MAI SYSTEMS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 21, 1996
TO ALL STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of
Stockholders of MAI Systems Corporation (the "Company" or "MAI"),
a Delaware corporation, will be held at the Sheraton Newport
Beach Hotel, 4545 MacArthur Boulevard, Newport Beach, California
92660 on Tuesday, May 21, 1996 at 10:00 a.m., for the following
purposes:
1. To elect four directors to serve for the ensuing year and until
their successors are elected.
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase from 10,000,000 to 25,000,000
the number of shares of Common Stock which the Company is authorized
to issue.
3. To approve an amendment to the 1993 Employee Stock Option
Plan in order to increase the number of shares of Common Stock
reserved for issuance thereunder by 182,500 shares to an
aggregate of 1,000,000 shares, and to permit the Board of
Directors, the Compensation Committee of the Board of Directors
or such other Committee as the Board of Directors may designate,
to administer the 1993 Employee Stock Option Plan.
4. To approve the Company's Non-Employee Directors' Stock
Option Plan.
5. To transact such other business as may properly come before
the meeting and any adjournment(s) thereof.
Only stockholders of record at the close of business on April 9,
1996 are entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in
person. However, to ensure your representation at the meeting,
you are urged to mark, sign and return the enclosed Proxy as
promptly as possible in the postage-prepaid envelope enclosed for
that purpose. Any stockholder attending the meeting may vote in
person, even though he or she has returned a Proxy.
Stanley P. Witkow
Secretary
Irvine, California
April 12, 1996
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YOUR VOTE IS IMPORTANT
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE
REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
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<PAGE>1
MAI SYSTEMS CORPORATION
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of MAI Systems
Corporation ("MAI" or the "Company") for use at the 1996 Annual
Meeting of Stockholders ("Annual Meeting") to be held Tuesday,
May 21, 1996, at 10:00 a.m., local time, and at any
adjournment(s) or postponement(s) thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Sheraton
Newport Beach Hotel, 4545 MacArthur Boulevard, Newport Beach,
California 92660. The Company's principal executive offices are
located at 9600 Jeronimo Road, Irvine, California 92718 and its
main telephone number is (714) 580-0700. These proxy
solicitation materials were mailed on or about April __, 1996 , to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record at the close of business on April 9, 1996
(the "Record Date"), are entitled to notice of and to vote at the
Annual Meeting. At the Record Date, 6,728,401 shares of
the Company's $0.01 par value Common Stock, were outstanding.
The closing price on the American Stock Exchange for the Company's
Common Stock on the Record Date, as reported in The Wall Street Journal,
was $5.875 per share. The Company was aware of the following beneficial
owners of more than 5% of its Common Stock as of the Record Date:
<TABLE>
<CAPTION>
Number Percentage
Name and Address of Shares of Class
<S> <C> <C>
Richard S. Ressler 1,244,791<FN1> 16.9%
c/o Orchard Capital Corporation
1999 Avenue of the Stars Suite 1910
Los Angeles, California 90067
Bennett S. LeBow <F2> 1,652,433 22.5 %
c/o Brooke Group, Ltd.
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
Apollo Advisors., L.P. <F3> 482,751 6.7 %
Two Manhattanville Road
Purchase, New York 10577
<FN>
<F1> Includes 625,000 shares of Common Stock which Mr. Ressler may
purchase pursuant to a warrant which is exerciseable in full at this
time. See "Certain Transactions with Management."
<FN2> Based on information obtained from Amendment No. 5 to Schedule 13D
filed with the Securities and Exchange Commission dated February 27, 1996.
<FN3> Based on information obtained from Amendments No. 1 to Schedule 13G
filed with the Securities and Exchange Commission dated February 13, 1996
by Lion Advisors, LP and AIF II, LP, which are affiliates of Apollo
Advisors, LP.
</FN>
</TABLE>
-1-
<PAGE>2
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by
the person giving it at any time before its use by delivering to
the Company before the Annual Meeting a written notice of revocation
or a duly executed proxy bearing a later date or by attending the
Annual Meeting and voting in person.
VOTING AND SOLICITATION
On all matters other than the election of directors, each share
has one vote.
The cost of soliciting proxies will be borne by the Company.
The Company has retained the services of Georgeson & Company Inc.
("Georgeson") to aid in the solicitation of proxies from brokers,
bank nominees and other institutional owners. The Company
estimates that it will pay Georgeson a fee not to exceed $5,000
for its services and will reimburse Georgeson for certain out-of-
pocket expenses estimated to be not more than $10,000. In
addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their
expenses in forwarding solicitation materials to such beneficial
owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to
be presented by such stockholders at the Company's 1997 Annual
Meeting of Stockholders must be received by the Company no later
than January 15, 1997, in order to be considered for possible
inclusion in the proxy statement and form of proxy relating to
that meeting.
PROPOSAL I
ELECTION OF DIRECTORS
GENERAL
A board of four directors is to be elected at the Annual
Meeting. Unless otherwise instructed, the proxy holders will
vote the proxies received by them for the Company's four
nominees named below, all of whom are currently directors of the
Company. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual
Meeting (neither of which events is expected), the proxies will
be voted for such nominee as shall be designated by the current
Board of Directors to fill the vacancy.
VOTE REQUIRED
A quorum comprising the holders of the majority of the
outstanding shares of Common Stock on the Record Date must be
present or represented by proxy for the transaction of business
at the Annual Meeting. Each share may vote for up to four
director-nominees. Votes may not be cumulated. If a quorum is
present, the four nominees receiving the highest number of votes
will be elected to the Board of Directors, whether or not such
number of votes for any individual represents a majority of the
votes cast. Votes withheld and broker non-votes will be counted
for purposes of determining the presence or absence of a quorum
but have no other effect under Delaware law in the election of
directors.
The term of office of each person elected as a director will
continue until the next Annual Meeting or until his successor has
been elected and qualified.
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<PAGE>3
MANAGEMENT RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES LISTED
BELOW.
NOMINEES
The names of the nominees, their ages at the Record Date and
certain other information about them are set forth below.
