OBJECTIVE SYSTEMS INTEGRATORS INC, 10-Q, 1999-11-15

OBJECTIVE SYSTEMS INTEGRATORS INC
10-Q, 1999-11-15
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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________.

Commission file number: O-26886

OBJECTIVE SYSTEMS INTEGRATORS, INC.
(Exact name of registrant as specified in its charter)

Delaware 68-0239619
(State or other jurisdiction of (I.R.S. Identification Number)
incorporation or organization)

100 Blue Ravine Road
Folsom, California 95630
(Address of principal executive office, including zip code)

(916) 353-2400
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
---

Number of shares of registrant's common stock outstanding as of October 31,
1998: 35,877,146

i
<PAGE>

OBJECTIVE SYSTEMS INTEGRATORS, INC.

Table of Contents

<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements...................... 1

Condensed Consolidated Balance Sheets at September 30, 1999
and June 30, 1999................................................ 1

Condensed Consolidated Statements of Operations for the three
months ended September 30, 1999 and 1998......................... 2

Condensed Consolidated Statements of Cash Flows for the three
months ended September 30, 1999 and 1998......................... 3

Notes to Condensed Consolidated Financial Statements............. 4

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 6

Item 3. Quantitative and Qualitative Disclosure About Market Risk........ 18

PART II. OTHER INFORMATION

Item 1. Legal Proceedings................................................ 18

Item 6. Exhibits and Reports on Form 8-K................................. 19

SIGNATURE 20

10.1 1994 Incentive Stock Plan
10.2 1995 Employee Stock Purchase Plan
10.3 Employment Agreement Lawrence F. Fiore
27.1 Financial Data Schedule

</TABLE>

i
<PAGE>

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

OBJECTIVE SYSTEMS INTEGRATORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- ---------
(unaudited) (1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 15,203 $ 15,811
Short-term investments.................................................. 16,197 15,771
Accounts receivable (net of allowance of $2,069 and $1,865)............. 12,068 17,251
Prepaid expenses and other current assets............................... 1,788 1,515
-------- --------
Total current assets................................................. 45,256 50,348
Property and equipment, net............................................... 10,435 11,319
Other assets, net......................................................... 3,781 4,757
-------- --------
Total assets......................................................... $ 59,472 $ 66,424
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 5,434 $ 5,822
Accrued liabilities..................................................... 6,076 6,662
Deferred revenue........................................................ 8,851 10,078
-------- --------
Total current liabilities............................................ 20,361 22,562

Stockholders' equity:
Common stock............................................................ 86,707 86,703
Accumulated other comprehensive loss.................................... (943) (917)
Retained deficit........................................................ (46,653) (41,924)
-------- --------
Total stockholders' equity........................................... 39,111 43,862
-------- --------
Total liabilities and stockholders' equity........................... $ 59,472 $ 66,424
======== ========
</TABLE>

(1) Information in this column derived from OSI's audited consolidated
balance sheet as of June 30, 1999.

See notes to condensed consolidated financial statements.

1
<PAGE>

OBJECTIVE SYSTEMS INTEGRATORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1999 1998
--------- --------
<S> <C> <C>
Revenues:
License............................................... $ 4,824 $11,428
Service and other..................................... 7,187 6,532
-------- -------
Total revenues..................................... 12,011 17,960
-------- -------
Cost of revenues:
License............................................... 575 449
Service and other..................................... 3,879 4,670
-------- -------
Total cost of revenues............................. 4,454 5,119
-------- -------
Gross profit............................................ 7,557 12,841
-------- -------
Operating expenses:
Sales and marketing................................... 6,079 7,132
Research and development.............................. 4,727 4,729
General and administrative............................ 1,542 1,497
-------- -------
Total operating expenses........................... 12,348 13,358
-------- -------
Loss from operations.................................... (4,791) (517)

Other income, net....................................... 261 639
-------- -------
Income (loss) before income taxes....................... (4,530) 122

Provision for income taxes.............................. 199 48
-------- -------
Net income (loss)....................................... $ (4,729) $ 74
-------- -------
Earnings (loss) per share:
Basic................................................. $ (0.13) $ 0.00
======== =======
Diluted............................................... $ (0.13) $ 0.00
======== =======
Shares used in loss per share calculations:
Basic................................................. 35,630 34,807
======== =======
Diluted............................................... 35,630 35,930
======== =======
</TABLE>

See notes to condensed consolidated financial statements.

2
<PAGE>

OBJECTIVE SYSTEMS INTEGRATORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................................... $ (4,729) $ 74
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization....................................................... 2,593 1,727
Deferred income taxes............................................................... -- (50)
Stock compensation expense.......................................................... -- 105
Effect of changes in:
Accounts receivable............................................................... 5,177 1,357
Prepaid expenses and other current assets......................................... (268) (456)
Accounts payable.................................................................. (421) 9
Accrued liabilities............................................................... (582) 206
Deferred revenue.................................................................. (1,227) 826
------- -------
Net cash provided by operating activities.................................... 543 3,798
------- -------
Cash flows from investing activities:
Sales (purchases) of short-term investments............................................ (427) 2,692
Purchases of property and equipment.................................................... (704) (1,631)
Purchases of other assets.............................................................. (43) --
------- -------
Net cash provided by (used in) investing activities.......................... (1,174) 1,061
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............................................ 4 250
Purchase of treasury stock............................................................. -- (172)
------- -------
Net cash provided by financing activities.................................... 4 78
------- -------
Effect of exchange rate changes on cash................................................... 19 (36)
------- -------
Net increase (decrease) in cash and cash equivalents......................... (608) 4,901
Cash and cash equivalents:
Beginning of the period................................................................ 15,811 24,568
------- -------
End of the period...................................................................... $15,203 $29,469
======= =======
</TABLE>

See notes to condensed consolidated financial statements.

3
<PAGE>

OBJECTIVE SYSTEMS INTEGRATORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Basis of Presentation

These unaudited, condensed, consolidated financial statements have been
prepared by Objective Systems Integrators, Inc. ("OSI") under the rules and
regulations of the Securities and Exchange Commission. In accordance with those
rules and regulations, some of the information normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted.

The information in this report reflects all adjustments that we believe are
necessary to fairly state OSI's financial position, results of operations and
cash flows for the periods presented. These adjustments consist of items that
are of a normally recurring nature.

These financial statements should be read in conjunction with the audited
financial statements and their notes contained in OSI's Annual Report on
Form 10-K for the fiscal year ended June 30, 1999. Results for interim periods
are not necessarily indicative of the results expected for the full fiscal year
or for any other period.

2. Net Income (Loss) Per Share

Under SFAS No. 128, Earnings Per share, basic net income (loss) per share is
computed using the weighted average of common shares outstanding. Diluted net
income (loss) per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares are the incremental common shares that could be issued (using the
treasury stock method) following the exercise of stock options. Common
equivalent shares outstanding are not included in the net loss per share
calculations in loss periods as their inclusion would have the effect of showing
a smaller loss per share.

3. Comprehensive Income

SFAS No, 130, Reporting Comprehensive Income, requires us to report a new,
additional measure of income. "Comprehensive Income" includes gains and losses
from foreign currency translations and unrealized gains and losses on equity
securities. These items were previously excluded from net income and reflected
instead in stockholders' equity. The following table sets forth the calculation
of comprehensive income:

<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
--------------------------
(in thousands) 1999 1998
--------------------------
<S> <C> <C>
Net income (loss) $(4,729) $ 74
Foreign currency translation losses (26) (160)
--------------------------
Total comprehensive loss $(4,755) $ (86)
==========================
</TABLE>

4
<PAGE>

4. Accounting for Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standard Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as an asset or liability measured at
its fair value. It requires that changes in a derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. It also requires that companies must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 2000 and cannot be
applied retroactively. We are currently evaluating SFAS No. 133, but do not
expect that it will have a material effect on our financial position or results
of operations.*

5. Segment and Geographic Information

The Company adopted SFAS No. 131 Disclosures about Segments of an Enterprise and
Related Information, in fiscal 1999. SFAS No. 131 established standards for
reporting information in our financial statements about operating segments.
Operating segments are defined as components of an enterprise where separate
financial information is available that is regularly evaluated by a chief
operating decision maker, or decision making group, in deciding resource
allocations and in assessing performance. Our chief operating decision makers
are our Co-Chief Executive Officers.

We conduct our business in one business segment. For the quarter ended
September 30, 1999, no one customer accounted for more than 10% of our total
revenues. While our Co-Chief Executive Officers evaluate results in a number of
different ways, the line of business management structure is the primary basis
they use to assess financial performance and allocates resources.

The accounting policies of the line of business operating segments are the same
as those described in our form 10-K for the fiscal year ended June 30, 1999.

The following table presents a summary of geographic information:

5
<PAGE>

<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
-----------------------
(in thousands) 1999 1998
-----------------------
<S> <C> <C>
Revenues:
United States................................. $ 6,089 $ 9,889
Europe........................................ 1,909 1,687
Asia and Pacific Rim.......................... 2,698 3,940
Latin America................................. 1,230 2,444
Other......................................... 85 --
-----------------------
Total....................................... $12,011 $17,960
=======================

Long-lived assets:
United States................................. $12,632 $14,349
Europe........................................ 138 135
Asia and Pacific Rim.......................... 1,446 1,592
-----------------------
Total Consolidated.......................... $14,216 $16,076
=======================
</TABLE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Forward-Looking Statements

Some of the statements in this Report are "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. They have been
identified with an asterisk (*). Underlying these statements are a number of
assumptions regarding risks, both known and unknown, which may cause the actual
results of Objective Systems Integrators, Inc. ("OSI") or the communications
industry to differ materially from those that are expressed or implied. These
risks include but are not limited to concentration of product and customers;
growth of sales, customer support and development organizations; competition and
technological change in the industry; international licensing; dependence on
third party relationships; risk of product defect; fluctuations of quarterly
results; "Year 2000" issues; and retention of key personnel. Additional
information can be found in Item 1, Notes to Condensed Consolidated Financial
Statements and throughout Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 3, Quantitative and
Qualitative Disclosure About Market Risk.

Overview

OSI provides Operation Support Systems ("OSS") framework and application
software that simplifies the integration and management of communications
networks, services, and processes. We were founded in June of 1989 and began
shipments of our NetExpert(TM) product line in August of 1990. In fiscal 1999,
we announced our next-generation framework product, NetExpert Virtual Service
Management ("VSM(TM)") and NetExel(TM) Solution Services applications. These new
products reduce deployment time and reduce the expertise needed for
customization of our products. They are being integrated under our NetEx(TM)
Unified Management Architecture ("UMA(TM)") to provide a blueprint for managing
converged services and

6
<PAGE>

networks. As of September 30, 1999, we had directly or indirectly licensed our
products to over 250 customers around the world.

Revenue from licenses, service and support of the NetExpert product line has
accounted for substantially all of our revenues since our inception. A typical
NetExpert sale generally includes a combination of license fees, fees for
professional services and fees for customer support and training. We believe
that revenue from the license, service and support of our NetExpert product line
including VSM, will account for substantially all of our total revenue for the
foreseeable future.* A significant portion of revenues has been, and will
continue to be, derived from substantial orders placed by large organizations.*
The timing of these orders and their fulfillment has caused, and may continue to
cause, material fluctuations in operating results, particularly on a quarterly
basis.* We believe that our quarterly revenues and operating results are likely
to vary significantly in the future and that period-to-period comparisons of
revenue and results of operations are not necessarily meaningful.* We also
believe that quarterly revenues should not be relied on as indications of future
performance.*

We distribute and sell NetExpert products to end users in North America
primarily through a direct sales organization. Outside of North America, we sell
through systems integrators, local value-added resellers and, to a lesser
extent, an in-region direct sales force. We intend to enter into additional
international markets and to continue to grow our international operations by
expanding our direct sales force, opening new in-region customer support and
sales offices, adding value-added resellers and pursuing additional strategic
relationships.* See further discussion in the "Results of Operations" section
---
below.

