SUBSTITUTE FOR BW246 FROM JULY 29, 1996 (INTEGRATED-SYSTEMS).

SUNNYVALE, Calif.--(BUSINESS WIRE)--July 30, 1996--Integrated Systems, Inc. (NASDAQ:INTS) today announced that it has completed the acquisition of privately-held Epilogue Technology Corporation (Epilogue) of Albuquerque, New Mexico. Epilogue is a developer of network management and embedded Internet software for telecommunications and data communications equipment manufacturers, embedded software suppliers and networking related integrated circuit manufacturers. The acquisition extends Integrated Systems' network management capabilities and the Embedded Internet(TM) product family.

Epilogue has been growing approximately 50% annually and has been profitable every year during its eleven year history. Epilogue's Envoy product family has been a standard in SNMP-based network management with over 300 customers worldwide, including AT&T, Bay Networks, Cisco Systems, IBM, Nortel, Siemens and Matsushita. Integrated Systems (ISI) has offered Epilogue's Envoy software to its pSOSystem embedded operating software customers for more than three years.

In connection with this transaction, Integrated Systems issued 700,000 shares of common stock and options worth approximately $20 million based on ISI's recent stock price in exchange for all Epilogue outstanding stock and options. The acquisition will be accounted for as a pooling of interests and will result in a one-time charge of approximately $500,000 for acquisition related costs.

Karen Auerbach, chairman and chief executive officer of Epilogue comments, "Our relationship with ISI prior to the acquisition provided Epilogue with a premier distribution partner that opened many new opportunities for us. Now, the combination of ISI and Epilogue will provide our customers with the added strength and stability that comes from a mature, well run operation. Our customers can rely on us to continue to be a leading-edge network management technology supplier, and to use Internet and web technologies to expand upon our current product base to better serve them."

Industry Reactions

"We have been customers of both ISI and Epilogue Technology for some time and we are delighted to see these two vendors combine their technological resources," said Ron Morita, Vice President of Applications Engineering for UB Networks. "Bringing together Epilogue's SNMP and RMON technology and ISI's embedded systems programming promises to revolutionize computer networking and we anticipate that bringing these technologies together will make it even easier for us to develop next-generation, Internet-ready networking hardware."

"This relationship between ISI and Epilogue Technology will help drive the cost of Internet technology down even further and will give these companies a leadership role in a new technological infrastructure," said Tam Dell'Oro, founder of the Dell'Oro Group. "The name of the game is lower cost and shorter time to market. By integrating network management in the silicon and taking the burden off the network manufacturer, network vendors can focus on delivering higher-level functionality - the overall platform deliverable has just been ratcheted up a notch."

Network Management

David St. Charles, ISI's president and chief executive officer noted, "With dramatic growth in the number of devices in local and global networks, there is an increasing need for flexible, scalable and low-cost network management solutions. We expect to play a key role in providing such solutions by using Epilogue technology to expand on the already extensive embedded networking solutions offered with pSOSystem."

"While SNMP-based network management is expected to see continued growth, we believe that Internet and RMON (Remote Monitoring) technology can dramatically improve network management in both small local networks as well as large global networks. Our joining hands with ISI will allow us to pursue new technologies aggressively, such as our world-wide web (www) reporting environment, and will give us an opportunity to significantly expand distribution for our products," added David Preston, president and chief operating officer of Epilogue.

Epilogue has also entered into key technology relationships with networking silicon providers such as National Semiconductor, Texas Instruments, Level One Communications, and Compaq. These partnerships are expected to yield a much higher degree of integration between real-time software networking hardware and network management facilities, which is required in order to support higher telecommunications rates of 100Mbits and above, and further reduce the time-to-market.

Epilogue and ISI have also been very active in the mobile computing environment. Epilogue co-founded the Mobile Management Task Force (MMTF), a consortium of companies such as IBM, Motorola and Xircom. The MMTF is chartered to provide standards-based connectivity and management solutions for the emerging mobile computing market.

Leadership in Embedded Internet

The acquisition of Epilogue by Integrated Systems is expected to further extend Integrated Systems leadership in Embedded Internet. Integrated Systems and Epilogue have a common vision to shorten the time-to-market and cost-reduce Internet connectivity, and open new markets for 'Internet-ready' consumer devices. Embedded devices are expected to increasingly utilize the Internet and the www to retrieve, send, share, and manipulate information. Scalable embedded operating software and networking technologies will be essential for these embedded Internet devices to be cost effective. "A few years ago, Epilogue demonstrated an SNMP-controllable toaster, in order to make the point that small, inexpensive devices could be effectively networked and managed", Auerbach noted. "Now we are seeing the realization of this demonstration with the proliferation of set-top boxes, home satellite systems and Internet-ready televisions. SNMP will play a key role in managing these and other consumer products."

Naren Gupta, ISI's Chairman states, "With Epilogue, we believe we are acquiring a first rate engineering group with expertise in Internet, embedded network management, and real-time software technologies. This group is expected to play a key role in future evolution of our Embedded Internet product family and our goal of rapidly consolidating our leadership in this area."

Risks in Forward Looking Statements

The first paragraph of this press release and the paragraphs entitled "Network Management" and "Leadership in Embedded Internet" contain statements that constitute forward-looking statements, including Integrated Systems' expectations, hopes or intentions regarding the future. Actual results could differ materially from those discussed in forward-looking statements. Among the factors that could cause the results to differ materially are difficulties in the assimilation of the operations, technologies and products of the two companies, developments in the computer hardware and software industry, especially in an evolving area such as the Internet, and other factors discussed in various documents filed with the Securities and Exchange Commission from time to time. Copies of these documents are available from the Securities and Exchange Commission (world-wide web http://www.sec.gov) and from Integrated Systems, Inc.

Epilogue Technology Corporation

Epilogue Technology Corporation specializes in developing and marketing standards-based network management and protocol software products and support services to computer OEMs and computer systems manufacturers. Epilogue has licensed its products to more than 300 companies worldwide including AT&T, Bay Networks, Cisco Systems, IBM, Nortel, Siemens, and Matsushita. Epilogue customers have shipped more than two million network devices containing Epilogue products. Epilogue Technology Corporation is located at 10501 Montgomery, Suite 250, Albuquerque, NM; telephone: [phone]; fax: [phone].

Integrated Systems

Headquartered in Sunnyvale, California, Integrated Systems, Inc. (NASDAQ: INTS) is the leading worldwide provider of embedded technology for telecom/datacom, embedded Internet, multimedia/consumer electronics, office and retail automation, automotive, and aerospace industries. pSOSystem is the operating software of choice for high-volume embedded applications that depend on reliability, high-performance, and low manufacturing costs. At almost twice the size of its nearest competitor, ISI reported $84.4 million total revenues for the fiscal year ending February 29, 1996, an increase of 45% over the previous year. Founded in 1981, Integrated Systems' worldwide presence includes sales and service offices throughout Asia, Europe, and North America.

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Note to Editors: pSOS and pSOSystem are registered trademarks and Embedded Internet is a trademark of Integrated Systems, Inc.

CONTACT: Integrated Systems, Inc.

Naren Gupta, 408/542-1701 (press)

email: [e-mail]

or

Steven Sipowicz, 408/542-1996 (financial)

email: [e-mail] or [e-mail]

or

Epilogue Technology Corp.

David J. Preston, 505/271-9933

email: [e-mail]

or

Rainier Corporation

Stephen A. Schuster, 508/464-5302

email: [e-mail]