SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
Commission File No. 1-9158
------------------------
MAI SYSTEMS CORPORATION
(Exact name of Registrant as Specified in its Charter)
Delaware 22-2554549
(State of Incorporation) (I.R.S. Employer
Identification Number)
9600 Jeronimo Road
Irvine, California 92718
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (714) 580-0700
-------------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes No
/X/ / /
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
/X/ / /
As of October 28, 1996, 8,179,186 shares of the registrant's Common Stock,
$0.01 par value, were outstanding.
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAI SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, September 30,
1995 1996
(dollars in thousands)
--------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................... $4,086 $6,020
Receivables, net................................ 7,662 13,037
Inventories..................................... 3,769 4,380
Prepaids........................................ 913 1,974
------- -------
Total current assets......................... 16,430 25,411
Furniture, fixtures and equipment, net............. 3,766 4,365
Intangibles........................................ 300 24,365
Other assets....................................... 537 633
------- -------
Total assets................................. $21,033 $54,774
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............... $620 $1,347
Customer deposits............................... 745 1,469
Accounts payable................................ 4,778 5,989
Accrued liabilities............................. 6,432 7,656
Income taxes payable............................ 337 104
Unearned revenue................................ 3,181 10,171
------- -------
Total current liabilities.................... 16,093 26,736
Deferred income taxes.............................. 132 81
Long-term debt..................................... 1,021 956
Other liabilities.................................. 1,150 620
Minority interest in consolidated subsidiary....... 165 -
------ ------
Total liabilities........................... 18,561 28,393
====== ======
Stockholders' equity:
Common stock, par value $0.01 per share,
authorized 25,000,000
shares, 7,354,247 and 8,827,596 shares issuable 74 86
Additional paid-in capital......................... 199,364 211,655
Cumulative translation adjustment................ 28 (40)
Accumulated deficit................................(196,994) (185,320)
-------- --------
Total stockholders' equity.................. 2,472 26,381
-------- --------
Total liabilities and stockholders' equity..... $21,033 $54,774
======= ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
2
<PAGE>
<TABLE>
<CAPTION>
MAI SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three-Months Ended For the Nine-Months Ended
September 30, September 30,
1995 1996 1995 1996
------------------------- -------------------------
(dollars in thousands, (dollars in thousands,
except per share data) except per share data)
<S> <C> <C> <C> <C>
Software, networks and
professional services:
Software sales 961 2,179 3,208 4,334
Network and computer equipment 4,845 4,129 12,210 10,596
Professional services 1,984 4,122 6,842 9,074
------ ------ ------ ------
Total............ 7,790 10,430 22,260 24,004
Legacy revenue.................. 8,665 7,320 27,029 23,511
------ ------ ------ ------
Total revenue.... 16,455 17,750 49,289 47,515
Direct costs.................... 10,141 11,585 30,434 29,975
------ ------ ------ ------
Gross profit..... 6,314 6,165 18,855 17,540
Selling, general and
administrative expenses.......... 3,984 5,309 10,026 11,766
Research and development costs... 636 377 1,812 1,366
Amortization of intangibles...... - 374 - 395
Other operating expense (income). 285 (140) (103) (7,434)
------ ------ ------ ------
Operating income 1,409 245 7,120 11,447
Interest expense-net............. 60 8 145 102
Minority interest in
consolidated subsidiary.......... 150 - 205 (165)
Income before ------ ------ ------ ------
income taxes..................... 1,199 237 6,770 11,510
Provision (benefit) for income taxes 333 (164) 356 (164)
------ ------ ------ ------
Income before extraordinary items...... 866 401 6,414 11,674
Extraordinary items....................(1,566) - (1,566) -
------- ------- ------- -------
Net income....... $ 2,432 $ 401 $ 7,980 $ 11,674
===== === ===== ======
Primary income per share of common stock:
Income before extraordinary item $ 0.10 $ 0.04 $ 0.78 $ 1.20
Extraordinary item............ $ 0.19 $ - $ 0.19 $ -
---- ---- ---- ----
Net income................. $ 0.29 $ 0.04 $ 0.97 $ 1.20
==== ==== ==== ====
Fully diluted income per share of common stock:
Income before extraordinary item $ 0.10 $ 0.04 $ 0.77 $ 1.20
Extraordinary item............ $ 0.19 $ - $ 0.19 $ -
------ ------ ------ ------
Net income................. $ 0.29 $ 0.04 $ 0.96 $ 1.20
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
<PAGE>
<TABLE>
<CAPTION>
MAI Systems Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine-Months
Ended
September 30,
1995 1996
(dollars in thousands)
<S> <C> <C>
Net cash provided by operating
activities............................................ $4,316 $5,665
Cash flows from investing activities:
Capital expenditures.............................. (1,461) (1,065)
Proceeds from disposal of furniture, fixtures and
Equipment......................................... 42 -
Net cash acquired from the purchase of HIS....... - 158
Capitalized software costs........................ - (736)
------ -------
Net cash used in investing activities................. (1,419) (1,643)
------ -------
Cash flows from financing activities:
Increase in notes receivables (net)............... (5) (437)
Repayments of long-term debt...................... (925) (1,655)
Proceeds from the exercise of stock options... - 57
------- -------
Net cash used in financing activities................. (930) (2,035)
------- -------
Effect of exchange rate changes on cash and cash
equivalents........................................... 21 (53)
Net change in cash and cash equivalents............... 1,988 1,934
Cash and cash equivalents at beginning of period...... 3,151 4,086
------ ------
Cash and cash equivalents at end of period............ $5,139 $6,020
------ ------
Cash paid during the period for:
Interest.......................................... $158 $179
----- -----
Income taxes...................................... - $167
----- -----
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
4
<PAGE>
MAI Systems Corporation
Notes to Condensed Consolidated Financial Statements
Nine months ended September 30, 1996
(Unaudited)
(1) Basis of Presentation
Companies for which this report is filed are MAI Systems Corporation and
its wholly-owned subsidiaries (the 'Company'). The information contained herein
is unaudited, but gives effect to all adjustments (which are normal recurring
accruals) necessary, in the opinion of Company management, to present fairly the
condensed consolidated financial statements for the interim period. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
<TABLE>
<CAPTION>
(2) Inventories
Inventories are summarized as follows:
December 31, September
1995 1996
(dollars in thousands)
-------------------------------
<S> <C> <C>
Finished goods $2,649 $2,947
Replacement parts 1,120 1,433
-------- -------
Total $3,769 $4,380
-------- -------
</TABLE>
(3) Plan of Reorganization
In 1993, the Company emerged from a voluntary proceeding under the
bankruptcy protection laws. Notwithstanding the confirmation and effectiveness
of its Plan of Reorganization (the 'Plan'), the Bankruptcy Court continues to
have jurisdiction to resolve disputed pre-petition claims against the Company to
resolve matters related to the assumptions, assignment or rejection of executory
contracts pursuant to the Plan and to resolve other matters that may arise in
connection with the implementation of the Plan.