For the first quarter of fiscal 2000, we had a net loss of $4.7 million compared
to net income of $0.1 million for the same period in fiscal 1999. Some of the
factors that contributed to this loss are described in the following "Results of
Operations" section. We are following a strategy aimed at meeting the service
management, network management and process integration needs of communications
services providers. In fiscal 1998 and 1999, we placed heavy emphasis on
development of a new generation of products that can be integrated under our
Unified Management Architecture. In fiscal 2000, we plan to 1) continue the
launch of our new product line, 2) build stronger sales and customer interface
organizations, and 3) forge new strategic alliances while strengthening our
existing relationships. While we believe this strategy will help us gain market
share in fiscal 2000 and grow our backlog of orders, we can give no assurances
that this strategy will be successful. Some orders we include in our backlog may
be cancelled without significant penalty.

Results of Operations

Revenues:

<TABLE>
<CAPTION>
For the three months ended
September 30,
-------------
(in thousands, except percentages)

1999 Change 1998
---- -------- ------
<S> <C> <C> <C>
License..................... $ 4,824 (58%) $11,428
Percentage of revenues...... 40% 64%
Service and other........... $ 7,187 10% $ 6,532
Percentage of revenues...... 60% 36%
Total revenues.............. $12,011 (33%) $17,960
</TABLE>

7
<PAGE>

Our revenues are derived from license fees and fees for services that complement
our products, including professional services, software support, customer
support and training. The decrease in total revenues for the three months ended
September 30, 1999, compared with the three months ended September 30, 1998,
resulted primarily from a decrease in the number and size of the orders we
received. Related to this, we also experienced increased turnover in the number
of our direct sales representatives, which affected the productivity of sales
operations for the quarter ended September 30, 1999 compared with the quarter
ended September 30, 1998.

List prices for our products and services did not change significantly during
the comparison periods. However, we are in the process of instituting a new
pricing model that will provide customers with additional choices when licensing
our software. This may have a negative impact on future revenues if our pricing
model does not attract sufficient volume.*

License Revenues. Software licenses have generally been granted and priced on a
per-server basis, although we have granted site, network-wide or enterprise-wide
licenses for larger installations. In future periods, licenses may be granted on
either a per-server basis or other bases. We generally recognize license
revenues when a noncancellable license agreement has been signed, product has
been shipped, there are no uncertainties surrounding product acceptance, the
fees are fixed and determinable, and collection is probable. We recognize
revenue under contracts requiring customization using the percentage-of-
completion method of contract accounting, based on the ratio of incurred costs
to total estimated costs. Although generally our license agreements do not
provide for a right of return, we maintain reserves for returns and potential
credit losses.

The decrease in license revenues in absolute dollars and as a percentage of
total revenues for the three months ended September 30, 1999, compared with the
three months ended September 30, 1998, was due to a decrease in orders for our
products from both existing and potential new customers. We believe that this
decrease is directly related to the increased turnover in our sales
organization and have embarked on an aggressive program to increase the size
and competency of our direct sales force.

Services and Other Revenues. We recognize revenues for training, consulting and
professional services as the services are performed and acceptance criteria have
been met. We offer support contracts to our customers. These contracts provide
telephone support, updates and maintenance of our products during the support
period. Revenues from our support contracts are deferred and recognized ratably
over the term of the support agreement. Payments for support fees are generally
made in advance and are nonrefundable. The growth in our service and other
revenues in absolute dollars and as a percentage of total revenues for the three
months ended September 30, 1999, compared with the three months ended September
30, 1998, reflects an increase in the number of customer projects and the
reduced level of license revenue.

We expect that our services and other revenues will continue to represent a
significant portion of our total revenues in future periods.* We anticipate
continued demand for professional services in connection with licenses of
NetExpert VSM, the renewal of existing support contracts and incremental support
revenues attributable to a growing installed base of our products.* We also
believe that historic growth rates for services and other revenues should not be
relied on as an indication of future growth rates.*

International Revenues. Revenues from outside of the United States represented
49% and 45% of total revenues for the three months ended September 30, 1999 and
1998, respectively. The increase in our international revenues as a percentage
of total revenues, though decreased in absolute dollars, is due primarily to our
on-going investment in this segment of our business. We expect to continue
investing in our international

8
<PAGE>

operations.* However, given the current economic uncertainties in world markets,
we can give no assurances that continued international investment will remain
prudent or that the relative percentage increases in our international revenues
will continue.*

The European communications market is growing, as privatization in the region
continues to create a more competitive service provider market. We participated
in this growth in fiscal 1999 and in the first quarter of fiscal 2000. We are
continuing to build our European operations in anticipation of the opportunity
for increased business in this market.*

We believe that the weakened economic conditions in the Asia/Pacific Rim region
have had a slightly negative impact on our growth rate over the last two years.
There can be no assurances that the economies in the Asia Pacific region
will fully recover in the near term, or that similar economic problems will not
occur in other parts of the world. There can also be no assurances that if
economies in Asia-Pacific continue to improve, this will positively impact our
business.*

We expect that international revenues will continue to account for a material
portion of our total revenues in future periods.* Our international business
involves a number of inherent risks, including longer receivable collection
periods, greater difficulty in collections, fluctuations in the real cost of our
products given changes in relative exchange rates, difficulty in staffing and
managing operations, a longer sales cycle, potentially unstable political and
economic conditions, unexpected changes in regulatory requirements, including a
slowdown in the rate of privatization of telecommunications services, reduced
protection for intellectual property rights, potentially adverse tax
consequences, and tariffs and other trade barriers. In addition, access to
foreign markets is often difficult due to the established relationships between
government-owned or government-controlled communications providers and local
suppliers of communications products. We cannot give assurances that we will be
able to continue penetrating international markets successfully. In addition, we
cannot give assurances we will be able to sustain or increase revenue from
international licensing and services or that the factors listed above will not
adversely affect our future international business. Any of these factors could
have a material, adverse effect on our business, operating results and financial
condition.*

Cost of Revenues:

<TABLE>
<CAPTION>
For the three months ended
September 30,
-----------------------------------------
(in thousands, except percentages)
1999 Change 1998
---- ------ ----
<S> <C> <C> <C>
Cost of license revenues.............. $ 575 15% $ 499
Percentage of revenues................ 5% 3%
Cost of service and other revenues.... $3,879 (17%) $ 4,670
Percentage of revenues................ 32% 26%
Total cost of revenues................ $4,454 (13%) $ 5,119
Percentage of revenues............... 37% 29%
Gross profit.......................... $7,557 $12,841
Percentage of revenues................ 63% (41%) 71%
</TABLE>

Cost of License Revenues. Cost of license revenues consists primarily of license
fees paid to third-party software vendors and the costs of product media and
duplication, manuals, packaging materials, shipping expenses, amortization of
capitalized software costs, and related labor costs. For the three months ended

9
<PAGE>

September 30, 1999, compared with the three months ended September 30, 1998,
cost of license revenues increased due to temporarily higher than normal costs
for third party software.

Cost of Services and Other Revenues. Cost of services and other revenues
consists primarily of personnel costs related to professional services and
maintenance services we provide in connection with our products. It also
includes outside service fees paid to third-party providers of professional
services, related travel costs, overhead and losses related to professional
services contracts. Our cost of service and other revenues decreased for the
three months ended September 30, 1999, compared with the three months ended
September 30, 1998. This decrease was due to reduced headcount and associated
personnel and overhead costs, including facilities and leasehold costs. These
reductions were offset by an increase in outside contractor labor expenses. We
believe that in the future, the cost of service and other revenues may increase
in absolute dollars.*

Gross profit decreased primarily because of the significant decrease in license
revenue for the three months ended September 30, 1999, as compared to the three
months ended September 30, 1998. This was offset by decreased costs in our
professional services organization which increased gross profit for service and
other revenues. We expect to continue maintaining a gross profit in our
professional services segment. However, if our costs of providing services were
to increase faster than our service revenues, losses could occur in the future.*

Operating Expenses:

<TABLE>
<CAPTION>
For the three months ended September 30,
(in thousands, except
percentages) 1999 Change 1998
------------ ----------- -------------
<S> <C> <C> <C>
Sales and marketing $ 6,079 (15%) $ 7,132
Percentage of revenues 51% 40%
Research and development $ 4,727 (0%) $ 4,729
Percentage of revenues 39% 26%
General and administrative $ 1,542 3% $ 1,497
Percentage of revenues 13% 8%
Total operating expenses $12,348 (8%) $13,358
Percentage of revenues 103% 74%
</TABLE>

Sales and Marketing. Sales and marketing expenses consist mainly of salaries,
commissions and bonuses for sales and marketing personnel, facilities costs
associated with sales and customer support offices, promotional expenses and
contract administration. These expenses decreased for the three months ended
September 30, 1999, compared with the three months ended September 30, 1998.
This was primarily due to the decrease in sales revenues, which resulted in
reduced commissions. There was also a reduction in headcount for sales and
marketing to 83 from 125 resulting in a decrease in salaries and personnel
related costs. We also reduced travel expenses during this period. We expect
that sales and marketing expenses in future periods will increase in absolute
dollars and as a percentage of revenues due, in part, to our active hiring
program and to agreements with various partners who are involved in the
marketing of our products.*

Research and Development. Research and development expenses consist mainly of
personnel costs for product research, development and quality assurance.
Research and development expenses remained steady for the three months ended
September 30, 1999, compared with the three months ended September 30, 1998.
Headcount and related expenses, such as travel and computer operations, were
reduced. However these reductions were offset by increased amortization of
purchased technology. We expect that we will

10
<PAGE>

continue committing significant resources to research and development to enhance
and extend our core technology and product lines.* Although we are committed to
controlling expenses in research and development, these expenses may increase in
absolute dollars or as a percentage of total revenues.*

General and Administrative. General and administrative expenses consist mainly
of personnel costs for finance, human resources, legal affairs and general
management. Also included are outside legal and accounting fees, corporate
insurance expenses and allowance for doubtful accounts. General and
administrative expenses for the three months ended September 30, 1999, compared
with the three months ended September 30, 1998, remained flat. Reduced headcount
resulted in a decrease in personnel-related costs, but the decrease was offset
by increased costs for accounting fees, outside labor and depreciation. We
expect that general and administrative expenses may increase in the future with
the hiring of additional personnel.* Although we believe our allowance for
doubtful accounts is adequate as of September 30, 1999, we will continue to
review this allowance and adjust it as needed. This could result in additional
charges to general and administrative expenses.*

Other Income, Net:

<TABLE>
<CAPTION>
For the three months ended September 30,
------------------------------------------------
(in thousands, except
percentages) 1999 Change 1998
------------ ------------- ------------
<S> <C> <C> <C>
Other income, net $ 261 (59%) $ 639
Percentage of revenues 2% 4%
</TABLE>

Other Income, Net. The decrease in other income, net was primarily due to the
decrease in levels of cash and cash equivalents resulting in lower interest
income. Other contributing factors were an increase in the loss associated with
foreign currency fluctuations and certain expenses related to payments received
from an international customer.

Provision for Income Taxes:

<TABLE>
<CAPTION>
For the three months ended September 30,
---------------------------------------------
(in thousands, except
percentages) 1999 Change 1998
----------- ----------- -------------
<S> <C> <C> <C>
Provision for income taxes $ 199 315% $ 48
Percentage of revenues 2% NM 0%
</TABLE>

NM- Not meaningful

Provision (Benefit) For Income Taxes. The provision for income taxes includes
federal, state and foreign income taxes. The effective tax rate was 39% for the
three months ended September 30, 1998. The effective tax rate for the three
months ended September 30, 1998 differs from the federal statutory rate
primarily because of foreign taxes, state taxes and research and development tax
credits. For the three months ended September 30, 1999, the provision for income
taxes represents state and foreign taxes. We did not record a benefit for the
loss during the quarter due to uncertainty regarding the realization of the
benefit.

