or (ii) general principles
of equity,
6
<PAGE>
regardless of whether considered in a proceeding in equity or at law, and
except as rights to indemnification hereunder may be limited by federal or
state securities laws.
(c) Capitalization. The authorized capital stock of the Company consists
--------------
of 40,000,000 shares of Common Stock, $.01 par value per share. All issued
and outstanding shares of capital stock of the Company have been, and as of
the Closing Date will be, duly authorized and validly issued and are fully
paid and non-assessable. As of the date hereof, 5,948,811 shares of Common
Stock are issued and outstanding. The Company has a Stock Option Plan,
pursuant to which the Company has issued options to acquire up to an
aggregate of 868,667 shares of Common Stock to its key employees. As of the
date hereof, 400,451 of such options are exercisable under this plan.
(d) No Violations; Defaults. The execution and delivery of this
-----------------------
Agreement and the consummation of the transactions contemplated by this
Agreement will not (i) violate, result (with the lapse of time or giving of
notice, or both) in a violation of, conflict with, or constitute a default
under, or permit the termination or acceleration of the maturity of, any
material indebtedness or material obligation of the Company; (ii) violate,
result (with the lapse of time or giving of notice, or both) in a violation
of, conflict with or constitute a default under, any material term of, or
permit the termination of, any material note, mortgage, indenture, license,
agreement, contract, arrangement, understanding or other instrument to
which the Company is a party, or by which it is bound, or the Articles of
Incorporation or By Laws of the Company, or (iii) violate any statute, law,
rule, regulation or ordinance known to the Company, or any judgment,
decree, order, regulation or rule of any court, tribunal, administrative or
governmental agency, body or entity to which the Company or its properties
are subject. The Subscriber is familiar with Regulation M promulgated under
the Securities Exchange Act of 1934, a copy of which is attached hereto as
Exhibit A, and is in full compliance with the provisions thereof with
---------
respect to the transactions contemplated hereby.
(e) Validity of Securities. The Shares, when issued in accordance with
----------------------
the terms and conditions hereof, will be duly authorized, validly issued,
fully paid and non-assessable, and the delivery to Subscriber of the Shares
delivered pursuant to this Agreement shall vest in it good title thereto,
free of any and all liens, options, encumbrances, charges, third-party
rights or claims of any nature whatsoever except for restrictions on
transfers set forth herein or imposed by law.
(f) Disclosure. The Company is aware of no facts which lead it to
----------
believe that the Documents, as of their respective dates, contain any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(g) Material Changes. Except as set forth in the Documents, or as
----------------
otherwise contemplated herein, since September 30, 1998, there has been no
Material Adverse Change in the Company, and there has not been (i) any
direct or indirect redemption, purchase or other acquisition by the Company
of any shares of the Common
7
<PAGE>
Stock or (ii) declaration, setting aside or payment of any dividend or
other distribution by the Company with respect of the Common Stock.
(h) No Commissions. In connection with the purchase of the Shares
--------------
hereunder, the Company has agreed to pay the Placement Agent a placement
fee and certain expenses relating to the transactions contemplated
hereunder. Except for such placement fee and expenses, the Company has not
incurred any other obligation for any finder's or broker's or agent's fees
or commissions in connection with the sale of the Shares.
(i) Consents/Approvals. No consent, approval, waiver or other action by
------------------
any Person under any Contract to which the Company is a party, or by which
any of its properties or assets are bound, is required or necessary for the
execution, delivery or performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby, except where the
failure to obtain such consents, filings, authorizations, approvals or
waivers or make such filings would not have a Material Adverse Effect on
the Company.
(j) SEC Reports and Nasdaq Compliance. Since September 30, 1997, the
---------------------------------
Company has made, in a timely fashion, all filings (as amended, the "SEC
Reports") required to be made by it under the Exchange Act. The SEC
Reports, when filed, complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act and the securities
laws, rules and regulations of any state and pursuant to any Requirements
of Law. The Company will use its best efforts to ensure its continued
inclusion in, and the continued eligibility of the Common Stock for trading
on, the Nasdaq National Market under all currently effective and currently
proposed inclusion requirements prior to and after the Closing.