<TABLE>
<CAPTION>
Name of Nominee Age Pricipal Occupation Director Since
<S> <C> <C> <C>
Richard S. Ressler 37 Chief Executive Officer 1995
and Chairman of the
Board, MAI Systems
Corporation; President
and Chief Executive
Officer, Orchard Capital
Corporation, an
investment and
management consulting
firm
George G. Bayz 42 Director, President and 1995
Chief Operating Officer,
MAI Systems Corporation
Alan A. Gleicher 43 Vice President, Sales, 1995
Intuit Corporation Inc., a
financial management
products computer
software company
Morton O. Schapiro 42 Dean, College of 1995
Letters, Arts and
Sciences, University of
Southern California
</TABLE>
There is no family relationship between any director and any
executive officer of the Company.
Richard S. Ressler was named President and Chief Executive
Officer of the Company in October 1994 and was elected to the
Company's Board of Directors in February 1995. In May 1995 he
became Chairman of the Board of Directors. Mr. Ressler is
President and Chief Executive Officer of Orchard Capital
Corporation ("Orchard"), an investment and consulting
firm which he formed in January 1994 for the purpose of providing
financial and operational consulting services. Prior to April 1991
and until January 1, 1994, Mr. Ressler held various positions at Brooke
Group, Ltd. ("BGL"), a New York Stock Exchange company and its various
affiliates including but not limited to Liggett Group, Inc., a tabacco
products producer, and BGL's predecessor Company, Brooke Partners, LP
from July 1990 to April 1993 he was Executive Vice President of BGL.
He has been a director of New Valley Corporation since August 1990.
George G. Bayz was elected President and Chief Operating
Officer of the Company in May 1995 and became a director in July
1995. He joined the Company in July 1994 as vice president,
sales and marketing. From April 1993 until July 1994, Mr. Bayz
was a senior vice president of the Corum Group, Ltd., an
investment banking firm specializing in mergers and acquisitions
of information technology companies. From January 1992 to March
1993, he was acting president of Blue Sheet, Inc., a start-up on-
line information services provider. From February 1989 until its
October 1991 sale to Borland International, Inc., Mr. Bayz was
Director, Business Development, at Ashton-Tate Corporation, a
developer and marketer of microcomputer software.
Alan A. Gleicher was appointed to the Company's Board of
Directors in July 1995. Since December 1993, he has been Vice
President, Sales, of Intuit Inc., a developer and marketer
of financial management computer software products. From
September 1990 until its December 1993 acquisition by Intuit, Mr.
Gleicher was president of the personal products division of
ChipSoft, Inc.
Morton O. Schapiro was appointed to the Company's Board of
Directors in July 1995. Since, July 1991, he has been a
professor of Economics at the University of Southern California,
and since July 1994 he has served as the Dean of the College of
Letters, Arts and Sciences at the University of Southern
California. Since October 1992, he has been a director of the Griffin Funds,
Incorporated, a mutual fund.
-3-
<PAGE>4
EXECUTIVE OFFICERS
The name, age and title of each executive officer of the
Company (other than executive officers who are nominees for
director set forth above), business experience for at least the
past five years and certain other information concerning each
such executive officer has been furnished by the executive officer and
is set forth below. Executive officers are elected by the Board
of Directors following the annual meeting of the Company's
stockholders.
<TABLE>
<CAPTION>
Name (Age) Title, Business Experience and Other
Directorships
<S> <C>
W. Brian Kretzmer Vice President and Chief Financial
(43) Officer of the Company; President and Chief Operating
Officer, Gaming Systems International
("GSI"), a subsidiary of the Company. Mr.
Kretzmer has been Vice President, Chief Financial
Officer and Treasurer of the
Company since January 1993 and was
Controller, North America from July 1991 to
December 1992. He assumed the position of
President and Chief Operating Officer of GSI
in August 1995. Prior to joining the
Company, Mr. Kretzmer was Vice President,
Chief Financial Officer and Treasurer of ICL,
Inc. a provider of retail and midrange
computer systems and a subsidiary of
International Computers, Ltd., from January
1989 to March 1991.
Stanley P. Witkow Vice President, Corporate and Legal
(47) Affairs and Secretary. Mr. Witkow has been
Vice President, Corporate and Legal Affairs,
since September 1995. He joined the Company
in July 1994 as Vice President and General
Counsel and Secretary. From March 1993 until
its February 1994 sale to SoftKey
International, Inc., Mr. Witkow was General
Counsel of WordStar International
Incorporated, a microcomputer software
publisher. From December 1991 to October
1992, Mr. Witkow was assistant to the
president of Communication Intelligence
Corporation, a developer of pen computer
software including handwriting recognition
products. From April 1985 until its October
1991 sale to Borland International, Inc., Mr.
Witkow was Vice President, General Counsel
and Secretary of Ashton-Tate Corporation, a
developer and marketer of microcomputer
software.
</TABLE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors held two meetings during the
year ended December 31, 1995. It also conducted business by written
consent. The Board of Directors has an Audit Committee and a
Compensation Committee. It does not have a Nominating Committee.
The Audit Committee currently consists of Messrs. Schapiro
(chairman), Gleicher and Ressler. The Audit Committee held one
meeting during 1995. The Audit Committee recommends engagement
of the Company's independent auditors and is primarily
responsible for approving the services performed by the Company's
independent auditors and reviewing and evaluating the Company's
accounting policies and its system of internal accounting
controls.
The Compensation Committee currently consists of Messrs.
Gleicher (chairman), Ressler and Schapiro. The Compensation
Committee met twice in 1995. The Compensation Committee
reviews and approves the Company's executive compensation
policies and administers the Company's employee stock option plan.
During 1995, each incumbent director attended all of the
meetings of the Board of Directors and the committes of which they
were members.
-4-
<PAGE>5
DIRECTOR COMPENSATION
The Company pays fees of $3,000 per calendar-year quarter to
each of its non-employee directors, and $1,000 for each Board or
Committee meeting which is attended in person or telephonically.
Additionally, the Company reimburses directors for their
reasonable travel expenses to attend meetings.
In July 1995 the Company adopted, subject to stockholder
approval, its Non-Employee Directors Stock Option Plan (the
"Directors' Plan"), which provides for the grant of
nonstatutory stock options to non-employee directors. Under the
Directors' Plan, each non-employee director who is not the
holder of 5% or more of the outstanding shares of the
Common Stock is granted a nonstatutory option to purchase
31,250 shares of Common Stock on the date of his or her
appointment to the Board.Thereafter, each non-employee director is
automatically granted a nonstatutory option to purchase 6,250 shares of
Common Stock on the date of each Annual Meeting of Stockholders at which
each such non-employee director is re-elected, provided that on such date,
he or she has served on the Board of Directors for at least six months.