11
<PAGE>

Year 2000 Readiness

We are continuing to assess the extent to which our internal systems and
products evaluate date information ("Year 2000 dependencies") and, if so,
whether they can properly process and evaluate dates on or after the Year 2000
(i.e. whether they are "Year 2000-compliant"). We have been taking remedial
action where systems and products are not Year 2000-compliant. We also regularly
re-evaluate our contingency plans for continuing operations if Year 2000
problems arise despite steps to avoid them. We expect that our remediation
activities will continue throughout fiscal 2000.*

We believe that we have identified the Year 2000 dependencies in our internal
systems. We have examined all critical systems including manufacturing, sales,
development, communications and financial systems. We have also examined many of
our noncomputer electronic devices that contain microprocessors (for example,
telephones, security systems, and HVAC systems). As dependencies have been
identified, we have been taking the remediation measures necessary for our
internal systems to be Year 2000-compliant. No significant internal systems
projects have been or are being deferred due to Year 2000 remediation costs. In
most instances, installation of new software or hardware that is Year
2000-compliant has been occurring in the normal course of our business.

We currently expect that the Year 2000 problem will not pose significant
internal operational issues.* We are not aware of any material operational
issues or costs associated with preparing our internal systems for the Year
2000. However, we can give no assurances that we will not experience
unanticipated material costs caused by undetected errors or defects in those
systems. Delays in or a failure to fully identify all of our Year 2000
dependencies in our internal systems could result in delays in the delivery or
sale of products.* This could have material adverse consequences on our
business.* Therefore, we have put in place, and are regularly re-evaluating,
contingency plans for continuing operations should these types of problems
arise.

We depend on critical suppliers and vendors, and therefore on the proper
functioning of their information systems and software. Their failure to address
Year 2000 issues could have a material effect on our operations and financial
results.* As of this date, we are not aware of any critical systems suppliers or
vendors that will not be Year 2000-compliant. However, we are continuing our
assessments and, depending on the particular situation, have identified
alternative suppliers or vendors.* We have developed contingency plans for
critical system failures or delays involving suppliers that are not Year
2000-compliant. We expect to continue revisiting these plans throughout most of
fiscal 2000.

We have contacted each of our key suppliers to determine the extent to which
they believe their products and operations are Year 2000-compliant. We have
contacted providers of both products and services in areas such as network and
communications infrastructure, manufacturing, facilities management, finance and
human resources. We have asked them to notify us if their products or services
are not Year 2000-compliant. To date we have received no indication from any key
supplier that it is not, or will not be, Year 2000-compliant. We are continuing
to test and analyze all of our vendor systems as we believe appropriate.

We are also continuing to work with the key suppliers of third-party software
products and services that are used in connection with our NetExpert VSM-based
products. We continue to monitor their reported progress toward Year 2000
compliance and compatibility with Year 2000-compliant versions of NetExpert VSM.
We are not aware of any material operational issues or costs associated with
these suppliers regarding Year 2000 compliance. However, no assurances can be
given that we will not

12
<PAGE>

experience unanticipated material costs caused by undetected errors or defects
in these third-party software products.* Delays in remediation or a failure to
identify all of our Year 2000 dependencies could result in material adverse
consequences to our business and results of operations.*

We have evaluated all of our current products and have taken the measures needed
to bring them into Year 2000 compliance. We have notified our customers
that do not intend to develop modifications to earlier versions of our products
or to customized deliverables that are no longer under warranty.

We have also advised each of our customers of our Year 2000 compliance
standards. Year 2000-compliant versions of available products have been offered
at no additional charge to those customers who have maintenance and support
contracts. Most of our customers have already migrated to Year 2000-compliant
versions of our products. We have also offered our customers fee-based
professional services to assist in the migration of their NetExpert-based
implementations to Year 2000-compliant versions.

Despite our remediation efforts, we can give no assurances that our Year 2000-
compliant products will function properly when they are integrated with other
products, including previously customized OSI software, third-party software,
and hardware. Our products are used in numerous operating environments, and we
can also give no assurance that they will be compliant in all environments. Even
though we believe we have taken measures to bring our current products into Year
2000 compliance, our customers may nevertheless experience Year 2000
difficulties because of the noncompliance of other products that interoperate
with our products, whether those other products have been provided by us, the
customer or a third party. If our products are part of a system that is not able
to manage and manipulate data related to the Year 2000, the result could be a
material adverse effect on our business.*

We have offered our customers fee-based additional support to cover the time
period before and after January 1, 2000. This support is designed to address
production system failures that might occur at our customer sites. We plan to
have additional professional services and customer support personnel on call to
handle any customer's production system failure.

To date, we have incurred costs related to our Year 2000 readiness program but
have not maintained separate cost accounting for them. Our Year 2000 readiness
efforts have been undertaken by existing employees, and the associated costs
have been treated as normal operating expense. These costs have included testing
and modifying our computer network and our principal products. They have also
included modification of certain products and other deliverables (including
customized OSI software rulesets and applications) where we have contractually
agreed to provide Year 2000-compliant versions. As of September 30, 1999, we
estimate these costs to be approximately $8.0 million.

We expect to incur additional costs for our Year 2000 readiness program related
to customer support and customer service requests.* We currently estimate these
additional costs will not exceed $0.1 million over the remainder of the calendar
year.* This does not include potential costs related to customer or other
claims, or costs related to internal software and hardware replaced in the
normal course of business.

We believe we have adequate general corporate funds to pay for expected costs
and expenditures related to Year 2000 readiness.* This belief is based on our
current assessment and is subject to change as our Year 2000 readiness program
progresses.

We have provided our customers with limited assurances regarding those of our
products that comply with the Year 2000 standards we have adopted. Except as
specifically provided for in the contracts and other limited written assurances
that we have provided, we do not believe we are legally responsible for

13
<PAGE>

costs incurred by our customers to ensure the Year 2000 compliance of their
software, systems and operations.* Our customer agreements typically contain
provisions designed to limit liability for these types of claims. However, it is
possible that these provisions will not provide adequate protection from
liability under applicable law or under unfavorable judicial decisions.* Even if
we have disclaimed responsibility for any Year 2000 problems, or identified and
notified our customers of them, customers may nevertheless make claims against
all suppliers of the component parts of their operating environment.* Any Year
2000 claims, whether with or without merit, could result in a material adverse
effect on our business, financial condition and results of operations.*

We believe that the "most reasonably likely worst case scenario" involving Year
2000 will involve the corruption of data contained in internal information
systems, hardware failures and the failure of third-party systems.* We believe
our greatest risk lies with the potential failure of third-party systems rather
than with our internal systems or products.* We have only minimal ability to
assess and remediate the Year 2000 problems of third parties. We believe the
greatest detrimental effect on our business would occur if infrastructure
services, such as electricity, telecommunications, transportation supply chains
or suppliers of materials, were inoperable.* We rely on local private and
governmental suppliers for electricity, water, sewer and other needed supplies.
Failure of an electrical grid or an uneven supply of power could completely shut
down the affected facility. It could also shut down airports and other means of
transportation.* Critical suppliers could be partially or completely shut down
and unable to provide supplies on a timely basis.* We may not be able to obtain
a replacement supplier in a timely manner, on acceptable terms or at all.* While
we do not maintain the ability to replace third-party supplies with internal
production, contingency planning includes the ongoing assessment and
identification of substitute suppliers. Among other things, contingency plans
for a major infrastructure failure might include a shift in production to
another unaffected site. We have installed a back-up generator in our new
facility to provide partial power to our core functional areas.

We believe that the purchasing patterns of our customers and potential customers
will be affected by the Year 2000 issues as they bring their current software
systems into Year 2000 compliance.* Funds available to purchase new products may
be reduced.* Given the overall uncertainty of the situation, customers or
potential customers may delay the purchase and introduction of new functionality
until after the Year 2000 transition has been completed.* Potential changes in
purchasing patterns such as these could have a material adverse effect on our
business, operating results or financial condition.*

Factors That May Affect Future Results

Quarterly Results. Our quarterly operating results have varied significantly in
the past and can be expected to vary significantly in the future.* The
fluctuation in quarterly license revenues is caused by the timing of large
orders by our customers, including global telecommunication providers and new,
emerging communication service providers. Orders are typically preceded by long
sales cycles and, accordingly, it has been and will continue to be difficult to
predict when they will be received.* We expect that quarterly license revenues
will continue to vary significantly depending on the timing of our orders.* The
failure to obtain an order during any given reporting period, for whatever
reason, would have a material adverse effect on our business.

We typically receive a significant portion of our orders, and record the
resulting revenue, in the last month of a quarter and frequently in the last
weeks or even days of a quarter. Expense levels are based, in part, on our
expectations of future revenues. If actual revenues are below expectations,
operating results can be adversely affected. In particular, because only a small
portion of our expenses vary with

14
<PAGE>

revenue, net income may be disproportionately affected if anticipated revenues
are not realized. We believe this pattern will continue.*

Our quarterly operating results have also varied and will continue to vary
significantly from quarter to quarter based on factors such as the capital
spending patterns of our customers; changes in our pricing policies or those of
our competitors; increased competition; cancellation of licenses or support
agreements; changes in operating expenses; personnel changes; fluctuation in
demand for NetExpert VSM-based products; the number, timing and significance of
new products and product enhancements by OSI and by our competitors; our ability
to develop, introduce and market new and enhanced versions of NetExpert VSM-
based products in a timely basis; the mix of direct and indirect sales; our
assessment of our allowance for bad debts; sales returns; and general economic
factors, among others.*

Because of these factors, quarterly revenue and operating results have been and
will continue to be difficult to forecast.*

Sales Cycle. Revenues are also difficult to forecast because the sales cycle,
from initial evaluation to product installation, varies substantially from
customer to customer. Purchase of an OSS application generally involves a
significant commitment of capital, with the attendant time requirements often
associated with a customer's internal approval procedures. It also involves the
need to test and accept new technologies that affect crucial operations. For
these and other reasons, the sales cycle for our products is typically lengthy
and subject to a number of significant risks over which we have little or no
control.

Key Personnel. Our future success depends, to a significant degree, on the
continuing contributions of key management, sales, professional services,
customer support and product development personnel.* The loss of, or the
inability to attract and retain, key personnel could adversely affect our
business.* We have experienced and continue to experience difficulty in
recruiting qualified personnel. There is intense competition for qualified
employees in the software industry, and there can be no assurance that we will
be successful in attracting and retaining the people we need. The complex nature
of customers' networks requires that we recruit and hire personnel with
expertise in, and a broad understanding of, the telecommunications industry.
There are only a limited number of qualified personnel available for employment.
Failure to attract and retain key personnel would have a material adverse effect
on our business condition.*

Growth. To compete effectively and manage future growth, we also need to improve
our internal operational, financial and management information systems,
procedures and controls in a timely manner to accommodate a growing number of
transactions and customers. Management of future growth also means that we must
expand, train, motivate and manage our workforce. We can give no assurances that
our personnel, systems, procedures and controls will be adequate to support
existing and future operations. The failure to improve operational, financial
and management systems, or to expand, train, motivate and manage employees,
could have a material adverse effect on our business.*

Product Defects. Software products as complex as those we offer are likely to
contain defects when they are introduced or when new versions are released.
Although we are not aware of any material software defects in our products, we
can give no assurances, despite extensive testing both by us and by our
customers, that errors will not be found after commercial licensing begins. This
could result in delayed or lost revenue, loss of market share or failure to
achieve market acceptance.* Any of these could have a material adverse effect on
our business.

15
<PAGE>

Competition. Our products are designed for use in an evolving network operations
support and management applications market. Competition in this market is
intense, with rapidly changing technologies, evolving industry standards,
frequent new product introductions and rapid changes in customer requirements.
Our competitors offer a variety of solutions to address this market. We believe
that competition will increase.* Some of our customers regularly evaluate
whether to design and develop their own network operations support and
management applications or to acquire them from outside vendors. There can be no
assurance that our current or potential competitors will not develop products
that are comparable or superior to ours or that they will not be able to adapt
more quickly than we are to new technologies, evolving industry trends or
changes in customer requirements. If we are not able to compete successfully
against current and future competitors, our business will be materially and
adversely affected.