(k) Financial Statements. Each of the balance sheets included in the
--------------------
Documents (including any related notes and schedules) fairly presents in
all material respects the financial position of the Company as of its date,
and each of the other financial statements included in the Documents
(including any related notes and schedules) fairly presents in all material
respects the results of operations or other information therein of the
Company for the periods or as of the dates therein set forth in accordance
with GAAP consistently applied during the periods involved (except that the
interim reports are subject to normal recording adjustments which might be
required as a result of year-end audit and except as otherwise stated
therein).
The Company represents that the foregoing representations and warranties are
true and correct as of the date hereof and, unless the Company otherwise
notifies Subscriber prior to the Closing Date, shall be true and correct as of
the Closing Date. The foregoing representations and warranties shall survive
the Closing Date.
8
<PAGE>
4. Registration Rights.
-------------------
4.1 Registration of Shares. As soon as practicable, but in any event no
----------------------
later than 30 days after the Closing Date, the Company will file a registration
statement (the "Registration Statement") under the Securities Act of 1933, as
amended, with respect to all of the Shares (collectively, the "Subject Stock"),
and the Company shall use its best efforts to cause such Registration Statement
to become effective as soon as practicable after filing. In connection
therewith, each holder of Shares (each, a "Holder") will provide in a timely
manner all such information and materials pertaining to it as may be required in
order to permit the Company to comply with all applicable requirements of the
Commission and to obtain the acceleration of the effective date of the
Registration Statement. In connection with such registration, the Company shall:
(a) keep the Registration Statement effective until the
earliest of (i) when each Holder has sold its Subject Stock, (ii) two years
following the effective date of the Registration Statement, or (iii) the date
all of the Shares may be sold without volume limitations under Rule 144 under
the Securities Act of 1933;
(b) as expeditiously as possible furnish to each Holder such
reasonable numbers of copies of the prospectus as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Subject Stock;
(c) as expeditiously as possible use its best efforts to
register or qualify the Subject Stock under the securities or Blue Sky laws of
such states as Subscriber shall reasonably request, provided, however, that the
-------- -------
Company shall not be required in connection with this paragraph (c) to qualify
as a foreign corporation or execute a general consent to service of process in
any jurisdiction;
(d) pay all costs and expenses incident to registration
hereunder, except as set forth in Section 5.2.
4.2 Holder's Fees. Each Holder shall pay any and all underwriters'
-------------
discounts, brokerage fees and transfer taxes incident to the sale of the Subject
Stock sold by such Holder pursuant to this Section and the fees and expenses of
its counsel.
5. Indemnification.
---------------
5.1 Indemnification Generally. The Company shall indemnify Subscriber from
-------------------------
and against any and all losses, damages, liabilities, claims, charges, actions,
proceedings, demands, judgments, settlement costs and expenses of any nature
whatsoever (including, without limitation, attorneys' fees and expenses) or
deficiencies resulting from any material breach of a representation, warranty or
covenant by the Company and all claims, charges, actions or proceedings incident
to or arising out of the foregoing.
9
<PAGE>
5.2 Indemnification Relating to Registration Rights.
-----------------------------------------------
(a) With respect to any registration, qualification or
compliance effected or to be effected pursuant to Section 4 of this
Agreement, the Company shall indemnify each Holder of the Shares whose
securities are included or are to be included therein, each of such
Holder's directors and officers, each underwriter (as defined in the
Securities Act) of the securities sold by such Holder (if any), and each
Person who controls (within the meaning of the Securities Act) any such
Holder or underwriter (a "Controlling Person") from and against all losses,
damages, liabilities, claims, charges, actions, proceedings, demands,
judgments, settlement costs and expenses of any nature whatsoever
(including, without limitation, attorneys' fees and expenses) or
deficiencies of any such Holder or any such underwriter or Controlling
Person concerning:
(i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document (including any related registration statement, notification
or the like) incident to any such registration, qualification or
compliance;
(ii) any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make a
statement therein, in the light of the circumstances under which it
was made, not misleading; or
(iii) any violation by the Company of the Securities Act or
any rule or regulation promulgated thereunder applicable to the
Company, or of any blue sky or other state securities laws or any rule
or regulation promulgated thereunder applicable to the Company,
in each case, relating to any action or inaction required of the Company in
connection with any such registration, qualification or compliance, and subject
to Section 5.3 below will reimburse each such Person entitled to indemnity under
this Section for all legal and other expenses reasonably incurred in connection
with investigating or defending any such loss, damage, liability, claim, charge,
action, proceeding, demand, judgment, settlement or deficiency; provided,
--------
however, that the foregoing indemnity and reimbursement obligation shall not be
- -------
applicable to the extent that any such matter arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged omission)
made in reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Holder or by or on behalf of such an
underwriter specifically for use in such prospectus, offering circular or other
document.