Options granted pursuant to the Directors' Option Plan vest as to 20% of
the initial grant six months following the date of grant. The
Directors Plan provides that upon a change of control
all options granted pursuant to the Plan shall become immediately
exercisable in full. The Directors' Plan provides that the exercise
price of the options granted thereunder shall be equal to the fair
market value of the Common Stock on the date of grant of the option.
Options granted pursuant to the Directors' Plan have a term of ten years and
options granted pursuant to the Directors' Plan may be
exercised only while the optionee is a director of the Company
or within one year after termination of service as a director.
During the last fiscal year, Messrs. Gleicher and Schapiro were
each granted options, subject to stockholder approval, to purchase
31,250 shares of Common Stock at a price of $7.80 per share.
No options became exercisable or were exercised pursuant to the
Directors Option Plan in 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs.
Gleicher, Ressler and Schapiro. The Company has no interlocking
relationships or other transactions involving any of its
Compensation Committee members that are required to be reported
pursuant to applicable Securities and Exchange Commission rules.
One current officer of the Company, Richard S. Ressler, and no former
officers of the Company, serves on the Compensation Committee.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of
Common Stock of the Company as of the Record Date, by each
director, by each of the executive officers named in the Summary
Compensation Table, and by all directors and executive officers
as a group.
<TABLE>
<CAPTION>
Number of Shares Approximate
Name Beneficially Owned Percentage Owned
<S> <C> <C>
Richard S. Ressler <F1> 1,244,791 16.7%
George G. Bayz <F2> 34,250 *
Alan A. Gleicher 6,250 *
Morton Schapiro 6,250 *
W. Brian Kretzmer <F3> 20,833 *
Stanley P. Witkow <F3> 22,833 *
All current directors and
executive officers as a 1,335,207 17.9%
group ( 6 persons) <F4>
* See notes on following page.
<PAGE>
* Less than 1%
<FN>
<F1>
Includes a warrant to purchase 625,000 shares of Common Stock
held by Mr. Ressler which is exercisable by Mr. Ressler at
or within 60 days of Record Date.
<F2>
Includes 31,250 shares issuable upon exercise of options
held by Mr. Bayz exercisable at or within 60 days of Record Date.
<F3>
Includes 6,250 shares each issuable upon exercise of
options held by Messrs. Gleicher and Schapiro within 60 days
of the insert the Record Date.
<F4>
Includes 20,833 shares issuable upon exercise of options held
by Messrs. Kretzmer and Witkow within 60 days of the Record Date.
<F5>
Includes 697,916 shares issuable upon exercise of options
held by executive officers and warrants held by Mr. Ressler
exercisable at or within 60 days of the Record Date.
</FN>
</TABLE>
-5-
<PAGE>6
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, as to the Chief Executive Officer
and as to each of the other three most highly compensated
executive officers during the last fiscal year, information concerning all
compensation paid for services to the Company in all capacities
during the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other
Name Annual Securities All Other
and Principal Compen- Underlying Compen-
Position Year Salary($) Bonus$<F1> sation($) Options(#) sation($)<F2>
<S> <C> <C> <C> <C> <C> <C>
Richard S. 1995 $240,000 $0 $0 0 $0
Ressler<F3> 1994 94,601 0 0 625,000<FN4> 0
Chairman 1993 N/A N/A N/A N/A N/A
of the
Board,Chief
Executive
Officer
George G. Bayz 1995 $172,000 $44,200 $0 93,750 $180
President 1994 76,923 0 0 0 0
and Chief 1993 N/A N/A N/A N/A N/A
Operating
Officer
W. Brian 1995 $172,000 $23,580 $0 62,500 $180
Kretzmer 1994 172,000 0 0 0 0
Vice 1993 180,389 67,503<F5> N/A 0 N/A
President and
Chief
Financial
Officer
Stanley P. 1995 $172,00 $24,000 $0 62,500 $180
Witkow 1994 76,923 0 0 0 0
Vice 1993 N/A N/A N/A N/A N/A
President,
Corporate
and Legal
Affairs
<FN>
<F1> Amounts stated include bonus amounts earned in fiscal
1995 by executive officers and paid in fiscal 1996.
<F2> Amounts stated reflect contributions made by the Company
to such executive officer's account under the Company's 401(k)
Plan.
<F3> Mr. Ressler is an employee of Orchard Capital
Corporation, which provides his services through a consulting
agreement between it and the Company.
<F4> Warrant issued to Orchard Capital Corporation (and transferred to
Mr. Ressler) in connection with the agreement pursuant to which
it supplies the services of Mr. Ressler. See, "Certain
Transactions with Managements."
<F5> Amounts stated includes bonus amount earned in fiscal
1993 by Mr. Kretzmer and paid in fiscal 1994.
</FN>
</TABLE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information regarding
grants of stock options made during the fiscal year ended
December 31, 1995 to the Company's executive officers named in the Summary
Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
% of Realizable Value at
Number of Total Assumed Annual Rates
Securities Options of Stock Price
Underlying Granted to Exercise Appreciation
Options Employees Price for Option Term <F1>
Granted in Fiscal ($/sh) Expiration ---------------
Name #<F2> Year <F3><F4> Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Richard S. None N/A N/A N/A N/A N/A
Ressler
George G. Bayz 62,500 10.6% $1.65 3/7/05 $64,651 $164,030
31,250 5.3 2.60 4/19/05 51,098 129,492
W. Brian 62,500 10.6 1.65 3/7/05 64,651 164,030
Kretzmer
Stanley P. 62,500 10.6 1.65 3/7/05 64,651 164,030
Witkow
*See notes on following page.
-6-
<PAGE>7
<FN>
<F1> Potential realizable value is based on the assumption that
the Common Stock appreciates at the annual rate shown
(compounded annually) from the date of grant until the
expiration of the option term. These numbers are calculated
based on the requirements promulgated by the Securities and
Exchange Commission and do not represent an estimate by the
Company of future stock price growth.
<F2> All stock options granted in fiscal 1995 have ten year
terms and become exercisable with respect to 33-1/3% of the
shares covered thereby on the anniversary of the date of
grant, with full vesting occurring three years following the
date of grant. See "Employment Contracts and Change of
Control Agreements" for provisions regarding acceleration of
the vesting of options under certain circumstances.
