Investor presses Integral Systems

Mellon HBV wants sale or a new board

March 17, 2006|By STACEY HIRSH | STACEY HIRSH,SUN REPORTER

Pressure continued to mount for Lanham-based satellite systems provider Integral Systems Inc. to put itself up for sale when a major shareholder set an end-of-the-month deadline for the company to hire an investment banker and get the process started.

Shareholder Mellon HBV Alternative Strategies LLC of New York said that if the company didn't meet this demand, it would renew efforts to replace Integral Systems' directors with others who would try to sell the company, according to a letter filed yesterday with the Securities and Exchange Commission.

The letter from William F. Harley III, Mellon's chief executive officer and chief investment officer, also accuses embattled Integral Systems CEO Steven R. Chamberlain of entrenching the company's current directors.

"We firmly believe the company needs to be sold in the short term," Harley wrote.

The demands come one month after Chamberlain was indicted in Howard County for alleged sexual misconduct involving a 14-year-old girl at his home in Columbia. Chamberlain has continued to run Integral Systems despite the two felony charges. The company said in an SEC filing last year that he maintains his innocence.

Still, Chamberlain has come under criticism from Bonnie K. Wachtel, a Washington financier and board member.

Wachtel is a major shareholder of Integral who also wants the company to be sold.

Mellon HBV Alternative Strategies is one of Integral Systems' two largest shareholders, with about 1.29 million shares, or 12 percent of the company.

Integral Systems said in an SEC filing last month that its board would "retain an investment bank to explore strategic options for maximizing shareholder value."

But Harley expressed frustration that the company was strengthening ties with its current board members, rather than filling vacancies with Mellon's nominees. Harley called the company's SEC filing this week an apparent "effort to entrench current directors" and said he believes Mellon's investors have been "disenfranchised."

In his letter to Chamberlain, Harley wrote: " ... we believed we had an understanding on placing some of our nominees on the Board to immediately fill vacancies with the objective of achieving better representation of current investors. We are surprised and disappointed at the apparent change in the direction of the Company's corporate governance, which is in exactly the opposite direction of recent general progress toward greater respect for shareholders' rights in corporate governance. ... "

Harley could not be reached for comment yesterday. Integral Systems declined to comment.

Shares of Integral Systems closed at $27.83 yesterday, down 11 cents or 0.39 percent. With talk of a possible sale in play, the stock has risen more than $6 since the end of January.

stacey.hirsh@baltsun.com

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