(b) With respect to any registration, qualification or
compliance effected or to be effected pursuant to this Agreement, each
Holder of the Shares whose securities are included or are to be included
therein, shall indemnify the Company from and against all losses, damages,
liabilities, claims, charges, actions, proceedings, demands, judgments,
settlement costs and expenses of any nature whatsoever (including, without
limitation, attorneys' fees and expenses) or deficiencies of the Company
concerning:
(i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document
10
<PAGE>
(including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance;
(ii) any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statement therein, in the light of the circumstances under which it
was made, not misleading; or
(iii) any violation by such Holder of the Securities Act or
any rule or regulation promulgated thereunder applicable to the
Company or such Holder or of any blue sky or other state securities
laws or any rule or regulation promulgated thereunder applicable to
the Company or such Holder,
in each case, relating to any action or inaction required of such Holder in
connection with any such registration, qualification or compliance, and subject
to Section 5.3 below will reimburse the Company for all legal and other expenses
reasonably incurred in connection with investigating or defending any such loss,
damage, liability, claim, charge, action, proceeding, demand, judgment,
settlement or deficiency; provided, however, that, (i) the obligation of the
-------- -------
Holder hereunder shall be limited to an amount equal to the proceeds to the
Holder of the Shares sold as contemplated hereunder and (ii) the immediately
foregoing indemnity and reimbursement obligation shall be applicable only to the
extent that any such matter arises out of or is based on (a) any untrue
statement (or alleged untrue statement) or omission (or alleged omission) made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Holder specifically for use in such prospectus,
offering circular or other document or (b) any violation by Holder of any rule
or regulation promulgated under the Securities Act applicable to Holder.
5.3 Indemnification Procedures. Each Person entitled to indemnification under
--------------------------
this Section (an "Indemnified Party") shall give notice as promptly as
reasonably practicable to each party required to provide indemnification under
this Section (an "Indemnifying Party") of any action commenced against or by it
in respect of which indemnity may be sought hereunder, but failure to so notify
an Indemnifying Party shall not relieve such Indemnifying Party from any
liability that it may have otherwise than on account of this indemnity agreement
so long as such failure shall not have materially prejudiced the position of the
Indemnifying Party. Upon such notification, the Indemnifying Party shall assume
the defense of such action if it is a claim brought by a third party, and after
such assumption the Indemnifying Party shall not be entitled to reimbursement of
any expenses incurred by it in connection with such action except as described
below. In any such action, any Indemnified Party shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the contrary or (ii) the named
parties in any such action (including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
or conflicting interests between them. The Indemnifying Party shall not be
liable for any settlement of any proceeding effected without its written consent
(which shall not be unreasonably withheld or delayed by such Indemnifying
Party), but if settled with such consent or if there be final judgment for the
plaintiff,
11
<PAGE>
the Indemnifying Party shall indemnify the Indemnified Party from and against
any loss, damage or liability by reason of such settlement or judgment.
6. Miscellaneous.
-------------
6.1 Neither this Agreement nor any provisions hereof shall be modified,
discharged or terminated except by an instrument in writing signed by the party
against whom any such waiver, change, discharge or termination is sought to be
enforced.