International Business. We expect that our international business will continue
to account for a significant portion of total revenues in future periods.* We
intend to enter into additional international markets and to continue expanding
our operations outside of North America.* This will require significant
management attention and the expenditure of significant financial resources.*
The result could adversely affect our operating margins if the investments are
not accompanied by sufficient revenue growth.

Historically, our transactions have been primarily in U.S. dollars. However, as
we further expand our operations outside the United States, transactions in non-
U.S. currencies are likely to increase.* This would result in a corresponding
increase in our exchange rate risk. If exchange rates change unfavorably, this
could result in charges to operations. Although we have tried to reduce the risk
of fluctuations in exchange rates by pricing our products and services in U.S.
dollars whenever possible, we pay our local expenses in local currencies. We do
not engage in hedging transactions with respect to those obligations. Currency
exchange fluctuations in countries where we license our products could have a
materially adverse effect on our business by making our pricing noncompetitive
with products priced in local currencies.*

Reseller Relationships. A key element of our future business strategy is to
develop relationships with leading companies that manufacture and market
telecommunications equipment. Another key element of that strategy is to expand
our system integrator and value-added reseller channels of distribution. We are
currently investing, and plan to continue investing, significant resources to
develop these relationships and channels of distribution.* We can give no
assurances that we will be able to attract additional systems integrators and
resellers that can market our product effectively. If we are unable to develop
these relationships or if our partners are unable to market our products
effectively, our business operating results and financial condition would be
materially and adversely affected.*

Proprietary Technology. Our success and ability to compete depends in large part
on our proprietary software technology. To protect our proprietary rights, we
rely on a combination of various technical measures, trade secret, copyright and
trademark laws. We also rely on nondisclosure and other contractual agreements.
Despite our efforts, unauthorized parties may attempt to copy our products or to
obtain and use our proprietary information.* We can give no assurances that the
steps we have taken will prevent misappropriation of our technology. Our
precautions may also prove insufficient to preclude competitors from developing
products with functionality or features that are similar to those in our
products. In addition, effective copyright and trade secret protection may be
unavailable or limited in certain countries outside the United States. While we
believe that our products and trademarks do not infringe upon the proprietary
rights of third parties, we can give no assurances that there will not be
infringement claims in the future as the number of products and competitors in
our industry increases. Any such claim, with or without merit, could be time

16
<PAGE>

consuming, result in costly litigation and divert the attention of our technical
and management personnel.* This could result in a material adverse impact on our
business.*

Third-Party Software. Finally, we rely on software licensed from third parties,
including software that is integrated with internally developed software and
used to perform key functions. We can give no assurances that, on expiration of
our current agreements, these third-party software licenses will continue to be
available to us on commercially reasonable terms. Absence of these licenses
could have a material adverse effect on our business.*

Based upon all of the above, we believe that our quarterly revenues and
operating results may vary significantly in the future.* We also believe that
period-to-period comparisons of results are not necessarily meaningful and
should not be relied on as indications of future performance.* Further, we
believe that it is likely that our revenue or operating results will be below
the expectations of public market analysts and investors in some future
quarter.* If this occurs, the price of our Common Stock could be materially,
adversely affected.*

Liquidity and Capital Resources

For the three months ended September 30, 1999, net cash provided by operations
was $0.5 million compared with net cash provided by operations of $3.8 million
for the three months ended September 30, 1998. The comparatively lower level
of net cash provided by operations was mainly the result of our net loss of
$4.7 million and the effects of a $1.2 million decrease in deferred revenue.
These were partially offset by the positive effects of a $5.2 million decrease
in accounts receivable. During the period, net cash used for investment
activities was $1.2 million compared to net cash provided by investment
activities of $1.1 million for the three months ended September 30, 1998. The
change in net cash used for investment activities for the 1999 period resulted
primarily from $0.7 million in purchases of property and equipment when
compared to $2.7 million of net sales of short-term investments for the
corresponding period in 1998. We currently expect to make capital expenditures
of $4.0 million to $6.0 million in the next twelve months, primarily for the
acquisition of technology and the purchase of computer equipment, related
software, furniture, fixtures, and leasehold improvements.*

In September of 1998, our Board of Directors authorized a stock repurchase
program under which we could purchase up to 1,000,000 shares of our common stock
on the open market. As of September 30, 1999 we had repurchased approximately
493,300 shares of our common stock on the open market, at an average purchase
price of $4.47 for a total cost of approximately $2.2 million. We may continue
repurchasing shares in the future.*

As of September 30, 1999, we had working capital of approximately $25.0 million,
including $31.4 million in cash, cash equivalents and short-term investments. In
addition, we have a $2.5 million unsecured revolving line of credit that expires
in December of 1999. Under our line of credit, borrowings bear interest at
either (1) a fluctuating rate equal to the prime lending rate in effect or (2) a
fixed rate that is 2% above the London Inter-Bank Offered Rate. As of September
30, 1999, we had not borrowed under our line of credit. The agreement for the
line contains certain financial covenants. As of September 30, 1999, we complied
with those covenants.

Some of our accounts receivable are beyond their payment terms. We maintain an
allowance for doubtful accounts that we believe is adequate to cover potential
credit losses.* On September 30, 1999, our reserves for doubtful accounts and
sales returns were $2.1 million. We believe our present reserves are adequate to
provide for potential credit losses or sales returns.*

We currently have material commitments of approximately $1.5 million for tenant
improvements and computer equipment for our new facilities. We also intend to
continue growing our operations.* In the quarter ended September 30, 1999, we
spent $0.7 million for capital items, principally computer

17
<PAGE>

equipment and leasehold improvements. We expect that capital expenditures will
continue to be significant in fiscal 2000 and in the future.*

We also believe that our cash balances and cash flow from operations are
sufficient to support our working capital requirements for at least the next
twelve months.* Thereafter, if cash generated from operations cannot satisfy our
working capital requirements, we may need to raise additional funds. Financing
may not be available or, if it is, may not be obtainable on terms favorable to
us or our stockholders.* If we raise additional capital by issuing equity or
convertible debt securities, ownership dilution to stockholders will result. If
funds are unavailable, our business may be adversely affected.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market rate risk based on a change in interest rates relates
primarily to our investment portfolio, which consists of cash equivalents and
short-term investments. Cash equivalents are highly liquid investments with
original maturities of three months or less and are stated at cost. We do not
believe our exposure to interest rate risk is material for these balances, which
were $13.8 million on September 30, 1999. The securities in our short-term
investment portfolio are generally classified as available-for-sale. Short-term
investments were $16.2 million on September 30, 1999. We do not use derivative
financial investments in our short-term investment portfolio, we place our
investments with high-quality issuers and, by policy, limit our credit exposure
to any one issuer. We are adverse to principal loss and attempt to ensure the
safety of our investment funds by limiting default, market and reinvestment
risk. If market interest rates were to change immediately and uniformly by 10%
from the rates in effect on September 30, 1999, the fair value of our cash
equivalents and short-term investments would change by an insignificant amount.

Foreign Currency Exchange Rate Risk

As a global business, we face exposure to adverse movements in foreign currency
exchange rates. These exposures may change over time as business practices
evolve and they could have a material adverse impact on our business, operating
results and financial position.* Historically, our primary exposure has related
to local currency expenses in Europe, our Asia Pacific region and Australia. The
functional currencies of our foreign subsidiaries are local. A hypothetical 10%
change in foreign currency rates would have an insignificant impact on our
business, operating results and financial position.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be a party to litigation incident to the ordinary
course of our business. As of the date of this Report, we do not believe that
there is material litigation pending against OSI. However, any litigation
involving OSI, whether we are the plaintiff or defendant and regardless of the
outcome,

18
<PAGE>

could result in substantial costs and significant diversion of effort by our
technical and management personnel. In addition, we can give no assurances that
material litigation, either by or against OSI, will not be necessary to resolve
issues that may arise in the future. Given the uncertainties of litigation, any
litigation could have a material adverse effect on our business, financial
condition or operating results.*

On March 18, 1999, proceedings were filed against OSI with the Bureau de
Conciliation in Grasse, France, by Patric R. Olenczak, a former employee of OSI,
for various matters involving the termination of his employment. We believe that
this action is without merit and intend to vigorously defend it. However, we can
give no assurances that we will prevail. If we do not prevail, we could be
required to pay monetary damages in an amount that might have a material adverse
effect on our operating results and financial condition.*

Item 6. Exhibits and Reports on Form 8-K

10.1 Revised 1994 Incentive Stock Option Plan
10.2 Revised 1995 Employee Stock Purchase Plan
10.3 Employment Agreement for Lawrence F. Fiore

27.1 Financial Data Schedule

(b) Reports on Form 8-K

None.

19
<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

OBJECTIVE SYSTEMS INTEGRATORS, INC.

Dated: November 15, 1999 By: /s/ Lawrence F. Fiore
-----------------------------------
Lawrence F. Fiore, Chief Financial Officer

(Principal Financial and Accounting
Officer and Duly Authorized Officer)

<PAGE>

EXHIBIT 10.1

OBJECTIVE SYSTEMS INTEGRATORS, INC.

1994 STOCK OPTION PLAN
(as amended through July 24, 1999)

1. Purposes. The purposes of this Stock Option Plan are to attract and retain
--------
the best available people for positions of substantial responsibility, to
provide additional incentives to Employees and Consultants of the
Corporation and its Subsidiaries, and to promote the success of the
Corporation's business. Options granted under this Plan may be incentive
stock options (as defined under Section 422 of the Code) or nonstatutory
stock options, as determined by the Administrator at the time of grant of
an option and subject to the applicable provisions of Section 422 of the
Code, as amended, and the regulations promulgated thereunder.

2. Definitions. As used in this Plan, the following definitions will apply:
-----------

(a) Administrator. The Board or any of its Committees.
-------------

(b) Board. The Board of Directors of the Corporation.
-----

(d) Committee. A Committee appointed by the Board of Directors under
---------
Section 4.

(e) Common Stock. The Common Stock of the Corporation.
------------

(f) Corporation. Objective Systems Integrators, Inc., a Delaware
-----------
corporation.

(g) Consultant. Any director of the Corporation, a Parent or Subsidiary,
----------
whether or not compensated for such services, and any person who is
engaged by the Corporation, a Parent or Subsidiary to render
consulting or advisory services and is compensated for those services.

(h) Continuous Status as an Employee or Consultant. The employment,
----------------------------------------------
directorship or consulting relationship with the Corporation, any
Parent, or Subsidiary, has not been interrupted or ended. Continuous
Status will not be considered interrupted in the case of (1) a leave
of absence approved by the Corporation, or (2) transfers between
locations of the Corporation or between the Corporation, its Parent,
any Subsidiary, or any successor. Leaves of absence "approved by the
Corporation" are those that have been properly approved by an
authorized representative of the Corporation. For Incentive Stock
Options, no leave may exceed 90 days unless reemployment is guaranteed
at the end of the leave by statute or contract, including Corporation
policies. If reemployment is not guaranteed, then on the 91st day of
the leave Incentive Stock Options held by the Optionee will cease to
be treated as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option.

(i) Employee. Any person, including Officers and directors, employed by
--------
the Corporation or any Parent or Subsidiary of the Corporation. The
payment of a director's fee by the Corporation is not sufficient to
constitute "employment" by the Corporation.

(j) Exchange Act. The Securities Exchange Act of 1934, as amended.
------------

(k) Fair Market Value. As of any date, the value of Common Stock
-----------------
determined as follows:

(i) If the Common Stock is listed on an established stock exchange or
a national market system, its Fair Market Value will be the
closing sales price for the stock (or the closing bid, if no
sales were reported) as quoted on the exchange or system for the
last market trading day before the time of determination, as
reported in The Wall Street Journal or such other source as the
Administrator deems reliable;

(ii) If the Common Stock is quoted on the NASDAQ System (but not on
its Nasdaq National Market) or regularly quoted by a recognized
securities dealer but selling prices are not

Page 1
<PAGE>

reported, its Fair Market Value will be the mean between the
high bid and low asked prices for the Common Stock on the last
market trading day before the day of determination, or;

(iii) In the absence of an established market for the Common Stock,
Fair Market Value will be determined in good faith by the
Administrator.