Shares of common stock are currently being distributed by the Company to
its former creditors. As of October 28, 1996, 6,705,233 shares of common stock
had been issued pursuant to the Plan and were outstanding. The Company estimates
that approximately 7,354,247 shares will be issued to creditors.
(4) Business Acquisitions
In May 1996, the Company acquired the remaining 30% of the outstanding
shares of Gaming Systems International (GSI) for approximately $2.4 million,
which was financed through the issuance 98,462 shares of MAI common stock and
cash (which is payable in installments through May 1998). The Company now owns
100% of the outstanding shares of GSI. In addition, the Company reacquired the
distribution rights to MANBASE 8.0, a manufacturing software application, from
Sextant Corporation for approximately $530,000 in May 1996.
On August 9,1996, the Company acquired substantially all the assets and
assumed certain liabilities of Hotel Information Systems, Inc. ('HIS') pursuant
to an Asset Purchase Agreement dated June 30, 1996 (as amended July 10, 1996)
for 1,307,302 shares of common stock. The assets which have been acquired from
HIS are used in the business of software design, engineering and service
relating to hotel information systems. The assets also include subsidiaries of
HIS in Singapore, Hong Kong, Australia and Mexico. While the Company has made a
preliminary purchase price allocation, adjustments may be identified within the
twelve months succeeding the acquisition.
5
<PAGE>
(5) Settlement of Claims Arising from Disposition of Subsidiaries
In June 1996 the Company reached an agreement and received $8.5 million in
cash in full settlement of a claim relating to the disposition of certain
subsidiaries that were disposed of in 1993. This amount (net of litigation
expenses and accruals for pending lawsuits of approximately $1.1 million) is
included in other operating income in the accompanying condensed consolidated
statement of operations.
(6) Net Income per Share
Primary and fully diluted income per share are computed using the shares of
common stock (adjusted for the August 1995 stock split) expected to be issued in
accordance with the Plan of Reorganization and the weighted average number of
shares and equivalent shares of common stock outstanding during the period.
Common stock equivalents consist of dilutive outstanding stock options and
warrants and are calculated using the treasury stock method.
6
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At September 30, 1996, working capital decreased to negative $1,325,000
from $337,000 at December 31, 1995. Excluding deferred revenue (which will not
give rise to cash disbursements) of $10,171,000, the Company's working capital
is $8,846,000 or a ratio of current assets to current liabilities of 1.53 to
1.0. The improvement in the Company's working capital (as adjusted for deferred
revenue) is attributable to the improved operating results of the business,
which includes the net settlement arising from the disposition of subsidiaries
of $7,434,000.
Cash and cash equivalents were $6,020,000 at September 30, 1996, compared
to $4,086,000 at December 31, 1995. The Company continues to have available a
$4,000,000 secured revolving credit facility. The availability of this line of
credit is based on a calculation reflecting the age and nature of certain
accounts receivable. At September 30, 1996, the available balance was
approximately $3,000,000; however, no balances were drawn down under this
facility at September 30, 1996.
Net cash used in investing activities for the nine months ended September
30, 1996, totaled $1,643,000 comprising capital expenditures of $1,065,000, net
cash acquired from the purchase of HIS of $158,000 and expenditures incurred on
capitalized software costs of $736,000.
Net cash used in financing activities for the nine months ended September
30, 1996, totaled $2,035,000 comprising $1,655,000 used to repay long-term debt
and $437,000 relating to notes receivable partially offset by $57,000 proceeds
from the exercise of stock options.
Stockholders' equity increased to $26,381,000 at September 30, 1996 from
$2,472,000 at December 31, 1996, principally due to net income for the nine
months ended September 30, 1996 of $11,674,000 and the issuance of common stock
in connection with the HIS acquisition.
The Company believes it will continue to have sufficient cash available to
fund its operating and capital requirements through 1997.
As of October 28, 1996, the Company had issued 6,705,233 shares of common
stock to its former unsecured creditors in satisfaction of their claims against
the Company.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
THREE-MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE-MONTHS ENDED SEPTEMBER
30, 1996
Three months ended Percentage of Three months ended Percentage
Sept. 30, 1995 Revenues Sept. 30, 1996 of Revenues
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $16,455 100.0% $17,750 100.0%
Gross profit 6,314 38.4% 6,165 34.7%
Selling, general &
administrative expenses 3,984 24.2% 5,309 29.9%
Research and development
costs 636 3.9% 377 2.1%
Amortization of Intangibles - - 374 2.1%
Other operating
expense (income) 285 1.7% (140) (0.8%)
Provision (benefit) for
income taxes 333 2.0% (164) (0.9%)
Minority Interest 150 0.9% - -
Reorganization gain (1,566) (9.5%) - -
</TABLE>
7
<PAGE>
Revenues for the three months ended September 30, 1995 were $16,455,000
compared to $17,750,000 (a 7.9% increase) for the comparable period of 1996. The
net increase of $1,295,000 in revenues includes an increase of $2,640,000 in the
Company's software, networks and professional services business partially offset
by the anticipated decline of $1,345,000 (15.5%) in the Company's legacy
business. The $2,640,000 increase in software, networks, and professional
services revenues is net of an increase of approximately $5,200,000 (114.9%) in
non-gaming revenues and a decrease in gaming revenues of approximately
$2,600,000.
Gross profit for the three months ended September 30, 1995 was $6,314,000
compared to $6,165,000 for the comparable period of 1996. The decrease in the
gross profit percentage from 38.4% in the three months ended September 30, 1995
to 34.7% for the comparable period of 1996, reflects declining profit margins in
the Company's legacy business due to the relatively fixed nature of certain
costs which do not decline with revenues and a decline in the gross profit
earned on software networks and professional services primarily attributable to
a lower gross profit earned on the network and computer equipment content of a
single significant installation that occurred in the three months ended
September 30, 1996.
Selling, general and administrative expenses increased from $3,984,000 for
the three months ended September 30, 1995, to $5,309,000 for the comparable
period of 1996. The increase is principally attributable to increased sales and
marketing efforts (including increases in sales personnel) which resulted in
increased software, networks and professional services revenues in the three
months ended September 30, 1996 compared to the comparable period of 1995
Research and development costs were $636,000 for three months ended
September 30, 1995 compared to $377,000 for the comparable period of 1996. The
decrease is primarily attributable to the capitalization of certain software
development costs which qualify for capitalization as product enhancement costs
in the three months ended September 30, 1996. Research and development costs
primarily relate to costs incurred for the Company's gaming and hospitality
products.
Amortization of intangibles for the three months ended September 30, 1996,
primarily related to amortization arising in connection with acquisition of HIS
and the remaining 30% of the outstanding shares of GSI.
Other operating expense for the three months ended September 30, 1995
related to expenses that arose in connection with a lawsuit the Company
instituted against certain competitors which the Company alleged were infringing
upon its software copyright. In the three months ended September 30, 1996, other
operating income related to a favorable settlement of a claim that the Company
accrued for in the three months ended June 30, 1996.