<F3> Options were granted at an exercise price equal to the fair
market value of the Common Stock, as determined by
reference to the closing price on the date of grant reported
on the Nasdaq Electronic Bulletin Board and, after the Common Stock was
listed on the American Stock Exchange (the "AMEX"), on the AMEX.
<F4> The exercise price and tax withholding obligations may be
paid in cash and, subject to certain conditions or
restrictions, by delivery of already-owned shares or pursuant
to a cashless exercise procedure under which the optionee
provides irrevocable instructions to a brokerage firm to sell
the purchased shares and to remit to the Company, out of the
sale proceeds, an amount equal to the exercise price plus all
applicable withholding taxes.
</FN>
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST YEAR AND FISCAL YEAR
END OPTION VALUES
No options were exercised by any of the executive officers
during the year ended December 31, 1995. The value of the options held at
the end of the fiscal year are set forth in the following table:
VALUE OF UNEXERCISED STOCK OPTIONS AT END OF YEAR
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Fiscal Year-End (#) at Fiscal Year-End ($)<F1>
Exercisable/Unexercisable Exercisable/Unexercisable
Name -------------------- ---------------------
<S> <C> <C> <C> <C>
Richard S. Ressler<F2> 625,000 0 $3,031,250 N/A
George G. Bayz 0 93,750 0.00 $448,438
W. Brian Kretzmer 0 62,500 0.00 318,750
Stanley P. Witkow 0 62,500 0.00 318,750
<FN>
<F1> Market value of underlying securities at fiscal year end
($6.75 per share), minus the exercise price.
<F2> Represents Mr. Ressler's warrant to purchase up to 625,000
shares of Common Stock at 1.90 per share.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company currently has no employment contracts with any of
the Company's executive officers named in the Summary
Compensation Table above (but it does have a consulting agreement
with Orchard Capital Corporation which supplies the services of
Richard S. Ressler, its Chairman and Chief Executive Officer.
See "--Certain Transactions with Management"). The Company's
1993 Employee Stock Option Plan provides that upon a change of
control all options granted pursuant to the plan shall become
immediately exercisable in full. See "Proposal III-Amendment
to 1993 Employee Stock Option Plan Change of Control Provisions".
CERTAIN TRANSACTIONS WITH MANAGEMENT
The services of Richard S. Ressler, Chairman and Chief
Executive Officer of the Company, are provided pursuant to an
agreement with Orchard Capital Corporation ("Orchard"), which is
his employer. Pursuant to that agreement (which expires in
August 1996), Orchard agreed to provide Mr. Ressler's services on
a non-exclusive basis. Orchard is paid $20,000 per month during
the term of the agreement. Additionally, Orchard became entitled
to a bonus of $1,187,500 (payable in cash or freely transferable
Common Stock at the Company's option) when the trading price of
the Company's Common Stock exceeded $4.00 for twenty consecutive
trading days any time on or after January 1, 1996. Additionally,
Orchard was granted a warrant (which warrant Orchard transferred
to Mr. Ressler) to purchase up to 625,000 shares of
the Company's Common Stock at $1.90 per share. The warrant
is currently exercisable as to all shares and expires August 14, 1999.
-7-
<PAGE>8
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION
GENERAL
From April 12, 1993 to January 27, 1994, the Company conducted
its corporate governance and business affairs, including matters
relating to executive compensation, subject to the supervision
and approval of the United States Bankruptcy Court in connection
with the Company's bankruptcy proceedings under Chapter 11 of the
Bankruptcy Act. The policy of the Company regarding the
compensation of its executive officers, which was disclosed in
the First Amended Disclosure Statement dated as of October 19,
1993, was to maintain a total compensation program which would
retain the services of key executives and (a) assure the
availability of their skills for the benefit of the Company, (b)
secure to the Company freedom from competition by such persons
within reasonable and lawful limits and (c) provide appropriate
base compensation, benefits and financial incentives through
bonus, severance and other employment-related programs. Since
emerging from bankruptcy proceedings, the Compensation Committee
of the Board of Directors recommends, subject to the Board's
approval, executive compensation, including the compensation of
the Chief Executive Officer. The Compensation Committee also
determines and approves stock option grants for all employees,
including the Chief Executive Officer. The Committee currently
comprises two independent, non-employee directors, and one
officer/director, whose services are provided pursuant to a
consulting agreement with his employer (see "Executive
Compensation-Certain Transactions with Management").
COMPENSATION PHILOSOPHY
The Company operates in the highly competitive and rapidly
changing high technology industry. The goals of the Company's
compensation program are to align compensation with the Company's
overall business objectives and performance, to foster teamwork
and to enable the Company to attract, retain and reward employees
who contribute to its long-term success. The Committee also
seeks to establish compensation policies that allow the Company
flexibility to respond to changes in its business environment.
COMPENSATION COMPONENTS
Compensation for the Company's executive officers generally
consists of salary, annual incentive and stock option awards.
The Committee assesses past performance and anticipated future
contribution of each executive officer in establishing the total
amount and mix of each element of compensation.
Salary. The salaries of the executive officers, other than
the Chief Executive Officer, are determined annually by the
Compensation Committee with reference to salaries paid to
executives with similar responsibilities at comparable companies,
primarily in the high technology industry. The peer group for
each executive officer is composed of executives whose
responsibilities are similar in scope and content. The Company
seeks to set executive compensation levels that are competitive
with the average levels of peer group compensation.
Annual Incentive. The Committee annually reviews and
approves an executive compensation plan. A target, expressed as
a percentage of salary, is established for each officer, based on
the scope of his or her responsibility. For 1995, the targets
for executive officers ranged from 30% to 50% of salary. The
actual payment is computed as a percentage of that target based
on the Company's performance in achieving specified objectives,
and the individual performance of executives.In 1995, incentive
compensation was apportioned between company performance (65%) and
individual and business unit performance
(35%).
-8-
<PAGE>9
Stock Options. Stock option awards are designed to align the
interests of executives with the long-term interests of the
stockholders. The Committee approves option grants subject to
vesting periods (usually over a three-year period) to retain
executives and encourage sustained contributions. The exercise
price of options is the market price on the date of grant.
The Company is subject to Section 162(m) of the Internal
Revenue Code, adopted in 1993, which limits the deductibility of
certain compensation payments to its officers. The Company does
not have a policy requiring the Committee to qualify all
compensation for deductibility under this provision.