6.2 Any notice, demand or other communication which any party hereby may
be required or may elect, to give to anyone interested hereunder shall be
sufficiently given if (a) deposited, postage prepaid, in a United States mail
letter box, registered or certified mail, return receipt requested, addressed to
such address as may be given herein three business days after such deposit, or
(b) delivered personally at such address. The Company's address for notices is
set forth on the first page hereof, and the Subscriber's address for notices is
set forth on the signature page.
6.3 This Agreement may be executed through the use of separate signature
pages or in any number of counterparts, and each of such counterparts shall, for
all purposes, constitute one agreement binding on all the parties,
notwithstanding that all parties are not signatories to the same counterpart.
6.4 Except as otherwise provided herein, the agreement shall be binding
upon and inure to the benefit of the parties and their successors, legal
representatives and assigns.
6.5 This Agreement (including the Exhibits attached hereto) contains the
entire agreement of the parties, and there are no representations, covenants or
other agreements except as stated or referred to herein.
6.6 This Agreement is not transferable or assignable by Subscriber except
as may be provided herein.
6.7 This Agreement shall be governed by and construed in accordance with
the law of the State of New York applicable to agreements made and to be
performed in that State.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Subscription Agreement
to be duly executed and delivered as of the date set forth below.
NAME OF SUBSCRIBER: ADDRESS FOR NOTICES (Please Print):
___________________________ _______________________________________
_______________________________________
SIGNATURE: _______________________________________
Attention:_____________________________
By:________________________ Telecopy:______________________________
Name:
Title: Tax Identification #:__________________
Exact Name to appear on Stock Certificate: ___________________________________
Number of Shares Subscribed For: _____________________________________________
Price = $18 (must be a whole number of shares)
Aggregate Purchase Price (see Section 1.1): $_______________________________
The Investor hereby provides the following additional information:
(a) Excluding the shares of Common Stock subscribed for above, set forth
below is the number of shares of Common Stock and options rights or warrants of
Integral Systems, Inc. ("Options" and together with the Common Stock,
"Securities") which Subscriber beneficially owns or of which Subscriber is the
-----------------
record owner on the date hereof. Please refer to the definition of beneficial
----------
ownership on Exhibit B attached hereto. If none, please so state.
- --------- ---------
Number of Shares: __________________ (excluding the Shares subscribed for
above)
Number of Options: __________________
Please indicate by an asterisk (*) above if Subscriber disclaims "beneficial
----------
ownership" of any of the above listed Securities, and indicate in response to
- ---------
question (b) below who has beneficial ownership.
(b) If Subscriber disclaims "beneficial ownership" in question (a), please
--------------------
furnish the following information with respect to the person(s) other than
Subscriber who is the beneficial owner(s) of the Securities in question. If not
applicable, please check box: [_]
Name of Beneficial Owner:____________________________________
Relationship to Subscriber:__________________________________
Number of Securities Beneficially Owned:_____________________
13
<PAGE>
NAME OF SUBSCRIBER:________________________
(c) Are any of the Securities listed in response to question (a) the
subject of a voting agreement, contract or other arrangement whereby others have
voting control over, or any other interest in, any of Subscriber's Securities?
Yes No
If the answer is "Yes", please give details:___________________________________.
(d) Please describe each position, office or other material relationship
which the Investor has had with the Company or any of its affiliates, including
any Subsidiary of the Company, within the past three years. Please include a
description of any loans or other indebtedness, and any contracts or other
arrangements or transactions involving a material amount, payable by Subscriber
to the Company or any of its affiliates, including its Subsidiaries, or by the
Company or any of its affiliates, including its Subsidiaries, to Subscriber .
"Affiliates" of the Company include its directors and executive officers, and
any other person controlling or controlled by the Company. If none, please so
state.
Answer:
(e) Please provide the name and address of other person(s), if any, to whom
any proxy statements, registration statements (including notice of effectiveness
thereof), prospectuses or similar documents and information should be delivered
by the Company on behalf of Subscriber in the future, with respect to
Subscriber's shares:
____________________________ _____________________________
____________________________ _____________________________
____________________________ _____________________________
(f) Please advise of special stock certificate delivery requirements for
closing, if any:
(g) Please advise if a NASD member has placed with you the Shares being
purchased hereunder:
(Name of Member:) __________________________________________
================================================================================
ACCEPTED: INTEGRAL SYSTEMS, INC.