The income tax provision in the three months ended September 30, 1995
reflected a tax provision for the Company's gaming solutions subsidiary (which
at the time did not qualify to be part of the Company's consolidated tax group).
The income tax benefit arising in the three months ended September 30, 1996
related to the reversal of tax provisions no longer required for the company's
gaming solutions company. There is no consolidated tax provision required in the
three months ended September 30, 1996 due to the availability of net operating
losses and the reversal of certain timing differences.
The minority interest for the three months ended September 30, 1995
reflects the share of income attributable to the then minority shareholders in
the Company's gaming solutions subsidiary. In May 1996, the Company acquired the
remaining 30% of the outstanding share capital from the minority shareholders.
The reorganization gain for the three months ended September 30, 1995
related to the favorable settlement of certain tax liabilities pursuant to the
Company's bankruptcy proceedings and as such has been classified as an
extraordinary item. Where, appropriate, the remaining balances that were agreed
with the respective taxing authority (which are payable over six years in
accordance with the Company's Plan of Reorganization) are classified as
long-term debt in the Condensed Consolidated Balance Sheets.
8
<PAGE>
<TABLE>
<CAPTION>
Nine-Months Ended September 30, 1995 Compared to Nine-Months Ended September
30, 1996
Nine Months Ended Percentage of Nine Months Ended Percentage
September 30, 1995 Revenues September 30, 1996 of Revenues
(dollars in thousands)
--------------------- ------------- ------------------ -----------
<S> <C> <C> <C> <C>
Revenues $49,289 100.0% $47,515 100.0%
Gross profit 18,855 38.3% 17,540 36.9%
Selling, general &
administrative expenses 10,026 20.3% 11,766 24.8%
Research and
development costs 1,812 3.8% 1,366 2.9%
Amortization
of Intangibles - - 395 (0.8%)
Other operating income (103) (0.2%) (7,434) (15.6%)
Provision for income taxes 356 0.7% (164) (0.3%)
Minority Interest 205 0.4% (165) (0.3%)
Reorganization gain (1,566) (3.2%) - -
</TABLE>
Revenues for the nine months ended September 30, 1995 were $49,289,000
compared to $47,515,000 for the comparable period of 1996. The decrease in
revenues of $1,774,000 in the nine months ended September 30, 1996 compared to
the nine months ended September 30, 1995 is attributable to the anticipated
decline in legacy revenues of $3,518,000 (13.0%) net of an increase in software,
networks and professional services revenues of $1,744,000. The increase in
software, networks and professional services revenues of $1,744,000 is net of an
increase of approximately $7,900,000 (55.0%) in non-gaming revenues and a
decrease in gaming revenues of approximately $6,200,000.
Gross profit for the nine months ended September 30, 1995 was $18,855,000
compared to $17,540,000 for the comparable period of 1996 representing a gross
profit percentage of 38.3% and 36.9% for the nine months ended September 30,
1995 and 1996, respectively.
Selling, general and administrative expenses increased from $10,026,000 in
the nine months ended September 30, 1995, to $11,766,000 in the comparable
period of 1996. The increase is principally attributable to increased sales and
marketing efforts (including increases in sales personnel), which resulted in
increased software, networks and professional services revenues in the nine
months ended September 30, 1996 compared to the comparable period of the prior
year.
Research and development costs were $1,812,000 for the nine months ended
September 30, 1995 compared to $1,366,000 for the comparable period of 1996. The
decrease in research and development costs in the nine months ended September
30, 1995 is primarily attributable to the capitalization of certain software
development costs which qualify for capitalization as product enhancement costs
in 1996. Research and development costs primarily relate to costs incurred for
the Company's gaming and hospitality products.
Amortization of intangibles for the nine months ended September 30, 1996
primarily relates to amortization arising in connection with the acquisition of
HIS and the remaining 30% of the outstanding shares of GSI.
Other operating income in the nine months ended September 30, 1995 related
to a settlement (net of expenses during the period) that arose in connection
with a lawsuit the Company instituted against certain competitors which the
Company alleged were infringing upon its software copyright. In the nine months
ended, September 30, 1996, other operating income related to a favorable
settlement (net of litigation expenses) relating to the disposition of certain
subsidiaries that were disposed in 1993 offset by an accrual for pending
lawsuits.
The provision for income taxes in the nine months ended September 30, 1995
reflected a tax provision for the Company's gaming solutions subsidiary (which
at the time did not qualify to be part of the Company's consolidated tax group)
off-set by foreign tax adjustments. The income tax benefit in the nine months
ended September 30, 1996 reflects the reversal of certain excess tax liabilities
no longer required at the company's gaming solutions subsidiary. There is no
consolidated tax provision required in the nine months ended September 30, 1996
due to the availability of net operating losses and the reversal of certain
timing differences.
9
<PAGE>
The minority interest charge in the nine months ended September 30, 1995
reflected the share of income attributable to the then minority shareholders in
the Company's gaming solutions subsidiary. The $165,000 credit for the minority
interest (which arose in the three months ended March 31, 1996), eliminated all
liabilities to the minority shareholders. In May 1996, the Company acquired the
remaining 30% of the outstanding shares of GSI.
The reorganization gain for the nine months ended September 30, 1995,
relates to the favorable settlement of certain tax liabilities pursuant to the
Company's bankruptcy proceedings and as such have been classified as an
extraordinary item. Where appropriate, the remaining balances that were agreed
with the respective tax authority (which are payable over six years in
accordance the Company's Plan of Reorganization) are classified as long-term
debt in the Condensed Consolidated Balance Sheets.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As a consequence of the commencement of the Company's bankruptcy
proceedings, the Company has filed objections to a large number of proofs of
claim. Sums determined to be due to claimants, as a result of settlement or
judicial determinations, will be treated under the Plan of Reorganization as
claims and claimants will receive either cash or shares of common stock in
exchange for their claims. The Company does not believe the outcome of these
objections to be material.
Further, the Company instituted several adversary proceedings prior to the
effective date of the Plan of Reorganization. None of those proceedings involve
allegations of material claims against the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1** License Agreement dated October 1, 1996 by and between the
Company and Christian Rivadalla dba Enterprise Hospitality
Solutions[**Confidential Treatment has been requested for
certain portions of this document].
99.1 Director's Stock Option Certificate (incorporated herein by
reference to Exhibit/Appendix C of the Registrants 1996 Notice
of Annual Meeting and Proxy Statement filed with the commission
on May 21, 1996).
(b) Reports on Form 8-K.