The Company does not currently have any non-deductible compensation
plans. The Company believes that any compensation expense incurred in
connection with the exercise of stock options granted under its
1993 Employee Stock Option Plan will continue to be deductible as
performance-based compensation.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Ressler's services as Chief Executive Officer are
provided pursuant to a consulting agreement dated August 15, 1994
with Orchard Capital Corporation, Mr. Ressler's employer.
Pursuant to that agreement, Orchard is paid $20,000 per month up
through and including August 15, 1996, for Mr. Ressler's
services. Orchard also became entitled to bonus compensation of
$1,187,500 when the closing price of MAI's Common Stock exceeded
$4.00 per share for twenty consecutive days the last of which occurred
January 2, 1996. Finally, Orchard was issued a warrant to purchase up
to 625,000 shares ofCommon Stock at $1.90 (which it then transferred to
Mr.Ressler). The warrant is fully exercisable.
In evaluating the proposed agreement between Orchard and the
Company, the Compensation Committee commissioned a report of an
independent compensation consulting organization which
considered, among other things, compensation for senior
executives in turn-around companies and concluded that
the compensation arrangement was fair and reasonable and in the
best interests of the Company.
Other than reimbursement for reasonable expenses incurred in
connection with the services it renders to the Company,
neither Orchard nor Mr. Ressler receive any other compensation
from the Company, and Mr. Ressler is not eligible to participate
in the 1993 Employee Stock Option Plan or the Non-Employee Directors'
Stock Option Plan.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 as amended
(the "Exchange Act") requires the Company's officers (as defined
in Rule 16a-1(f), directors and persons who own more than ten percent
of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Such persons are required by SEC
regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the
copies of such forms received by it and written
representations from certain reporting persons that they have
complied with the relevant filing requirements, the Company
believes that all filing requirements applicable to its
officers, directors and 10% stockholders were complied with
during the fiscal year ended December 31, 1995.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage
change in the cumulative return to the stockholders of the
Company's Common Stock with the cumulative return of the S&P 500
Index and the S&P Computer Systems Index for the period
commencing April 1, 1994 (the month during which the Company
first issued shares of its new Common Stock pursuant to its
Chapter 11 Plan of Reorganization) and ending December 31, 1995.
The information contained in the performance graph shall not be
deemed "soliciting material" or to be "filed" with the Securities
and Exchange Commission, nor shall such information be
incorporated by reference into any future filing under the
Securities Act of 1993 as amended (the "Securities
Act"), except to the extent that the Company specifically incorporates
it by reference into such filing. The stock price performance on the
following graph is not necessarily indicative of future stock price
performance.
-9-
<PAGE>10
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG MAI SYSTEMS CORPORATION, THE S&P 500 INDEX
AND THE S&P COMPUTER SOFTWARE & SERVICES INDEX<F1>
Cumulative Total Return
_________________________
4/8/94 12/31/94 12/31/95
<S> <C> <C> <C>
MAI Systems Corporation ("NOW") 100 1176 3971
S & P 500 ("I500") 100 105 145
S & P Cmptr Software & Services ("ICSF") 100 120 169
<FN>
<F1> Assumes $100 invested on April 8, 1994 in the Company's stock or
on March 31, 1994 in the applicable index, assuming reinvestment of
dividends. Fiscal year endings shown above on December 31.
</FN>
</TABLE>
PROPOSAL II
AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
GENERAL
By resolution adopted March 8, 1996, the Board of Directors
proposed the adoption of an amendment to the Amended and Restated
Certificate of Incorporation of the Company pursuant to which the number of
authorized shares of Common Stock would be increased from
10,000,000 to 25,000,000, and the Board directed that the
proposed amendment be submitted for adoption by the stockholders
at the Annual Meeting.
If the stockholders approve the amendment, the Certificate of
Incorporation will be amended as proposed by the Board and the
number of authorized shares of Common Stock will be increased to
25,000,000.
-10-
<PAGE>11
The Company is currently authorized to issue 10,000,000
shares of Common Stock. As of January 31, 1996, 6,703,332
were issued and outstanding, an additional 1,125,000 shares were reserved
for issuance upon exercise of stock options under the Company's stock
option plans (including 1,000,000 shares which are reserved
for issuance pursuant to options granted under the Company's 1993 Stock
Option Plan, see "Proposal III- Ammendment to the 1993
Employee Stock Option Plan", and 125,000 shares which are reserved
for issuance pursuant to options granted under the Company's Non-Employee
Directors' Stock Option Plan, see "Proposal IV-Approval of Non-
Employee Directors' Stock Option Plan") and 656,250 shares
reserved for issuance upon exercise of certain warrants issued by
the Company. Except for the issuance of these reserved shares,
the Company does not now have any present understanding or
agreement to issue additional shares.
PURPOSES FOR INCREASING NUMBER OF AUTHORIZED SHARES
Although currently authorized shares are sufficient to meet all
known present requirements, the Board believes that it is
desirable that the Company have the flexibility to issue additional
shares without further stockholder action. In particular, the Company
continuously evaluates products and technologies for acquisition including
acquisitions payable in whole or in part in Common Stock. In addition, the
availability of additional shares of Common Stock will enhance the Company's
flexibility in connection with possible future actions such as stock
dividends, stock splits, financings, employee benefit programs, acquisitions
of property, corporate mergers, the possible funding of new product programs
or businesses or for other corporate purposes. Authorized shares
of Common Stock in excess of those shares outstanding also could
be used to make more difficult a change in control of the
Company. The Board will determine whether, when and on what
terms the issuance of Common Stock may be warranted in connection
with any of the foregoing purposes.
POTENTIAL IMPACT OF ADDITIONAL AUTHORIZED SHARES.
If the proposed amendment is approved, all or any of the
authorized shares of Common Stock may be issued in the future for
such corporate purposes and such consideration as the Board of
Directors deems advisable from time to time, without further
action by the stockholders and without first offering such shares
to the stockholders for subscription. The issuance of shares
otherwise than on a pro rata basis to all current stockholders
would reduce the current stockholders' proportionate interests in
the Company and could therefore be dilutive to the financial and
voting interests of current stockholders. However, in any such
event, stockholders wishing to maintain their interests may be
able to do so through normal market purchases. The Company does
not believe that the issuance of authorized, unissued Common
Stock will have any other effect on the rights of holders of
Common Stock.