(l) Incentive Stock Option. An Option intended to qualify as an incentive
----------------------
stock option within the meaning of Section 422 of the Code.

(m) Nonstatutory Stock Option. An Option not intended to qualify as an
-------------------------
Incentive Stock Option.

(n) Officer. A person who is an officer of the Corporation within the
-------
meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

(o) Option. A stock option granted under the Plan.
------

(p) Optioned Stock. The Common Stock subject to an Option.
--------------

(q) Optionee. An Employee or Consultant who receives an Option.
--------

(r) Parent. A "parent corporation", whether now or hereafter existing, as
------
defined in Section 424(e) of the Code.

(s) Plan. This 1994 Stock Option Plan.
----

(t) Share. A share of the Common Stock, as adjusted in accordance with
-----
Section 11.

(u) Subsidiary. A "subsidiary corporation", whether now or hereafter
----------
existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan. Subject to Section 11, the maximum aggregate
-------------------------
number of Shares which may be optioned and sold under the Plan is
10,434,830 Shares. The Shares may be authorized, but unissued, or
reacquired Common Stock.

If an Option expires or becomes unexercisable without having been exercised
in full, or is surrendered under an Option Exchange Program, the
unpurchased Shares will become available for future grant or sale under the
Plan unless the Plan has terminated; provided, however, that Shares that
have actually been issued under the Plan will not be returned to the Plan
and will not become available for future distribution, except that if
unvested Shares are repurchased by the Corporation at their original
purchase price, and the original purchaser of those Shares did not receive
any benefits of ownership of the Shares, the Shares will become available
for future grant under the Plan. For purposes of the preceding sentence,
voting rights are not considered a benefit of Share ownership.

4. Administration of the Plan.
--------------------------

(a) Plan Procedures.
---------------

(1) Administration for Directors and Officers. For Options to
-----------------------------------------
Employees who are also Officers or directors of the Corporation,
the Plan will be administered by (A) the Board if the Board can
administer it in compliance with Rule 16b-3 under the Exchange
Act or any successor thereto ("Rule 16b-3") for plans intended to
qualify as discretionary, or (B) a Committee designated by the
Board, which Committee will be constituted to permit the Plan to
comply with Rule 16b-3 for plans intended to qualify as
discretionary. Once appointed, this Committee will continue to
serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the
Committee, appoint additional members of the Committee, remove
members (with or without cause), appoint new members in
substitution for removed members, fill vacancies, however caused,
and remove all members and thereafter directly administer the
Plan, all to the extent permitted by Rule 16b-3 for plans
intended to qualify as discretionary plans.

Page 2
<PAGE>

(2) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
------------------------------
Plan may be administered by different bodies with respect to
directors, non-director Officers and Employees who are neither
directors nor Officers.

(3) Administration for Consultants and Other Employees. For Options
--------------------------------------------------
to Employees or Consultants who are neither directors nor
Officers of the Corporation, the Plan will be administered by (A)
the Board, or (B) a committee designated by the Board, which will
be constituted to satisfy the legal requirements relating to the
administration of incentive stock option plans, if any, of
Delaware corporate and securities laws, of the Code, and of any
applicable stock exchange ("Applicable Laws"). Once appointed,
this Committee will continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee, appoint additional
members of the Committee, remove members (with or without cause),
appoint new members in substitution for removed members, fill
vacancies, however caused, and remove all members and thereafter
directly administer the Plan, all to the extent permitted by the
Applicable Laws.

(b) Powers of the Administrator. Subject to the provisions of the Plan
---------------------------
and, in the case of a Committee, the specific duties delegated by the
Board to the Committee, and subject to the approval of any relevant
authorities including, if required, the approval of any stock exchange
on which the Common Stock is listed, the Administrator will have the
authority, in its discretion:

(1) to determine the Fair Market Value of the Common Stock;

(2) to select the Consultants and Employees to whom Options may be
granted;

(3) to determine whether and to what extent Options are granted;

(4) to determine the number of shares of Common Stock to be covered
by each Option;

(5) to approve forms of written agreement for use under the Plan
("Option Agreement");

(6) to determine the terms and conditions of any Option;

(7) to determine whether and under what circumstances an Option may
be settled in cash under subsection 9(f) instead of Common Stock;

(8) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock
covered by the Option has declined since the date the Option was
granted; and

(9) to construe and interpret the terms of the Plan and Options
granted under it.

(c) Effect of Administrator's Decision. All decisions, determinations and
----------------------------------
interpretations of the Administrator will be final and binding on all
Optionees and any other holders of an Option.

5. Eligibility.
-----------

(a) Type of Option. Nonstatutory Stock Options may be granted to
--------------
Employees and Consultants. Incentive Stock Options may be granted
only to Employees and Consultants who are directors. An Employee or
Consultant who has been granted an Option may, if otherwise eligible,
be granted additional Options.

(b) Option Terms. Each Option will be designated in the Option Agreement
------------
as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding that designation, to the extent the aggregate
Fair Market Value:

(1) of Shares subject to an Optionee's Incentive Stock Options
granted by the Corporation, any Parent or Subsidiary, which

Page 3
<PAGE>

(2) become exercisable for the first time during any calendar year
(under all plans of the Corporation or any Parent or Subsidiary)
exceeds $100,000, the excess Options will be treated as
Nonstatutory Stock Options. For purposes of this Section,
Incentive Stock Options will be taken into account in the order
in which they were granted, and the Fair Market Value of the
Shares will be determined at time the Option is granted.

(c) At Will Employment. The Plan does not confer on an Optionee any
------------------
rights regarding continuation of an employment or consulting
relationship with the Corporation, nor will it interfere in any way
with the Optionee's or the Corporation's right to terminate the
Optionee's employment or consulting relationship at any time, with or
without cause.

(d) Limitations. If the Corporation or a successor corporation issues any
-----------
class of common equity securities required to be registered under
Section 12 of the Exchange Act, or if the Plan is assumed by a
corporation having a class of common equity securities required to be
registered under Section 12 of the Exchange Act, the following
limitations will apply to grants of Options to Employees:

(1) No Employee will be granted, in any fiscal year of the
Corporation, Options to purchase more than 1,375,000 Shares.

(2) This limitation will be adjusted proportionately in connection
with any change in the Corporation's capitalization as described
in Section 11.

(3) If an Option is canceled in the same fiscal year of the
Corporation in which it was granted (other than in connection
with a transaction described in Section 11), the cancelled Option
will be counted against the limits in this Section 5. For this
purpose, if the exercise price of an Option is reduced, the
transaction will be treated as a cancellation of the Option and
the grant of a new Option.

6. Term of Plan. The Plan will become effective on the earlier to occur of
------------
its adoption by the Board or its approval by the Corporation's
shareholders, as described in Section 17. It will continue in effect for a
term of 10 years unless sooner terminated under Section 13.

7. Term of Option. The term of each Option will be the term stated in the
--------------
Option Agreement; provided, however, that the term will be no more than 10
years from the date of grant. For Incentive Stock Options granted to an
Optionee who, at the time of the grant, owns stock representing more than
10% of the voting power of all classes of stock of the Corporation or any
Parent or Subsidiary, the term of the Option will be five years from the
date of grant or such shorter term as may be provided in the Option
Agreement.

8. Exercise Price and Consideration.
--------------------------------

(a) Price. The per Share exercise price for Shares to be issued on
-----
exercise of an Option will be the price determined by the Board, but
will be subject to the following:

(1) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time of the grant, owns
stock representing more than 10% of the voting power of all
classes of stock of the Corporation or any Parent or
Subsidiary, the per Share exercise price not be less than
110% of the Fair Market Value per Share on the date of
grant.

(B) granted to any Employee other than an Employee described in
the preceding paragraph, the per Share exercise price will
not be less than 100% of the Fair Market Value per Share on
the date of grant.

(2) In the case of a Nonstatutory Stock Option

(A) granted to a person who, at the time of the grant, owns
stock representing more than 10% of the voting power of all
classes of stock of the Corporation or any Parent or
Subsidiary, the per Share exercise price will not be less
than 110% of the Fair Market Value per Share on the date of
the grant.

Page 4
<PAGE>

(B) granted to any person, the per Share exercise price will not
be less than 85% of the Fair Market Value per Share on the
date of grant.

(b) The consideration to be paid for the Shares issued on exercise of an
Option, including the method of payment, will be determined by the
Administrator (and, in the case of an Incentive Stock Option, will be
determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case
of Shares acquired on exercise of an Option have been owned by the
Optionee for more than six months on the date of surrender, and (y)
have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which the Option will be
exercised, (5) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the
broker, if applicable, require to effect an exercise of the Option and
delivery to the Corporation of the sale or loan proceeds required to
pay the exercise price, or (6) any combination of the foregoing
methods of payment. In making its determination, the Board will
consider whether the type of consideration may reasonably be expected
to benefit the Corporation.

9. Exercise of Option.
------------------

(a) Procedure for Exercise; Rights as a Shareholder. Options granted
-----------------------------------------------
under the Plan will be exercisable at such times and under such
conditions as determined by the Board, including performance criteria
with respect to the Corporation and/or the Optionee, and as will be
permissible under the terms of the Plan, but in no case at a rate of
less than 20% per year over five years from the date the Option is
granted.

An Option may not be exercised for a fraction of a Share.

An Option will be deemed to have been exercised when (a) written
notice of exercise has been given to the Corporation in accordance
with the terms of the Option and by the person entitled to exercise
it, and (b) full payment for the Shares has been received by the
Corporation. Full payment may, as authorized by the Board, consist of
any consideration and method of payment allowable under Section 8(b).
Notwithstanding exercise of an Option, no right to vote or receive
dividends or any other rights as a shareholder will exist with respect
to Optioned Stock until a stock certificate for the Shares has been
issued, as evidenced by the appropriate entry on the books of the
Corporation or of a duly authorized transfer agent of the Corporation.
The Corporation will issue (or cause to be issued) a stock certificate
promptly after exercise of the Option. Except as provided in Section
11, no adjustment will be made for a dividend or other right for which
the record date is before the date the stock certificate is issued.

Exercise of an Option will result in a decrease in the number of
Shares that are thereafter available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the
Option is exercised.

(b) Termination of Relationship. If an Optionee's Continuous Status as
---------------------------
an Employee or Consultant ends (but not if there is a change in status
from Employee to Consultant (in which case an Employee's Incentive
Stock Option will automatically convert to a Nonstatutory Stock Option
on the 91st day after the change of status) or from Consultant to
Employee), the Optionee may, but only within such period as is
determined by the Administrator (which will be at least 30 days and,
in the case of an Incentive Stock Option, will not exceed three months
after the date the Continuous Status as an Employee or Consultant ends
but in no event later than the expiration date of the Option set forth
in the Option Agreement) exercise the Option to the extent that the
Optionee was entitled to exercise it on the date Continuous Status as
an Employee or Consultant ends. To the extent an Optionee was not
entitled to exercise the Option on the date Continuous Status as an
Employee or Consultant ends, or if Optionee does not exercise the
Option within the time specified, the Option will terminate.

(c) Disability. If an Optionee's consulting relationship or Continuous
----------
Status as an Employee ends as a result of the Optionee's disability,
the Optionee may, but only within 12 months from the date of
termination (and in no event later than the expiration date of the
Option set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it on the date of termination;
provided, however, that if the disability is not a "disability" as
defined in Section

Page 5
<PAGE>

22(e)(3) of the Code, in the case of an Incentive Stock Option the
Incentive Stock Option will automatically convert to a Nonstatutory
Stock Option three months and one day after termination. To the extent
that the Optionee is not entitled to exercise the Option on the date
of termination, or if the Optionee does not exercise the Option to the
extent so entitled within the time specified, the Option will
terminate and the Shares covered by the Option will revert to the
Plan.