On July 10, 1996, the registrant filed a report on Form 8-K , without
financial statements, reporting that the Company had entered into an agreement
to purchase substantially all of the assets of Hotel Information Systems, Inc.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAI SYSTEMS CORPORATION
(Registrant)
Date: November 1, 1996 /s/ William Brian Kretzmer
William Brian Kretzmer
Vice-President, Chief Financial
Officer and Treasurer
12
EXHIBIT 10.1
[**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT]
LICENSE AGREEMENT
This LICENSE AGREEMENT ("Agreement") is made and entered into as of the 1st
day of October, 1996 by and between MAI Systems Corporation, 9600 Jeronimo Road,
Irvine, California 92718 ("MAI") and Christian Rivadalla d/b/a Enterprise
Hospitality Solutions, with a place of business located at 1600 West Chandler
Boulevard, Suite 260, Chandler, Arizona 85224 ("Licensor") with reference to the
following facts:
WHEREAS, Licensor possesses certain rights in a suite of commercial
computer programs sometimes referred to as a "Hospitality Suite"; and
WHEREAS, MAI desires to acquire an exclusive license to reproduce, market,
distribute and otherwise exploit such software.
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, MAI and Licensor hereby agree as follows:
1 DEFINITIONS
1.1 "Derivative Work" shall mean, with respect to any program, any
derivative work (as that term is defined in the Copyright Act of 1976) in whole
or part based on, such program.
1.2 "Documentation" shall mean, with respect to any version of Licensed
Software supplied to MAI hereunder, Licensor's standard documentation for such
version of Licensed Software sufficient to enable a user to use and to
understand fully the use and operations of such version of the Licensed
Software.
1.3 "Effective Date" shall mean October 1, 1996.
1.4 "Licensed Software" means the software identified in Exhibit "A"
attached hereto, including all currently existing versions thereof and all
future versions, Derivative Works, enhancements, modifications and improvements
thereof created by or under the authority of Licensor or any
successor-in-interest to Licensor, and any other software developed by Licensor
for the hotel, resort, hospitality, or gaming industries, but not including the
Excluded Software identified in Exhibit "A". 1.5 "Net Revenues" shall mean
amounts received by MAI in connection with the marketing, licensing, sale or
other commercial exploitation of the Licensed Software, less (i) returns, and
(ii) any federal, state or foreign sales, excise, or other taxes or tariffs
imposed on the licensing, manufacture and/or distribution of the Licensed
Software (not including taxes on net income).
EX 10.1 - 1
<PAGE>
EXHIBIT 10.1
1.6 "Minimum Royalty Commencement Date" shall mean the date upon which the
event described in paragraph 3 of Exhibit "D" occurs.
1.7 "Source Materials" means, with respect to any program, any source code
and related source documentation.
2 DELIVERABLES
2.1 Object Code. Licensor shall supply MAI upon execution hereof a copy of
object code for the current version of the Licensed Software and a copy of any
related Documentation, in a format and on media mutually agreed upon by Licensor
and MAI. If at any time during the term of this Agreement, Licensor creates any
enhancements, modifications, revisions, improvements or updates to any of the
Licensed Software or Documentation, Licensor will promptly supply an object code
copy of any such Licensed Software and a copy of any related Documentation to
MAI, including alpha versions, beta versions and commercial release versions.
Without limiting the foregoing, such versions shall be provided to MAI not later
than the date any such version is provided by Licensor to any other preferred
customer or licensee of Licensor.
2.2 Source Code and Source Code Escrow. Notwithstanding that it is the
intention of the parties that Licensor shall provide further development on the
Licensed Software as required, and without limiting Licensor's development
obligations as set forth in Section 8.3 hereof, MAI shall have access to
Licensor's computer on which resides the source code for the current version of
the Licensed Software and such versions of the Licensed Software as are
developed pursuant to this Agreement. MAI's access to the source code shall be
limited only by industry-standard procedures for source code control, and MAI is
authorized to maintain a copy of the source code for the Licensed Software at
its facilities. MAI shall have the right during the term of the Agreement to
make any use of the source code not otherwise inconsistent with the terms and
conditions set forth herein. Further, Licensor will deliver to Data Securities
International, Inc. or another independent third party escrow agent mutually
agreed upon by Licensor and MAI copies of all technical materials reasonably
required for MAI to support, maintain and enhance the Licensed Software,
including without limitation the full and complete Source Materials for the
Licensed Software. Licensor shall deliver updated escrow materials into the
escrow whenever there is a material or substantial improvement to the Licensed
Software, and in any event whenever an updated or revised commercial release
version of the Licensed Software is provided to MAI. MAI shall have the right to
obtain from the escrow agent all escrow materials deposited in the escrow upon
the occurrence of any of the following events: (i) a material breach by Licensor
of this Agreement which remains uncured for a period of thirty (30) days after
written notice thereof; (ii) the filing by or against Licensor of a proceeding
under any bankruptcy or similar law, unless such proceeding is dismissed within
thirty (30) days from the date of filing; (iii) any rejection or termination of
this Agreement by Licensor or its successors or representatives, including
without limitation any rejection or termination of this Agreement or any
proposal to do so under Title 11 of the United States Code, as now constituted
EX 10.1 - 2
<PAGE>
EXHIBIT 10.1
or hereafter amended or any other federal or state bankruptcy, insolvency,
receivership, or similar law; (iv) failure of a trustee, including Licensor as
debtor in possession, in any bankruptcy case hereafter filed by or against
Licensor either to assume this Agreement within thirty (30) days after the
filing of the initial bankruptcy petition or to perform this Agreement within
the meaning of Section 365(a)(4)(i) of the Bankruptcy Code; (v) the termination
of all or substantially all of Licensor's ongoing business operations relating
to the subject of this Agreement; or (vi) any liquidation of Licensor, or any
sale, assignment, or foreclosure of or upon assets that are necessary for the
performance by Licensor of its responsibilities under this Agreement. In the
event that Licensor or its successors or representatives reject or terminate
this Agreement, including as contemplated under Section 365 of the Bankruptcy
Code, it is acknowledged that this Agreement contemplates the manner in which
MAI may retain its rights in the Licensed Software, including associated
intellectual property rights, if MAI chooses to do so in accordance with Section
365(n) of the Bankruptcy Code. Any escrow agreement entered into to effectuate
the provisions of this Section 2.2 is intended and shall be construed to
constitute a contract supplementary to this Agreement for purposes of Section
365(n).
3 EXCLUSIVE LICENSE
General. On the terms and conditions set forth herein, Licensor hereby
grants to MAI a worldwide license (a) to use, reproduce, distribute, transmit,
publicly perform, publicly display, market, sell, license and otherwise exploit
the Licensed Software and Documentation in any manner whatsoever and in and
though any and all media and methods now known or hereafter invented, (b) to
modify and create Derivative Works based on the Documentation and to exercise
any and all of the foregoing rights with respect to such Derivative Works and
(c) to create Derivative Works based on the Licensed Software and to exercise
any and all of the foregoing rights with respect to such Derivative Works. Such
license rights shall be exclusive, except to the extent of Licensor's retained
rights specified in Section 3.2. MAI shall provide one employee who shall be
trained by Licensor as to Licensor's programming standards and only such
employee (or other trained by such employee and approved by Licensor, which
approval shall not be unreasonably withheld) shall have access to Licensor's
core code.