VOTE REQUIRED
The amendment, as described above, requires the affirmative
vote of the holders of not less than a majority of the Common
Stock and entitled to vote at the Annual Meeting ("Votes Cast") under
Delaware Law. Votes against the proposal will be counted only for
the purposes of determining (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of
Votes Cast with respect to the proposal. An abstention will have
the same effect as a vote against Proposal II. A broker non-
vote will be counted for purposes of determining whether a quorum
is present, but will have the effect of a negative vote.
MANAGEMENT RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION.
PROPOSAL III
AMENDMENT TO 1993 EMPLOYEE STOCK OPTION PLAN
GENERAL
At the Annual Meeting, the stockholders are being asked to
approve an amendment to the Company's 1993 Employee Stock Option
Plan (the "1993 Option Plan"), in order to increase the number of
shares reserved for issuance thereunder to 1,000,000 shares of
Common Stock. Currently the 1993 Option Plan provides for the
reservation of shares for issuance pursuant to options granted
under the 1993 Stock Option Plan pursuant to a formula based on
the number of shares of Common Stock which the Company issues
pursuant to its Chapter 11 Plan of Reorganization. The Company
estimates that the number of shares which would be reserved
pursuant to such formula would be approximately 817,500 shares.
Additionally, at the Annual Meeting, the stockholders are being
asked to approve an amendment to the 1993 Option Plan to allow
the Board of Directors, the Compensation Committee or such other
committee as the Board may designate to administer the 1993
Option Plan.
At the Record Date, 773,336 shares of Common Stock
were available for issuance under the 1993 Option Plan (exclusive
of the increase in shares subject to stockholder approval at this
Annual Meeting). In addition, at the Record Date, options to
purchase 544,877 were outstanding and 43,664 had been purchased
pursuant to the exercise of options granted under the 1993 Option
Plan at an average exercise price per share of $1.65.
-11-
<PAGE>12
The 1993 Option Plan is structured to allow the Compensation
Committee or other authorized committee designated by the Board
of Directors broad discretion in determining the participants and
the extent of their participation in the 1993 Option Plan for the
purposes of attracting, retaining and motivating the best
available talent for the successful conduct of the Company's
business. The Board of Directors believes the remaining shares
under the 1993 Option Plan may be insufficient to accomplish these
purposes. Therefore, the Board is proposing the increase to the
shares reserved under the 1993 Option Plan discussed herein.
The 1993 Option Plan is currently administered by the
Compensation Committee of the Board of Directors (or any other
committee designated by the Board of Directors) which is authorized
to grant incentive and nonstatutory Options. The provisions of
these options are outlined below. The proposed amendment to the
1993 Option Plan will permit the Board of Directors to administer
the 1993 Option Plan, in addition to the Compensation Committee
or such other committee as the Board shall direct. Under the
proposed amendment, members of the Board who are eligible
employees will be permitted to participate in the 1993 Option
Plan, but may not vote on any matter affecting the administration
of the 1993 Option Plan or the grant of any option or other award
pursuant to the 1993 Option Plan. Further, administration of the 1993
Option Plan with respect to the participants who are subject to the
provisions of Section 16(B) of the Exchange Act shall be by persons who are
disinterested persons within the meaning of Rule 16B-3 of the Exchange Act
and who are outside Directors, within the meaning of the proposed Treasury
regulations issued pursuant to Section 162(m) of the Internal Revenue Code.
Summary of the 1993 Option Plan
The essential features of the 1993 Option Plan are outlined
below.
PURPOSE
The purpose of the 1993 Option Plan is to advance the
interests of the Company and its stockholders by providing
significant incentives to selected officers and key employees of
the Company who contribute and are expected to contribute to the
success of the Company.
ELIGIBILITY
Key employees whom the Compensation Committee or other
committee designated by the Board of Directors to administer the
1993 Option Plan deems to be of special importance to the growth
and success of the Company are eligible participants in the plan.
Non-employees may not participate in the 1993 Option Plan.
ADMINISTRATION
The 1993 Option Plan is administered by the Compensation
Committee of the Board of Directors or such other committee (both
of which are referred to herein as the "Committee") as may be
appointed by the Board of Directors of the Company, which
committee shall consist of not less than two members, all of whom
are members of the Board of Directors and "disinterested persons"
within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1994, as amended. Members of the Committee shall not be
eligible to participate in the Plan. The Committee shall have
full and final authority (i) to interpret the 1993 Option Plan
and option agreements promulgated thereunder; (ii) establish
rules and regulations concerning the 1993 Option Plan, (iii) make
all determinations necessary or advisable for the administration
of the 1993 Option Plan; and (iv) correct defects or
inconsistencies between any option agreements and the 1993
Option Plan. Committee members receive no additional
compensation for their services in connection with the 1993
Option Plan, but do receive the fee of $1,000 for every
Compensation Committee meeting they attend. See "Election of
Directors-Director Compensation."
-12-
<PAGE>13
OPTIONS
The 1993 Option Plan permits the granting of non-transferable
options that either are intended to qualify as incentive stock
options ("ISOs") or are not intended to so qualify ("NSOs").
The exercise price of each ISO may not be less than the higher
of the par value or 100% of the fair market value of the shares
of Common Stock subject to the option on the date the option is
granted. The exercise price of each NSO shall be the amount
determined by the Committee, provided that such amount shall not
be less than the higher of par value or 85% of the fair market
value of the shares of Common Stock subject to the option on the
date the option is granted. To date the Company has granted only
NSO's and the Company has not granted Options at exercise prices
less than fair market value on the date of grant.
No ISO may be granted to any holder of ten percent or more of
the total combined voting power of all classes of stock of the
Company unless at the time of the grant of such option, the
exercise price is equal to or greater than 110% of the fair
market value of the shares of Common Stock subject to the option.
To the extent that the aggregate fair market value of the
Common Stock with respect to which ISO's are exercisable for the
first time by an optionee during any calendar year exceeds
$100,000, such options shall be treated as NSOs.
The term of each option will be fixed by the Committee but may
not exceed ten years from the date of grant (or five years in the case
of optionees who own 10% or more of the Common Stock).
The exercise price of options granted under the 1993 Option
Plan, including applicable withholding, must be paid in full by
cash, certified check or Common Stock with a fair market value on
the exercise date equal to the aggregate exercise price of the
options. The Committee has authorized as payment the delivery of
a properly executed exercise notice and irrevocable instructions
to a broker to promptly deliver to the Company the amount of sale
or loan proceeds required to pay the exercise price. The
Committee may also authorize payment by any combination of the
foregoing methods.
