Integral pacts called at risk

Satellite services firm faces lawsuit

March 22, 2006|By STACEY HIRSH | STACEY HIRSH,SUN REPORTER

One of the largest shareholders of Lanham-based Integral Systems Inc. said yesterday that Howard County indictments facing the company's chief executive and concerns about the firm's board of directors could jeopardize the government contracts that are currently the satellite system provider's lifeblood.

Mickey Harley, chief executive officer and chief investment officer of Mellon HBV Alternative Strategies LLC, also said in a telephone interview with The Sun that he would take the company to court if Integral didn't meet his end-of-the-month deadline for hiring an investment banker to sell the firm.

"If they don't hire the appropriate investment banker by the end of the month, they are in for a fight," Harley said.

The company declined to comment yesterday, according to spokeswoman Tory Walker. The company said in a Securities and Exchange Commission filing last year that Chief Executive Officer Steven R. Chamberlain maintains his innocence and will fight the charges. He was indicted last month on charges of sexual misconduct involving a 14-year-old girl at his Columbia home.

Harley's comments followed a letter he sent last week to Chamberlain demanding that the company begin the process of putting itself up for sale. The letter, which was filed with the SEC, accused Integral Systems of entrenching its current board and disenfranchising shareholders.

But Harley added yesterday that Chamberlain's personal and legal troubles could also prove problematic for the company. Chamberlain has continued to run Integral Systems despite the two felony charges.

"If you're a competitor of Integral ... and you know what's going on at Integral, why wouldn't you call up general so-and-so and say, `By the way, before you award this contract, are you aware that you're going to award it to an alleged child molester?' That just doesn't work, and that concerns us," Harley said.

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

Kern Capital Management, which also owns about 1.29 million shares of Integral Systems, declined to comment.

But Harley said that all of Integral Systems' major shareholders have told Chamberlain that they want the company sold.

"We will ... overturn their recent changes to the charter and bylaws; we think it violates both state and federal law," Harley said. "We'll hold a special meeting. We'll remove directors, with or without cause ... and we'll put in place a new board of directors who will then carry out the shareholders' wishes."

Bonnie K. Wachtel, an Integral Systems director and shareholder who has criticized Chamberlain for not disclosing his legal problems earlier and who declined to run for re-election this year, said her No. 1 priority is changing Integral Systems' board. Even if the company hires an investment banker by the end of the month, Wachtel said, she is not confident the process of selling the company will proceed smoothly.

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

Harley said he believes that Integral Systems has a unique product that is increasingly in demand. The company's earnings and revenue reached all-time highs during the first quarter of fiscal 2006, with net income of $3.1 million on$29.3 million in revenue.

Integral Systems' government customers include the Department of Defense and the Air Force, according to its annual report. In the report, the company touts itself as "the leading provider of command and control products for U.S. military communications satellites."

In Harley's letter to Chamberlain that was filed with the SEC last week, he expressed frustration that Integral Systems was strengthening ties with its current board members, rather than filling vacancies with Mellon's nominees. He said the board has put the company at risk, and that Integral Systems needs a new board to sell the firm.

"I do not trust that this board will hold a full and fair auction," Harley said. "I do not trust them with anything."

Wachtel also says that Integral Systems has tried to disenfranchise shareholders. The SEC and Nasdaq have made an informal inquiry to the company about Wachtel's decision not to stand for re-election to the board, according to a SEC document filed last month.

"The board appears to think that it is in a better position than any outside shareholder to oversee the company's future, while events at the company over the past several months seem to indicate exactly the opposite," Wachtel said.

stacey.hirsh@baltsun.com

Sun reporter Hanah Cho contributed to this article.

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