3.2 Retention of Rights by Licensor. Notwithstanding the grant of rights to
MAI as set forth in Section 3.1, Licensor will retain the exclusive right to
reproduce and distribute copies of the Licensed Software and Documentation
solely to the retained customers of Licensor identified in Section 2 of Exhibit
"B".
3.3 Trademarks. Licensor hereby grants to MAI the right to use any title or
trademark which Licensor uses to identify the Licensed Software in connection
with MAI's marketing, distribution and exploitation of the Licensed Software and
Documentation, provided that MAI shall not be obligated to use any such title or
trademark and may elect in its sole discretion to use whatever trademarks or
titles MAI may select to identify the Licensed Software.
EX 10.1 - 3
<PAGE>
EXHIBIT 10.1
[**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT]
3.4 No Obligation to Distribute Updated Versions. Although the Licensed
Software includes all future versions, Derivative Works, enhancements,
modifications and improvements to the current version of the Licensed Software
created by or under the authority of Licensor or any successor-in-interest to
Licensor, MAI shall have no obligation to distribute any such future versions,
and MAI shall determine in its sole discretion what version(s) of the Licensed
Software it will distribute and exploit.
3.5 Ownership of Licensed Software. As between MAI and Licensor, Licensor
shall, except to the extent of MAI's rights under this Agreement, own all title
and proprietary rights, including without limitation copyrights, patents and
trade secret rights, in the Licensed Software and Documentation.
[**]
5 LICENSOR SALES SUPPORT
Upon MAI's request, Licensor will provide reasonable support and assistance
to MAI in connection with promoting and marketing the Licensed Software,
including providing up to five (5) days per month making joint sales calls on
selected potential customers. Licensor will participate in trade shows and at
speaking engagements as shall be reasonably required for the promotion of the
Licensed Software. Licensor shall be reimbursed for its reasonable travel and
lodging expenses incurred in the performance of its obligations under this
Section, provided that they are approved in advance.
6 LICENSOR WARRANTIES AND INDEMNIFICATIONS
6.1 No Obligations or Restrictions. Licensor warrants, represents and
agrees that (i) Licensor is under no obligation or restriction, nor will
Licensor assume any such obligation or restriction, that does or would in any
way interfere or conflict with, or that does or would present a conflict of
interest concerning, the performance to be rendered by Licensor hereunder or the
rights and license granted MAI hereunder; (ii) MAI shall be entitled to exercise
and enjoy the benefit of its rights in the Licensed Software, the Documentation
EX 10.1 - 4
<PAGE>
EXHIBIT 10.1
and the license herein granted to MAI; and (iii) the exercise by MAI of its
rights in the Licensed Software and the Documentation shall not be adversely
affected, interrupted or disturbed by Licensor or any person or entity asserting
a claim under or through Licensor or as a result of any action by Licensor.
Notwithstanding the foregoing, the MAI acknowledges that Licensor has heretofore
granted an exclusive territorial license to the Licensed Software for Asia.
Licensor shall exercise its best commercial efforts to terminate said license
but in the event that it is unable to effect such termination, MAI's sole remedy
shall be to reduce the payment required under Section 9.1 by Two Hundred Fifty
Thousand Dollars (US$250,000) if at any time during the term of the license (a)
MAI is restrained or enjoined from exploiting the Licensed Software in Asia or
(b) Harbans Singh or any entity with which he is affiliated is permitted to
market the Licensed Software in Asia. MAI shall be entitled to deduct from the
payments next due to Licensor the sum of Two Hundred Fifty Thousand Dollars
(US$250,000) upon the occurrence of (a) or (b) above.
6.2 Ownership. Licensor warrants, represents and agrees with respect to the
Licensed Software and Documentation and materials provided to MAI by Licensor,
that (i) Licensor has full and sufficient right to grant the rights and/or
license granted to MAI hereunder free of all liens, claims, encumbrances and
other restrictions; and (ii) the Licensed Software and Documentation, including
all preexisting works used or incorporated in the Licensed Software or
Documentation, does not infringe any patent, copyright, trademark or other
intellectual property rights (including trade secrets), privacy, publicity or
similar rights of any third party, nor has any claim (whether or not embodied in
an action, past or present) of such infringement been threatened or asserted,
and no such claim is pending against Licensor or, insofar as Licensor is aware,
against any third party.
6.3 No Code Designed To Damage. Licensor represents, warrants and agrees
that to the best of Licensor's knowledge the Licensed Software shall not contain
any code, programming instruction or set of instructions that is intentionally
constructed with the ability to damage, interfere with or otherwise adversely
affect computer programs, data files, or hardware without the consent and intent
of the computer user, including without limitation code such as "viruses,"
"Trojan horses," "bombs," "worms," or similar disabling, destructive,
self-replicating or paralyzing programs, or programs that interfere with use of
the Licensed Software by locking-out computer users or requiring the use of
passwords or other mechanisms that inhibit use, or programs that disable or
interfere with use of the Licensed Software after the expiration of a designated
period of time. Licensor shall promptly notify MAI of any Licensor knowledge or
suspicion of any such problem that might affect the Licensed Software or any
materials delivered to MAI by Licensor hereunder.
6.4 Rights to Third-Party Materials. Licensor warrants, represents and
agrees that the Licensed Software and Documentation do not and shall not
incorporate or be derived from any third party software or other materials
(collectively "Third-Party Materials") other than those described in Exhibit "C"
or as otherwise disclosed in writing to MAI by Licensor prior to delivery of any
applicable version of the Licensed Software, and that Licensor has or will have
EX 10.1 - 5
<PAGE>
EXHIBIT 10.1
as of the date of delivery to Licensor sufficient authority to grant to MAI the
rights and license provided hereunder with respect to any Third-Party Materials
as incorporated in the Licensed Software or Documentation.
6.5 Indemnification. Licensor shall defend and/or handle at its sole cost
and expense, and indemnify MAI and hold it harmless from any liabilities to any
third parties arising out of, and any costs and expenses of defending or
settling (including reasonable attorneys' fees), any claim that the Licensed
Software or the Documentation or any part thereof, or any exercise by MAI of any
rights granted under this Agreement, infringes any copyright, patent, trade
secret or other proprietary right. MAI shall notify Licensor in writing of any
such claim promptly after MAI first learns thereof, shall tender sole control of
the defense and settlement of such claim to Licensor, and shall provide Licensor
with such reasonable assistance and cooperation as Licensor may reasonably
request from time to time in connection with such defense. Licensor's
indemnification obligations under this Section 6.5 shall not apply to the extent
of that portion of any liabilities that arise from MAI' modification of the
Licensed Software or the Documentation or MAI' combination of any such material
with or into any other programs, data, devices, components or applications to
the extent that portion of the liabilities would not have been incurred but for
such modification or combination.