(d) Death. If an Optionee dies, the Option may be exercised at any time
-----
within 12 months after the date of death (but in no event later than
the expiration of the Option set forth in the Notice of Grant), by the
Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent that the
Optionee was entitled to exercise the Option on the date of death.
If, at the time of death, the Optionee was not entitled to exercise
the entire Option, the Shares covered by the unexercisable part of the
Option will immediately revert to the Plan. If, after death, the
Optionee's estate or the person who acquired the right to exercise the
Option by bequest or inheritance does not exercise the Option within
the time specified, the Option will terminate and the Shares covered
by the Option will revert to the Plan.

(e) Rule 16b-3. Options granted to individuals subject to Section 16(b)
----------
of the Exchange Act will comply with Rule 16b-3 and will contain such
additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act
for Plan transactions.

(f) Buyout Provisions. At any time, the Administrator may offer to buy
-----------------
out (for a payment in cash or Shares) an Option previously granted.
The offer may be based on such terms and conditions as the
Administrator establishes and communicates to the Optionee at the time
the offer is made.

10. Non-Transferability. Options may not be sold, pledged, assigned,
--------------------
hypothecated, transferred, or disposed of in any manner other than by will
or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.

11. Adjustments on Changes in Capitalization or Merger.
--------------------------------------------------

(a) Changes in Capitalization. Subject to any required action by the
-------------------------
Corporation's shareholders, the number of shares of Common Stock
covered by each outstanding Option, and the number of shares of Common
Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to
the Plan upon cancellation or expiration of an Option, as well as the
price per share of Common Stock covered by each outstanding Option,
will be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification
of the Common Stock, or any other increase or decrease in the number
of issued shares of Common Stock effected without receipt of
consideration by the Corporation; provided, however, that conversion
of any convertible securities of the Corporation will not be deemed to
have been "effected without receipt of consideration." This
adjustment will be made by the Board, whose determination will be
final, binding and conclusive. Except as expressly provided in the
Plan, the Corporation's issuance of shares of stock of any class, or
securities convertible into shares of stock of any class, will not
affect, and no adjustment by reason thereof will be made with respect
to, the number or price of shares of Common Stock subject to an
Option.

(b) Dissolution or Liquidation. If there is a proposed dissolution or
--------------------------
liquidation of the Corporation, the Board will notify the Optionee at
least 15 days before the proposed action. To the extent it has not
been previously exercised, the Option will end immediately before the
consummation of the proposed action.

(c) Merger. If the Corporation is merged with or into another
------
corporation, the Option may be assumed or an equivalent option may be
substituted by the successor corporation or a parent or subsidiary of
the successor corporation. If, the Option is not assumed or
substituted, the Option will end as of the date the merger is closed.
For the purposes of this paragraph, an Option will be considered
"assumed" if, after the merger, it confers the right to purchase, for
each Share of Optioned Stock immediately before the merger, the same
consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held
by the holders of Common Stock on the effective date of the
transaction (and if the holders of Common Stock were

Page 6
<PAGE>

offered a choice of consideration, the type of consideration chosen by
the holders of a majority of the outstanding Shares); provided,
however, that if the consideration received in the merger was not
solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation,
provide that the consideration to be received on the exercise of an
Option for each Share of Optioned Stock to be solely an amount of
common stock of the successor corporation or its Parent that is equal
in fair market value to the per share consideration received by
holders of Common Stock in the merger.

12. Time of Granting Options. The date of an Option grant will be the date on
------------------------
which the Administrator decides to grant the Option, or such other date as
is determined by the Board. Notice of the decision will be given to each
Employee or Consultant to whom an Option is granted within a reasonable
time after the date of grant.

13. Amendment and Termination of the Plan.
-------------------------------------

(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or discontinue the Plan, but without the Optionee's consent no
amendment, alteration, suspension or discontinuation will be made
which would impair the rights of the Optionee under any grant
previously made. In addition, to the extent necessary or desirable to
comply with Rule 16b-3 under the Exchange Act or with Section 422 of
the Code (or any other applicable law or regulation, including the
requirements of the NASD or an established stock exchange), the
Corporation will obtain shareholder approval of any Plan amendment in
such a manner and to such a degree as required.

(b) Effect of Amendment or Termination. An amendment or termination of
----------------------------------
the Plan will not affect Options that have already been granted.
Previously granted Options will remain in full force and effect as if
the Plan had not been amended or terminated, unless mutually agreed
otherwise by the Optionee and the Board in a written agreement signed
by the Optionee and the Corporation.

14. Conditions on Issuance of Shares. Shares will not be issued on exercise
--------------------------------
of an Option unless the exercise of the Option and the issuance and
delivery of the Shares (a) complies with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange on which the Shares are then listed, and
(b) has been approved by counsel for the Corporation with respect to such
compliance.

As a condition of exercising an Option, the Corporation may require the
person exercising it to represent and warrant at the time of exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute them if, in the opinion of counsel for the
Corporation, such a representation is legally required.

15. Reservation of Shares. During the term of the Plan, the Corporation will
---------------------
reserve and keep available a number of Shares that are sufficient to
satisfy the requirements of the Plan.

The inability of the Corporation to obtain authority from any regulatory
body having jurisdiction, which authority the Corporation's counsel deems
to be necessary to the lawful issuance and sale of any Shares under the
Plan, will relieve the Corporation of liability for not issuing or selling
those Shares.

16. Agreements. Options will be evidenced by written agreements in such form
----------
as the Board from time to time approves.

17. Shareholder Approval. Continuance of the Plan will be subject to approval
--------------------
by the Corporation's shareholders within 12 months before or after the date
the Plan is adopted. Shareholder approval will be obtained in the degree
and manner required under applicable state and federal law and the rules of
any stock exchange on which the Common Stock is listed.

18. Information to Optionees and Purchasers. The Corporation will provide each
---------------------------------------
Optionee, not less frequently than annually, with copies of annual
financial statements. The Corporation will also provide financial
statements to each individual who acquires Shares under the Plan while the
individual owns the Shares. The Corporation will not be required to
provide such statements to key employees whose duties in connection with
the Corporation assure their access to equivalent information.

Page 7

<PAGE>

EXHIBIT 10.2

OBJECTIVE SYSTEMS INTEGRATORS, INC.

1995 EMPLOYEE STOCK PURCHASE PLAN
(as amended through July 24, 1999)

The following is the 1995 Employee Stock Purchase Plan of Objective Systems
Integrators, Inc.

1. Purpose. The purpose of the Plan is to provide employees of Objective
-------
Systems Integrators, Inc. and its Designated Subsidiaries with an
opportunity to purchase OSI's Common Stock through accumulated payroll
deductions. It is intended that this Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, will be construed to
extend and limit participation in a manner consistent with the requirements
of that Section of the Code.

2. Definitions.
-----------

(a) Board. The Board of Directors of Objective Systems Integrators, Inc.
-----

(b) Code. The Internal Revenue Code of 1986, as amended.
----

(d) OSI. Objective Systems Integrators, Inc. and any of its Designated
---
Subsidiaries.

(e) Compensation. All of a Participant's W-2 compensation.
------------

(f) Designated Subsidiaries. Each Subsidiary which has been designated by
-----------------------
the Board, from time to time and in its sole discretion, as eligible
to participate in the Plan.

(g) Employee. An individual who is employed by OSI for tax purposes and
--------
whose customary employment with OSI is at least 20 hours per week and
at least five months in any calendar year. For purposes of the Plan,
the employment relationship will be treated as continuing intact while
an individual is on sick leave or other leave of absence approved by
OSI. If the period of leave exceeds 90 days and the individual's right
to reemployment is not guaranteed either by statute or by contract,
the employment relationship will be deemed to have ended on the 91st
day of the leave.

(h) Enrollment Date. The first day of each Offering Period.
---------------

(i) Exercise Date. The last day of each Purchase Period.
-------------

(j) Fair Market Value. As of any date, the value of Common Stock
-----------------
determined as follows:

(1) If the Common Stock is listed on an established stock exchange or
a national market system, Fair Market Value will be the closing
sale price (or the mean of the closing bid and asked prices, if
no sales were reported), as quoted on the exchange (or the
exchange with the greatest volume of trading in Common Stock) or
system on the date of the determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable,
or;

(2) If the Common Stock is quoted on the Nasdaq National Market of
the National Association of Securities Dealers, Inc. Automated
Quotation System (but not on the Nasdaq National Market thereof)
or is regularly quoted by a recognized securities dealer but
selling prices are not reported, Fair Market Value will be the
mean of the closing bid and asked prices for the Common Stock on
the date of the determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;

(3) In the absence of an established market for the Common Stock,
Fair Market Value will be determined in good faith by the Board.

Page 1
<PAGE>

(4) For purposes of the Enrollment Date for the first Offering
Period, Fair Market Value will be the price to the public as set
forth in the final Prospectus included in the Registration
Statement (Form S-1) filed with the Securities and Exchange
Commission for the initial public offering of OSI's Common Stock.

(k) Offering Period. The period of approximately 6 months during which an
---------------
option granted under the Plan may be exercised, beginning on the first
Trading Day on or after May 1 and November 1 of each year and ending
on the last Trading Day of the period six months later. The first
Offering Period will begin on the effective date of OSI's initial
public offering of Common Stock registered with the Securities and
Exchange Commission and will end on the last Trading Day on or before
October 31, 1997. The duration and timing of Offering Periods may be
changed under Section 4.

(l) Plan. This Employee Stock Purchase Plan.
----

(m) Purchase Price. An amount equal to 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower.

(n) Purchase Period. The approximately six-month period beginning after
---------------
one Exercise Date and ending with the next Exercise Date, except that
the first Purchase Period of an Offering Period will begin on the
Enrollment Date and end with the next Exercise Date.

(o) Reserves. The number of shares of Common Stock covered by each option
--------
under the Plan which have not yet been exercised plus the number of
shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.

(p) Subsidiary. A corporation, domestic or foreign, of which not less than
----------
50% of the voting shares are held by OSI or a Subsidiary, whether or
not that corporation now exists or is later organized or acquired by
OSI or a Subsidiary.

(q) Trading Day. A day on which national stock exchanges and the Nasdaq
-----------
System are open for trading.

3. Eligibility.
-----------

(a) Any Employee who is employed by OSI on a given Enrollment Date is
eligible to participate in the Plan.

(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee will be granted an option under the Plan (1) if, immediately
after the grant, the Employee (or any other person whose stock would
be attributed to the Employee under Section 424(d) of the Code) would
own capital stock of OSI and/or hold outstanding options to purchase
such stock possessing five percent or more of the total combined
voting power or value of all classes of OSI's capital stock or that of
any Subsidiary, or (2) which permits the Employee's rights to purchase
stock under all employee stock purchase plans of OSI and its
subsidiaries to accrue at a rate which exceeds $25,000 worth of stock
(determined at the fair market value of the shares at the time the
option is granted) for each calendar year in which the option is
outstanding at any time.

4. Offering Periods. The Plan will be implemented by consecutive Offering
----------------
Periods, with a new Offering Period beginning on the first Trading Day on
or after May 1 and November 1 each year, or on such other date as the Board
determines, and continuing thereafter until terminated in accordance with
Section 19. The first Offering Period will begin on the Effective Date of
OSI's initial public offering of Common Stock registered with the
Securities and Exchange Commission. The Board may change the duration of
Offering Periods (including their commencement dates) for future offerings
without shareholder approval if the change is announced at least five days
before the scheduled beginning of the first Offering Period to be affected.

Page 2
<PAGE>

5. Participation.
-------------

(a) An eligible Employee may become a Participant in the Plan (a
"Participant") by completing a subscription agreement in the form of
Exhibit A to this Plan and filing it with OSI's payroll office before
the applicable Enrollment Date.

(b) Payroll deductions for Participants will begin on the first payroll
after the Enrollment Date and will end on the last payroll in the
Offering Period to which the authorization is applicable, unless
sooner terminated by a Participant under Section 10.