Under the 1993 Option Plan, in the event of termination of an
optionee's employment other than for cause, an option must be
exercised within three months following termination of employment
or the date of expiration of the option, whichever occurs first,
unless the option agreement provides otherwise. In the event an
optionee dies while he is an employee of the Company or during
the three-month period following his termination, the period
within which the option must be exercised is one year from the
date of death, unless the option agreement provides otherwise.
In the event of termination for cause, any option theretofore
granted to such employee shall expire and cease to be exercisable
on the date notice of such termination is delivered to the
optionee.
Options granted pursuant to the 1993 Stock Option Plan become
immediately exercisable without any further action upon the
occurrence of a "change of control" as that term is defined in
the plan.
The granting of options under the 1993 Option Plan by the
Committee is subjective and is dependent upon, among other
things, an employee's individual performance. Therefore, future
option grants to executive officers or employees under the 1993
Option Plan are not determinable. See"Participation in the 1993
Option Plan."
ADJUSTMENTS FOR STOCK DIVIDENDS, MERGERS AND OTHER EVENTS
The Committee is authorized to make appropriate adjustments in
connection with outstanding awards under the 1993 Option Plan to
reflect stock dividends, stock splits and similar events.
AMENDMENT AND TERMINATION
The Board may amend, alter, or discontinue the 1993 Option Plan
at any time, but such amendment, alteration or discontinuation
shall not adversely affect any option then outstanding without
the participant's consent. Subject to the specific terms of the
1993 Option Plan described above, the Committee may accelerate
any award or option or waive any conditions or restrictions
pertaining to such award or option at any time.
In addition, to the extent necessary to comply with Rule 16b-3
under the Exchange Act or Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") (or any other applicable
law or regulation), the Company shall obtain stockholder approval
of any 1993 Option Plan amendment in such a manner and to such a
degree as required.
-13-
<PAGE>14
CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is only a brief summary of the effect of federal
income taxation upon the recipient and the Company under the 1993
Option Plan based upon the Code. This summary does not purport
to be complete and does not discuss the income tax laws of any
municipality, state or country outside the United States in which
an optionee may reside.
INCENTIVE STOCK OPTIONS
If an option granted under the 1993 Option plan is an ISO, the
optionee will recognize no income upon grant of the ISO and will
incur no tax liability due to the exercise unless the optionee is
subject to the alternative minimum tax. The Company will not be
allowed a deduction for federal income tax purposes as a result
of the exercise of an ISO regardless of the applicability of the
alternative minimum tax. Upon the sale or exchange of the shares
at least two years after the grant of the ISO and one year after
the exercise by the optionee, any gain (or loss) will be treated
as long-term capital gain (or loss). If these holding periods are
not satisfied, the optionee will recognize ordinary income equal
to the difference between the exercise price and the lower of the
fair market value of the stock at the date of the option exercise
or the sale price of the stock. The Company will be entitled to a
deduction in the same amount as the ordinary income recognized by
the optionee. Any gain (or loss) recognized on such a premature
disposition of the shares inexcess of the amount treated as ordinary
income will be characterized as a capital gain (or loss).
NON-STATUTORY STOCK OPTIONS
All options that do not qualify as ISOs are taxed as NSOs. An
optionee will not recognize any taxable income at the time he or
she is granted an NSO. However, upon the exercise of an NSO, the
optionee will recognize ordinary income measured by the excess of
the then fair market value of the shares over the option price.
The income recognized by an optionee who is also an employee of
the Company will be subject to withholding by the Company by
payment in cash or out of the current earnings paid to the
optionee. Upon resale of such shares by the optionee, any
difference between the sales price and the exercise price, to the
extent not recognized as ordinary income as provided above, will
be treated as capital gain (or loss). The Company will be
entitled to a tax deduction in the same amount as the ordinary
income recognized by the optionee with respect to shares acquired
upon exercise of an NSO subject to reasonableness.
PARTICIPATION IN THE 1993 OPTION PLAN
The grant of options under the 1993 Option Plan to employees
is subject to the discretion of the Committee. As of the date of
this proxy statement, there has been no determination by the Board with
respect to future awards under the 1993 Option Plan. Accordingly,
future awards are not determinable. Non-employee directors are
not eligible to participate in the 1993 Option Plan.
The following table sets forth information with respect to the
grant of options to the Named Officers, to all current executive
officers as a group and to all other employees as a group during the last
fiscal year:
-14-
<PAGE>15
PLAN BENEFITS
1993 OPTION PLAN
<TABLE>
<CAPTION>
PLAN BENEFITS
1993 OPTION PLAN
Securities
Underlying Weighted
Options Average Exercise
Name of Individual Granted (#) Price Per Share ($/sh)
<S> <C> <C>
Richard S. Ressler N/A N/A
Chairman and Chief
Executive Officer,
George G. Bayz 93,750 $1.96
President and Chief
Operating Officer,
W. Brian Kretzmer 62,500 1.65
Vice President and Chief
Financial Officer,
Stanley P. Witkow 62,500 1.65
Vice President,
Corporate and Legal
Affairs,
All current executive 218,750 1.79
officers as a group (3
officers)
All other employees 369,791 2.27
as a group
</TABLE>
<PAGE>
REQUIRED VOTE AND RECOMMENDATION
Amendments of the 1993 Option Plan, as described above,
requires the affirmative vote of the holders of not less than a
majority of the Votes Cast Common Stock under Delaware Law. Votes that are
cast against the proposal will be counted only for the purposes of
determining (i) the presence or absence of a quorum for the transaction of
business and (ii) the total number of Votes Cast with respect to the
proposal. An abstention will have the same effect as a vote against this
Proposal III. Broker non-votes will be counted for purposes of
determining whether a quorum is present, but will not be counted
as a Vote Cast.
MANAGEMENT RECOMMENDS A VOTE "FOR" THE AMENDMENTS TO THE 1993
STOCK OPTION PLAN.
PROPOSAL IV
APPROVAL OF NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
GENERAL
At the Annual Meeting, the stockholders are being asked to
approve the Company's Non-Employee Directors' Stock Option Plan
(the "Directors' Plan") and options which have been granted
pursuant to the Directors Plan subject to stockholder approval.