6.6 Additional Remedies. If the Licensed Software or the Documentation
becomes the subject of any claim or action subject to Section 6.5 and the right
of MAI to use or distribute Licensed Software or the Documentation as permitted
hereunder is enjoined, either preliminarily or permanently, then without
limiting any of MAI's other rights or remedies, Licensor will at its expense
immediately do whichever of the following can be accomplished with the least
delay, disruption and adverse impact on the operation of MAI: (i) procure for
MAI the right to continue using and distributing same as contemplated hereunder;
(ii) modify same to render same non-infringing (provided such modification does
not adversely affect the functionality or performance of the Licensed Software);
or (iii) replace same with equally suitable, functionally equivalent, fully
compatible, non-infringing materials.
6.7 Performance Warranties. Alpha and beta versions of the Licensed
Software will be provided to MAI AS-IS. Licensor warrants, represents and agrees
that any commercially released version of the Licensed Software provided to MAI
hereunder will perform substantially in accordance with the Documentation for
such Licensed Software, and Licensor agrees to use its best efforts to correct
any non-conformity between the Licensed Software and its Documentation (a
"Specification Non-Conformity"). Without limiting the foregoing, Licensor agrees
to grant to MAI a warranty no less favorable than that granted to any other
preferred customer or licensee of Licensor with respect to the Licensed
Software.
6.8 Disclaimer. EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, LICENSOR
MAKES NO OTHER WARRANTIES WITH RESPECT TO THE LICENSED SOFTWARE, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
EX 10.1 - 6
<PAGE>
EXHIBIT 10.1
7 MAI REPRESENTATION AND INDEMNIFICATION
7.1 Obligation to Promote the Licensed Software. So long as the Licensed
Software contain features and functionality which make it reasonably comparable
with other hospitality industry information management products available in the
marketplace, MAI shall use commercially reasonable efforts commensurate with the
revenue and profit potential of the Licensed Software to market the Licensed
Software. Licensor acknowledges that there is no assurance that the Licensed
Software will be successfully introduced in the marketplace, that the
marketplace for products with the features and functionality comparable to the
Licensed Software is highly competitive and the other products with similar
features and functionality may be introduced by MAI's competitors which may
negatively impact the prospects for the Licensed Software.
7.2 Indemnification. MAI shall defend and/or handle at its sole costs and
expense, and indemnify Licensor and hold it harmless from any liabilities to any
third parties arising out of, and any costs and expenses defending or settling
(including reasonable attorneys' fees), and claim based on any allegedly false
representation regarding the Licensed Software made by any agent or employee of
MAI not substantiated by the specifications set forth in the Documentation.
Licensor shall notify MAI in writing of any such claim promptly after Licensor
first learns thereof, shall tender sole control of the defense and settlement of
such claim to MAI, and shall provide MAI with such reasonable assistance and
cooperation as MAI may reasonably request from time to time in connection with
such defense.
8 TRAINING, SUPPORT, MAINTENANCE AND ON-GOING
DEVELOPMENT AND CUSTOMIZATION SERVICES
8.1 Training. Upon MAI' request, Licensor shall make available at mutually
agreed times at an MAI facility one or more qualified Licensor employees to
provide training to personnel of MAI. Except as may be otherwise agreed by the
parties in writing, MAI shall pay for such training services at Licensor's then
standard rates for time, materials and related charges. Notwithstanding the
foregoing, MAI agrees to engage as an employee or consultant at least one
qualified trainer of the Licensed Software and Licensor agrees that the
recruitment and engagement of such person, if an employee of Licensor, shall not
give rise to any cause of action by Licensor against MAI.
8.2 Support and Maintenance. Licensor shall provide MAI and MAI's customers
support and maintenance services for the Licensed Software no less extensive
than the support and maintenance services provided to any preferred customer of
Licensor. Without limiting the foregoing, Licensor shall provide MAI with
telephonic consultation and support, expedited response times and correction of
critical Specification Non-Conformities that materially impact use of the
EX 10.1 - 7
<PAGE>
EXHIBIT 10.1
[**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT]
Licensed Software and reasonable response times and corrections for less
critical Specification Non-Conformities and copies of diagnostic and support
materials made available to its preferred customers, and Licensor shall answer
MAI's reasonable inquiries relating to characteristics, operation, installation
and performance of the Licensed Software. MAI shall provide first and second
level support to End Users. Licensor shall provide third level support to End
Users. Licensor shall advise MAI if it believes its third level support burden
is excessive and the parties will negotiate a solution in good faith. If MAI
encounters a customer technical support problem which MAI is unable to resolve,
Licensor will provide reasonable assistance in attempting to resolve such
problem, which may include including contacting and/or dialing into the
customer, as appropriate.
8.3 Development Requirements. As further consideration for the royalties
paid and payable to Licensor hereunder, during the term of the Agreement,
Licensor shall participate in MAI's product planning meetings and shall utilize
its best efforts to provide revisions and enhancements to the Licensed Software
which meet the specifications determined at such planning sessions, or as
otherwise reasonably requested by MAI. Further, Licensor shall provide such
customization services as MAI shall require for its licensees. In connection
with such customization services, MAI shall deliver to Licensor the
customization specifications and Licensor shall respond with the cost for such
customizations. MAI shall then advise Licensor whether or not to provide such
customization. In the event that such customization is provided, MAI shall pay
Licensor directly for such customization and shall deduct the customization
charge from the Net Revenues received from its customer in connection with the
customized Licensed Software. If MAI subsequently licenses the same
customization to another customer, the revenues attributable to such
customization shall be included in Net Revenues. MAI shall further reimburse
Licensor for its reasonable travel and lodging expenses incurred in attending
the planning meetings.
9 PAYMENTS AND ROYALTIES
In consideration of the rights and licensed granted to MAI by Licensor, and
subject to the terms and conditions set forth in this Agreement, MAI shall pay
Licensor the following consideration:
9.1 License Acquisition Fee. MAI shall pay to licensor in cash (except as
provided in (e) below) the sum of [**] payable in installments as
follows:
(a) [**]
(b) [**] on the first to occur of (i) completion of the first installment
of the Licensed Software or (ii) December 31, 1996;
EX 10.1 - 8
<PAGE>
EXHIBIT 10.1
[**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT]
(c) [**] on the last to occur of (i) April 30, 1997 or (ii) five (5) days
following attainment of the "4/30/97 Milestone" referred to in Exhibit "D";
(d) [**] on the last to occur of (i) September 30, 1997; (ii) six months
from occurrence of the "4/30/97 Milestone" or (iii) or five (5) days following
attainment of the "9/30/97 Milestone" referred to in Exhibit "D"; and
(e) [**] in cash (or at the option of MAI, freely tradeable common stock of
MAI with a fair market value on the date of delivery to Licensor) on the second
to occur of (i) seven months following attainment of the "9/30/97 Milestone"
referred to in Exhibit "D" or (ii) April 30, 1998.