6. Payroll Deductions.
------------------

(a) At the time a Participant files a subscription agreement, the
Participant will elect to have payroll deductions made on each pay day
during the Offering Period. Deductions may not exceed 15% of the
Compensation which the Participant receives on each pay day. The
aggregate of all payroll deductions during an Offering Period may not
exceed 15% of the Participant's Compensation during the Offering
Period.

(b) Payroll deductions will be credited to a Participant's account under
the Plan and will be withheld in whole percentages only. Participants
may not make any additional payments into their accounts.

(c) Participants may stop participating in the Plan as provided in Section
10. They may also increase or decrease their rate of payroll
deductions at any time during a Purchase Period by filing a new
subscription agreement with OSI authorizing the change. The Board may,
in its discretion, limit the number of rate changes during any
Purchase Period. Rate changes will be effective with the first full
payroll period that begins at least five business days after OSI
receives the new subscription agreement unless OSI elects to process a
given change more quickly. Subscription agreements will remain in
effect for successive Offering Periods unless terminated under Section
10.

(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) of this Plan, a
Participant's payroll deductions may be decreased to 0% during a
Purchase Period ("Current Purchase Period") if the sum of all payroll
deductions previously used to purchase stock under the Plan in an
earlier Purchase Period ending during the same calendar year, plus all
payroll deductions accumulated for the Current Purchase Period, equals
$21,250. Thereafter, payroll deductions will recommence at the
beginning of the first Purchase Period which ends in the next calendar
year and at the rate in the Participant's subscription agreement,
unless terminated by the Participant under Section 10.

(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Common Stock issued under the Plan is disposed
of, Participants must make adequate provision for OSI's federal,
state, or other tax withholding obligations, if any, which arise on
the exercise of the option or the disposition of the Common Stock. OSI
may, but will not be obligated to, withhold from a Participant's
compensation at any time the amount necessary for it to meet
applicable withholding obligations, including withholding required to
make available to OSI any tax deductions or benefits attributable to
the Participant's sale or early disposition of Common Stock.

7. Grant of Option. On the Enrollment Date of each Offering Period, eligible
---------------
Employees participating in the Offering Period will be granted an option to
purchase on each Exercise Date during the Offering Period (and at the
applicable Purchase Price) up to a whole number of shares of Common Stock
determined by dividing the payroll deductions accumulated by the Employee
before the Exercise Date and retained in the Employee's account as of the
Exercise Date, by the applicable Purchase Price. The preceding sentence
notwithstanding, (a) no Participant can purchase during a Purchase Period
more than a number of shares determined by dividing $12,500 by the Fair
Market Value of a share of Common Stock on the Enrollment Date, and (b) all
purchases will be subject to the limitations in Sections 3(b) and 12.
Exercise of the option will occur as provided in Section 8 (unless the
Participant has withdrawn under Section 10) and will expire on the last day
of the Offering Period.

Page 3
<PAGE>

8. Exercise of Option. Unless a Participant withdraws from the Plan under
------------------
Section 10, the option to purchase shares will be exercised automatically
on the Exercise Date. The maximum number of whole shares subject to option
will be purchased for each Participant at the applicable Purchase Price
with the accumulated payroll deductions in the Participant's account. No
fractional shares will be purchased. Any payroll deductions accumulated in
the Participant's account which are insufficient to purchase a whole share
will be retained for the subsequent Purchase Period or Offering Period,
subject to earlier withdrawal under Section 10. Any other money left over
in a Participant's account after the Exercise Date will be returned. During
a Participant's lifetime, only the Participant can exercise the option to
purchase shares under the Plan.

9. Delivery. As promptly as practicable after each Exercise Date on which a
--------
purchase of shares occurs, OSI will arrange for the delivery to each
Participant, as appropriate, of a certificate representing the shares
purchased on exercise of the option.

10. Withdrawal and Termination of Employment.
----------------------------------------

(a) At any time, Participants may withdraw all but not less than all of
the payroll deductions credited to their account and not yet used to
exercise an option under the Plan. Withdrawal will be effected by
giving OSI notice in the form of Exhibit B. All of the payroll
deductions credited to a Participant's account will be paid to the
Participant promptly after OSI receives notice of withdrawal, the
Participant's option for the Offering Period will automatically be
terminated and no further payroll deductions for the purchase of
shares will be made for the Offering Period. If a Participant
withdraws from an Offering Period, payroll deductions will not resume
at the beginning of the next Offering Period unless the Participant
has delivered a new subscription agreement to OSI.

(b) On ceasing to be an Employee for any reason, Participants are deemed
to have withdrawn from the Plan. The payroll deductions credited to
the Participant's account during the Offering Period but not yet used
to exercise the option will be returned to the Participant (or, in the
case of the Participant's death, to the person entitled to them under
Section 14) and the Participant's option will automatically be
terminated. The preceding sentences notwithstanding, Participants who
receive payment in lieu of termination notice will be treated as
continuing to be Employees for their customary number of hours per
week of employment during the period in which they are subject to the
payment in lieu of notice.

11. Interest. No interest will accrue on the payroll deductions of
--------
Participants.

12. Common Stock.
------------

(a) The maximum number of shares of Common Stock that will be made
available for sale under the Plan is 1,487,500, subject to adjustment
on changes in OSI's capitalization as provided in Section 18. If, on
any Exercise Date, the number of shares for which options are to be
exercised exceeds the number of shares then available under the Plan,
OSI will make a pro rata allocation of the shares remaining available
for purchase in as uniform a manner as practicable and as it
determines to be equitable.

(b) Participants will have no interest or voting right in shares covered
by their options until the options have been exercised.

(c) Shares to be delivered to Participants under the Plan will be
registered in the name of each Participant or in the name of each
Participant and his or her spouse.

13. Administration. The Plan will be administered by the Board or a committee
--------------
of the Board duly appointed by the Board (either, as applicable, being
referred to as the "Board"). The Board will have full and exclusive
discretionary authority to construe, interpret and apply the terms of the
Plan, to determine eligibility and to adjudicate all disputed claims filed
under the Plan. Every finding, decision or determination made by the Board
will, to the fullest extent permitted by law, be final and binding on all
parties.

14. Designation of Beneficiaries.
----------------------------

(a) A Participant may file a written designation of a beneficiary who is
to receive the shares and cash, if

Page 4
<PAGE>

any, from the Participant's account if the Participant dies after an
Exercise Date but before the shares and cash have been delivered to
the Participant. A Participant may also file a written designation of
a beneficiary who is to receive any cash from the Participant's
account if the Participant dies before the option is exercised. If a
Participant is married and the designated beneficiary is not his or
her spouse, spousal consent will be required for these designations to
be effective.

(b) Participants may change their designated beneficiary at any time by
notice to OSI. If a Participant dies and there is no validly
designated beneficiary who is living at that time, OSI will deliver
the shares and/or cash to the executor or administrator of the
Participant's estate. If no executor or administrator has been
appointed to OSI's knowledge, then OSI, in its discretion, may deliver
the shares and/or cash to the spouse or to any one or more of the
Participant's dependents or relatives. If no spouse, dependent or
relative is known to OSI, then OSI, in its discretion, may deliver the
shares and/or cash to such other person as OSI designates.

15. Transfer. Participants may not assign, transfer, pledge or otherwise
--------
disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14) either payroll deductions
credited to their account or any rights with regard to the exercise of
options or the receipt of shares under the Plan. Any attempt at assignment,
transfer, pledge or other disposition will be without effect, except that
OSI may treat the attempt as an election to withdraw from an Offering
Period under Section 10.

16. Use of Funds. All payroll deductions received or held by OSI under the Plan
------------
may be used by OSI for any corporate purpose. OSI will not be obligated to
segregate payroll deductions.

17. Reports. Individual accounts will be maintained for each Participant.
-------
Statements of account will be given to each Participant at least once per
year. These statements will set forth the amounts of payroll deductions,
the Purchase Price, the number of shares purchased and the remaining cash
balance, if any.

18. Adjustments on Changes in Capitalization, Dissolution, Liquidation, Merger
--------------------------------------------------------------------------
or Asset Sale.
-------------

(a) Subject to any required action by OSI's stockholders, the Reserves and
the price per share of Common Stock covered by unexercised options
under the Plan will be proportionately adjusted for any change in the
number of issued shares of Common Stock as a result of a stock split,
reverse stock split, stock dividend, combination or reclassification
of the Common Stock, or any other change in the number of shares of
Common Stock effected without OSI receiving consideration. For
purposes of the Plan, however, the conversion of any convertible
securities of OSI will not be deemed to have been "effected without
receipt of consideration". This adjustment will be made by the Board,
whose determination will be final and binding. Except as provided in
the Plan, no issuance by OSI of any class of stock or securities
convertible into shares of any class of stock, will affect (and no
adjustment by reason of such an issuance will be made with respect to)
the number or price of Common Stock under option.

(b) Unless otherwise provided by the Board, if dissolution or liquidation
of OSI is proposed, the Offering Periods will end immediately before
the proposed action is consummated.

(c) If a sale of all or substantially all of OSI's assets or a merger of
OSI with or into another corporation is proposed, each option under
the Plan will be assumed (or an equivalent option will be substituted
by) the successor corporation, its parent or one of its subsidiaries,
unless the Board determines, in its sole discretion and in lieu of the
assumption or substitution, to shorten the Offering Periods then in
progress by setting a new Exercise Date (the "New Exercise Date"). If
the Board sets a New Exercise Date, it will notify each Participant in
writing, at least 10 business days before the New Exercise Date. This
notice will set forth that the Exercise Date has been changed to the
New Exercise Date and that options will be exercised automatically on
the New Exercise Date, unless before that date the Participant has
withdrawn from the Offering Period as provided in Section 10. For
purposes of this Subsection, an option will be deemed to have been
assumed if, after the sale or merger, the option confers the right to
purchase, for each share of Common Stock subject to the option
immediately before the transaction, the same consideration (whether
stock, cash or other securities or property) received in the
transaction by holders of Common Stock for each share of their Common
Stock. In making this determination, if the holders of Common Stock
were offered a choice of consideration, the type of

Page 5
<PAGE>

consideration chosen by the holders of a majority of the outstanding
shares of Common Stock will apply. Notwithstanding the preceding
sentences, if the consideration received in the transaction was not
solely common stock of the successor corporation or its parent (as
defined in Section 424(e) of the Code), the Board may, with the
consent of the successor corporation, provide for the consideration to
be received on exercise of the option to be solely common stock of the
successor corporation or its parent equal in fair market value to the
per share consideration received by holders of Common Stock in the
transaction.

19. Amendment or Termination.
------------------------

(a) The Board may, at any time and for any reason, amend or terminate the
Plan. Except as provided in Section 18, (1) no amendment may make any
change in an option previously granted which adversely affects the
rights of a Participant, and (b) no termination can affect options
previously granted, except that the Board may terminate an Offering
Period on any Exercise Date if it determines that termination of the
Offering Period is in the best interests of OSI and its stockholders.
To the extent necessary to comply with any applicable law, rule or
regulation, OSI will obtain all required stockholder approvals for
amendments to the Plan.

(b) Without stockholder consent and without regard to whether any
Participant rights have been "adversely affected," the Board may
change the Offering Periods, limit the frequency and/or number of
changes in the amount withheld during an Offering Period, establish
the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, permit payroll withholding in excess of the amount
designated by a Participant in order to adjust for delays or mistakes
in OSI's processing of properly completed withholding elections,
establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each Participant properly correspond with
amounts withheld from the Participant's Compensation, and establish
such other limitations or procedures as the Board determines, in its
sole discretion, to be advisable and consistent with the Plan.

20. Notices. All notices or other communications by a Participant to OSI in
-------
connection with the Plan will be in writing and will be deemed to have been
duly given when received in the form specified by OSI and at the location,
or by the person, designated by OSI to receive it.