Until adoption of the Directors' Plan by the Board of Directors,
only employees of the Company were eligible to receive stock options to
purchase the Company's Common Stock. Under the Directors' Plan,
certain directors who are not employees of the Company or any affiliate
of the Company ("Non-Employee Directors") are eligible to receive stock
options.
SUMMARY OF THE DIRECTORS' PLAN
PURPOSE
The Board believes that the success of the Company depends in
part on its ability to attract and retain directors with relevant
beneficial experience who are motivated to exert their best
efforts on behalf of the Company. The Board believes that a
program that permits the grant of stock options to Non-Employee
Directors promotes the long-term financial success of the Company
by further aligning the interests of the Non-Employee Directors
with the interests of the Company and its stockholders.
-15-
<PAGE>16
ELIGIBILITY
Only those directors of the Company who are not employees of
the Company and who are not holders, directly or indirectly, of
ten percent or more of the combined voting power of the Company
are eligible to participate in the Directors' Plan.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors
or a committee of not less than two members of the Board who are
appointed to administer the Directors' Plan (the "Committee").
Subject to the provisions of the Directors' Plan, the Committee
may prescribe, amend and rescind rules and
regulations relating to the Directors' Plan and make all
other determinations necessary or advisable for the
administration of the Directors' Plan. Notwithstanding the
foregoing, the Committee may not take any action which affects
the number, term, vesting or exercise price of the options
granted pursuant to the Directors' Plan.
OPTIONS
The Directors' Plan provides for the issuance of NSOs. The per
share exercise price for an option under the Directors' Plan is
equal to 100% of the fair market value on the date of grant.
The number of shares of Common Stock reserved for issuance
pursuant to the Directors' Plan is 625,000 and may not be
increased without stockholder approval. The Directors' Plan
provides each Non-Employee Director who is elected or appointed and
duly qualified, be granted automatically without action by the Committee
a one-time option to purchase 31,250 shares of Common Stock. The option
vests in five equal installments, the first of which occurs on the six-month
anniversary of the Non-Employee Director's election or
appointment to the Board, and thereafter on the date of each
successive re-election to another term. Additionally, commencing
on his or her first re-election to the Board occurring more than
six months after his or her initial appointment or election to
the Board and annually thereafter, such Director shall be granted
automatically, without action by the Committee, an option to
purchase 6,250 shares, which shall become exercisable in full upon his
or her re-election to the Board three years hence.
Options granted pursuant to the 1993 Directors' Plan become immediately
exercisable without any further action upon the occurence of a "change of
control" as that term is defined in the plan. The term of each
option will be fixed by the Committee but may not exceed ten years from
the date of grant.
The exercise price of options granted under the Directors'
Plan, including applicable tax withholding, must be paid in full by
cash, certified check or Common Stock with a fair market value on
the exercise date equal to the aggregate exercise price of the
options. The Committee has authorized as payment the delivery of
a properly executed exercise notice and irrevocable instructions
to a broker to promptly deliver to the Company the amount of sale
or loan proceeds required to pay the exercise price. The
Committee may also authorize payment by any combination of the
foregoing methods.
Under the Director' Plan, upon resignation or expiration of a
director's term of office, all vested options must be exercised
within one year following resignation or expiration of the
director's term or the date of expiration of the option,
whichever occurs first.
ADJUSTMENTS FOR STOCK DIVIDENDS, MERGERS AND OTHER EVENTS
The Committee is authorized to make appropriate adjustments in
connection with outstanding awards under the Directors' Plan to
reflect stock dividends, stock splits and similar events.
AMENDMENT AND TERMINATION
The Board may amend, alter, or discontinue the Directors' Plan
at any time, but such amendment, alteration or discontinuation
shall not adversely affect any option then outstanding without
the participant's consent.
In addition, to the extent necessary to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation),
the Company shall obtain stockholder approval of any Directors' Plan
amendment in such a manner and to such a
degree as required.
-16-
<PAGE>17
CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is only a brief summary of the effect of federal
income taxation upon the recipient and the Company under the
Directors' Plan based upon the Code. This summary does not
purport to be complete and does not discuss the income tax laws
of any municipality, state or country outside the United States
in which an optionee may reside.
The options granted pursuant to the Directors' Plan are NSOs.
An optionee will not recognize any taxable income at the time he
or she is granted an NSO. However, upon the exercise of an NSO,
the optionee will recognize ordinary income measured by the
excess of the then fair market value of the shares over the
option price.
Upon resale of such shares by the optionee, any
difference between the sales price and the exercise price, to the
extent not recognized as ordinary income as provided above, will
be treated as capital gain (or loss).
REQUIRED VOTE AND RECOMMENDATION
The Directors' Plan, as described above, requires the
affirmative vote of the holders of not less than a majority of
the Common Stock represented in person or by proxy and entitled
to vote at the Annual Meeting ("Votes Cast") under Delaware Law.
Votes that are cast against the proposal will be counted only for
the purposes of determining (i) the presence or absence of a
quorum for the transaction of business and (ii) the total number
of Votes Cast with respect to the proposal. An abstention will
have the same effect as a vote against this Proposal IV. Broker non-votes
will be counted for purposes of determining whether a quorum is present,
but will not be counted as a Vote Cast.
MANAGEMENT RECOMMENDS A VOTE "FOR" THE NON-EMPLOYEE DIRECTORS'PLAN.
NOTICE OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick , LLP,
independent auditors, to audit the consolidated financial
statements for the fiscal year ending December 31, 1996. KPMG
Peat Marwick has served as the Company's independent auditors
since the Company's inception. Notwithstanding the selection,
the Board, in its discretion, may direct appointment of new
independent auditors at any time during the year, if the Board
feels that such a change would be in the best interests of the
Company and its stockholders. Representatives of KPMG Peat
Marwick, LLP are expected to be present at the Annual Meeting and
are expected to be available to respond to appropriate questions.
-17-
<PAGE>18
OTHER MATTERS
The Company knows of no other matters to be submitted to the
Annual Meeting. If any other matters properly come before the
Annual Meeting, it is the intention of the persons named in the
enclosed form of Proxy to vote the shares they represent as the
Board of Directors may recommend.
Dated: April __, 1996
THE BOARD OF DIRECTORS
_______________________________
MAI Systems Corporation
9600 Jeronimo Road
Irvine, CA 92718