9.2 Royalties. Except as provided in Exhibit B MAI shall pay Licensor as a
royalty a sum equal to the greater of [**] derived from the marketing,
licensing, sale or other commercial exploitation of the Licensed Software on or
after the Effective Date. Notwithstanding any other clauses of this Agreement,
no royalty payments shall be paid to Licensor attributable to up to twelve (12)
copies of the Licensed Software during each successive twelve (12) month period
commencing on the Effective Date distributed for promotional, demonstration or
evaluation purposes and for which MAI is not paid.
10 ACCOUNTING
10.1 Periodic Statements. Within sixty (60) days following the end of any
MAI fiscal quarter for which this license is in effect, MAI shall furnish to
Licensor a written accounting statement regarding the Licensed Software,
including information relating to the calculation of Net Revenues for that
quarter (the "Royalty Statements"). Delivery of each such statement for any
quarter shall be accompanied by payment of the appropriate amount of royalties
for such quarter. Payments shall be in U.S. funds.
10.2 Audit Rights. Upon at least fifteen (15) days prior written notice
from Licensor to MAI and at Licensor's sole cost and expense, Licensor shall
have the right, not more often than once per year, to inspect such of MAI's
business books and records as may reasonably be necessary for it to verify the
accuracy of any Royalty Statement rendered by MAI within the twenty-four (24)
month period immediately preceding the date of the inspection. Except on account
of an act of fraud by MAI, the information contained in a Royalty Statement
shall be conclusively deemed correct and binding upon Licensor unless
specifically challenged by written notice from Licensor within twenty-four (24)
months from the date such Royalty Statement was delivered to it. Any inspection
of MAI's books and records pursuant to this Section 10.2 shall be conducted by
Licensor at MAI's premises and only during MAI's normal business hours and in a
manner which does not unreasonably interfere with MAI's business operations.
Except o account of an act of fraud by MAI.
EX 10.1 - 9
<PAGE>
EXHIBIT 10.1
[**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT]
10.3 No Assurances. Licensor acknowledges and agrees that there is no
assurance that the Licensed Software will be successfully introduced in the
marketplace by MAI or that, if introduced, the Licensed Software will generate
revenues of any specific magnitude. Except as provided in Section 7.1, Licensor
agrees that MAI shall have the right in its sole discretion at any time to
discontinue marketing of the Licensed Software at any time, provided that MAI
agrees that during the period following the expiration of the fourteenth
consecutive MAI fiscal quarter commencing after the Minimum Royalty Commencement
Date, MAI will include the Licensed Software in its product offerings available
for order from MAI so long as MAI reasonably determines that the Licensed
Software continues to provide features and functionality comparable to competing
products.
11 FAILURE TO MEET TARGETS
11.1 Semi-Annual Targets. In the event that, with respect to any period of
two consecutive MAI fiscal quarters beginning with the first fiscal quarter that
commences following the Minimum Royalty Commencement Date, the total royalties
payable by MAI to Licensor with respect to any such two quarter period pursuant
to Section 9.2 are less than [**], MAI shall have the right, but not the
obligation, to make an additional payment (the "Semi-Annual Shortfall Payment")
to Licensor concurrently with the delivery of the last Royalty Statement for
such two-quarter period equal to the difference between [**] and the royalties
otherwise payable to Licensor with respect to such period.
11.2 Annual Targets. In the event that, with respect to the following
periods of four consecutive MAI fiscal quarters, the total royalties payable by
MAI to Licensor with respect to any such period (including any Semi-Annual
Shortfall Payments) are less than the target specified (the "Minimum Annual
Target"), MAI shall have the right, but not the obligation to make a payment
(the "Annual Shortfall Payment") to Licensor concurrently with the delivery of
the last Royalty Statement for such four-quarter period equal to the difference
between the applicable Minimum Annual Target specified below and the royalties
otherwise payable to Licensor with respect to such period:
EX 10.1 - 10
<PAGE>
EXHIBIT 10.1
[**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT]
Annual Period Minimum Annual
Royalty Target
[**] MAI fiscal quarters
commencing after the Minimum
Royalty Commencement Date [**]
[**] MAI fiscal quarters
commencing after the Minimum Royalty
Commencement Date [**]
[**] MAI fiscal quarters
commencing after the Minimum Royalty
Commencement Date [**]
11.3 Consequences of Failure To Meet Targets. Any such Semi-Annual
Shortfall Payment or Annual Shortfall Payment shall constitute an advance fully
recoupable from royalties otherwise payable to Licensor for subsequent quarterly
periods. In the event the total royalties payable by MAI to Licensor with
respect to any such two-quarter period or four-quarter period are less than the
Minimum Two-Quarter Target or the applicable Minimum Annual Target, and MAI does
not elect to make a Semi-Annual Shortfall Payment or Annual Shortfall Payment,
as applicable, for such period, Licensor shall have the right, as its sole and
exclusive remedy, to obtain a non-exclusive right to exercise those rights
granted to MAI pursuant to Section 3.1, thereby rendering MAI's rights to that
extent non-exclusive.
11.4 Minimum Per Unit Royalties. Notwithstanding anything herein to the
contrary, pursuant to Section 9.2 Licensor shall be paid not less than [**] per
property at which the Licensed Software is installed. Upon written notice from
either party, not more frequently than once annually, the parties shall
negotiate in good faith modifications to the Minimum Per Unit Royalty.
12 RIGHT OF FIRST REFUSAL ON CERTAIN PRODUCTS; OPTION TO PURCHASE LICENSOR
SHARES
12.1 Right of First Refusal. In the event that Licensor seeks to dispose of
its rights, in whole or in part, to any software product for use outside the
hotel, resort, hospitality or gaming industries, MAI shall have a right of first
refusal to acquire such right or rights on the same in terms and conditions as
such rights are offered to any third party. In the event that MAI does not agree
to such terms and conditions within sixty (60) days following written notice
from Licensor setting forth the terms and conditions, Licensor shall be free to
convey such rights on such terms and conditions to a third party.
EX 10.1 - 11
<PAGE>
EXHIBIT 10.1
12.2 Option to Acquire Support and Maintenance Agreements. MAI shall have
the right, but not the obligation, to acquire support and maintenance agreements
between Licensor and its licensees pertaining to the Licensed Software. In the
event that MAI exercises its option, Licensor shall assign to MAI, and MAI shall
assume from Licensor all of the rights and obligations under such agreements
(but MAI shall not assume liability for any claims, asserted or unasserted,
against Licensor which may have arisen on account of the alleged actions of
Licensor prior to assignment of the agreement). MAI shall negotiate in good
faith the appropriate royalty for each support and maintenance agreement
acquired pursuant to this Section.