21. Conditions on Issuance of Shares.
--------------------------------

(a) Shares will not be issued with respect to an option unless the
exercise of the option and the issuance and delivery of the shares
complies with all applicable provisions of law, domestic or foreign,
and has been approved in respect of that compliance by counsel to OSI.
This includes, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated under
both, and the requirements of any stock exchange on which the Common
Stock may then be listed.

(b) If a representation is required in the opinion of OSI's counsel, then
OSI may require the person exercising an option to represent and
warrant, as a condition of exercise and at the time of exercise, that
the Common Stock is being purchased only for investment and without
any present intention to sell or distribute it.

22. Term of Plan. The Plan will become effective on the earlier of its adoption
------------
by the Board or its approval by the stockholders of OSI. It will continue
in effect for a term of 10 years unless sooner terminated under Section 19.

23. Automatic Transfer to Lower Price Offering Period. To the extent permitted
-------------------------------------------------
by applicable law, if the Fair Market Value of the Common Stock on an
Exercise Date in an Offering Period is lower than the Fair Market Value of
the Common Stock on the Enrollment Date of the Offering Period, then all
Participants in the Offering Period will be automatically withdrawn from
that Offering Period immediately after the exercise of their options on the
Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of its first day.

Page 6
<PAGE>

EXHIBIT A
---------

OBJECTIVE SYSTEMS INTEGRATORS, INC.

1995 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)

1. ___________ elects to participate in the Objective Systems Integrators,
Inc. 1995 Employee Stock Purchase Plan (the "Plan") and subscribes to
purchase shares of OSI's Common Stock in accordance with this Subscription
Agreement and the Plan.

2. I hereby authorize payroll deductions from each paycheck in the amount of
_____ of my Compensation on each payday (1-15%) during the Offering Period
in accordance with the Plan. (Please note that no fractional percentages
are permitted.)

3. I understand that these payroll deductions will be accumulated for the
purchase of OSI Common Stock at the applicable Purchase Price determined in
accordance with the Plan. I understand that if I do not withdraw from an
Offering Period, any accumulated payroll deductions will be used to
automatically exercise my option.

4. I have received a copy of the complete Plan. I understand that my
participation in the Plan is in all respects subject to the terms of the
Plan. I understand that my ability to exercise the option under this
Subscription Agreement is subject to obtaining shareholder approval of the
Plan.

5. Shares purchased for me under the Plan should be issued in the name(s) of
(Employee or Employee and spouse only): ___________________________.

6. I understand that if I dispose of any shares received by me under the Plan
within 2 years after the Enrollment Date (the first day of the Offering
Period during which I purchased the shares) or one year after the Exercise
Date, I will be treated for federal income tax purposes as having received
ordinary income at the time of disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were
purchased over the price which I paid for them. I agree to notify OSI in
------------------------
writing within 30 days after the date of any disposition of my shares and I
---------------------------------------------------------------------------
will make adequate provision for Federal, state or other tax withholding
------------------------------------------------------------------------
obligations, if any, which arise on the disposition of the Common Stock.
-----------------------------------------------------------------------
OSI may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation including
any withholding necessary to make available to OSI any tax deductions or
benefits attributable to my sale or early disposition of Common Stock. If I
dispose of shares at any time after the expiration of the 2-year and 1-year
holding periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of disposition, and
this such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (a) the excess of the fair market value of
the shares at the time of disposition over my purchase price, or (b) 15% of
the fair market value of the shares on the first day of the Offering
Period. The remainder of the gain, if any, recognized on disposition will
be taxed as capital gain.

7. I agree to be bound by the terms of the Plan. The effectiveness of this
Subscription Agreement depends on my eligibility to participate in the
Plan.

Page 7
<PAGE>

8. If I die, I designate the following as my beneficiary(ies) to receive all
payments and shares due me under the Plan:

NAME: (Please print) ______________________________________________

(First) (Middle) (Last)

_______________________________
Relationship

_____________________________________________

_____________________________________________
Address

Employee's Social
Security Number: ________________________________

Employee's Address: ________________________________

________________________________

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT WILL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS I TERMINATE IT.

Dated:___________________ _____________________________________________________
Signature of Employee

_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)

Page 8
<PAGE>

EXHIBIT B
---------

OBJECTIVE SYSTEMS INTEGRATORS, INC.

1995 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

The undersigned Participant in the Offering Period of the Objective Systems
Integrators, Inc. 1995 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") gives notice to OSI of his or her election to
withdraw from the Offering Period. The Participant directs OSI to pay to the
Participant as promptly as practicable all the payroll deductions credited to
the Participant's account with respect to that Offering Period. The Participant
understands and agrees that the option for this Offering Period will be
automatically terminated. The Participant also understands and agrees that no
further payroll deductions will be made for the purchase of shares in the
current Offering Period. The Participant will be eligible to participate in
succeeding Offering Periods only by delivering a new Subscription Agreement to
OSI.

Name and Address of Participant:

________________________________________

Signature:

________________________________________

Date: __________________________________

Page 9

<PAGE>

EXHIBIT 10.3

Objective Systems Integrators, Inc.
COMPENSATION AGREEMENT

Name: Lawrence F. Fiore

Position: Vice President and Chief Financial Officer

Effective Date: May 15, 1999

1. COMPENSATION
------------

(a) Base Salary. You will receive a base salary of $6,458.34 paid semi-
-----------
monthly, which is $155,000 annually.

(b) Incentive Compensation. Based on the amount of "Gross Profits"
----------------------
recorded by OSI on its books and records at the end of each fiscal
quarter, you will be paid a bonus as set forth on Exhibit 1 ("Bonus").
For purposes of determining the amount of your Bonus, "Gross Profits"
will be deemed to be (the profits that could otherwise be publicly
reported by OSI) plus (the full amount of any incentive compensation
----
paid or payable by OSI to its eligible employees, including yourself,
under OSI's then-current Corporate Incentive Plan).

(c) Determination. Gross Profits will be determined by OSI's Vice
-------------
President and Chief Financial Officer in accordance with generally
accepted accounting principles.

2. PAYMENT OF INCENTIVE COMPENSATION
---------------------------------

(a) Bonus Calculations. Bonuses will be determined within 30 days after
------------------
OSI has completed its formal accounting for each fiscal quarter.

(b) Payment. You can generally expect that, if OSI is profitable for the
-------
period, payment of your Bonus will occur approximately 45 days after
the end of a fiscal period, although there may be some variance from
time to time.

3. ELIGIBILITY AND TERMINATION
----------------------------

(a) Eligibility. To be eligible to receive a Bonus, you must (a) have been
-----------
continuously employed by OSI throughout the fiscal period to which the
Bonus relates, and (b) be actively employed by OSI on the date the
Bonus is paid. If your employment with OSI ends for any reason,
Bonuses will not be prorated.

(b) Termination. Your employment at OSI is governed by the traditional
-----------
legal principals of employment at will. Both you and OSI have the
right to end the employment relationship at any time, with or without
notice and with or without cause. However, if OSI terminates your
employment "Without Cause," and as long as you execute and deliver
OSI's then-standard form of Release, then for the 12 months after the
termination of your employment you will be placed on Salary
Continuation. During this period OSI will continue to pay you your
regular monthly salary, in all cases subject to OSI's standard pay
dates, withholdings and other obligations. Vacation accrual and stock
option vesting will stop on date your employment ends. An amount equal
to all accrued but unpaid vacation pay will be added to the first
paycheck following your termination date.
<PAGE>

(c) Without Cause. For purposes of this Agreement, the term "Without
-------------
Cause" means a termination by OSI other than as a result of (1) an act
of intentional personal dishonesty taken by you in connection with
your responsibilities as an officer and intended to result in your
substantial personal enrichment, (2) your conviction of a felony, (3)
a willful act of gross misconduct which is more than of de minimus
injury to OSI, or (4) a continued, willful and substantial violation
of your employment duties (which have been previously communicated to
you in writing, are consistent with your position and are neither
illegal, immoral nor wrongful), that has continued for 30 days after
you have received a written demand for performance from OSI,
specifically setting forth the facts underlying its belief that you
have not violated your duties.

4. GENERAL
-------

(a) Taxes. Commissions and Bonuses are taxed as wages, subject to all
-----
required withholdings and payments.

(b) Modifications. This Agreement may be modified, in writing, by OSI at
-------------
any time on 45 days notice. Any modification will not affect Bonuses
payable to you before the date the modification is effective.

(c) Renewal. Unless terminated by either party, this Agreement will renew
-------
for successive one-year periods so long as you are an employee of OSI.

(d) Entire Agreement. This is the complete agreement between you and OSI
----------------
regarding the matters set forth and supersedes any prior or
contemporaneous oral or written agreements, understandings or
representations. Except as otherwise expressly set forth, this
Agreement may only be modified by a written document signed on behalf
of OSI. Waivers of rights under this Agreement will not be effective
unless in writing signed by the party waiving its rights.

(e) Severability. If any provision of this Agreement is found to be
------------
unenforceable, it will be deemed to be modified to the minimum extent
necessary to be enforceable and, as modified, this Agreement will
remain in full force and effect.

(g) Dispute Resolution. You agree that all disputes arising out of this
------------------
Agreement will be resolved pursuant to OSI's Alternative Dispute
Resolution Policy, a copy of which is attached and incorporated into
this Agreement.

OBJECTIVE SYSTEMS INTEGRATORS, INC. OFFICER

By: /s/ Tom L. Johnson /s/ Lawrence F. Fiore
--------------------------- ----------------------------

Title: Co-Chief Executive Officer
----------------------------
<PAGE>

<TABLE>
<CAPTION>
==============================================================
CORPORATE PROFITS BONUS
BEFORE IC PAYOUT AMOUNT PAID
-------------------------------------------------------------
<S> <C>
$ 0 $ 0
-------------------------------------------------------------
$ 190,000 $ 1,712
-------------------------------------------------------------
$ 380,000 $ 3,424
-------------------------------------------------------------
$ 570,000 $ 5,137
-------------------------------------------------------------
$ 760,000 $ 6,849
-------------------------------------------------------------
$ 950,000 $ 8,561
-------------------------------------------------------------
$1,140,000 $10,273
-------------------------------------------------------------
$1,330,000 $11,986
-------------------------------------------------------------
$1,520,000 $13,698
-------------------------------------------------------------
$1,710,000 $15,410
-------------------------------------------------------------
$1,900,000 $17,122
-------------------------------------------------------------
$2,090,000 $18,834
-------------------------------------------------------------
$2,280,000 $20,547
-------------------------------------------------------------
$2,470,000 $21,368
-------------------------------------------------------------
$2,660,000 $22,053
-------------------------------------------------------------
$2,850,000 $22,601
-------------------------------------------------------------
$3,040,000 $23,012
-------------------------------------------------------------
$3,230,000 $23,286
-------------------------------------------------------------
$3,420,000 $23,423
-------------------------------------------------------------
$3,610,000 $23,423
-------------------------------------------------------------
$3,700,000 $24,007
-------------------------------------------------------------
$3,990,000 $25,889
-------------------------------------------------------------
$4,180,000 $26,368
-------------------------------------------------------------
$4,370,000 $26,779
-------------------------------------------------------------
$4,560,000 $27,943
-------------------------------------------------------------
$4,750,000 $28,252
-------------------------------------------------------------
$4,940,000 $28,491
==============================================================
</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,203
<SECURITIES> 16,197
<RECEIVABLES> 12,068
<ALLOWANCES> 2,069
<INVENTORY> 0
<CURRENT-ASSETS> 45,256
<PP&E> 32,996
<DEPRECIATION> (22,561)
<TOTAL-ASSETS> 59,472
<CURRENT-LIABILITIES> 20,361
<BONDS> 0
0
0
<COMMON> 86,707
<OTHER-SE> (47,596)
<TOTAL-LIABILITY-AND-EQUITY> 59,472
<SALES> 0
<TOTAL-REVENUES> 12,011
<CGS> 4,454
<TOTAL-COSTS> 16,802
<OTHER-EXPENSES> (261)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,530)
<INCOME-TAX> 199
<INCOME-CONTINUING> (4,729)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,729)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)

</TABLE>