By:_______________________________
Name: Steven R. Chamberlain
Title: Chief Executive Officer
14
<PAGE>
EXHIBIT A
Copy of Regulation M
<PAGE>
EXHIBIT B
Explanation of "BENEFICIAL OWNERSHIP"
Securities that are subject to a power to vote or dispose are deemed
beneficially owned by the person who holds such power, directly or indirectly.
This means that the same securities may be deemed beneficially owned by more
than one person, if such power is shared. In addition, the beneficial ownership
rules provide that shares which may be acquired upon exercise of an option or
warrant, or which may be acquired upon the termination of a trust, discretionary
account or similar arrangement, which can be effected within a period of 60 days
from the date of determination, are deemed to be "beneficially" owned.
Furthermore, shares that are subject to rights or powers even though such rights
or powers to acquire are not exercisable within the 60-day period may also be
deemed to be beneficially owned if the rights or powers were acquired "with the
purpose or effect of changing or influencing the control of the issuer or in
connection with or as a participant in any transaction having such purpose or
effect."
In determining whether securities are "beneficially owned," benefits which
are substantially equivalent to those of ownership by virtue of any contract,
understanding, relationship, agreement or other arrangement should cause the
securities to be listed as "beneficially owned."
Thus, for example, securities held for a person's benefit in the name of
others or in the name of any estate or trust in which such person may be
interested should also be listed. Securities held by a person's spouse,
children or other members of such person's family who are such person's
dependents or who live in such person's household should be listed as
"beneficially owned" unless such person does not enjoy benefits equivalent to
those of ownership with respect to such securities.
If a person has a proprietary or beneficial interest in a controlled
corporation, partnership, personal holding company, trust or estate which owns
of record or beneficially any securities, such person should state the amount of
such securities owned by such controlled corporation, partnership, personal
holding company, trust or estate in lieu of allocating such person's proprietary
interest, and by note or otherwise, please indicate that. In any case, the name
of the controlled corporation, partnership, personal holding company, or estate
must be stated.
In all cases the nature of the beneficial ownership should be stated.
<PAGE>
Exhibit 4.3
ARTICLES OF RESTATEMENT
OF
INTEGRAL SYSTEMS, INC.
Integral Systems, Inc., a Maryland corporation (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
1. The Corporation desires to restate its Charter as currently in effect.
Therefore, the Charter of the Corporation is hereby restated as follows:
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.
-1-
<PAGE>
FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is one class of Forty Million (40,000,000) 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 $400,000.
FIFTH: The number of directors shall be set at six (6) members. The
number of directors may be increased or decreased by the Board of Directors
pursuant to the bylaws of 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 the 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 provisions set forth in the above articles of restatement are all
of the provisions of the Corporation's Charter currently in effect.
3. The restatement of the Charter of the Corporation herein made was
approved by a majority of the entire Board of Directors of the Corporation.
-2-
<PAGE>
4. The Charter of the Corporation is not amended by the above articles of
restatement.
5. 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.
6. 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.
-3-
<PAGE>
IN WITNESS WHEREOF, Integral Systems, Inc. has caused these Articles of
Restatement 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 7th day of
May, 1999.
THE UNDERSIGNED President acknowledges these Articles of 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/ Robert P.Sadler By: /s/ Thomas L. Gough (SEAL)
- --------------------------- --------------------------
Robert P. Sadler, Secretary Thomas L. Gough, President
-4-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this Registration
Statement of Integral Systems, Inc. on Form S-3 of our report dated November 20,
1998, with respect to the consolidated financial statements of Integral Systems,
Inc. and its subsidiaries included in its Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1998, and to the use of our name as it appears
under the caption "Experts."
/s/ Rubino & McGeehin, Chartered
--------------------------------
Rubino & McGeehin, Chartered
Certified Public Accountants
Bethesda, Maryland
July 7, 1999