12.3 Right of First Negotiation and Right of First Refusal. In the event
that Licensor seeks to sell all or part of its assets or any interest in a
successor partnership, and seeks to sell a controlling interest in such entity),
Licensor shall first negotiate in good faith with MAI for the sale of such
assets (or interest) to MAI. If the parties are unable to reach agreement on the
terms and conditions of such a sale, Licensor may notify MAI that if any
agreement is not reached within ten (10) days of the effective date of such
notice, Licensor may enter into negotiations with a third party for the sale of
such assets of interest. Prior to entering any agreement to sell all or part of
its assets, or any interest in a successor entity, Licensor shall have the right
to purchase such assets or interest on substantially the same economic terms and
conditions set forth in any bona fide offer made to Licensor. MAI shall have
thirty (30) days following the effective date of notice of such offer to elect
whether or not to exercise the rights granted herein, and shall have an
additional fifteen (15) days within which to complete such transaction. If MAI
fails to timely notify Licensor of its intention to purchase, or to timely
complete the transaction, Licensor may complete the transaction. If the material
economic terms of the transaction are modified following MAI's failure to
exercise its rights hereunder, Licensor shall renotice MAI of the transactions
and MAI shall have the same time periods within which to exercise the rights
granted herein. Any transaction not completed within ninety (90) days after the
effective date of MAI's failure to give notice of its intention to complete the
transaction shall be deemed to have been abandoned by Licensor.
13 TERM AND TERMINATION
Subject to MAI's rights as set forth in Section 10.3, the term of this
Agreement shall commence on the date of this Agreement and continue until
terminated in accordance with any provision of this Agreement.
14 DEFAULT
14.1 Defined. For purposes hereof, a default by either party ("Default")
shall be deemed to occur upon such party's material breach of this Agreement,
which breach continues uncured for a period of thirty (30) days after receipt of
written notice thereof from the other party hereto.
EX 10.1 - 12
<PAGE>
EXHIBIT 10.1
14.2 Remedies. Upon any Default, either party shall have the right, without
limiting any of its other rights or remedies hereunder or at law or in equity,
to seek recovery of all damages to which it may be entitled and to pursue its
other rights and remedies. The parties hereby expressly waive any right to
injunctive or other equitable relief, whether based on statute, common law, or
otherwise, arising out of any alleged Default by the other, and agree that their
sole and exclusive remedy in the event of any Default by MAI shall be an action
at law for damages.
15 ACTUAL DAMAGES
The liability of either party under this Agreement for any reason
whatsoever, including, but not limited to negligence, will be limited to the
amount of actual damages suffered by the other party, and EXCEPT FOR CLAIMS
ARISING UNDER SECTIONS 6 OR 7, NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, WHETHER OR NOT SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
16 MISCELLANEOUS
16.1 Notices. All notices or other communications required hereunder shall
be in writing and delivered personally or sent by certified mail, return receipt
requested, by facsimile machine, or by a reputable courier service to the
parties at the addresses set forth on the first page of this Agreement or at
such other addresses as shall be designated in writing from time to time by
either party to the other in accordance with this Section 16.1. Such notice
shall be effective on the third business day following deposit thereof in the
mail or with any courier, provided that it shall be effective on the next
business day following any such deposit for next-day delivery, and shall be
effective upon receipt if delivered personally or via facsimile.
16.2 Agreement. This Agreement constitutes the entire understanding and
agreement between Licensor and MAI with respect to the transactions contemplated
herein and supersedes any and all prior or contemporaneous oral or written
communications with respect to the subject matter hereof (other than any
contemporaneous maintenance agreement executed by the parties), all of which are
merged herein. There being no expectations to the contrary between the parties
hereto, no usage of trade or other regular practice or method of dealing between
the parties hereto shall be used to modify, interpret, supplement or alter in
any manner any express terms of this Agreement. This Agreement shall not be
modified, amended or in any way altered except by an instrument in writing
signed by an authorized representative of Licensor and by an authorized
representative of MAI. Except as specifically provided herein, no remedy
available to either party hereunder or relating hereto shall be exclusive of any
other remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise. No waiver of any provision of this
Agreement or any rights or obligations of either party hereunder shall be
effective, except pursuant to a written instrument signed by the party or
parties waiving compliance, and any such waiver shall be effective only in the
specific instance and for the specific purpose stated in such writing.
EX 10.1 - 13
<PAGE>
EXHIBIT 10.1
16.3 Force Majeure. Neither party shall be responsible for delays or
failures in performance hereunder to the extent that such party was hindered in
its performance by any act of God, civil commotion, labor dispute, or any other
occurrence beyond its reasonable control and without its fault or negligence.
16.4 Law. This Agreement shall be construed and enforced in accordance with
the internal laws of the State of California applicable to contracts wholly
executed and wholly to be performed therein.
16.5 Survival. The rights and obligations of the parties under Section 6
shall survive any termination of the license or of this Agreement for any reason
whatsoever.
16.6 No Joint Venture. Nothing contained herein shall be deemed to create a
joint venture or partnership or agency relationship between Licensor and MAI.
Neither party shall have the right or authority to, and each party shall not,
assume or create any obligation or responsibility, express or implied, on behalf
of or in the name of the other party or bind the other party in any manner.
Nothing set forth herein shall be deemed to confer upon any person or entity
other than the parties hereto a right of action either under this Agreement or
in any manner whatsoever.
16.7 Severability. If any provision hereof is found invalid or
unenforceable pursuant to judicial decree or decision, the remainder of this
Agreement shall remain valid and enforceable according to its terms.
16.8 Section References. Any reference herein to a Section shall constitute
a reference to all sub-sections thereof.
EX 10.1 - 14
<PAGE>
EXHIBIT 10.1
16.9 Assignment. Neither party shall assign its rights hereunder to any
person, firm or entity (other than a wholly-owned subsidiary or a parent which
wholly owns such party) without the written consent of the other.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
___________________________
MAI SYSTEMS CORPORATION By: /s/ Christian Rivadalla
President
By: /s/ George G. Bayz
_____________________________
By: _____________________________
Title: President & COO
EX 10.1 - 15
<PAGE>
EXHIBIT 10.1
Exhibit "A"
The Licensed Software
Excluded Software. Intranet property management system for properties of
one hundred rooms or less.
EX 10.1 - 16
<PAGE>
EXHIBIT 10.1
Exhibit "B"
1. Special Royalty Accounts
For the following specifically enumerated accounts, the following royalty
rates shall apply:
[**]
Revenue Category Royalty
Software License [**]
Rollout and Professional Services [**]
On-Going Support [**]
2. Retained Accounts
MAI shall not market the Licensed Software into the following accounts
without the advance written consent of Licensor, which may be withheld for any
reason whatsoever:
[**]
EX 10.1 - 17
<PAGE>
EXHIBIT 10.1
Exhibit "C"
Third Party Materials
EX 10.1 - 18
<PAGE>
EXHIBIT 10.1
Exhibit "D"
Milestone Schedule
1. [Description of [**] milestone ( 9.1(c))]
2. [Description of [**] milestone ( 9.1(d))]
3. [Description of milestone precedent to obligation to pay royalties [9.2]
"Minimum Royalty Commencement Date" shall be the first day of the calendar
year quarter following the attainment of the [**] Milestone."
EX 10.1 - 19
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<CIK> 0000760436
<NAME> MAI SYSTEMS CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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0
0
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</TABLE>
