Kratos Defense & Security Solutions, Inc. to Acquire Integral Systems, Inc.

May 16, 2011

Kratos Defense & Security Solutions, Inc. has entered into a definitive agreement to acquire all of the outstanding stock of Integral Systems, Inc. (Nasdaq:ISYS). Integral Systems is a leading developer and provider of Satellite System Command and Control Software, Signal Monitoring, Telemetry, Interference Identification and Military Range Processing Products and Solutions. Integral Systems' signal processing systems are used by approximately 80 percent of United States' space missions, and Integral's products support approximately 75 percent of commercial geostationary satellite operators. Integral Systems' products, solutions and services help build, maintain and plan for some of United States National Securities' most strategic satellite-based systems. The transaction is expected to be accretive to Kratos' earnings per share, margins and cash flow, excluding transaction and financing related costs.

Pursuant to the terms of the definitive agreement, Kratos will acquire each issued and outstanding share of Integral Systems common stock for $5.00 per share in cash and 0.588 shares of Kratos common stock. The fixed exchange ratio of 0.588 for each share of Integral Systems common stock was determined based on a Kratos per share price of $13.60 which is the 30-day trading average of Kratos common stock. The purchase price per share for Integral Systems common stock represents a total consideration of approximately $13.00 per share based on the 30-day Kratos average stock price.

The completion of the transaction is subject to the approval of the stockholders of both Kratos and Integral Systems. The boards of directors of each of Kratos and Integral Systems have unanimously approved the transaction and have recommended to their respective stockholders to vote in favor of the transaction. Integral System's stockholders who own approximately 12.4 percent of the voting power of Integral Systems and Kratos stockholders who own approximately 5.2 percent of the voting power of Kratos have signed voting agreements and irrevocable proxies to vote in favor of the transaction.

In addition, the closing of the transaction is subject to other customary closing conditions, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976. In connection with the acquisition, Kratos has been provided with firm commitments for debt financing in an aggregate principal amount of up to $145 million by Jefferies Group, Inc. and Key Capital Corporation.

Phil Carrai, President of Kratos' Technology, Communications and Cyber business, where the Integral Systems business will be integrated, said, "The combination of Kratos and Integral Systems represents the bringing together of two of the premier technology based C5ISR businesses in the industry today. Integral Systems' proprietary products, solutions and technology provide command and control for a large part of the Department of Defense and National Security space segment assets. Integral's signal processing systems are used by approximately 80 percent of United States' space missions, and Integral Systems is a leader in satellite signal monitoring and interference detection. Kratos' Technology and Cyber organization have a deep expertise in leading edge network infrastructure architecture, intrusion detection, information assurance, situational awareness and command and control products and solutions, including Kratos' proprietary NeuralStar and dopplerVUE situational awareness and cyber protection products. The two companies have incredible synergy within product lines and customers, no overlap of programs or contracts, and we believe that combined we will have one of the most technologically oriented businesses in a growing and mission critical National Security priority area."

Eric DeMarco, President and CEO of Kratos, said, "In Operation Desert Storm 1991, the military used approximately 140 bits per second of satellite bandwidth per deployed person. During Operation Noble Anvil in Kosovo, the U.S. component of this mission increased to almost 3,000 bits per second. In operation Enduring Freedom in Afghanistan bps usage per person increased to approximately 8,300, and by the launch of operation Iraqi Freedom in 2004 bps per person had reached 13,800. This type of satellite based bandwidth increase by the United States military and National Security agencies has continued, and are just one of the many reasons we are extremely excited about the merger with Integral Systems, and the combined businesses future growth prospects." Mr. DeMarco continued, "As I mentioned on our recent quarterly earnings call, the integration of our acquisition of Herley was seamless and it is now complete. Accordingly, we are extremely confident that the integration of Integral Systems will be similarly seamless, as we eliminate or reduce duplicative or redundant public company, corporate level and other general and administrative costs, with Integral's operations being left to operate intact, with a significantly reduced corporate cost burden which will increase their competitiveness on new business opportunities." Mr. DeMarco concluded, "Integral Systems is an entrepreneurial company with a high technology foundation, and an outstanding dedicated employee base, and the entire Kratos organization is looking forward to welcoming this incredibly unique and valuable organization and its people to Kratos. Kratos and Integral Systems are two of the leading technology based National Security focused businesses in the industry today, with complementary customers, contract vehicles and relationships, and the acquisition of Integral Systems is exactly consistent with Kratos' strategy of building the premier technology based C5ISR business, focused on mission critical, priority and growing National Security areas."